Q4 2021 Interface Inc Earnings Call
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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 .
Thank you Christine good morning, and thank you for joining US today 2021 was a success story for the interface T. As we advanced our growth and diversification strategy. We continue to make history with the world's first and only carbon negative carpet products, we navigated through supply chain and inflationary headwinds made significant reductions.
Since to SG&A and reduced net leverage to two five times adjusted EBITDA, our lowest level since acquiring Nora I continue to be impressed with interface team for their hard work and dedication to our customers and our company demand for our carbon neutral carbon negative products continues to grow fourth quarter orders increased.
19% year over year, which is our third consecutive quarter of double digit growth in Americas fourth quarter orders were up 31% year over year and a AAA. They were up 12% both currency neutral year end 2021 backlog increased 28% up $46 million compared to year end 2020.
And we feel confident with the momentum we are going into 2022.
Fourth quarter net sales increased 23% year over year to approximately $340 million on par with fourth quarter 2019. This is a positive sign that the market is continuing to grow.
During 2021, we made great strides to advance our diversification and segmentation strategy executing on growth drivers.
Significant wins through the year drove progress on our climate take back journey.
<unk> our position as the industry leader in carbon tech major companies across the globe, including multiple fortune 100 customers are turning to interface for our carbon neutral and proprietary carbon negative product offerings.
We are aligned with our customers' values and priorities to reduce their own carbon emissions and meet their own sustainability goals.
Globally, we continue to launch multiple new products in 2021 with a focus on design and innovation, we expanded our open air product line.
After a very successful launch supporting our ongoing dealer strategy, we enhanced our resilient offerings with star gazing, a new <unk> collection designed for education.
We also launched vinyl sheet to meet an expanded breadth of healthcare segment needs and in recent weeks, we moved into the lvg rigid core category with our even path collection for commercial sector. These high quality wood and stone designs have a rigid flat finished and feature a glue for installation and low maintenance and finally.
We expanded our nor product catalog with three new high style launches last year.
Our diversified product portfolio highlights our success in transforming interface into a global World class flooring solutions company, just a few years ago nearly 100% of our sales were from carpet tile today carpet accounts for approximately 60% of our sales we have reached more than 100.
$20 million in <unk> sales and our acquisition of Nora has proven successful as we continue to take share in the rubber category.
From a segmentation perspective, we made significant progress on diversifying outside of the office market.
Other than half of our global sales in 2021 were generated from non office segments in the United States, our largest market, we diversified sniffly, where over 60% of ourselves. We're in segments outside of the office market healthcare education multifamily and transportation have all been significant growth sectors for us.
On a consolidated basis health care sales were up 47% in the fourth quarter and 19% for the full year and education sales were up 16% in the fourth quarter and 11% for the full year each compared with prior periods.
The commercial office market is a smaller portion of our business now we continue to see growth there.
Fourth quarter 2021 was our third consecutive quarter of double digit sales growth in the segment, which is a positive sign that the office market is rebounding.
We also believe that to some degree the work from home lifestyle is here to stay in the United States more businesses are adapting to a hybrid approach investing in office upgrades that support an open floor plan with less density.
80% of our business is driven by renovation and remodel.
As many companies adapt their office layouts to use the same square footage with less people and increased social distancing, they're turning to us as their flooring solutions partner and what are the ideal partner with design and sustainability are important to them outside of the U S. We expect markets across Europe , and Asia to largely returned to pre <unk>.
Pandemic work models.
I am proud of our team's achievements during a challenging year, we continue to advance our strategy, which was evident in our results and we are positioned interface for continued success in the future.
The increased demand, we're seeing across our product lines and segments shows that we have the right range and mix of products to meet our customers' needs. We continue to stay focused on what makes us unique our design innovation and sustainability leadership setting us up for continued success with that I'll turn it over to Bruce to go through the financials.
Bruce.
Thank you Dan and good morning, everyone. Our fourth quarter net sales increased 22, 6% year over year to $339 6 million driven by strong demand across our geographies and all product lines organic sales growth, which excludes the impact of currency translation was 23, 9%.
Fourth quarter net sales in the Americas were up 35, 1% year over year based on strong demand across segments and categories and.
<unk> fourth quarter net sales were up nine 7% year over year with solid growth across the region, particularly in Australia, The U K Southern Europe and Central Europe .
Currency translation decreased the total company's fourth quarter year on year net sales growth rate by 122 basis points in each of police fourth quarter year on year growth rate by 275 basis points.
Fourth quarter adjusted gross profit margin was 36, 1% an increase of 67 basis points from the prior year period.
We view this as a very successful outcome of our pricing actions are being realized in the P&L to offset the headwinds we experienced from labor shortages significantly higher freight costs and inflationary increases in our raw material inputs.
All in we are very proud of the fantastic job that our manufacturing supply chain and selling teams did to offset these inflationary headwinds with pricing and productivity gains.
We also continued to build earnings power through structural changes in our SG&A, which has been a focus area for interface over the past two years.
Adjusted SG&A expense for the fourth quarter was 24% of net sales.
Compared to 26, 2% of net sales in the prior year.
This 221 basis points of improvement exemplifies our continued commitment.
<unk> demonstrated progress in tightening the company's cost structure and being more efficient with our SG&A dollars.
Fourth quarter adjusted operating income was $41 $1 million this year versus $25 6 million in the fourth quarter last year.
Fourth quarter adjusted EPS was <unk> 47 per diluted share this year versus 27 per diluted share in the fourth quarter last year.
And adjusted EBITDA increased 42% to $52 8 million this year versus $37 2 million in the fourth quarter last year. Please refer to our press release for reconciliations of GAAP to non-GAAP measures.
Looking at full year results consolidated net sales increased eight 8% to $1 2 billion driven by strong demand across our geographies and among all our product lines.
Net sales in the Americas were up nine 7% of net sales knee AAA were up seven 7% versus the prior year.
Adjusted gross profit margin for 2021 was 36, 5% down 119 basis points from last year's adjusted gross profit margin due to higher labor freight and raw material costs.
It was partially offset by pricing and productivity gains.
Adjusted SG&A expense for 2021 was $316 1 million or 26, 3% of net sales compared to $305 5 million or 27, 7% of net sales in 2020.
This 136 basis point improvement again reflects our commitment and progress in tightening the companys cost structure and realizing greater efficiencies of our SG&A dollars.
Adjusted operating income was $122 3 million in 2021, an increase of 11% compared to the prior year.
Adjusted net income was $72 3 million or $1 23 per diluted share in 2021, compared with adjusted net income of $67 2 million per $1 15 per diluted share in 2020.
Turning to our balance sheet and cash flows the company generated $86 7 million of cash from operations in 2021 and year end inventory was $265 1 million, which was $8 4 million higher versus inventory values at the end of Q3 2021.
And liquidity at the end of the quarter was $388 million comprised of $97 million of cash and $291 million of borrowing availability.
During 2021, we repaid $56 million of debt and net debt. Our total debt minus cash on hand was $428 million at the end of the fourth quarter.
Full year 2021, adjusted EBITDA was $169 4 million and our net leverage ratio at the end of the year was two five times calculated as net debt divided by adjusted EBITDA.
As we move into 2022, we will continue our disciplined capital allocation strategy and we expect net debt to adjusted EBITDA to be approaching two times by the end of 2022.
Depreciation and amortization in 2021 totaled $46 3 million versus $45 9 million in 2020.
In 2021 capital expenditures were $28 1 million compared to $62 9 million in 2020.
Looking at the first quarter and full year of 2022, we expect continued recovery in global economic conditions combined with continued global supply chain disruption, particularly in the first half of the year.
Please remember that it is very common for net sales and adjusted operating income to decrease sequentially from Q4 to Q1 due to seasonality for the first quarter of 2022, we are anticipating net sales of $275 million to $285 million.
Adjusted gross profit margin of 35% to 37%.
Adjusted SG&A expenses of approximately $80 million adjusted.
Adjusted interest and other expenses of approximately seven $5 million to $8 million.
Fully diluted weighted average share count at the end of the first quarter of 2022 of approximately $59 3 million shares.
For the full fiscal year 2022, we are anticipating year over year net sales growth of approximately 7% to 9%.
Adjusted gross profit margin of 35, 5% to 36, 5%.
Adjusted SG&A expenses that are approximately 26% of net sales.
Adjusted interest and other expenses of approximately $31 million and.
And an adjusted effective tax rate for the full year of 2022 of approximately 27%.
Capital expenditures are expected to be approximately $30 million for the full year of 2022.
Lastly, our exposure in Russia, and Ukraine is very small and we're monitoring the situation closely we have 12 employees in Russia, our annualized net sales in Russia are approximately $8 million annualized adjusted operating income in Russia is approximately $2 million and our net assets in.
Russia are approximately $1 million.
Our net sales in Ukraine are negligible.
While we do not know how the Russia, Ukraine situation will play out or what ripple effects. It might possibly have on the broader economy, we intend to monitor the situation closely and adapt as needed to changing conditions.
And with that I'd like to turn the call back to Dan for concluding remarks. Thank you Bruce.
Want to again acknowledge and thank the interface team for their strong execution and contributions to our achievements in 2021, we entered 2022 with great momentum, including increasing demand and strong financial position, we're set up to win and to capitalize on future growth opportunities as they arise.
With that I will open it up for questions operator.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
And your first question comes from the line of Joseph <unk> from Longbow Research. Your line is open.
Hi, This is Joe Nolan on for David Mcgregor, Thanks revenue congrats on a good quarter.
I was just wondering if you.
Yes, I was just wondering if you could break down the 2022 growth guide by carpet tile versus <unk> versus rubber flooring possible.
Hey, Joe This is Bruce Hausmann, Thank you for dialing in.
We really don't break it down by product line.
The guide that we gave is more of a blended number.
But as you can see we continue to have a lot of strong momentum going into 2022, we're really really optimistic obviously with the strong results in 2021, we're really optimistic as we enter into 2022, we're just concerned about competitive data on that.
Got it that makes sense, Okay and then.
Just within <unk> and the rubber product.
Just wondering how availability has been trending given import logistics congestion and just to what extent that has been a headwind on growth in the fourth quarter and how you're thinking about in 2022.
Yes, I would say that we had a world class and have a world class supply chain on <unk> coming out of Asia, and we didn't have a lot of issues with that we had some of course, some delays, but not a lot of issues and then coming out of <unk> from a rubber standpoint same thing.
Really world class supply chain, and we had some issues, but not a lot.
Got it alright, thanks, I'll pass it along.
Thank you Joe.
Your next question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.
Hi, Thank you for taking my questions today, just a follow up on Europe , and really more the domino are the unintended consequences that could complement at that happening between Russia and Ukraine.
Based on your prior experience, we've seen spikes in energy cost in that region.
Hi, how are you.
Our current price increases sufficient to.
Overcome some of the headwinds that we're seeing right now and and in general how do you manage just.
Similar we havent been similar experience that essentially managing that supply chain and cost disruption from this at that thank you.
Thank you Catherine I appreciate the questions as you can see in Q4, we did a great job at Nab.
Inflationary environment that we're in around freight raw materials and of course labor shortages.
We're continuing we think as we enter into Q1 and possibly even Q2 of 2022, we'll continue to have to navigate through the same.
And then.
We are optimistic that we'll get a little more relief on the GP line in the back half of 2022, but we're doing everything we can around pricing activities around productivity activities and also.
Just good strong supply chain management to mitigate.
Those things that we're seeing around which you mentioned energy as well as raw material inflation as well as freight inflation that we're seeing.
The team did a great job, we were up 67 bps in Q4.
<unk> GP line year over year.
Youll see from our guide that.
We are planning on.
Having a sort of a continued run rate around that in Q1 as we go into 2022.
Yes, Catherine I would say that generally.
Say, what Bruce is Directionally, where we are but typically there is a three months lag when you see spikes in energy prices that we've got to get through their marketplace.
Okay.
Helpful.
As we.
They are as they come out of the global pandemic to more like managing the ongoing reality.
What changes have you seen from a product demand standpoint.
And also from a regional standpoint.
Yes.
I would say that the LPT continues to have.
We have tremendous growth opportunities double digit growth.
Our rubber business is really a good business.
For education Health care, and we continue to see that grow as well and surprisingly the carpet tile business is growing as the office market comes back.
So we're saying we're seeing benefits from all three of those.
Okay, and just one follow up to that previously.
Alright couple of years leading into.
The pandemic you said that.
Your biggest competitor was actually polished concrete.
And in office space have you seen any change in trends.
Or for that.
I think I think policy, yes, I think polished concrete is losing a little bit of its policy to be honest with you. It's a very.
Our expensive product very niche product and I think <unk> taken over that category.
Okay, alright, great. Thanks, so much.
Okay.
Your next question comes from the line of Keith Hughes from <unk> Securities. Your line is open.
Thank you question on the first quarter, the gross margin guidance, particularly wide.
<unk> can you talk about some of the things that could push you to the low and high end.
The first quarter.
Yes, Keith this is Bruce thank you.
There are a lot of moving parts in that number as I'm sure you can appreciate.
One of the biggest variables that we don't know how it's going to play out is around freight costs, they're continuing to be high.
But at some point in time, we should see some relief on that.
But kind of with Katherine mentioned near the energy costs and how that is affecting some of the raws that we purchase.
<unk> is another piece that goes into that.
And then also we have done we are obviously passing on a lot of these costs to our customers and.
Obviously, we're seeing that on the P&L you saw that in Q4, but we just want to make sure that we can.
It stays effective through the first half as we continue to navigate in the inflationary environment that we're in.
Just lastly, I'll, just close with particularly in the U S. We have we continue to have some labor shortages around productivity around our manufacturing environment that.
Also slows us down obviously impacts that gross margin line.
But we're encouraged.
I would say, yes, I'm encouraged by our U S manufacturing is getting better for sure.
And second question you had some really strong orders, particularly in the Americas. In addition to the revenue growth in Americas in the fourth quarter.
I'm not surprised with the revenue guide just from the fact that inflation is going to be flowing through for a good part of the year just across revenue guide is not higher.
As you think about this guide you've given.
Just anticipating a unit slowdown during the year. How do you think this is going to play out.
As Keith as you know, it's very common sequentially for revenue to go down from Q4 to Q1.
And that's exactly what we're guiding for it to happen.
For the year.
Alright got year.
Sorry.
Specific starting to 79% growth for the year.
Right yes.
We were entering 2022, and a really strong position with a strong backlog and a lot of things going our way from a macro standpoint.
It's still it's early days right and we sort of have to see how the year is going to play out.
But I will tell you that.
Our education business, our healthcare business continues to be very robust growing double digits and even corporate office is growing double digits now which is fantastic all of those things.
They are in our favor for a strong 2022, yes, I would say, it's going to be conservative Keith for sure that's us.
Okay. A final question on the quarter the organic growth can you give us some sort of feel of how much of that was price and how much about was the unit growth.
Growth year over year.
Yes.
Keith.
So in Q4.
On the P&L, we saw about 4% price and about 19% of the of the growth is driven by volume.
Okay.
Alright, thank you.
Thank you Kate.
And there are no further questions at this time, Mr. Dan Hendrix, I turn the call back over to you for some final remarks, yes, well. Thank you for listening to our first quarter, not first quarter call, but our fourth quarter call and can't wait to talk to you on the first quarter call. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.