Q4 2024 Interface Inc Earnings Call
Hello, and welcome to Q4 two.
Speaker Change: <unk> fourth quarter 2024 interface, Inc. Earnings Conference call. Please note that this call is being recorded after the Speakers' prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time. Please press star followed by one on your telephone keypad. Thank you.
Speaker Change: I'd now like to hand, the call over to Christine Needles Global Communications you may now begin.
Christine Needles: Good morning, and welcome to interfaces conference call regarding fourth quarter and full year 2024 result.
Speaker Change: Hosted by Laurel Hurd CEO.
Bruce Hausmann: Bruce Hausmann CFO.
Bruce Hausmann: 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.
We're 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.
Bruce Hausmann: 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 SEC.
Bruce Hausmann: The company assumes no responsibility to update forward looking statements.
Bruce Hausmann: 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.
Bruce Hausmann: Lastly, this call is being recorded and broadcasted for interface. It contains copyrighted material and may not be rerecorded or rebroadcast without interfaces express permission.
Bruce Hausmann: 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.
Laurel Hurd: Thank you Christine and good morning, everyone interface delivered a strong year in 2020 for achieving a 4% increase in currency neutral net sales and significantly boosting profitability. Despite continued headwinds in our industry.
Laurel Hurd: Confident that our strategy is working as a reminder are one interface strategy is a multiyear effort focused on building strong global functions to support our world class local selling teams.
Laurel Hurd: Accelerating growth through enhanced productivity of our commercial team.
Laurel Hurd: Expanding margins for global supply chain management, and simplifying operations and leading in design innovation and sustainability.
Speaker Change: Incredibly proud of our team and all that we've achieved this year, let me run through a few highlights of our strategy execution in 2024.
Speaker Change: Looking at commercial productivity you may recall that in Q1 2024, we implemented an integrated selling approach combining Nora and interface selling teams in the U S with.
Speaker Change: This collaborative strategy is delivering accelerated results, including double digit order growth in the Americas region year over year.
Speaker Change: The team has successfully tapping into new opportunities across our product portfolio and we're excited to see north sales expanding beyond health care into other high growth segments.
Speaker Change: And our continued efforts to globalize, our functional teams, we appointed our first chief supply chain officer about 18 months ago to optimize our supply chain globally and drive productivity improvements that will help expand gross profit margins.
Speaker Change: We realign our supply chain organization to focus on productivity and continuous improvement and technology enabled solutions.
Speaker Change: As a result of this newly globalized supply chain team, we've made significant progress in driving operational efficiencies.
Speaker Change: Throughout 2024, we invested in automation and robotics solutions are key manufacturing plants, including our carpet tile manufacturing in the U S and our Nora rubber plant in Germany, contributing to improve margins and greater operational efficiency.
Speaker Change: The initial results of these investments have been very promising boosting efficiency consistency and scalability in our manufacturing processes.
Speaker Change: As we've shared on prior calls we will continue to implement these automation investments over the next several quarters and we will invest in additional opportunities across our global manufacturing footprint.
Speaker Change: Looking forward, we remain focused on further enhancing productivity streamlining workflows and optimizing resources and.
Speaker Change: Importantly by reinvesting efficiency driven savings directly into these advancements we continue to drive growth and position ourselves for long term success.
Speaker Change: We also delivered several important initiatives in 2024 to help elevate our brand positioning for.
Speaker Change: For example, we introduced made for more fresh brand attitude designed to unite our brands and create greater consistency in the way we service our customers.
Speaker Change: Our interface, nor our brands together and demonstrating the power of our portfolio.
Speaker Change: This platform streamlines, our marketing and branding efforts and is an example of how we're benefiting from globalizing as one interface.
Speaker Change: In addition last spring we executed our second global product launch aligned to our biggest interior design and trade events and importantly, we announced that we're going all in on our goal to be carbon negative by 2040 without the use of carbon offsets, which is an important elevation of our sustainability strategy.
Speaker Change: This allows us to repurpose offset dollars into innovation and R&D that focus on direct impacts, including carbon reduction and carbon storage opportunities.
Speaker Change: In fact interface received the top honor in Reuters 2020 for sustainability awards with the highest distinction in the net zero leadership category for our shift from offsets and Recommitment to our carbon negative pole.
Speaker Change: In January of this year, we also introduced a proof of concept carbon negative rubber flooring prototype at the bow the major trade event in Germany.
Speaker Change: This is a great example of how we are bringing our long track record of carbon reduction and innovation to our neuro product category.
Speaker Change: It's also a proof point for investing in R&D, where we can have the most direct positive impacts to meet our ambitious sustainability targets and deliver product innovations that help our customers achieve their own carbon reduction goals.
I'm proud of our continued progress and recognition in sustainability and I'm encouraged by the tremendous amount of work that has gone into our products, our deep expertise and commitment truly differentiate interests in the industry.
Speaker Change: As I think about the year overall I'm incredibly pleased with the global organization's execution of our strategy, which is delivering solid initial results and in some areas even faster results than we anticipated.
Speaker Change: With our strong strategy execution as the backdrop, let's turn to how we drove our financial results.
Speaker Change: In 2024, we delivered currency neutral net sales growth of 4% year over year and nearly doubled GAAP earnings per diluted share.
Speaker Change: Mobile billings were up across all product categories, including carpet tile L V T and rubber.
Speaker Change: Growth was fueled by strong performance in the Americas.
Speaker Change: Currency neutral net sales increased 9% year over year.
Speaker Change: And he AAA currency neutral net sales were down 2% on a softer macro.
Speaker Change: Lower net sales in Australia were partially offset by higher net sales in Asia with and they are being slightly down for the year.
Speaker Change: Moving to our market segments Global education billings were up 10% for the year driven by strength in the Americas.
Speaker Change: Your face is strategically positioned in both K through 12, and higher education based on the work we've done to align our product portfolio with the needs of our customers in these markets.
Speaker Change: By offering more approachable price points and differentiating through design and sustainability, we've expanded our addressable market.
Speaker Change: Strong macro drivers are at play in these markets, including regional migration, where families follow company relocations that increase the need for schools and health care facilities and.
Speaker Change: Higher education, Theres still pent up demand following the COVID-19 years with institutions investing and campus spaces to attract students in a highly competitive environment.
Speaker Change: In K through 12 schools are undergoing renovations to modernize and expand facilities. These powerful market trends are expected to drive steady growth in the education sector with a projected increase in the mid single digits over time.
Speaker Change: And health care Global billings were down 2% year over year in 2024, but up 12% in the fourth quarter as orders converted to billings.
Speaker Change: Interface is positioned for success in health care through differentiated products that are ready to meet the needs of an aging population longer life expectancies increased technology and a focus on preventative care.
And this growing environment, we're seeing success with our integrated selling teams and finding new opportunities to sell our full suite of products to health care systems.
Speaker Change: Moving to the corporate office segment Global Billings were down 1% for the year, which was favorable compared to the overall industry and I found outcome in a challenging market.
Speaker Change: We continue to see an increase in return to office mandates and many companies are refreshing their spaces, especially class a space, where we are positioned to win with our competitive advantage and premium products innovative design and sustainability leadership.
Speaker Change: As we move into 2025 interface is well positioned to capture this continuing demand.
Speaker Change: Finally, retail billings were up in 2024 compared to a soft 2023, and while retail is a small percentage of our total revenue. It had an outsized favorable impact on net sales in 2024 as previously deferred projects were activated.
Speaker Change: Turning to orders in the fourth quarter of 2024 consolidated currency neutral orders increased 5% year over year.
Speaker Change: Currency neutral orders in the Americas were up 9% year over year, driven by effective execution from our combined selling teams.
Speaker Change: AAA is fourth quarter currency neutral orders were down 1% year over year on a softer macro environment.
Speaker Change: EMEA was up slightly partially offset by softness in Australia.
Speaker Change: Our backlog was strong at the end of 2024 up 15% year over year, which puts us in a strong position as we head into fiscal 2025.
Speaker Change: The results we delivered in 2024 from a one interface strategy give us confidence that there's more growth to come.
Speaker Change: In 2025, we will continue to execute our one interface strategy and expect growth to outpace the industry.
Speaker Change: We will continue to simplify our supply chain operations and drive operational efficiencies and productivity in our manufacturing environment.
Speaker Change: We're excited about our product pipeline that will launch in 2025, which we are confident we will demonstrate our design and sustainability leadership.
Speaker Change: Overall, we feel good about the momentum in the U S market and the strong position, we hold with our premium products design and sustainability leadership there.
Speaker Change: We are closely monitoring the global geopolitical and macroeconomic environments around the world as the European and Australian macro environments are softer right now.
Speaker Change: With that background in mind and with an incredible year under our belt I want to thank the entire interface team around the globe for their relentless commitment to our strategy and dedication to serving our customers with best in class flooring solutions.
Speaker Change: With that I'll turn it over to Bruce to go over the financials Bruce.
Bruce Hausmann: Well, thank you Laurel and good morning, everyone.
Bruce Hausmann: Fourth quarter net sales totaled $335 million, an increase of 3% versus 2023 fourth quarter.
Bruce Hausmann: This was in line with our implied fourth quarter guidance, Despite 6 million of FX in the fourth quarter that we did not anticipate.
Bruce Hausmann: FX neutral net sales increased three 4% compared to the prior year's fourth quarter.
Bruce Hausmann: Fourth quarter FX neutral net sales in the Americas were up nine 6% year over year FX.
Bruce Hausmann: FX neutral net sales nature Palais were down five 2% driven by a softer macro environment.
Bruce Hausmann: Fourth quarter adjusted gross profit margin was 36, 9% a decrease of 139 basis points from the prior year's fourth quarter as expected because gross profit margin benefited 160 basis points from nonrecurring items in the fourth quarter of 2023.
Bruce Hausmann: Adjusted SG&A expenses were $90 8 million in the fourth quarter compared to $83 5 million in the fourth quarter of 2023.
Bruce Hausmann: Fourth quarter adjusted operating income was $32 8 million compared to adjusted operating income of $41 million in the fourth quarter of 2023.
Bruce Hausmann: The decrease was primarily due to a lower adjusted gross profit margin in the quarter as mentioned earlier higher sales commissions and higher variable compensation on stronger full year results.
Bruce Hausmann: Fourth quarter adjusted EPS was <unk> 34.
Bruce Hausmann: Versus <unk> 41 in the fourth quarter of 2023.
Bruce Hausmann: Fourth quarter, adjusted EBITDA was $46 million versus $52 2 million in the fourth quarter of 2023.
Bruce Hausmann: Turning to our full year results full year 2024, net sales totaled $1 three 2 billion, an increase of four 3% versus fiscal year 2023.
Bruce Hausmann: FX neutral net sales increased four 4% year over year.
Bruce Hausmann: FX neutral net sales in the Americas were up eight 8% year over year.
Bruce Hausmann: Capex neutral net sales nature belay were down one 7%.
Bruce Hausmann: 2024, adjusted gross profit margin was 37, 1% an increase of 173 basis points from the prior year period, primarily due to the strong execution from our selling organization favorable mix lower input costs and higher volumes.
Bruce Hausmann: Adjusted SG&A expenses were $346 7 million in 2024 compared to $329 8 million in 2023.
Bruce Hausmann: The increase was primarily due to higher sales commissions and incentive comp on stronger business performance.
Bruce Hausmann: Full year 2024, adjusted operating income was $141 4 million compared to $116 4 million in 2023.
Bruce Hausmann: The increase was primarily due to higher sales and higher gross profit margins in the year.
Bruce Hausmann: Adjusted EBITDA for 2024 was $189 million versus $162 million in 2023.
Bruce Hausmann: We generated $148 4 million of cash from operating activities in 2024.
Bruce Hausmann: Our liquidity was strong at the end of the year totaling $398 5 million.
In line with our capital allocation strategy, we repaid $115 $2 million of debt in 2024, resulting in net debt for total debt minus cash on hand of $203 5 million at the end of the year.
Bruce Hausmann: We also brought our net leverage ratio down to one one times as calculated as net debt divided by the last 12 months of adjusted EBITDA.
Bruce Hausmann: Our balance sheet is strong and it provides resilience and optionality as we move into 2025.
Bruce Hausmann: Our focus in 2025 is to maintain a disciplined capital allocation strategy by investing wisely in the business to drive growth and accelerate value creation.
Bruce Hausmann: Capital expenditures were $33 8 million in 2024 compared to $26 1 million in 2023.
Bruce Hausmann: Turning to our outlook, we entered 2025 with a strong backlog and we expect customary seasonality in the year, which typically means a lighter Q1 sequentially followed by a stronger Q2 and Q3 sequentially.
Separately.
Bruce Hausmann: Even current strength of the U S dollar compared to other foreign currencies, we are forecasting translation FX to negatively impact our year over year net sales growth rate by approximately 2% in Q1, 2025, and approximately 1% to 2% and the full fiscal year of 2025. This is included in our Q1.
Bruce Hausmann: Full year 2025 guidance.
As we report earnings during the year, we will continue to provide FX neutral net sales growth, which measures underlying growth rates of the business without the distortion caused by translation FX and with that backdrop in mind, we are anticipating following.
Bruce Hausmann: For the first quarter of fiscal 2025, net sales of $290 to $300 million.
Bruce Hausmann: <unk> gross profit margin of approximately 37, 5% of net sales.
Bruce Hausmann: Adjusted SG&A expenses of approximately $88 million.
Bruce Hausmann: Adjusted interest and other expenses of approximately $6 million.
Bruce Hausmann: And adjusted effective income tax rate of approximately 28%.
Bruce Hausmann: And fully diluted weighted average share count of approximately $59 2 million shares.
Bruce Hausmann: And for the full fiscal year of 2025, we are anticipating net sales of $1 315 billion to $1 $3 65 billion adjusted gross.
Bruce Hausmann: Profit margin of approximately 37, 2% to 37, 4% of net sales adjusted.
Bruce Hausmann: Adjusted SG&A expenses of approximately 26% of net sales.
Bruce Hausmann: Adjusted interest and other expenses of approximately $24 million.
Bruce Hausmann: On adjusted effective income tax rate of approximately 28% and capital expenditures of approximately $45 million.
Laurel Hurd: And with that I'll turn the call back to loral for concluding remarks.
Laurel Hurd: Thank you Bruce I want to thank everyone for joining our call today I would like to give a special thank you to the entire interface team for their contributions and achievements in 2024, we've made great strides in our business with strong execution of our one interface strategy in many areas outpacing the industry and achieving success faster than we anticipate.
Laurel Hurd: Good.
Laurel Hurd: We enter 2025 with strong momentum and expect this to be another year of growth and margin expansion.
Laurel Hurd: And while we continue to monitor the dynamic macro and geopolitical environment. We are confident in our ability to deliver long term value to our shareholders.
Laurel Hurd: With that I will open it up to questions operator.
Speaker Change: We are now opening the floor for a question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad that star followed by one on your telephone keypad to your first question comes from Brian <unk> from.
Laurel Hurd: Thompson Research group your line is now.
Brian: Hey, good morning, Thank you for taking my questions.
Laurel Hurd: To start with I guess I believe.
Laurel Hurd: Q4 was the first full year of the one interface selling strategy due to the.
Laurel Hurd: Pay up very nicely. So I guess, how are you thinking about that impact for 2025, now I'd be thinking a similar level of benefit as you saw last year, maybe even greater benefit that the processes fine tuned improved upon.
Laurel Hurd: And do you expect to outperform the industry, but any further details or kind of how that looks into 25 would be appreciated.
Laurel Hurd: Yeah. Thanks, Good morning, Brian.
We're really proud of the work that the teams have done with the one interface strategy and the combined selling teams.
Laurel Hurd: And as he said the success that we've seen if we think about where we were a year ago. We had just announced the new program. We just announced that we were hiring additional Nora sellers and they came online throughout the first half of the year and the teams. We're just getting to know each other and operate together as one team. So we're really pleased with the momentum.
Laurel Hurd: The Americas business was up 9% is fantastic here and.
Laurel Hurd: And we think we're still in early days. So the combined selling strategy is working and we expect it to continue to pay off.
Laurel Hurd: I agree Brian as you mentioned the strategy is working we continue to grow we continue to take share.
Laurel Hurd: And in terms of how that sort of folds into our 2025, we baked into our guidance.
Laurel Hurd: That's kind of how we're thinking about clearly early days in the year, so far but we enter the year with solid momentum.
Speaker Change: Got it and then I guess towards the end of 'twenty four and the start up 25, we had heard that I guess the office segment in general was getting better and I know, that's often a low base still.
Speaker Change: Still not as good as other verticals, but they seem to be some momentum building and office did you see this across your business and I guess what are you.
Speaker Change: Spending for office for the full year for 25.
Speaker Change: So I'll make a couple of points on an office first the fact that we grew our business 4% for the year with.
Speaker Change: With corporate off being down 1% globally. It is really a testament to our team is driving that diversification and amplifying growing across the market. So we're really pleased with that and we're confident that we're gaining share in office, which is also great and.
Speaker Change: And we feel really good about office in 'twenty five for really three reasons.
Speaker Change: First the return to office mandates are on the rise. So what were suggestions over the past couple of years have turned to mandates in many cases with more and more companies.
Speaker Change: Realizing that in person work matters.
Speaker Change: Second the demand for premium class a space is also on the rise. So we've been talking about that a lot of companies bring workers back. Its the best buildings that are really getting the most attention and then the third when landlords are looking to lease space. They offer more ti dollars tenant improvement dollars and incentives to their tenants, which really helps.
Speaker Change: Those dollars usually go to refresh carpet and paint. So that's good news for us So we feel pretty good about 2025 office.
Speaker Change: Okay.
Speaker Change: Good to hear and if I can squeeze one last one in I guess, you have a pretty solid balance sheet now paid off a lot of debt leverage I think at one onex. How are you thinking about just capital allocation priorities now given there's less debt to pay off then a year or two ago. Thank you.
Speaker Change: Great Great Great question Brian.
Speaker Change: It wasn't that long ago that we were being impressed to bring down our debt and improve our leverage ratio. So and we worked hard at that we've met our commitments around that which is fantastic we're going to continue to invest in the business.
Speaker Change: Given the resilience the very very resilient balance sheet that we have now and the strong balance sheet that we have now.
Speaker Change: We have some additional investments that we're going to make in our manufacturing facilities.
Speaker Change: We will make us more efficient and can you continue to drive.
Speaker Change: Profit margin expansion.
Speaker Change: Yes.
Speaker Change: No.
Speaker Change: This is a great space to be in I'll, just close by saying with all with how dynamic the market is right. Now this is a great spot to be in to have such a strong balance sheet.
Speaker Change: Thanks, I'll pass along.
Speaker Change: Your next question comes from David Macgregor from Longbow Research. Your line is now open.
Yes, good morning, everyone.
David Macgregor: For taking my questions.
David Macgregor: Just what we're talking about capital Bruce <unk>.
David Macgregor: $45 million guide for 2025 is up fairly substantially from 24 I'm guessing most of this is manufacturing automation, but maybe you could just talk about that for a moment and then I guess is this is that the peak for spending on automation.
David Macgregor: Or how should we think about investments in the manufacturing model.
David Macgregor: Beyond 2025.
David Macgregor: Yes, Great question, David you, probably noticed that we came in a little under what our guide was for last year. So there's a little bit of timing between the two years.
David Macgregor: So, but the 45 that we're planning on spending in 2025.
David Macgregor: <unk> of some of the machinery that we put in our manufacturing plants in the U S. And we're also going to be putting some of that same machinery and some other automation machinery into some of our manufacturing outside of the U S.
David Macgregor: All of this all of this stuff.
David Macgregor: A great return.
David Macgregor: And I think that we're being trying to be really really wise with only invest in capital in proven technology that has proven returns, which is which is what is the underlying underpinning this $45 million in 2025.
David Macgregor: Great and can you just address the question regarding is this peak spending in this capital cycle or do you envision that maybe moving higher as you will begin to address.
David Macgregor: Yes.
David Macgregor: Well for this is our I'm not sure what time horizon, you're speaking of it really depends on I don't know how far youre sort of like <unk>.
Speaker Change: Calling out your lens, but you know.
David Macgregor: As you know, we generally spend between two and a half and 3%.
Speaker Change: Of revenue on Capex, which I think this is in line with that.
Speaker Change: We would only make investments.
Speaker Change: All that if they had a great return for example, like the machinery that we're putting in now it has a return of less than two years and so I'm reticent to tell you that this is the peak forever.
Speaker Change: If we could find something that's given the return that yields the kind of returns that we're getting out of this machinery, we would do that again I think you would.
Speaker Change: Would want us to.
Speaker Change: But.
Speaker Change: But there's but there's nothing in the foreseeable future that we're sort of saying gosh, there's going to be a huge spike in capex start knowledge. This is this is our best visibility on Capex as we stand today.
Speaker Change: Okay and Laurel as are the capital.
Speaker Change: Projects impacting shipments at all.
Speaker Change: Okay.
Hum.
Speaker Change: No they're not I don't think are impacting shipments at all if anything we're increasing our throughput, especially.
Especially for example, the investments that we're making in Nora in Germany, we're really increasing our throughput there to keep up with the demand in the U S. So there's been no no interruptions, if anything thats, helping us service our customers better that I was going to say.
Anything David.
It's actually improving our throughput and improving our automation in our plants.
Speaker Change: Good good to hear good to hear I wanted to ask secondly, about the gross margin guide to 37, 2% to $3 74, and plus 50 to 70 bps of improvement.
Speaker Change: Year over year, I mean, you've got a lot of moving parts of this gross margin model, obviously, you've got price cost you got the Nora mix <unk> mix the supply chain productivity with your new Chief procurement officer.
Speaker Change: I'm guessing there's other things in there as well that you'd highlight.
Speaker Change: Can you just give us a sense of what the puts and takes are behind that 50 to 70 basis point improvement.
Speaker Change: Yes.
David Macgregor: Good question I'll, just say David it's.
David Macgregor: Early days in the year. This is a super dynamic environment that we're operating in.
David Macgregor: We're incredibly pleased with the progress that we had around gross profit margin in 2024, working we have plans to continue obviously as you mentioned to expand gross margins in 2025, there is a lot of different pieces to it.
David Macgregor: It's all of those things that you talked about and more I'll, just say that early days.
David Macgregor: This is this is our best estimate based on all the puts and takes that we see but you have our commitment that we're going to continue driving gross profit margin expansion and obviously that's reflected in our guide.
David Macgregor: Alright, I guess with morals.
David Macgregor: About Nora growth nor are the expansions in order business has got a ranked pretty highly within the mix of drivers behind that gross margin improvement.
David Macgregor: Yeah I think.
David Macgregor: It's a great point, the more we sell of Anoro, especially in the U S. The more it helps our mix and our teams are super focused on it and seeing some great success and we're doing everything we can do invest to make sure we support that business and also be more efficient in our plant in Germany, So it'll be a big contributor.
David Macgregor: Alright got it and then I.
David Macgregor: Great.
David Macgregor: Great job on the SG&A management.
Speaker Change: Just over a period of a few years in fact, you've done a lot there great discipline I guess the question is how much revenue growth capacity remains before you need to start making larger investments in SG&A.
Speaker Change: How much how much leverage opportunity remains at this point.
Speaker Change: It's something that we're watching really closely because we do have our pedal down on growth with our incentive structure and our commission based selling organization, we have to make sure we do everything possible to fuel that growth.
Speaker Change: So it's a real balance in our approach in 2025 and beyond we will continue to be to be superefficient on anything that doesn't touch the customer.
Speaker Change: Such innovation and then be really really disciplined on everything else and so we're continuing to look at those investments and what do we need to do to service the growth and how do we get more efficient everywhere outside of that.
Speaker Change: David I'll just say thank you for noticing I know a lot of one interface team members into this call.
Speaker Change: [laughter] literally this has been a team effort and this one interface strategy. It's another component of how the strategy is working really really well we have functional leaders that are SG&A management, and SG&A leverage really seriously with zero based budgeting and so thank you for noticing.
Speaker Change: I can tell you there is just a ton of focus.
Speaker Change: What you just articulated internally and as part of a key component to driving the business to continue to improve our margins.
Speaker Change: Got it thanks for that last one from me just a clarification youre guiding interest expense kind of flat year over year $24 million versus twice or two youre up a little bit despite having paid down $110 million of that is that just rate increases or is there something else going on there that we should be thinking about.
Speaker Change: We're getting more and more into just a fixed range. We used as you know a bigger component of our of our debt used to be more variable and now its largely fixed it's our it's largely our bonds that are fixed rates now and so.
Speaker Change: It's more predictable and it's and it's obviously, it's lower than it's ever been so that just kind of kind of mathematically penciled out.
Speaker Change: Yes, well congratulations on all the progress operationally balance sheet everything you guys did a great job. Thank you.
David Macgregor: Thanks, David.
David Macgregor: Your next question comes from Alex Paris from Barrington Research. Your line is now open.
Alex Paris: Thank you and thank you all for taking my questions. Congrats on the strong finish to the year.
David Macgregor: Thanks, Alex.
Speaker Change: Couple of questions first of all I'll follow up on Capex, so of the $45 million projection for this year up from roughly $34 million last year.
David Macgregor:
David Macgregor: Hmm.
David Macgregor: Which is generally as you said two 5% to 3% of revenue.
David Macgregor: What proportion is maintenance capex, what proportion is growth capex.
David Macgregor: This year and then maybe in general.
David Macgregor: [laughter]. Good question about 10 of the 45 is investment Capex in the machinery that we've been talking about in about 35 is around maintenance maintenance capex maintenance and safety and general update.
David Macgregor: Okay great.
David Macgregor: And then.
David Macgregor: Question about return to office mandates.
David Macgregor: And I'm thinking about the recent election I'm thinking about those so I'm thinking about mandatory returned to work for government.
David Macgregor: Employees and.
David Macgregor: I'm wondering what is your exposure to government I know based on billings I think it is 6% roughly what's the character of the.
David Macgregor: The government business is it federal has it stayed is it local is that all of the above.
David Macgregor: So if we look at just our U S government business. It's a small piece of the total it's low single digits, maybe four ish, a little bit a little bit more than that percent.
David Macgregor: And that includes all government buildings, so what we've put in that things like museums research institutions.
David Macgregor: Military locations, including then all government offices, whether there.
David Macgregor: Local or federal so, it's pretty small and pretty diverse and it's something we're keeping an eye on and as you said, there's a real mix happening. There. There is the return to office mandates for the first time really since before Covid as well as staff reductions. So we're not yet sure what that will mean, we're keeping an eye on it but it's a pretty small.
David Macgregor: Really diverse piece of our business.
Speaker Change: Thank you the color is helpful.
Speaker Change: And then going just back to some earlier comments retail was up for the year was it up in the second half and fourth quarter I know you had.
Speaker Change: An easy kind of I guess, because you had a weak second half in retail in 2023.
Speaker Change: Yeah, that's right retail was up.
Speaker Change: In the back half and again it remains a small piece of our total business base.
Speaker Change: Based on some project deferrals in 2023 that flowed into 'twenty four it was up in the back half primarily and I would just say that as a testament to great customer relations I don't know if you remember we always said, we never lost that business that business is just deferred.
Speaker Change: We kept tight relationships with our customers in that area and we are able to retain that business. It was just the lumpiness of how it sort of rolled in.
Speaker Change: Got you that's helpful last question kind of like.
Speaker Change: The return to office question with the New administration, a lot of tariff talk just getting tossed around.
Speaker Change: Yesterday, I guess, you know theyre going to implement Canada, and Mexico, I don't think thats much of an exposure for you, but what is your exposure in each of the three main product categories carpet tile <unk> and rubber.
Speaker Change: Yes, it's a great question, obviously, we're watching it really closely.
Based on what was proposed and pause there is no material impact, but honestly Alex no. One can really predict exactly where this will all land.
Speaker Change: We're going to continue to monitor closely and will respond as needed and necessary depending on how all of these.
Speaker Change: Tariffs and retaliatory tariffs land.
Speaker Change: So where are you sourcing.
Speaker Change: Your raw material for each of those three product categories.
Speaker Change: Well, let's break it down into pieces.
There's a few things that help us like for example, with carpet we manufacture locally in the U S and in Europe and in China. For example, U S for U S. Europe for Europe, China for China, So that's a helper.
Speaker Change: We do have some sourcing out of Mexico, but it's very limited.
Speaker Change: It's it's it's not big exposure and if needed we would rejigger our supply chain.
Speaker Change: But it's but it's a very small number.
Speaker Change: In terms of tariff exposure with Mexico and.
Speaker Change: And we do not source from China. So that's very helpful for us as well so.
Speaker Change: Uh huh.
Speaker Change: I'm not trying to be evasive here, it's just it's such a dynamic.
Speaker Change: The environment.
Speaker Change: We're just watching it in.
Speaker Change: It will respond and will.
Speaker Change: Just like every other company will adapt as the tariff situation sort of unfolds and as there's more clarity.
Speaker Change: And just to kind of summarize no impact so far you're watching closely.
Speaker Change: But it does look like from the outside that the exposure is fairly limited and to the extent that there is exposure you can you can pivot quickly.
Speaker Change: Yes.
Speaker Change: I think Thats fair.
Speaker Change: Joseph Henry go ahead, I was just going to add.
Speaker Change: So the carpet tile piece of it we source, our Lv chief from South Korea, as we've shared in the past and with all of our Nora rubber product is manufactured in Germany. So those are our three because if you think about our three product categories carpet is really local.
Speaker Change:
Speaker Change: South Korea for L V T, which we're confident we can price if we need to and then Nora we Scott you know theres not a lot of rubber alternatives out there we've got great pricing power there as well so a lot to sort through obviously a lot of uncertainty but.
Speaker Change: We're not.
Speaker Change: We're in pretty good shape, all things considered but.
Speaker Change: A lot to learn.
Speaker Change: It sounds that rate alright. So thank you very much I appreciate it that's all I have.
Alex Paris: Thanks, Alex.
Laurel Hurd: Thank you we are now ending the Q&A session I would now like to hand back over to Laurel for final remarks.
Alex Paris: Great well I'd like to say, thanks to everyone for listening to the call today, and especially thanks to the entire interface team for just a fantastic year I appreciate it and we look forward to updating everyone on our progress as we go.
Speaker Change: Thank you for attending today's call you may now disconnect have a wonderful day.
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Speaker Change: Okay.
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