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 First Quarter Fiscal 2024 Conference Call. [Operator Instructions]

Mr. O’Meara, you may begin your conference.

Mike O’Meara — Director, Investor Relations and Financial Planning & Analysis

Thank you, Rob. Good morning, everyone. Thank you for joining us for the recap of our first quarter fiscal 2024 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 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, Sara Armbruster.

Sara E. Armbruster — President and Chief Executive Officer

Thanks, Mike. Hello, everyone, and thanks for joining the call today. Overall, we feel very good about our first quarter results, which were better than expected, as both revenue and adjusted EPS finished above the guidance range we provided in March. Our adjusted outlook — earnings outlook for Q2 is in line with the prior year and would put us ahead of pace to achieve our fiscal ’24 target.

Dave will cover our results in more detail, but I’m proud of our sales teams for continuing to capture pricing benefits in response to the extraordinary inflation we’ve experienced over the past two years, and I want to thank our operations teams for the improvements they continue to drive. In addition, our win rate has continued to be very strong. Amid our improved performance, the broader market in the Americas still faces uncertainty.

And additionally, we’re seeing near-term challenges in international markets. We are taking actions to reduce our costs in the face of those challenges and we are seeing some positive signs that make us cautiously optimistic for the back half of the year. I want to thank those who joined us for our Investor Day in May or who have watched a replay of the webcast. We were excited to provide more details about all areas of our strategy and share our mid-term financial targets.

I’d like to touch on a couple of those strategic focus areas next and link them to some highlights from last week’s Annual NeoCon Trade Show in Chicago. Our goal is to lead the workplace transformation. So we were excited to integrate new products that support this vision into our NeoCon showrooms. One was Steelcase Workplace [Phonetic] which offers innovation in workplace storage for mobile workers. And another was a range of seating offerings that balance a beautiful design aesthetic and high performance with new levels of sustainability.

We also celebrated several NeoCon award wins for products that make hybrid collaboration easier and more effective, including the Ocular collection of conference and collaborative tables by Steelcase and several products from the HALCON OPTIC collection. We spoke with many of our larger customers during the week, and some of them described regretting that they put projects on hold during the last 18 months, as they now realize this has slowed their organization’s progress towards achieving business objectives.

Many customers talked about the need for privacy in the workplace as well as the integration of technology within their conference rooms to provide better video conferencing experiences. And I consistently heard that they want these solutions in a way that supports their sustainability goals. The conversation really has moved beyond working from home and hybrid work and it’s now about working better as companies focus on updating outdated spaces to respond to their employees’ needs.

To serve small and medium-sized customers more completely, we showcased our Series 1 task chair with air back, which provides superior ergonomics at a great price point. We’ve also made significant advances in our Series 1 packaging, which reduces our carbon footprint and introduces simplified assembly steps, making it easy for those small and medium businesses to unpack their new product and put it together quickly.

Our health team showed applications for waiting rooms, infusion centers and clinician respite. These applications offer a softer hospitality look and feel, while offering clinical performance and providing flexibility. Highlights included products from KwickScreen, a new Steelcase partner, whose innovative cleanable partitions create instant privacy for patients and staff.

Another highlight was new enhancements to our West Elm Health Collection of soft seating. Designed by West Elm, this collection provides the comfort of home with added clinical features to improve the waiting room experience. Response from customers, architects and designers and dealers was outstanding. And we’ll continue to build on the energy of last week to fuel future innovation and shape the transformation of workplaces with our research and insights.

While NeoCon is a terrific opportunity to showcase our products and connect with customers, we haven’t let up on our efforts to improve our profitability. Our operations teams around the world are continuing to redesign our operational model to lower our cost structure. As we had previously announced, we expect to complete the closure of our Atlanta Regional Distribution Center during the second quarter as we continue to optimize our distribution system.

We also drove additional savings this quarter by finding more opportunities to ship deliveries directly from our factories to the customer installation site as opposed to consolidating through our regional distribution centers. This allows for improved freight costs as well as reduced labor handling. And it supports our efforts to achieve our carbon reduction goals. And these are just two examples of the many ways in which we’re continually re-thinking how we operate.

As we continue to orient our business for growth, we’re also excited to support the growth and advancements of more than 50 Summer Interns across 11 Steelcase locations. These interns represent 35 schools across the country and include Women in STEM, students from historically black colleges and universities and international students. This diverse intern class exemplifies our commitment to creating career pathways for more people, which we believe ultimately delivers value for all our stakeholders. And Forbes Magazine agrees. They again ranked Steelcase among America’s Best Employers for New Grads based on an independent survey of more than 20,000 young professionals.

I’m excited about our start to fiscal ’24 and where we believe we’ll be at the end of the first half. We continue to navigate through an uncertain environment, but we expect to be ahead of pace against our financial targets halfway through the year. We remain committed to our strategy to lead the workplace transformation, diversify the customer and market segments we serve and improve our profitability.

So with that, I’ll turn it over to Dave to review the financial results and to share our Q2 outlook.

David C. Sylvester — Senior Vice President, Chief Financial Officer

Thank you, Sara, and good morning, everyone. My comments today will start with the highlights related to our first quarter results, balance sheet and cash flow. I will then share a few summary remarks about our outlook for the second quarter. As Sara said, overall, we feel pretty good about our first quarter results as we continue to operate in an environment with macro economic uncertainty and geopolitical risks. And yet we delivered results that were better than the prior year and better than the expectations we communicated last quarter.

Over the past several quarters, we have taken a number of actions in response to the dynamic environment we faced, including taking unprecedented pricing actions in response to the extraordinary inflation we’ve incurred over the past two years, implementing cost reduction efforts and workforce reductions in reaction to volume declines and to support new strategic investments and adjusting our supply chain to improve our operational agility and resiliency. Both revenue and adjusted earnings in Q1 benefited from these actions. And as a result, we exceeded the top end of the ranges we provided in March.

The better than expected revenue was driven by the Americas, which benefited from faster order fulfillment patterns, higher than expected incoming orders early in the quarter and favorable pricing benefits. Across our customer segments, revenue from our largest customers and government business was better than we expected, which was offset in part by a shortfall from our consumer retail segment. The revenue decline in international was primarily driven by a lower beginning backlog, but it was more significant than we estimated due to continued macro economic concerns, which contributed to our decision in the quarter to announce a series of restructuring actions in EMEA and Asia Pacific.

On a consolidated basis, revenue of $752 million was flat on an organic basis compared to the prior year and included 2% growth in the Americas, offset by a 7% decline in international. Stronger revenue in the Americas drove our better than expected adjusted earnings, but we also had better operational efficiencies, which also contributed to higher gross margin compared to our estimates. The favorability in the Americas was partially offset by the impacts of the lower than expected volume in international. However, their gross margin also exceeded our expectations.

Operating expenses were above our Q1 estimate, primarily due to the estimate including $10 million of anticipated gains related to the sale of our two aircraft, which was not completed in the quarter. In addition, we recorded higher variable compensation expense due to our stronger than expected earnings. As it relates to cash flow and the balance sheet, we generated $11 million of cash from operating activities in the first quarter as adjusted EBITDA of $52 million and a reduction in working capital of $35 million more than offset our seasonal disbursements related to variable compensation and retirement plan contributions.

The working capital reduction is atypical for Q1 as we tend to increase inventories to support the seasonal strength of our second quarter. However, we continued to reduce safety stocks we built last year in response to the supply chain disruptions we experienced and inventory levels are also benefiting from some adjustments to our supply chain, which in total, more than offset the seasonal build.

In addition, we saw an improvement in our days sales outstanding, which drove a reduction in accounts receivable during the quarter. Our liquidity totaled $200 million at the end of the quarter. Total debt aggregated to $447 million, which was $35 million lower than Q4 as we paid off our maturing aircraft loan during Q1. At the end of the quarter, net debt was slightly higher than our trailing four quarter adjusted EBITDA, which totals $235 million and exceeds 7% of trailing four quarter revenue.

Regarding orders in the quarter, we posted a year-over-year order decline of 7% in the first quarter, including declines of 6% in the Americas and 11% in international. These declines compared to strong growth in Q1 of the prior year, which reflected 22% growth compared to Q1 fiscal 2022. On a sequential basis, orders in the first quarter grew 21% versus the fourth quarter of fiscal 2023, which is consistent with the seasonal increase we experienced in the prior year.

In the Americas, the year-over-year decline approximated the level we expected, but the order patterns were a little stronger in March than they were in April and May, which contributed to our better than expected revenue in the quarter. Across quote types, the decline was driven by lower project business, partially offset by growth in our continuing business. In international, the order decline was more significant than we expected and was broad-based across EMEA and in China, partially offset by double-digit growth across all other markets in Asia Pacific.

In EMEA, we believe the economic environment may be experiencing a period of slowdown after a surprisingly resilient period over the last year as many customers are referring to a pause in investment activity this calendar year. At the same time, we are encouraged by 10% year-over-year growth in EMEA, new project opportunity creation. And in Asia Pacific, our pre-sales activity levels have also been improving.

Turning to our outlook for the second quarter. We expect to report revenue within a range of $815 million to $840 million which would reflect a 3% to 6% decline year-over-year and we expect to report adjusted earnings per share of between $0.19 and $0.23 which compares to $0.21 in the prior year. In addition to the projected range of revenue, the adjusted earnings estimate includes estimated gross margin of approximately 31.5%, which is approximately 250 basis points higher than the prior year and slightly better than the first quarter. Operating expenses of between $225 million to $230 million which is higher compared to the first quarter and includes seasonal sales commissions at Smith System and prioritize investments in marketing, product development and other initiatives, partially offset by $8 million of expected gains from the sale of fixed assets. And lastly, we expect interest expense and other non-operating items to net to approximately $4 million of expense and we are projecting an effective tax rate of approximately 26%.

Through the first half of the fiscal year, we are projecting to be ahead of pace on achieving the fiscal 2024 targets we have communicated in March. We remain focused on driving improved profitability and achieving our full year targets, while implementing our strategy and navigating an uncertain environment.

From there, we’ll turn it back to the operator for questions.

Question & Answers

Operator

[Operator Instructions] And your first question comes from the line of Greg Burns from Sidoti. Your line is open.

Greg Burns — Sidoti & Company — Analyst

Good morning.

David C. Sylvester — Senior Vice President, Chief Financial Officer

Hey, Greg.

Greg Burns — Sidoti & Company — Analyst

Can you just start — give us a little bit more color on the activity you’re seeing with your large corporate customers? What are you hearing from them? Are they starting to get a little bit more comfort with their outlook for their office needs? And do you expect the positive trend you saw this quarter to continue?

Sara E. Armbruster — President and Chief Executive Officer

Yeah, Greg, this is Sara. So I would say, if I reflect on some of the conversations last week at NeoCon as an example, I do think we were encouraged to see that many of the customers that we spoke to as well as architects and designers who were there with real projects and with meaningful plans to evolve offices. So I felt like it was not a window shopping activity, it was people who were there with plans and activity kind of in mind. So it’s hard to generalize or project what will happen going forward. But I think we definitely felt that there was more focus, more intensity and real plans behind those conversations as opposed to maybe hypothetical discussions about changes we might make to our space at some point in the future.

Greg Burns — Sidoti & Company — Analyst

Okay. Then in terms of your gross margin, are we fully offsetting inflation? Have you completely closed the price cost gap now or is there some incremental gains to be still had there? And I know you announced about $50 million of targeted savings, cost of goods sold savings at your Analyst Day. So considering all that, how should we think about your gross margin going forward if volumes don’t recover here?

David C. Sylvester — Senior Vice President, Chief Financial Officer

You have a lot in there. Let me try to unpack it. We’ll start with your question about pricing relative to inflation. As we said a quarter ago, our cumulative price yield from the price adjustments we had taken over the last two years, finally caught up to the cumulative inflation. That’s on just a dollar-for-dollar basis. So now what we’re targeting to capture is some gross margin on the hundreds of millions of dollars of inflation we’ve experienced over the last couple of years. So that’s why you’re seeing some of the year-over-year benefits in Q1 and why we’re projecting them again in Q2 with a gross margin estimate that’s 250 basis points higher than the prior year.

That in addition to the targeted improvements in gross margin that Bob Krestakos talked about at our Investor Day, we expect will continue to drive gross margin improvement for us even if the volumes stay relatively flat or if they declined modestly. But if they improve, then we should get even better benefits, which are baked into the mid-term targets that we communicated at the Investor Day in early May.

Greg Burns — Sidoti & Company — Analyst

Okay, great. Thank you.

Operator

And your next question comes from the line of Reuben Garner from Benchmark. Your line is open.

Reuben Garner — Benchmark Company — Analyst

Thank you. Good morning, everybody.

Sara E. Armbruster — President and Chief Executive Officer

Good morning.

Reuben Garner — Benchmark Company — Analyst

Sara, maybe to follow-up on Greg’s question, I appreciate your conversations at NeoCon. I’m curious what you’re hearing more specifically about return to the office trends when you’re talking to company leaders. We’ve heard a couple of examples of kind of either incentive-based pushes or mandates to get people back in the office. Any more color there that you can provide in your conversations?

Sara E. Armbruster — President and Chief Executive Officer

Yeah. I would say that as I talk to other CEOs and business leaders, I mean, pretty consistently for some time, I would say, the vast majority have expressed a strong desire to have their employees working together physically in the office. And I think you’re right. I think we’ve seen at least anecdotally more companies and more of those business leaders, I think of late, either express the intent or actually announce things that maybe turn up the intensity of that effort to get people back to the office even more.

So that certainly isn’t true at all companies. But I think pretty consistently for a number of quarters, we’ve heard business leaders speak to their belief in the value of the office, the need to have people together, the positive impacts that has on all sorts of things, whether it’s being able to advance business objectives more effectively and efficiently or things like their corporate culture. And I certainly hear that tone continuing from the people I speak to.

Reuben Garner — Benchmark Company — Analyst

And I’ve heard from some investors lately about concern about commercial real estate and offices, just the occupancy rates are lower than pre-COVID levels and the debt surrounding it. How do you guys feel that that could impact the furniture industry, if at all, over the next few years as leases expire?

David C. Sylvester — Senior Vice President, Chief Financial Officer

Well, it’s hard to tell because we haven’t really encountered anything like this in the past. What you’re aware of is, historically, when vacancy rates have gone up, it generally drives landlord incentives higher, which creates churn in the — in kind of work — office settings, meaning companies choose different locations, sometimes they downsize, sometimes they move to a better, higher quality part of town. But often, in all of that move activity, they don’t take their furniture with them. So it’s generally been a positive for the industry when vacancy rates go up and landlords incentivize some churn, but it remains to be seen to what degree vacancy rates might go up from what you’re reading in the media.

Reuben Garner — Benchmark Company — Analyst

Perfect. And then, Sara, in the earnings release you referenced your strong win rates. Any color on what you think might be driving that?

Sara E. Armbruster — President and Chief Executive Officer

Well, I would say one thing certainly anecdotally, we heard last week at NeoCon and we’ve heard from many of our clients is that I think part of what lies behind that is the fact that we chose quite deliberately early in the pandemic to stay invested in innovation and solutions to support the workplace. So you can imagine there were conversations about whether the pandemic would be caused to dramatically pivot our strategy in some different direction or whether we felt like staying invested in the future of the office and the future of workplaces was a valid path forward. And that’s, as we’ve communicated, one of the paths that we said we need to stay invested.

So I think our innovation, our solutions for hybrid collaboration, the investments we’ve made, the acquisitions we’ve made to support privacy in the workplace, things that we’ve done to support partnerships around integrated technologies, I think all of those solutions and that innovation is perhaps resonating now with organizations that know they need to update their offices and evolve their spaces to move their businesses forward.

Reuben Garner — Benchmark Company — Analyst

Great. I’m going to sneak one more in if I can. You mentioned the ease of assembly of the chair and knowing that you guys are trying to attack some different markets, whether it’s a small business or healthcare or consumer, what other changes do you think you need to address to kind of further penetrate those spaces?

Sara E. Armbruster — President and Chief Executive Officer

Well, I think as we look at those different market segments, we’re certainly aware of the fact that there may be differences in products, the types of products, the price points, the features and functionality that apply. Clearly a healthcare setting has different needs and different requirements than somebody’s home office. So we’ve continued to obviously draw on our historical strength and innovation and our capabilities there to serve those needs as well as some of the acquisitions we’ve made.

I think the other thing that we’ve been focused on and investing in and will continue to do so is acknowledging that the customer purchase journey is different as well. So if you think about the path you might take as a consumer in researching and evaluating and then purchasing perhaps an ergonomic task chair for your home office, that’s a different journey than the journey that a Chief Nursing Officer might pursue in thinking about how to open a new clinic. And we have been really mindful of making sure that we are not only understanding those pathways, but also making sure that we’re kind of re-arranging our business model and our tools and our systems and processes as appropriate to make sure that we can create the experiences for those different kinds of customers that they really value and that allow them to kind of navigate that research and ultimately purchase Journey really successfully.

Reuben Garner — Benchmark Company — Analyst

Great. Thanks, guys. Good luck going forward.

Sara E. Armbruster — President and Chief Executive Officer

Thanks.

Operator

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

Steven Ramsey — Thompson Research Group — Analyst

Hi, good morning. You had talked about project demand overall being down a bit in the quarter. Can you maybe go into some detail on key customer types and trends in that project demand between large customers, SMBs, etc. if there is anything positive or diverging within the different customer groups?

David C. Sylvester — Senior Vice President, Chief Financial Officer

I don’t recall hearing or seeing anything that jumped out across the customer groups. I also don’t think it’s unusual at this state of a recovery, an economic recovery and return to office or project activity to trail continuing business. I think it’s typically what we’ve seen in the past as corporations restart activity either because of economic recovery or because in this case of maybe more RTO, return to office, for them to look to their existing continuing agreements, to modify workplaces or to just get back to the routine of the various projects or activity levels that they had when they were in the office. But I don’t remember seeing anything that stood out on the project side.

Steven Ramsey — Thompson Research Group — Analyst

Okay, helpful. And then thinking about full year ’24 and the project continuing trends you’ve seen thus far, do you expect these trends to continue and basically continuing projects flattish to modest growth for the year, while project is a negative contributor for the year or do you think there’s any move in the two lines?

David C. Sylvester — Senior Vice President, Chief Financial Officer

I would — I think it’s reasonable to expect that project activity will improve. Whether or not it will grow year-over-year by any kind of a significant amount remains to be seen. But project activity is generally what’s tracked in our pipeline and it’s generally what is related to the pre-sales activity of visits and mock-ups and things like that, which have been pretty good. So I feel like it could show an improving trend in the back half of the year. And if I think of kind of what we assumed in our underlying targets for the full fiscal year, we assumed large company would improve, and therefore, you would expect some of that to include project activity.

Steven Ramsey — Thompson Research Group — Analyst

Okay, helpful. And then another question, thinking about full year ’24 and being ahead of pace for the year, can you maybe go into any particular line items or anything notable that may not show up on the income statement where you are tracking ahead for your full year targets?

David C. Sylvester — Senior Vice President, Chief Financial Officer

Well, I mean, I do like — it’s not on the income statements, it’s on the cash flow. I’ll go back to my comments about our inventory reductions and DSO improvement on receivables. We feel pretty good about how we’re managing liquidity and have access to — full access to our credit facility. I like where our leverage metrics are. They’re back within policy range. We’re below kind of thresholds that the rating agencies like to see, you operate below. So those types of things I feel very good about.

You don’t necessarily see the direct correlation quarter-to-quarter about the operational efficiencies that we’re driving or all of the project activity behind the gross margin improvement work that Bob Krestakos and his team are driving. But Sara and I see that at least monthly, often twice a month, and get a sense of how we’re progressing against the multiple projects that aren’t showing up in today’s income statement, but we believe will show up in future income statements.

Steven Ramsey — Thompson Research Group — Analyst

Great. Thank you.

Operator

And your next question comes from the line of Budd Bugatch from Water Tower Research. Your line is open.

Budd Bugatch — Water Tower Research — Analyst

Good morning. Most of my questions have been asked, but first, congratulations on a very good performance in the first quarter. I guess, I want to hit on one thing that Sara you talked about the win rate in the release and it’s been asked several different times on the call, but I haven’t really heard any response about the sales cycle, which we know that the activity level had been high with people and conversations. But one thing that had been talked about over the last couple of months had been that the sales cycle was extended. So are we seeing any shrinking in the length of the sales cycle from beginning to end?

Mike O’Meara — Director, Investor Relations and Financial Planning & Analysis

Hey, Budd, just to clarify, are you talking about like customer decision-making processes, that slowing of the sales cycle?

Budd Bugatch — Water Tower Research — Analyst

Yes, Mike, exactly. From when you’re starting — had those conversations, one of the things that’s been talked about was — people were having those conversations, but they were somewhat pushing out of the future the actual initiation of the order.

Sara E. Armbruster — President and Chief Executive Officer

Yeah. I don’t know that I can give you a really definitive kind of quantified answer, but I would say, kind of building on my comments about NeoCon, I think we definitely see, kind of relatively speaking, more customers that have firm plans to make changes of some sort. They either know they’re moving or they’re expanding or they’re renovating or they’re doing something. So I think from that standpoint, we see customers maybe not dragging out the process or hemming in high. And I think we see more people who have clear plans and timelines and intent to take action.

Maybe one thing that is still a bit variable is still I think some customers are having challenges with construction schedules due to the lack of tradespeople or other factors that are maybe slowing their project timeline relative to what they intended. But again, I don’t know that we’re seeing anything that’s dramatically different than what we’ve seen. I mean, we’re used to managing through those kinds of things when they happen. So I don’t know that we’re seeing anything that is dramatic or unusual.

David C. Sylvester — Senior Vice President, Chief Financial Officer

Yeah, positive anecdote here and there, but not necessarily enough to call it a new trend. I mean, hearing from customers at NeoCon that acknowledged or that they regret having slowed down or paused some activity over the last 18 months because now they’re feeling the pressure of being behind as they’re bringing people back to the office. That’s certainly positive, but we’re not hearing that enough to call that kind of a major shift or a trend.

Budd Bugatch — Water Tower Research — Analyst

Hey, Dave, that’s interesting because over the last couple of quarters and last releases over the last year or so, you’ve talked about the backlog having a longer tail. Does that mean that the backlog is approaching a more normal timing now? You’re not seeing the same kind of level of deferrals in the backlog that you noted in the last couple of calls?

David C. Sylvester — Senior Vice President, Chief Financial Officer

I mean, the backlog is definitely changing. I think that’s in part linked to the improved supply chain environment that clients are feeling more confident in ordering with shorter lead times because they’ve seen the improved reliability of on-time delivery. So we’ve definitely seen some of that. And we had a nice level of orders that we received in the quarter that we shipped in the quarter, and that felt a little bit like the good old days. It wasn’t like necessarily back to pre-pandemic levels or above pre-pandemic levels, but it was higher than we had been experiencing and it contributed to our results in the quarter.

Budd Bugatch — Water Tower Research — Analyst

And you did talk about orders at least in the first couple of weeks of this quarter being above. Did you want to quantify what kind of rate of above are we seeing those orders?

David C. Sylvester — Senior Vice President, Chief Financial Officer

Well, I think in the release we used the phrase modest growth, which I think you can assume is a low-single-digit growth rate. We included that reference because it was notably different than the overall decline that we had in Q1. But we also are starting to come up against easier comparisons versus prior year. I think second quarter of last year, I think grew at 6% for orders year-over-year, whereas the first quarter of last year grew at 22%. So we would expect to see this and it’s nice to see it and begin to play out.

Budd Bugatch — Water Tower Research — Analyst

That’s good. And on the gross margin moving ahead by 530 basis points, you — clearly, that’s the pricing and operational efficiencies. Can you parse maybe which is which? I mean, how much is — quantify those two differences?

David C. Sylvester — Senior Vice President, Chief Financial Officer

Well, we quantified the amount of the pricing net of inflation. And if you do the math, that was clearly the lion’s share of it. But the others were notable enough to include in our disclosures, so we included them. And then the operational efficiencies, it was not only labor, but also some logistics favorability, which is nice. I mean, the logistics world was pretty messy for the better part of two years. And it started getting better over the last six months and we had some nice benefits in the quarter just from being able to get trucks on routes that we wanted and get them more fully loaded with some direct shipments as well. So the efficiencies were not just labor, but logistics as well.

Budd Bugatch — Water Tower Research — Analyst

Yeah. Sara had noted I thought anecdotally in her comments about the fact that trucks now — you didn’t necessarily need to go through a consolidation extra step and you were able to get products shipped directly and you’ve had a very efficient way of tracking shipments to — from your facilities to customers and knowing pretty much what’s what and what’s the timing. So that was interesting and I thought that was kind of a fascinating commentary on that. So overall, it feels like to me like the industry is kind of getting back to this normal of some sort. Is that a reasonable…

David C. Sylvester — Senior Vice President, Chief Financial Officer

We feel like it’s — it’s certainly — we would say, that it’s stabilizing to improving, which is a lot given the kind of broader macro economic uncertainty that’s hanging over us. And the sentiment on RTO, while it’s improving, there are still a lot of companies that are kind of taking a different approach or more relaxed approach about getting people back in the office. So the fact that it feels like it’s stabilizing and potentially starting to show enough green shoots to call it improving is pretty darn good.

Budd Bugatch — Water Tower Research — Analyst

Agreed. And to make sure I understand, the operating expense for the second quarter, you talked about $8 million of projected gains. Is that for the aircraft? Do you think you will get those sold in the quarter?

David C. Sylvester — Senior Vice President, Chief Financial Officer

Well, we’re trying. If you know anybody, let me know. [Speech Overlap] They’re listed internationally. The jet market at the moment is not that great. We’re priced very competitively, I would say aggressively. So we’ll see what happens. But our intent was to sell them in the first quarter and we did not have an opportunity. Our hope is that we will have an opportunity to complete the wind down of aviation in the second quarter.

Budd Bugatch — Water Tower Research — Analyst

Got you. Thank you very much. Congratulations, and good luck for the balance of this year and beyond. Thank you.

Sara E. Armbruster — President and Chief Executive Officer

Thanks, Budd.

David C. Sylvester — Senior Vice President, Chief Financial Officer

Thanks, Budd.

Operator

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

Sara E. Armbruster — President and Chief Executive Officer

I just want to thank you all for joining today and we appreciate your interest in Steelcase as we continue to focus on driving improved results. Have a great day.

Operator

[Operator Closing Remarks]

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