Interface, Inc. (NASDAQ:TILE) Q4 2024 Earnings Conference Call February 25, 2025 8:00 AM ET Company Participants Christine Needles - Global Head of Corporate Communications Laurel Hurd - President and Chief Executive Officer Bruce Hausmann - Vice President and Chief Financial Officer Conference Call Participants Brian Biros - Thompson Research Group David MacGregor - Longbow Research Alexander Paris - Barrington Research Operator Hello and welcome to the Fourth Quarter 2024 Interface, Inc. Earnings Conferen ...

Investor Presentation | February 2025 Forward Looking Statements and Non-GAAP Measures This presentation contains forward-looking statements, including, in particular, statements about Interface's plans, strategies and prospects. These are based on the Company's current assumptions, expectations and projections about future events. Although Interface believes that the expectations reflected in these forward-looking statements are reasonable, the Company can give no assurance that these expectations will pro ...

Financial Performance - Net sales for Q4 2024 totaled $335 million, representing a 3.0% year-over-year increase, while full year net sales reached $1,316 million, up 4.3% year-over-year[6]. - GAAP earnings per diluted share for Q4 2024 were $0.37, a 12.1% increase from $0.33 in Q4 2023, and for the full year, it was $1.48, up 94.7% from $0.76[6]. - Net income for the twelve months ended December 29, 2024, was $86,946,000, a significant increase of 95% from $44,517,000 in the prior year[30]. - Earnings per share (EPS) for the twelve months ended December 29, 2024, were $1.49 (basic) and $1.48 (diluted), compared to $0.77 (basic) and $0.76 (diluted) in 2023[26]. - In Q4 2024, the company reported a GAAP net income of $21.8 million, or $0.37 per diluted share, compared to $19.6 million, or $0.33 per diluted share in Q4 2023, representing a 11.2% increase in EPS[35]. - For the fiscal year 2024, the company achieved a GAAP net income of $86.9 million, or $1.48 per diluted share, up from $44.5 million, or $0.76 per diluted share in fiscal year 2023, indicating a 94.7% increase in EPS[37]. Cash Flow and Debt Management - The company generated $38 million in cash from operations in Q4 2024 and $148 million for the full year, while repaying $115 million of debt, reducing net leverage to 1.1 times fiscal year 2024 Adjusted EBITDA[5][8]. - Cash on hand decreased by 10.2% year-over-year to $99.2 million, while total debt was reduced by 27.4% to $302.8 million[8]. - Long-term debt decreased significantly to $302,275,000 from $408,641,000 year-over-year[28]. - Interest Expense for Q4 2024 was $4.9 million, a decrease from $6.8 million in Q4 2023, indicating a reduction of 28.0%[45]. Sales and Market Segments - The Americas segment saw net sales increase by 9.3% in Q4 2024 and 8.7% for the full year, indicating strong performance in this region[9]. - The Americas region accounted for 61% of total net sales for the twelve months ended December 29, 2024[32]. - The corporate/office vertical represented 47% of gross billings for the twelve months ended December 29, 2024[33]. - The company expects Q1 2025 net sales to be between $290 million and $300 million, with an anticipated adjusted gross profit margin of 37.5%[11][12]. - For the full fiscal year 2025, net sales are projected to be between $1.315 billion and $1.365 billion, with adjusted gross profit margin expected to be between 37.2% and 37.4%[13]. Profitability and Margins - Adjusted gross profit margin for the full year 2024 improved by 174 basis points year-over-year to 36.7%, driven by higher volumes and favorable mix[5][6]. - Gross profit for the twelve months ended December 29, 2024, was $482,948,000, representing a 9.5% increase compared to $441,069,000 for the previous year[26]. - The company's gross profit for fiscal year 2024 was $482.9 million, up from $441.0 million in fiscal year 2023, indicating a growth of 9.5%[41]. - Adjusted operating income for fiscal year 2024 was $141.4 million, compared to $116.4 million in fiscal year 2023, representing a 21.5% increase[37]. - Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (AEBITDA) for fiscal year 2024 was $189.0 million, compared to $162.0 million in fiscal year 2023, indicating a growth of 16.7%[45]. Operational Costs and Expenses - Adjusted SG&A expenses for Q4 2024 increased by 8.8% year-over-year, attributed to higher sales commissions and incentive compensation[7]. - The company incurred $5.2 million in purchase accounting amortization for fiscal year 2024, consistent with the previous year[37]. - Restructuring and asset impairment costs for fiscal year 2024 were $2.5 million, down from $5.6 million in fiscal year 2023, reflecting a reduction of 55.4%[45]. - The company reported a tax expense of $5.6 million for Q4 2024, down from $7.4 million in Q4 2023, representing a decrease of 24.3%[45]. Foreign Exchange and Cyber Events - The company anticipates a negative impact of approximately 2% on year-over-year net sales growth in Q1 2025 due to foreign exchange translation effects[11]. - The impact of the cyber event in fiscal year 2024 resulted in a net loss effect of $4.2 million, compared to a net gain of $0.8 million in fiscal year 2023[37]. - The impact of cyber events resulted in a loss of $0.3 million for Q4 2024, contrasting with a gain of $0.1 million in Q4 2023[43]. - The company’s foreign subsidiary in Thailand was substantially liquidated in 2024, following similar actions in Russia and Brazil in 2023[38].

Core Insights - Interface, Inc. (NASDAQ: TILE) has shown strong double-digit revenue growth in its Americas segment, which has positively impacted overall revenue despite facing weak volumes in Australia [1] Group 1: Company Performance - The Americas segment of Interface, Inc. is driving significant revenue growth, indicating a robust performance in this region [1] - The company is experiencing challenges in the Australian market, where volumes are weak, contrasting with the strong performance in the Americas [1]

Core Insights - Interface, Inc. (TILE) has reached a new 52-week high of $27.34, reflecting strong market performance and consumer demand trends [1][3]. Group 1: Growth Drivers - The company is experiencing strong consumer demand across education, retail, and residential living segments, contributing to a 4.7% year-over-year increase in net sales to $980.6 million in the first nine months of 2024 [2][7]. - Strategic initiatives include launching embodied carbon metrics to help customers assess the carbon footprint of flooring projects, enhancing sustainability efforts [5]. - Expansion of carpet recycling capabilities in the Netherlands allows the company to process used carpets into new products, further reducing its carbon footprint [6]. Group 2: Financial Performance - TILE stock has gained 110.3% year to date, outperforming the Zacks Textile - Home Furnishing industry and the S&P 500 [3]. - The company's balance sheet shows $415 million in liquidity, with cash and cash equivalents increasing to $115.6 million from $110.5 million at the end of 2023, while long-term debt has decreased to $329.3 million from $408.6 million [10]. - The trailing 12-month return on equity (ROE) stands at 19.9%, significantly higher than the industry average of 0.04%, indicating efficient use of shareholder funds [12]. Group 3: Market Position and Valuation - Interface is currently trading at a premium compared to industry peers on a forward 12-month price-to-earnings (P/E) ratio basis, reflecting strong market potential [21]. - The company has outperformed competitors such as MillerKnoll, Armstrong World Industries, and ACCO Brands in the year-to-date period, with notable gains compared to declines in other firms [24]. - The Zacks Consensus Estimate for Interface's earnings per share (EPS) indicates growth of 37% and 13.1% for 2024 and 2025, respectively, suggesting positive future performance [13].

Group 1: Twilio Inc. (TWLO) - Twilio is a customer engagement platform solutions company with a Zacks Rank of 1 [1] - The Zacks Consensus Estimate for Twilio's current year earnings has increased by 3.5% over the last 60 days [1] - Twilio has a PEG ratio of 0.59, significantly lower than the industry average of 44.37, and possesses a Growth Score of A [1] Group 2: Interface, Inc. (TILE) - Interface is a modular carpet products company with a Zacks Rank of 1 [2] - The Zacks Consensus Estimate for Interface's current year earnings has increased by 7% over the last 60 days [2] - Interface has a PEG ratio of 1.14, slightly below the industry average of 1.28, and possesses a Growth Score of A [2] Group 3: ZIM Integrated Shipping Services (ZIM) - ZIM provides shipping containers and related services and holds a Zacks Rank of 1 [3] - The Zacks Consensus Estimate for ZIM's current year earnings has increased by 2.7% over the last 60 days [3] - ZIM has a PEG ratio of 0.04, much lower than the industry average of 0.30, and possesses a Growth Score of B [3]

Company Overview - Interface (NASDAQ: TILE) is a global flooring company specializing in carpet tile and resilient flooring [1] - The company employs over 3,600 individuals worldwide and operates 6 manufacturing locations across 4 continents [1] Financial Performance - As of FY2023, specific financial metrics were not provided in the document, indicating a need for further research to assess the company's performance [1] Investment Philosophy - The investment philosophy focuses on fundamental bottom-up analysis and quantitative modeling to identify trading opportunities influenced by macroeconomic factors [1] - The analysis aims to capitalize on perception gaps, particularly in situations of over-pessimism and excessive exuberance [1]

Financial Performance - Consolidated net sales for the quarter ended September 29, 2024, were $344.3 million, an increase of 10.7% compared to $311.0 million in the same quarter last year[95]. - Consolidated operating income for the third quarter of 2024 was $42.2 million, up from $31.0 million in the third quarter of 2023, driven by higher sales and gross profit margin improvements[95]. - Consolidated net income for the quarter was $28.4 million, or $0.48 per diluted share, compared to $9.9 million, or $0.17 per diluted share, in the same period last year[95]. - For the first nine months of 2024, consolidated net sales reached $980.6 million, a 4.7% increase from $936.4 million in the same period last year[96]. - Consolidated operating income for the first nine months of 2024 was $104.8 million, compared to $69.4 million in the same period last year, reflecting higher sales and gross profit margin improvements[96]. Gross Profit and Expenses - Gross profit margin for the third quarter of 2024 was 37.1%, up from 35.5% in the same period last year, primarily due to lower costs driven by raw material cost deflation[106]. - Selling, general and administrative (SG&A) expenses for the third quarter of 2024 increased by $6.2 million (7.8%) compared to the same period last year, but as a percentage of net sales, SG&A decreased to 24.8% from 25.5%[107]. Tax and Legal Matters - The effective tax rate for the three months ended September 29, 2024, was 21.2%, significantly lower than 38.7% for the same period in 2023, due to various tax benefits[112]. - The company is involved in legal proceedings that may arise in the ordinary course of business[145]. Cybersecurity and Macroeconomic Factors - The company experienced a cybersecurity event in November 2022, with $0.5 million recovered in costs during the nine months ended September 29, 2024, and anticipates further recoveries through insurance[97]. - Macroeconomic challenges, including inflation and geopolitical tensions, may adversely affect future performance, prompting the company to evaluate its cost structure and manufacturing footprint[98]. Segment Performance - AMS segment net sales for Q3 2024 reached $210.2 million, a 17.9% increase from $178.2 million in Q3 2023[114]. - AMS segment AOI for Q3 2024 was $32.2 million, reflecting a 38.0% increase from $23.3 million in Q3 2023, with AOI as a percentage of net sales rising to 15.3% from 13.1%[117]. - EAAA segment net sales for Q3 2024 were $134.1 million, a 1.0% increase from $132.8 million in Q3 2023, with currency fluctuations contributing approximately $1.6 million to sales[119]. - EAAA segment AOI for Q3 2024 increased by 24.9% to $11.3 million from $9.0 million in Q3 2023, with AOI as a percentage of net sales rising to 8.4% from 6.8%[121]. - AOI in EAAA for the first nine months of 2024 increased by 86.9% to $31.4 million from $16.8 million in the prior year, with AOI as a percentage of net sales rising to 8.1% from 4.3%[122]. Cash Flow and Financial Position - As of September 29, 2024, the Company had $115.6 million in cash and $41.2 million in term loan borrowings, with additional borrowing capacity of $299.3 million[124]. - Cash provided by operating activities for the nine months ended September 29, 2024, was $110.4 million, a decrease of $3.8 million from the prior year[128]. - Cash used in investing activities increased to $16.7 million for the nine months ended September 29, 2024, compared to $10.6 million in the prior year[129]. - Cash used in financing activities was $89.5 million for the nine months ended September 29, 2024, an increase of $8.7 million from the prior year[130]. Market Risk and Controls - As of September 29, 2024, a hypothetical immediate 100 basis point increase in interest rates would result in a net decrease of $10.6 million in the fair value of fixed rate long-term debt[137]. - Conversely, a 100 basis point decrease in interest rates would lead to a net increase of $7.0 million in the fair value of fixed rate long-term debt[137]. - A 10% increase or decrease in foreign currency exchange rates against the U.S. dollar would result in a respective change of $12.9 million in the net fair value of financial instruments[138]. - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected the controls[143]. - The company's disclosure controls and procedures were deemed effective as of the end of the reporting period, providing reasonable assurance that objectives are met[142]. - The company utilizes sensitivity analysis to measure the impact of market risk on fair values of market sensitive instruments[135]. - The company does not expect significant impacts on the fair value of debt instruments due to changes in interest rates, although interest expense may be affected[136]. - The discussion of market risk is based on the nine months ended September 29, 2024, with reference to the Annual Report for the fiscal year ended December 31, 2023[134]. - The evaluation of controls was performed under the supervision of the President and Chief Executive Officer and the Vice President and Chief Financial Officer[140].

Financial Data and Key Metrics Changes - Third quarter net sales totaled $344.3 million, an increase of 11% compared to the third quarter of 2023 [18] - Adjusted gross profit margin was 37.5%, an increase of 158 basis points year-over-year [19] - Adjusted operating income was $43.5 million, up 34% from $32.4 million in the same quarter last year [20] - Adjusted EPS was $0.48, compared to $0.28 in the third quarter last year [20] - Adjusted EBITDA was $53.7 million, up from $43.7 million in the previous year [21] Business Line Data and Key Metrics Changes - Currency-neutral net sales in the Americas were up 18% year-over-year, driven by strength in the Education market segment [9][18] - Global Education billings were up 18% year-over-year, supported by the expanded product portfolio [10] - Global corporate office billings increased by 2% year-over-year, gaining market share despite overall industry trends [11] - Healthcare billings were soft in the third quarter, but strong double-digit year-over-year order growth was noted [11] - Retail billings were up compared to a weak prior year period, contributing to overall growth [12] Market Data and Key Metrics Changes - Currency-neutral orders in the Americas were up 17%, with growth across all product categories [13] - In EAAA, currency-neutral orders were flat year-over-year, with growth in Asia offset by declines in Australia [13] - The backlog was strong, up 29% year-to-date, indicating positive momentum heading into the fourth quarter [13] Company Strategy and Development Direction - The "One Interface" strategy is focused on building strong global functions to support local selling teams and enhancing productivity [6] - The company is investing in automation and robotics to reduce complexity in manufacturing [14] - Sustainability initiatives include providing carbon impact metrics and expanding carpet recycling capabilities [15][16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the corporate environment and increasing activity as more employees return to work [28] - The company anticipates strong retail billings in the fourth quarter, with a healthy backlog supporting future growth [23] - Management raised the full-year outlook for net sales to between $1.315 billion and $1.325 billion [24] Other Important Information - The effective tax rate benefited from the release of a $2.7 million valuation allowance, which is not expected to recur [20] - Capital expenditures were $6.5 million in the third quarter, compared to $5.9 million in the previous year [22] Q&A Session Summary Question: State of non-residential repair and remodel leading into 2025 - Management noted strong order growth and optimism about the corporate environment, indicating better momentum compared to the previous year [28][29] Question: Details on order growth across verticals - Healthcare orders were up double digits, with expectations for future growth as projects are installed over time [32][37] Question: Insights on retail and corporate office performance - Retail business rebounded due to project delays from the previous year, contributing significantly to growth [35] - Corporate office business performed well, with mid-single-digit growth in the Americas [36] Question: Gross margin targets and timeline - The company aims to reach gross profit margins of 38% to 38.5%, with no specific timeline provided [41][56] Question: SG&A expenses and revenue growth support - Management emphasized efficiency in SG&A and intentional investments to support growth, with a focus on customer-facing initiatives [58]

Group 1 - Interface reported quarterly earnings of $0.48 per share, exceeding the Zacks Consensus Estimate of $0.33 per share, and up from $0.28 per share a year ago, representing an earnings surprise of 45.45% [1] - The company achieved revenues of $344.27 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 2.77% and increasing from $311.01 million year-over-year [2] - Interface has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Group 2 - Interface shares have increased approximately 38.4% since the beginning of the year, compared to a 19.6% gain for the S&P 500 [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the next quarter is $0.30 on revenues of $339 million, and for the current fiscal year, it is $1.28 on revenues of $1.31 billion [7] Group 3 - The Textile - Home Furnishing industry, to which Interface belongs, is currently ranked in the top 4% of over 250 Zacks industries, indicating a favorable outlook for the sector [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - The current estimate revisions trend for Interface is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, suggesting it is expected to perform in line with the market in the near future [6]