Q4 2023 Interface Inc Earnings Call
Okay.
Good morning, My name is Jamie and I will be your conference operator today.
Operator: Good morning, my name is Jeannie, and I will be your conference operator today. I would like to welcome you to the Q4 and full year 2023 Interface Inc. Earnings Conference. All lines have been placed on mute to prevent any background noise.
I would like to welcome you to the Q4 and full year 'twenty twenty-three interface, Inc earnings Conference call.
All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone key. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Christine Needles.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad if.
If you would like to withdraw your question Press Star one again.
Thank you.
I would now like to turn the conference over to Christine needles.
Christine Needles: You may begin your presentation. Good morning, and welcome to Interface's conference call regarding fourth quarter and full year 2023 results, hosted by Laurel Hurd, CEO, and Bruce Hausmann, CFO. During today's conference call, any management comments regarding Interface's 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 of 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 statement, including risks and uncertainties 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.
You may begin your call.
And welcome to interfaces conference call regarding fourth quarter and full year 2023 results hosted by Laurel Hurd, CEO and Bruce Hausmann CFO.
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 of 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, including risks and uncertainties described in our most recent annual report on Form 10-K filed with the SEC the.
The company assumes no responsibility to update forward looking statements.
Management's remarks during this call also refer to certain non-GAAP measures.
Christine Needles: Management's remarks during this call also referred 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 8K filed with the SEC today. Lastly, this call is being recorded and broadcasted for interface. It contains copyrighted material and may not be re-recorded or re-broadcast without interface's express permission.
Reconciliations of the non-GAAP measures to the most comparable GAAP measures and explanations for their youth 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 it for interface. It contains copyrighted material and may not be rerecorded or rebroadcast without interfaces express permission.
Laurel Hurd: Your participation in 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 will turn the call over to Laurel Hurd, CEO. Thank you, Christine, and good morning, everyone.
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 will turn the call over to Laurel Hurd CEO.
Thank you Christine and good morning, everyone.
Laurel Hurd: Interface delivered a strong finish to the year, with fourth-quarter sales and margins coming in ahead of our expectations. Our performance in 2023 through a challenging macro environment reinforces our confidence that our strategies work. We enter 2024 with solid momentum in our business, in many areas outperforming the market as we continue to activate our diversification strategy and deliver strong commercial execution. Overall, in 2023, our team did a great job holding prices and driving increased margins due to a favorable product mix, but we also benefited from raw material input cost deflation, specifically in the fourth quarter. Digging into our product category results, we delivered a stronger-than-expected quarter in carpet tile, with low single-digit growth in global billings for the quarter.
<unk> delivered a strong finish to the year with fourth quarter sales and margins coming in ahead of our expectations our.
Our performance in 2023 through a challenging macro environment.
Forces our confidence that our strategy is working.
We enter 2024 with solid momentum in our business in many areas outperforming the market as we continue to activate our diversification strategy and deliver strong commercial execution.
Overall in 2023, our team did a great job holding price and driving increased margins to a favorable product mix. While we also benefited from raw material input cost deflation specifically in the fourth quarter.
Digging into our product category results, we delivered a stronger than expected quarter in carpet tile with low single digit growth in global billings for the quarter. This is well ahead of industry trends, reflecting share gains in this important category. This is a testament to the strength of our commercial execution, new collections that have strong momentum in the <unk>.
Laurel Hurd: This is well ahead of industry trends, reflecting shared gains in this important category. This is a testament to the strength of our commercial execution, new collections that have strong momentum, and the importance of our low-carbon footprint products. On the NOAA rubber side, we delivered another solid year in this category in 2023, although we continue to experience softness in Asia. We have another record year for LV.
<unk> of our low carbon footprint products.
On the newer rubber side, we delivered another solid year in this category in 2023, although we continued to experience softness in Asia.
We had another record year for LPT global billings surpassed $165 million in 2023 up 10, 5% compared to 2022, we're outperforming market growth in this category as well with LTC billings in 2023 up double digits in the Americas, our largest market compared to industry wide benchmarks that <unk>.
Laurel Hurd: Global billings surpassed $165 million in 2023, up 10.5% compared to 2022. We're outperforming market growth in this category as well, with LVT billings in 2023 up double digits in the Americas, our largest market, compared to industry-wide benchmarks that show LVT growth in low-sync markets. We're encouraged by these share gains as customers increasingly show preference for the design and performance of our flooring solutions. Turning to our market segments, we're pleased with our continued progress to diversify our business. Today, I want to start by looking at corporate authority. It exceeded our expectations in 2023 and the fourth quarter. We ended the year flat in the corporate office and up 4% globally in Q4 due to strength in the Americas. More and more people are coming back to the office, driving companies to refresh their spaces, as well as the move to Class A premium buildings.
Growth in low single digits.
We're encouraged by these share gains as customers increasingly show a preference for the design and performance of our flooring solutions.
Turning to our market segments, we're pleased with our continued progress to diversify our business today.
Today I want to start with looking at corporate office, which exceeded our expectations in 2023 and the fourth quarter.
We ended the year flat and corporate office and up 4% globally in Q4 due to strength in the Americas.
More and more people are coming back to the office driving companies to refresh their spaces as well as the move to class a premium buildings.
Laurel Hurd: These are areas where we excel and have a right to win with our premium products and design leadership, and our commercial execution and selling organization is tuned to capitalize on this shift. It's one way our selling system continues to provide us with a competitive advantage. Health care remains an important segment and a key part of our diversification strategy. In 2023, our healthcare business grew in the Americas and Australia, offset by softness in Asia and timing of projects in Europe. Education remains a standout market for us. Global billings were up 5% for the year, driven by strength in the American economy. As higher education purchasers increasingly prioritize the sustainability attributes of interior products, including flooring, Interface remains well positioned to serve customers and continue winning in this market. However, as expected, ongoing retail sector softness remained the headwind, driving the overall decline in sales for both the quarter and the full year. Macroeconomic uncertainty resulted in some customers delaying store remodel projects and, in some cases, closing locations due to constrained budgets.
These are areas, where we excel and have a right to win with our premium products and design leadership and our commercial execution and selling organization is tuned to capitalize on this shift with one way our selling system continues to provide us with a competitive advantage.
Healthcare remains an important segment and a key part of our diversification strategy in 2023, our healthcare business grew in the Americas, and Australia offset by softness in Asia and timing of projects in Europe.
Education remains a standout market for us global billings were up 5% for the year driven by strength in the Americas as higher Ed purchasers increasingly prioritized the sustainability attributes of interior products, including flooring interface remains well positioned to serve customers and continue winning in this market.
As expected ongoing retail sector softness remainder headwinds driving the overall decline in sales for both the quarter and the full year.
Macroeconomic uncertainty resulted in some customers deferring store remodel projects and in some cases closing locations due to constrained budgets.
Laurel Hurd: While retail remains a small percentage of our overall revenue, it did have an outsized impact on our sales in the back half, and we expect the headwinds to continue through the first half of 2024. Excluding retail, we were pleased with the growth we saw for the quarter and the year, particularly given the macro headwinds we navigated. Turning to orders, fourth-quarter orders were flat year over year as currency-neutral orders in the Americas were up 3.1 percent, offset by EAAA that was down 4.1 percent.
While retail remains a small percentage of our overall revenue. It did have an outsized impact on our sales in the back half and we expect the headwinds to continue through the first half of 2024, excluding retail we were pleased with the growth we saw for the quarter and the year, particularly given the macro headwinds we navigated through.
Turning to orders fourth quarter orders were flat year over year as currency neutral orders in the Americas were up three 1%.
Set by each AAA that was down four 1% back.
Laurel Hurd: Backlog at the end of the fourth quarter was solid at $176.3 million as we moved into 2024. We're intently focused on commercial productivity and aligning our sales team to the fastest growing geographic market. The selling organization has done a great job holding price and driving favorable mix both geographically and from a product standpoint. All of this, coupled with distillation and certain raw materials, helped drive 507 basis points of improvement year-over-year in fourth-quarter adjusted gross profit margins. As part of our One Interface strategy, we launched a pilot in 2023 in select U.S. markets, bringing together the NORA and Interface sellers into a coordinated team with an aligned quota that incentivizes cross-selling. We've seen tremendous results. In total, our test markets delivered double-digit order growth over the prior year period, outpacing many of the non-combined teams in the Americas. Teams that previously operated independently started calling their customers together as a single integrated flooring partner, and we've already seen the benefits, opening new opportunities for us to win more of the floor. This is true even with long-term customers who may have only installed one type of product in the past.
Backlog at the end of the fourth quarter was solid at $176 3 million as we moved into 2024.
We are intently focused on commercial productivity and aligning our sales team to the fastest growing geographic market. The selling organization has done a great job holding price and driving favorable mix, both geographically and from a product standpoint.
All of this coupled with deflation in certain raw materials helped drive 507 basis points of improvement year over year and fourth quarter adjusted gross profit margin.
As part of our web interface strategy, we launched a pilot in 2023 and select U S markets, bringing together, the Nora and interfaced sellers into coordinated team with an aligned quota that incentivize us cross selling we've seen tremendous results.
In total our test markets delivered double digit order growth over the prior year period outpacing many of the non combined teams in the Americas.
Seems that previously operated independently started calling our customers together as a single integrated flooring partner and we've already seen the benefits opening new opportunities for us to win more of the floor.
This is true even with longtime customers, who may have only installed one type of product in the past for example, we have a hospital system that has had nor rubber installed for years, but we now proactively offer carpet tile and <unk> for other areas of the floor.
Laurel Hurd: For example, we have a hospital system that has had NORA rubber installed for years, and we now proactively offer carpet tile and LVT for other areas of the floor. Some of these new opportunities are quick turns; some are longer sales cycles, particularly in the north. Ultimately, we're serving our customers better and helping them get the right mix of product across more of the floor plate. Building off the success, in January 2024, we launched combined selling teams across the entire Americas business. And importantly, we are investing in additional feet on the street, specifically with more rubber flooring sales expertise, that will help strengthen our approach as the teams become even more successful. We're funding this investment through realized efficiencies from our global operating model under the One Interface Strategy.
Some of these new opportunities are quick turns some are longer sales cycles, particularly on the north side.
Ultimately, we're serving our customers better and helping them get the right mix of product across more of the floor plate.
Building off the success in January 2024, we launched combined selling teams across the entire Americas business and importantly, we are investing in additional feet on the street, specifically with more rubber flooring sales expertise that will help strengthen our approach as the teams become even more successful with <unk>.
Ending this investment to realize efficiencies from our global operating model under the one interface strategy.
We're also focused on productivity improvements in our manufacturing.
Laurel Hurd: We're also focused on productivity improvements in our manufacturing. As you'll see reflected in our 2024 CAPEX guide, we are planning to make operational investments in our plant, including new automation and robotics solutions. We will be rolling out these investments over the next 18 to 24 months, following an initial pilot that's been going well, with the goal of driving gross profit margin expansion. We anticipate we'll see these benefits amplify as we get into fiscal year 2025. I'm incredibly excited about the work our design teams are doing, as well as the product innovation and development in our pipeline, as we've aligned as one interface, leveraging our global expertise. In Q4, we launched our Fast Forward Carpet Tile Collection. This was the first time in our history that we launched a global collection at the same time everywhere around the world, drawing on decades of renowned design.
As you'll see reflected in our 2020 before Capex guide, we are planning to make operational investments in our plants, including new automation and robotic solutions.
We will be rolling out these investments over the next 18 to 24 months. Following an initial pilot that's been going well with the goal of driving gross profit margin expansion. We anticipate we'll see these benefits amplify as we get into fiscal year 2025.
I'm incredibly excited about the work our design teams are doing as well as the product innovation and development in our pipeline as with the lines of one interface leveraging our global expertise.
In Q4, we launched our path forward carpet tile collections. This was the first time in our history that we launched a global collection at the same time everywhere around the world drawing on decades of renowned design, we have another exciting global carpet tile in LPG collection launch coming up in Q2 that will unveil it quick and well and then neocon our biggest design events of the year.
Laurel Hurd: We have another exciting Global Carpet Tile and LVT collection launch coming up in Q2 that will be unveiled at Clerkenwell and then Neocon, our biggest design events of the year. In addition, we'll continue to expand our open-air collection with more carpet tile designs available at accessible price points, while continuing to bring market-leading design to the premium category. Lastly, we continue to be recognized for our sustainability, progress, and leadership. Notably, in January, our circular approach to carpet towel production was recognized as one of three circularity lighthouses in the built environment by the World Economic Forum and McKinsey Income.
In addition, we will continue to expand our open air collection with more carpet tile designs available and accessible price points, while continuing to bring market leading design the premium category.
Lastly, we continue to be recognized for our sustainability progress and leadership.
Notably in January our circular approach to carpet tile production was recognized as one of three circularity lighthouses in the built environment by the World Economic Forum and Mckinsey <unk> company.
Spearheading circular solution exemplifies our ongoing commitment to achieving our sustainability objectives as well as our focus on innovation impact and value.
As we report our financial results for 2023, I'm proud of our global team for truly embracing our one interface strategy we have.
Positive momentum going into 2024 and I'm excited for what is to come we remain focused on leveraging the power of a global company to drive profitable growth and value to our shareholders with that I will turn it over to Bruce to go over the financials Bruce.
Bruce A. Hausmann: This groundbreaking circular solution exemplifies our ongoing commitment to achieving our sustainability objectives as well as our focus on innovation, impact, and value. As we report our financial results for 2023, I'm proud of our global team for truly embracing our OneInterface strategy. We have positive momentum going into 2024, and I'm excited for what is to come. We remain focused on leveraging the power of our global company to drive profitable growth and value for our shareholders. With that, I will turn it over to Bruce to go over the finances, okay? Well, thank you, Laurel. And good morning, everyone.
Well, thank you Laurel and good morning, everyone.
Fourth quarter net sales totaled $325 1 million a decrease of three 1% versus 2020 twos fourth quarter.
FX neutral net sales declined four 5% year over year.
Fourth quarter FX neutral net sales in Americas were down 4% year over year and.
We saw particular strength in education, and corporate office offset by softness in the retail sector driven mostly by project deferrals.
FX neutral market mutual play were down five 2% driven by a softer macroeconomic environment.
Bruce A. Hausmann: Fourth quarter net sales totaled $325.1 million, a decrease of 3.1% versus 2022's fourth quarter. FX Mutual's net sales declined 4.5% year over year. Fourth quarter FX neutral net sales in the Americas were down 4% year over year, and we saw particular strength in education and corporate office offset by softness in the retail sector, driven mostly by project deferrals. FX Mutual Net sales in the AAA were down 5.2%, driven by a softer macroeconomic environment.
Fourth quarter adjusted gross profit margin was 38, 3% an increase of 570 basis points from prior years fourth quarter, primarily due to strong execution from our selling organization to hold price favorable product mix and raw material input cost deflation, partially offset by unfavorable.
Fixed cost absorptions.
You had a few items that benefited our adjusted gross profit margin in the fourth quarter, which contributed 160 basis points in Q4, and 40 basis points for the full year of 2023.
Bruce A. Hausmann: Fourth quarter adjusted gross profit margin was 38.3%, an increase of 507 basis points from the prior year's fourth quarter, primarily due to strong execution from our selling organization to hold price, favorable product mix, and raw material input cost deflation, partially offset by unfavorable fixed cost absorption. We had a few items that benefited our adjusted gross profit margin in the fourth quarter, which contributed 160 basis points in Q4 and 40 basis points for the full year of 2023. For example, we received an R&D credit and an energy subsidy from the German government in the fourth quarter, which reduced our cost of sale. These are benefits that we do not expect to recur going forward, which is reflected in our guide.
For example, we received an R&D credit and an energy subsidy from the German government in the fourth quarter, which reduced our cost of sales.
These are benefits that we do not expect to recur going forward, which is reflected in our guide.
Adjusted SG&A expenses were $83 5 million in the fourth quarter compared to $79 4 million in the fourth quarter of 2022.
As we focused on strong cost controls and efficiencies offset by inflation.
Fourth quarter, adjusted operating income was $41 million compared to adjusted operating income of $32 million in the fourth quarter of 2022.
The increase was due to higher gross profit margins in the fourth quarter, which I described earlier.
Fourth quarter adjusted EPS was <unk> 41.
Bruce A. Hausmann: Adjusted SG&A expenses were $83.5 million in the fourth quarter compared to $79.4 million in the fourth quarter of 2022, as we focused on strong cost controls and efficiencies offset by inflation. Fourth quarter adjusted operating income was $41 million compared to adjusted operating income of $32 million in the fourth quarter of 2022. The increase was due to higher gross profit margins in the fourth quarter, which I described earlier. Fourth quarter adjusted EPS was $0.41 versus $0.31 in the fourth quarter of 2022. And adjusted EBITDA was $52.2 million versus $41.3 million in the fourth quarter of 2022. Now, turning to the full year results. Full year 2023 net sales totaled $1.26 billion, a decrease of 2.8% versus fiscal year 2022, and FX Neutral Net Sales declined 2.9% year over year. FX Neutral Net Sales in the Americas were down 2% year over year, and FX Neutral Net Sales in the AAA were down 4.2%.
Versus 31 in fourth quarter of 2022 and.
And adjusted EBITDA was $52 2 million versus $41 3 million in the fourth quarter of 2022.
Now turning to the full year results full.
<unk> full year 2023, net sales totaled $1 6 billion, a decrease of two 8% versus fiscal year 2022.
And FX neutral net sales declined two 9% year over year.
FX neutral <unk> Americas were down 2% year over year.
<unk> neutral net sales new AAA were down four 2%.
2023, adjusted gross profit margin was 35, 4% an increase of 70 basis points from the prior year period, primarily due to strong execution from the selling organization and raw material cost deflation in the back half of the year.
Adjusted SG&A expenses were $329 8 million in 2023 compared to $317 6 million in 2022, and the increase was primarily due to inflation.
Full year adjusted operating income was $116 4 million compared to adjusted operating income of $132 4 million in 2022 with.
Bruce A. Hausmann: 2023's adjusted gross profit margin was 35.4%, an increase of 70 basis points from the prior year period, primarily due to strong execution from the selling organization and raw material cost deflation in the back half of the year. Adjusted SG&A expenses were $329.8 million in 2023, compared to $317.6 million in 2022, and the increase was primarily due to inflation. Full-year adjusted operating income was $116.4 million compared to $132.4 million in 2022. The decrease was primarily due to lower net sales in 2023 compared to 2022.
The decrease was primarily due to lower net sales in 2023 compared to 2022.
Adjusted EBITDA for 2023 was $162 million versus $176 1 million in 2022.
We generated 142 million of cash from operating activities in 2023 and liquidity was strong at the end of the year totaling $408 9 million, which consisted of $110 5 million of cash and $298 4 million of revolver capacity.
In line with our capital allocation strategy, we repaid $105 3 million of debt in 2023, resulting in net debt for total debt minus cash on hand of $306 7 million at the end of the year.
Bruce A. Hausmann: Adjusted EBITDA for 2023 was $162 million versus $176.1 million in 2022. We generated $142 million of cash from operating activities in 2023, and liquidity was strong at the end of the year, totaling $408.9 million, which consisted of $110.5 million of cash and $298.4 million of revolver capacity. In line with our capital allocation strategy, we repaid $105.3 million of debt in 2023, resulting in net debt, or total debt minus cash on hand, of $306.7 million at the end of the year. We also brought our leverage ratio down to 1.9 times, calculated as net debt divided by LTM adjusted EBITDA. We continue to focus on strengthening the balance sheet, which positions us to capitalize on future growth opportunities as they arise. Capital expenditures were $26.1 million in 2023 compared to $18.4 million in 2022.
We also brought our leverage ratio down to one nine times calculated as net debt divided by LTM adjusted EBITDA.
We continue to focus on strengthening the balance sheet, which positions us to capitalize on future growth opportunities as they arise.
Capital expenditures were $26 1 million in 2023 compared to $18 4 million in 2022.
As we looked at 2024, while the macroeconomic environment remains dynamic we are encouraged by improving trends.
And while uncertainty remains we are forecasting growth and gross profit margin expansion in 2024, while maintaining tight controls over SG&A.
As Laura mentioned, we expect continued headwinds from a soft retail sector for the first half of the year plus more customary seasonality, which typically means a lighter Q1 sequentially followed by a stronger Q2 and Q3.
With that backdrop in mind, we are anticipating following.
For the first quarter of fiscal 2024, net sales of $280 million to $290 million.
Bruce A. Hausmann: As we look at 2024, while the macroeconomic environment remains dynamic, we are encouraged by improving trends. And while uncertainty remains, we are forecasting growth and gross profit margin expansion in 2024 while maintaining tight controls over SG&A. As Laurel mentioned, we expect continued headwinds from a soft retail sector for the first half of the year, plus more customary seasonality, which typically means a lighter Q1, sequentially followed by a stronger Q2 and Q3.
Adjusted gross profit margin of approximately 36% adjusted.
Adjusted SG&A expenses of approximately $83 million.
Adjusted interest and other expenses of approximately $8 million and fully diluted weighted average share count of approximately $58 8 million shares.
And for the full fiscal year of 2024, we are anticipating net sales of $1 two six to $1 $2 8 billion.
Adjusted gross profit margin of approximately $35 five to 35, 8%.
Bruce A. Hausmann: And with that backdrop in mind, we are anticipating the following for the first quarter of fiscal 2024: net sales of 280 to 290 million, adjusted gross profit margin of approximately 36 percent, adjusted SG&A expenses of approximately $83 million, adjusted interest and other expenses of approximately $8 million, and a fully diluted weighted average share count of approximately 58.8 million shares.
Adjusted SG&A expenses of approximately 26% of net sales.
Adjusted interest and other expenses of approximately $32 million.
The adjusted effective tax rate for the full year of approximately 29%.
And capital expenditures of approximately $42 million.
Now I'll turn the call back to Laura for concluding remarks.
Thank you Bruce I want to express my gratitude to our team for their hard work this past year.
Overall, we navigated a dynamic market and while there is still some uncertainty ahead, we're seeing positive momentum as we enter 2024.
Bruce A. Hausmann: And for the full fiscal year of 2024, we are anticipating net sales of $1.26 to $1.28 billion, an adjusted gross profit margin of approximately 35.5 to 35.8 percent, adjusted SG&A expenses of approximately 26% of net sales, adjusted interest and other expenses of approximately $32 million, an adjusted effective tax rate for the full year of approximately 29%, and capital expenditures of approximately $42 million. Now, I'll turn the call back to Laurel for her concluding remarks. Thank you, Bruce. I want to express my gratitude to our team for their hard work this past year. Overall, we navigated a dynamic market, and while there is still some uncertainty ahead, we are seeing positive momentum as we enter 2024. I am encouraged by the progress we are making with our One Interface strategy, combined with strong commercial execution and operational discipline. We remain focused on delivering against our growth, amplifying our efforts against high-growth segments like education and health care while gaining share in corporate offices.
Encouraged by the progress we are making with our one interface strategy combined with strong commercial execution and operational discipline.
We remain focused on delivering against our growth priorities for amplifying our effort against high growth segments like education, and health care, while gaining share in corporate office. We're also leveraging our selling system is a competitive advantage and aligning our biggest opportunity geographies.
And we're focused on delivering innovative designs and differentiated low carbon products to build on our strength in the premium specified market. While we continue to offer the right product mix and expanded selection can meet our customers' needs.
We look forward to sharing more updates on our progress in future calls. Thank you with that I'll open it up for questions operator.
Okay.
If you would like to ask a question.
Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open.
Alright, Thank you for taking my questions today.
I just wanted to see if you could review.
To see the momentum in carpet tile, but overall for Q4.
Laurel Hurd: We're also leveraging our selling system as a competitive advantage and aligning our biggest opportunity to, and we're focused on delivering innovative designs and differentiated low carbon products to build on our strength in the premium specified market, while we continue to offer the right product. Expanded selection, commuter. I look forward to sharing more updates on our progress in future calls. Thank you. With that, I'll open it up for questions. Operator. If you would like to ask a question, please press star followed by the number one on your telephone keypad.
Could you review.
Volumes and pricing trends.
And if you're able to break it out by Americas versus.
Europe Africa, Asia, and Australia that would be great, but really mainly volume and pricing initially.
And then I have a follow up some cash generation.
Hello, Good morning, Kathryn this is Bruce.
So if we just focus on carpet in Q4.
<unk> was up around 6% and volumes were down around 2%.
So we saw we saw actually a nice momentum going through the quarter.
Kathryn Ingram Thompson: Your first question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open. Hi, thank you for taking my questions today. I just wanted to see if you could review, it's great to see the momentum for carpet towel, but overall for Q4, could you review volumes and pricing trends? And if you're able to break it out by Americas versus Europe, Africa, Asia, and Australia, that'd be great, but really mainly volume and pricing initially, and then there will be a follow-up from cash. Well, Kathryn, this is Bruce.
And if we look at total company around all of our product lines pricing was up around 4% for the quarter.
Okay great.
Then just in terms of you've done a really nice job of paying down debt.
And cash generation in the year when you frame the year.
What sort of is puts you in terms of.
Free cash generated for the quarter for the year.
And you hit your bogey of being below two times for leverage.
Bruce A. Hausmann: So if we just focus on carpet in Q4, pricing was up around 6%, and volumes were down around 2%. So we saw, actually, nice momentum going through the quarter. And if we look at the total company around all of our product lines, pricing was up around 4% for the quarter. And then just in terms of, you know, you've done a really nice job of paying down debt and Cash Generation of the Year. When you frame the year. Where does this put you in terms of free cash generated, both for the quarter and for the year? And you hit your bogeyman of being below two times for leverage. What kind of went went now once you've hit your bogey?
What now kind of win once you've hit your bogey.
Yes, great question.
So our capital allocation strategy remains the same right now we're going to continue focusing on hang on paying down debt. While also investing in the business and you probably noticed our Capex guide. This year, we have some equipment that we're going to invest in and our plant, which we believe.
Lower our costs, our operating cost and also increase our gross profit margins. So it's a bit of a balancing act, but for sure paying down debt is a top priority still and as you mentioned, thank you for pointing it out our free cash flow generation was great. This year, we generated a lot of cash and.
We were very disappointed to paying down debt.
Bruce A. Hausmann: Yeah, great question. So our capital allocation strategy remains the same. Right now, we're going to continue focusing on paying down debt while also investing in the business. And you probably noticed our CapEx guide for this year. We have some equipment that we're going to invest in at our plant, which we believe will help lower our costs or operating costs and also increase our gross profit margins. So it's a bit of a balancing act.
No Sir.
Debt.
Adjusted EBITDA was one nine times, so we're below two which is fantastic.
Okay, Great and then.
Just a final cleanup call clean.
Cleanup question.
Could you just also clarify what's your adjusted gross margin you said it wasn't prepared commentary and then.
Just the puts and takes.
For your your margin expectations, both gross profit and SG&A for 2024.
Bruce A. Hausmann: But for sure, paying down debt is a top priority still. And as you mentioned, thank you for pointing it out. Our free cash flow generation was great this year; we generated a lot of cash. And, and we were very disciplined about paying down debt. I probably noticed our debt adjusted diva die was 1.9 times.
And good luck.
Sure. Thank you Curt.
So if we think about a baseline adjusted gross profit margin for the year It was 35%.
As we mentioned in our prepared remarks, we had 40 basis points of nonrecurring pickups in Q4, I'm sorry for the full year. Our Q in Q4. It was 160 basis points of nonrecurring pickups baseline for Q4 was 36 seven.
Bruce A. Hausmann: So we're below two, which is fantastic. Okay, great. And then just a final cleanup call, I mean, cleanup question: could you just also clarify what your adjusted gross margin is, you said, or it wasn't prepared commentary and then just the puts and takes for your margin expectations, both Grisproft and SG&A for 2024. Thanks and good luck.
I'll just note that if you if you go off the baseline we had and you can and you compare where we landed this year compared to our guide our midpoint guide we're planning on 70 basis points year over year improvement on our gross adjusted gross profit margin line.
Bruce A. Hausmann: So if we think about a baseline adjusted gross profit margin for the year, it was 35%. As we mentioned in our prepared remarks, we had 40 basis points of non-recurring pickups in Q4. I'm sorry, for the full year, in Q4, it was 160 basis points of non-recurring pickups. The baseline for Q4 was 36.7.
But as you model that out. Please note that Q4 will have a really tough comp given the fact that we had 160 basis points.
Nonrecurring pickups in Q4 of this year that will have to lap next year in Q4.
And then we're just going to continue I think you asked about SG&A, we're going to continue optimizing our SG&A spend.
Bruce A. Hausmann: So I'll just note that if you go off the baseline and you compare where we landed this year compared to our guide, our midpoint guide, we're planning for 70 basis points of year-over-year improvement on our adjusted gross profit margin line. But as you model that out, please note that Q4 will have a really tough comp given the fact that we had 160 basis points of non-recurring pickups in Q4 of this year that we'll have to lap next year in Q4. And then, you know, we're just going to continue. I think you asked about SG&A.
Our one interface program.
Continues to give us opportunities to leverage our SG&A globally operate as one company and I think we're demonstrating that we're really running the company as one across the across the globe, which just gives us great opportunity to leverage our scale.
Your next question comes from the line of David Macgregor with Longbow Research. Your line is open.
Hey, Good morning. This is Joe Nolan on for David.
Hey, Joe.
Alright.
Just wanted to start you guys talked about some input cost deflation in the fourth quarter can you just talk about what is baked into your guidance for raw materials in 2024.
Bruce A. Hausmann: We are going to continue optimizing our SG&A spend. And our One Interface program continues to give us opportunities to leverage our SG&A globally and operate as one company. And, you know, I think we're demonstrating that. And we're really running the company as one across the globe, which gives us a great opportunity to leverage our scale. Your next question comes from the line of David MacGregor with Longbow Research. Your line is open. Hey, good morning. This is Joe Nolan on behalf of David.
Maybe talk about some of the moving buckets within that.
Sure Joe So we are we have.
I was wondering in the back half of last year of 2023, we did start to see some deflation in our purchases and we saw some benefits of that in Q4 of 2023, we'll see continue to see some benefit of that going into 2024.
As I just mentioned, we're planning on coming off of our baseline adjusted gross profit margin were planning about 70 basis points of year over year improvement and about a third of that is it going to be generated by raw material deflation and the other third will be generated by pricing and the other third will be generated by.
Joseph Nolan: Hey, Joe. All right. I just wanted to start. You guys talked about some input cost deflation in the fourth quarter. Can you just talk about what is baked into your guidance for raw materials in 2024 and maybe talk about some of the moving buckets within that?
Productivity.
Got it okay. That's helpful.
And then could you. Please just give us an update on one interface initiative and when do you expect that to contribute to 2024 results.
Bruce A. Hausmann: So we are, you know, we had 30 in the back half of last year 2023. We did start to see some deflation in our purchases, and we saw some benefits of that in Q4 of 2023. We'll continue to see some benefit of that going into 2024. As I just mentioned, we're planning on coming off of our baseline adjusted gross profit margin; we're planning about 70 basis points of year over year improvement. And about a third of that is going to be generated by raw material deflation. And the other third will be generated by pricing, and the other third will be generated by productivity. You got it.
Yes, I'd be happy to.
Thanks, Joe we're really pleased with the progress and I think what you can see in 2024 will be I think we are starting to show some real proof points of that progress both with some of our new collection launches on our results in Q4, Youll see that continue to strengthen as I mentioned in the prepared remarks, we will have more global collections launching at Clerkenwell in neocon.
We expect to contribute to our growth.
And then we have this pilot that we launched this year in the Americas with our combined selling team.
So as you know our neuro business, we acquired in 2018, and we've been doing a really great job infusing design into what's really a technical sale and we're taking it a step further in the Americas, we've been really reluctant to fully integrate the selling team because it really is a different sale.
Joseph Nolan: Okay. And then could you please just give us an update on the OneInterface initiative and what you expect that to contribute to the 2024 results? Yeah, I'd be happy to.
When I go out to a anoro customer.
Im suited up head to toe in a bunny sue kind of crawling around on the hospital room floor.
Versus what our interface sellers spend a lot of their time with architects and designers and end users.
Laurel Hurd: Thanks, Joe. We're really pleased with the progress. And I think what you'll see in 2024 will be, you know, I think we're starting to show some real proof points of that progress, both with some of our new collection launches and our results in Q4. You'll see that continue to strengthen, as we mentioned in the prepared remarks, we'll have more global collections launching at Clerkenwell and Neocon that we really expect to contribute to our growth. And then we have this pilot that we launched this year in the Americas with our combined selling team. So, as you know, our Nora business we acquired in 2018, and we've been doing a really great job infusing design into what's really a technical sale. And we're taking it a step further in the Americas.
But what we've found and in the example that we gave on a.
Hospital campus, they love the Nora brand and nor has been sold in every operating room in every one of their facilities around the world.
And yet we haven't necessarily landed the Lv T or the carpet tile in patient rooms in waiting rooms.
So now we're launching <unk>.
Combined selling teams, which have one quota and when you have a variable comp structure and you align those selling system.
So we've seen some really strong results.
With order generation up double digits in those pilot markets.
So we're rolling out across the Americas, we launched that in January we had our selling teams together in the past few weeks and are really excited about the results there.
Okay.
That's great detail, thanks ill pass it on.
Your next question comes from the line of Keith Hughes with Truest. Your line is open.
Laurel Hurd: We've been really reluctant to fully integrate the selling team because it really is a different sale. When I go out to a Nora customer, I'm suited up head to toe in a bunny suit, kind of crawling around on the hospital room floor versus what our interface sellers spend a lot of their time with architects and designers and end users. But what we found in the example that we gave on a hospital campus, they love the Nora brand, and Nora's been sold in every operating room and every one of their facilities around the world, and yet we haven't necessarily landed the LVT or the carpet tile in patient rooms and waiting rooms.
Alright, thank you.
Within the revenue guide for the year, which is slide.
Slide modestly up could you just talk about how you think curious end user markets, we'll we'll be performing at this point.
Yeah, Hi, Keith.
So as we as we mentioned our retail.
And market has been challenged starting in the back half of last year and as we mentioned so it's largely one customer and.
And we see that continuing in the first half of this year and the good news there we haven't lost that business, they've just delayed their store remodels, which we do expect theyre going to have to remodel at some point, but we're being conservative about how we're thinking about that.
Laurel Hurd: So now we're launching combined selling teams, which have one quota. And when you have a variable comp structure and you align those selling systems, we've seen some really strong results with order generation up double digits in those pilot markets. So we're rolling that across the Americas.
So that's I think the biggest headwind that we've got in the first half of the year and then we'll be past that comp in the middle of the year.
Laurel Hurd: We launched that in January. We had our selling team together for the past few weeks and are really excited about the results there. That's a great detail. Thanks; I'll pass it on.
We are seeing strength in corporate as people are returning to work in that class a space is really.
Where we're seeing the most activity and again, we believe we're gaining share there so where.
Keith Hughes: Your next question comes from the line of Keith Hughes with Truist. Your line is open. Thank you. Within the revenue guide for the year, modestly up. Could you just talk about how your various end user markets will be performing. Yeah, Keith, you know, as we've, as we mentioned, our retail and wholesale market has been challenged starting in the back half of last year. And as we mentioned, it's largely one customer, and we see that continuing in the first half of this year. And the good news there is that we haven't lost that business. They've just delayed their store remodels, which we do expect they're going to have to remodel at some point, but we're being conservative about how we're thinking about that. So that's, I think, the biggest headwind that we've had in the first half of the year. And then we'll be past that comp in the middle of the year.
We're not naive to the market dynamics, but we're cautiously optimistic that corporate will continue to hold and really steady and then health care and education were continuing to see growth there and expect that to continue.
In the corporate office comment you just made is that from remodel activity is that what's driving you to it sounds like it's going be a positive number based on what you just said or is.
Remodel and new construction.
We're primarily seeing the strength in remodel for sure as people are moving their spaces.
There's a lot of movement with return to office and people wanting to refresh their space either encourage to bring people back or in some cases, they are moving to new space that's smaller.
But that activity is really good for us and we're capitalizing on it it's definitely the remodel side of it.
Okay and final question on revenue guidance, what's the.
Laurel Hurd: We are seeing strength in corporate, as people are returning to work, and that Class A space is really where we're seeing the most activity. And again, we believe we're gaining share there. So we're, you know, we're not naive to the market dynamics, but we're cautiously optimistic that corporate will continue to hold in really steady. And then healthcare and education, we're continuing to see growth there and expect that to continue in the corporate office. The comment you just made. Is that from remodel activity? Is that what's driving it?
Units and.
Okay pricing flattish in this scenario or is there some residual pricing is going to be flowing through.
End of the year.
Okay.
We think theres, a little bit of residual price, we do we do pretty good job when we rollout pricing.
Old it will do that oftentimes with new collections and other things that we're able to hold so theres a little bit of price.
And then units about flattish maybe down a little bit.
Okay. Thank you.
Yes.
There are no further questions at this time I will now turn the call back over to Laurel Hurd for closing remarks.
Keith Hughes: So it sounds like it's gonna be a positive number based on what you just said, or is it remodel and new? We're primarily seeing the strength in remodel, for sure. It's people moving their spaces. There's a lot of movement with the return to the office and people wanting to refresh their space, either encouraged to bring people back, or, in some cases, they are moving to new space that's smaller. But that activity is really good for us, and we're capitalizing on it. It's definitely the remodel side of it.
Great. Thank you and thanks to everyone for listening to the call today, thanks to the entire interface team for their continued effort and we look forward to keep everyone keeping everyone posted on our progress.
Okay.
This concludes today's call you may now disconnect.
Please wait the conference will begin shortly.
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Laurel Hurd: And final question on the Revenue Guide, are units and prices... flattish in this scenario, or is there some residual pricing that's still going to be flowing through? We think there's a little bit of residual price. We do a pretty good job when we roll out pricing to hold it. We'll do that oftentimes with new collections and other things that we're able to hold. So there's a little bit of price, and then units are about sladdish, maybe down a little bit.
Okay.
[music].
Okay.
Yes.
Keith Hughes: Okay, thank you. Yes, there are no further questions at this time. I will now turn the call back over to Laurel Hurd for closing remarks. Great, thank you. And thanks to everyone for listening to the call today. Thanks to the entire Interface team for their continued efforts, and we look forward to keeping everyone posted on our progress.
Yes.
Okay.
Okay.
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Laurel Hurd: This concludes today's call. You may now disconnect. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.
Yes.
Sure.