Q1 2021 Interface Inc Earnings Call
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Good day, and thank you for standing by and welcome to the Q1 2021 interface, Inc earnings conference call and the.
This time, all participants are in a listen only mode.
After the Speakers' presentation and dairy.
It will be a question and answer session.
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I would now like Grand to conference over to your Speaker today is Christian needles director of Global Communications. Please go ahead.
Good morning, and welcome to interfaces conference call regarding first quarter 2021 results hosted by Dan Hendrix, Chairman and CEO, and Bruce Hausmann, Vice President and CFO during.
During today's conference call any management comments regarding interfaces business, which are not historical information are forward looking statements within the meaning of federal securities laws.
Forward looking statements include statements regarding the intent belief or current expectations and our management team as well as the assumptions on which such statements are based.
Any forward looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements.
<unk> risks and uncertainties associated with the ongoing COVID-19 pandemic and those described in our most recent annual report on form 10-K filed with the SEC.
The company assumes no responsibility to update forward looking statements.
Management's remarks during this call also refer to certain non-GAAP measures reconciliations of the non-GAAP measures to the most comparable GAAP measures and explanations for their use are contained in the company's earnings release and form 8-K furnished with the SEC today.
Lastly, this call is being recorded and broadcast and for interface. It contains copyrighted material and may not be rerecorded or rebroadcast without interfaces express permission your participation on the call confirms your consent to the company's taping and broadcasting of it.
After our prepared remarks, we will open up the call for questions now I'd like to turn the call over to Dan Hendrix, Chairman and CEO.
Well. Thank you Christine good morning, and thank you for joining US today, we delivered solid results for the first quarter of 2021, and we continued to reduce our cost structure and benefited from a currency tailwind and the quarter Jay.
And real signs of recovery emerge and the first quarter and have continued into the second quarter, particularly in the United States and parts of Europe and APAC. Our first quarter results came in as expected with total sales of $253 million down 12% from the prior year period, the 2020. One first quarter was 13 rigs as compared to 14 weeks.
And the prior period, we generated strong cash flow from operations of $25 million during the quarter, while continuing to Delever the company overall.
Overall sales pipeline and activity is including Rfps and simple activity first quarter 2021 orders were up 11% sequentially from the fourth quarter of 2020, typically our first quarter orders are lower than the fourth quarter due to seasonality. This is a positive sign that our markets are beginning to recover.
The green shoots that we've talked about last quarter are showing up tangibly and our numbers and we believe this is sustainable demand.
Looking around the world, we are seeing positive activity inside many of the countries, where we do business, but the landscape continues to be mix and a strong signs of recovery and the Americas and some parts of Europe and APAC. However recovery from much of Europe has been slowed by rising COVID-19 cases, a slow rollout and the vaccination and.
And Lockdowns APAC on the other hand continues to be subject to heightened border restrictions.
These lockdowns and border restrictions are slowing the recovery and many of our markets, particularly outside the United States. However, we continue to see increased rfps do reactivation and pipeline and new products and building from last quarter simple activity and the United States is approaching pre COVID-19 levels, which is a leading indicator of rebounding.
Activity.
Let's turn now to our geographies and market verticals, while we do not know the full impact and return to the physical office, we are optimistic about the future <unk>.
<unk> have become more bullish on return to the office, but it is still unclear when and what that return looks like but they are going to return and <unk>.
Europe. The conversation is not about this but when the return will happen and this is all good news for our business remember that approximately 80% of our business is renovation and remodel work interface is well positioned to benefit from the potential remodeling of space as companies bring their employees back and reconfigure.
Their workplaces for a post COVID-19 world.
We're also seeing good size and market recovery and other market verticals, including education health care and government.
Health care continues to be strong and education is also coming back, particularly in higher education due to increased renovations and new constructions.
And government opportunities are picking up as well.
We're starting to see progress and the dealer market too I was pleased to see that our net promoter score with our dealers and the U S was the best we've seen for a long time.
And it's been trending upward since the third quarter of 2020, as we continue to focus on the discretionary dealer market.
We continue to invest in innovation and new product development and our last call, we talked about exciting developments and our product pipeline for 2021.
Let me share a few important updates and March we officially launched our and body beauty collection, and EMEA and in APAC, including our first cradle to gate carbon negative carpet tile styles.
In addition, we also launched and EMEA the micro to flat line. There is also carbon negative.
Our customers, becoming more carbon conscious and want to specify products that reduce the carbon footprint of their spaces.
<unk> and Americas, we expanded our popular open air and carbon product platform was 17, new patterns open there allows us to design manufacture and bring to market products that are attractive high quality and extremely affordable open our styles were particularly well and areas with large footprints.
We're seeing interest from many of our largest global customers and dealers as well as commercial office tenant improvement and the education market segments. This is one of the fastest take ups of any product that we've introduced and interface and.
And resilient and Americas market, we recently launched our first vinyl sheet offerings, which are designed to meet stringent needs and healthcare applications based on workload and patient room applications and complement our existing rubber opportunity and healthcare.
And gives us a much bigger part of the market to play and <unk>.
Looking forward April orders started off strong and we're seeing double digit order growth across all regions. There is continued demand for our carbon neutral and carbon negative products. We are beginning to see more rfps with requirements for low carbon products. We believe this is applicable across all regions and industries and specifically.
Global companies that have made a series of carbon footprint reduction commitments over the past six to 12 months.
And while orders are trending and the right direction and we're seeing some positive signs of recovery and we recognize that we're in the early stages of that recovery.
And we're hopeful that successful vaccination Rollouts continue and we are optimistic about improved performance and the back half of 2021.
As companies come back to the office with that I'll turn it over to Bruce for the first quarter 2021 financial recap.
<unk>.
Well, thank you Dan and good morning, everyone. Our first quarter results came in as expected with net sales of $253 3 million down 12% compared to the prior year period and.
And as you May recall first quarter 2021 consisted of 13 weeks versus 14 weeks and the first quarter of 2020.
Organic growth, which excludes impacts of foreign currency translation flow down, 16% declines and carpet tile were somewhat moderated by a lesser declines and LPG and partially offset by increases and rubber.
Sales and the Americas were down 20% with declines across all product categories and in each of <unk> sales were down 3% and U S dollars aided by favorable currency movements carpet tile was down for the quarter offset by increases and rubber and LBP.
First quarter adjusted gross profit margin was 38, 5% down 160 basis points from the prior year period, but up 300 basis points from Q4 2020.
And this was a strong results as we continue to navigate through the pandemic and Q1 of this year and lapped a strong quarter and Q1 of last year.
We continue to build earnings power through the structural changes and our SG&A, which you will see and our income statement as we progress through the year.
Adjusted SG&A expenses were $77 5 million and the first quarter or 36% of net sales.
First quarter of 2021, adjusted operating income was $19 9 million versus adjusted operating income of $29 3 million and the first quarter last year.
First quarter 2021, adjusted net income was $10 million or <unk> 17 per diluted share and adjusted EBITDA was $31 5 million for the quarter.
Please refer to our press release for reconciliations of GAAP to non-GAAP numbers.
Turning to our balance sheet, the company generated $24 $9 million and cash from operations and the first quarter of 2021 and had $405 million of liquidity at quarter end.
First quarter 2021 cash flow was higher than prior years on a seasonal basis and variable compensation payouts related to 2020 performance were greatly reduced.
Inventory was down 28 million or 10% year over year and finished goods carpet inventory was down 16%.
We repaid 12 million and debt in the first quarter.
Net debt for total debt minus cash on hand was $455 6 million at the end of the first quarter and.
The last 12 months of adjusted EBITDA of $143 2 million at the end of the first quarter.
Resulting in a net leverage ratio of three two times calculated as net debt divided by adjusted EBITDA.
We continue to be committed to paying down debt and delevering the balance sheet.
First quarter 2021 interest expense was $7 million compared to $6 million and prior year.
Capital expenditures were $5 million and first quarter compared to $22 million and the first quarter of 2020.
Looking at the second quarter of 2021, we expect continued recovery and vaccinations continue to rollout and the U S slightly offset by COVID-19 related disruption and the European and Asian markets.
Although we are starting to see positive indicators on the global economic recovery on the horizon there.
<unk> continues to be disruption and significant uncertainty due to COVID-19.
And the company continues to monitor this situation. It is anticipating second quarter of 2021, net sales and approximately $290 million and adjusted gross profit percentage of approximately 38, 5%.
Adjusted SG&A expense and the full year of 2021 from approximately $325 million, which means we have roughly $248 million of adjusted SG&A spend.
Anticipated for the rest of the year and we anticipate the remaining spend will be fairly evenly spread over Q2, Q3 and Q4 of 2021.
We also anticipate adjusted interest and other expense for the full year of 2021 of approximately $34 million.
And adjusted effective tax rate for the full year of approximately 27%.
Capital expenditures for the full year are anticipated to be approximately $30 million.
And fully diluted share count at the end of Q1, 2021 was $58 9 million shares and.
With that I'd like to turn the call back to Dan for concluding remarks.
Thank you Bruce.
I'm proud of the team's continued efforts and driving ESG initiatives across the company and early April interface published our first communication on progress or comp since becoming a year and global compact signatory and 2020 I'm sorry.
As part of our sustainability approach interface is supportive of and committed to the United Nations Sustainable development goals as a road map to sustainable development that addresses shared global challenges.
And our commitment to prioritize diversity equity and inclusion we established a task force response from developing our long term strategy with feedback from our people, notably we are also implementing a global human capital management system that will deliver invaluable data regarding the diversity of our global workforce.
From an environmental standpoint, and interface committed to set a science based target in line with one five degree ambition, which aligns with the Paris agreement's goal to pursue efforts to limit global warming.
We continue to focus on reducing the carbon footprint of all our products with an average year on year reduction of 10% from 2019.
And of our team and I'd like to thank all of our employees.
And to drive innovation, and our research and development as we look to capitalize on trends and create market opportunities all while helping customers lower their carbon footprint.
We believe our culture product and leadership, we will keep our business adaptable and successful for years to come.
With that I'll open it up for questions operator.
And as a reminder to ask a question you will need to press star one on your telephone Keybanc.
Draw your question crashed boundary.
Please standby, while we compile the Q&A roster.
Okay.
Your first question comes from casually and Thompson from Thompson Research Group. Your line is open.
Hey, Good morning. This is Brian Biros on for Catherine Thank you for taking my questions.
I'll start with the Q2 guidance going forward can you give us some more color on how that breaks out across the three regions and maybe specifically the products and those regions and I guess can we see positive growth for all products and both regions and Q2.
Yeah.
Hey, Brian This is Bruce good morning.
Yes, we are anticipating growth and all of our product line and we are anticipating growth across.
Be AAA and Americas in Q2.
So we are definitely anticipating broad based growth. The U S is probably right now a little stronger than the AAA. As you are probably aware in each of your play there are still from Lockdowns that are happening due to COVID-19.
And there is still a lot of travel restrictions going inside of countries. While the U. S. Is further ahead from a vaccination standpoint and from a recovery standpoint.
Helpful. Thank you and then.
And follow up can you just talk about some of the.
State and the supply chain, I guess and specifically maybe the ports.
Demand coming back are you able to source and our products to meet the demand levels.
Hey, Brian This is Bruce.
Really good shape from a supply chain standpoint, and I just continue to be so impressed with our supply chain and our plant operators.
And just navigated flawlessly through the COVID-19, pandemic and they continue to navigate even through all of the supply chain disruptions, whether is the Suez Canal boat thing or or it was the.
And all the stuff that happened down in Texas. Our team has done a great job we are anticipating some inflation.
And starting in Q2 and in the back half and that's baked into our guide as we are thinking about the GP guide that we gave for Q2.
So no no major issues with any sourcing products and getting it through the ports.
So we're in good shape on that but we've been and.
And again and it's due to good management and thinking ahead.
Sounds good thanks, I'll pass it along.
Thank you Brian.
Your next question comes from David huge right.
Your line is open.
Thank you.
And a lot going on and the numbers revenue and this quarter would be yet.
And one fewer week and the currency.
<unk> put out.
And give us how.
Carpet tile LDC and rubber bit year over year in the quarter.
Hey, Keith and Bruce.
And as you mentioned and we had an extra week last.
And last year. So it's 13 weeks this year 14 weeks last year.
Differential is about.
6% due to the extra week. So if you look at our P&L, we were down 12%.
If you strip out that extra week.
Only down 6%.
And then of course with the <unk>.
Currency lifts.
Also baked in there it was about $11 million and currency or roughly four ish percent.
Okay, so you're saying and the release.
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And the total was down closer to quantify Bellevue and gains and rubber does that.
Take the week out and does that include currency.
Currency out or what base.
Yes, and kind of giving you the full company numbers around.
Being down, 12% and total and 6% due to the extra week haven't really broken out extra week and currency by product line.
Okay. So.
Does that help rubber and more than the other two.
<unk>.
Great job.
Yeah, and not really because one flow rubber all around the world and we sell rubber globally. So.
And wherever we sold rubber and a foreign currency.
Got a lift from that this quarter.
As a result of the U S dollar being weaker than than the euro or.
And the Australian dollar versus prior year.
And your final question.
Segment profit breakout.
It shows.
And the Americans for obvious reasons, but there is an increase and operating income.
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Can you talk about.
And still relatively weak revenue and profit.
Bob.
Yeah. So Keith this is Bruce.
And as a combination of strong SG&A control.
And also we have obviously decreased our cost structure around the company, including and <unk>, which gives us more leverage and.
More drop through on the bottom line.
Aided slightly a little bit by some currency.
From currency pickups that we saw on the top and a little bit on the bottom as well and our <unk> region.
Okay. Thank you.
There is no further question and this time I would now like to turn the call over to Dan Hendrix for any closing remarks.
Yes, Thank you for joining our conference call.
I think we had a very solid quarter and.
Look forward to talking to you next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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