Q1 2025 Interface Inc Earnings Call
Thank you for standing by and welcome to the interface, Inc. First quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.
Operator: Thank you for standing by and welcome to the Interface Inc. First Quarter 2025 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 this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press star 1. Thank you.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Christine Needles: I'd now like to turn the call over to Christine Needles, Global Communications. You may begin.
Christine Needles: I'd now like to turn the call over to Christine Needles Global Communications you may begin.
Speaker Change: Good morning, and welcome to interfaces conference call regarding first quarter results hosted by Laurel Hurd, CEO and Bruce Hausmann CFO.
Laurel Hurd: Good morning, and welcome to Interface's conference call regarding first quarter 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Laurel Hurd: 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.
Speaker Change: The company assumes no responsibility to update forward looking statements.
Laurel Hurd: 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 8K furnished with the SEC today.
Speaker Change: 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 youth are contained in the company's earnings release and form 8-K furnished with the SEC today.
Operator: Lastly, this call is being recorded and broadcasted for Interface. It contains copyrighted material and may not be re-recorded or re-broadcasted without Interface's express permission. Your participation on the call confirms your consent to the company's taping and broadcasting of it.
Speaker Change: 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 your participation on the call confirms your consent to the company's taping and broadcasting of it.
Speaker Change: 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: After our prepared remarks, we will open up the call for questions.
Laurel Hurd: Now I will turn the call over to Laurel Hurd, CEO. Thank you, Christine, and good morning, everyone. Interface delivered a solid start to 2025 with 4% year-over-year currency-neutral growth in net sales, 4% growth in adjusted earnings per share, and strong momentum going into the second quarter. Amid an uncertain and dynamic macro environment, I'm proud of our accomplishments this quarter, the disciplined execution of our global teams, and the passion that our team members bring every day to serve our country.
Speaker Change: You Christine and good morning, everyone.
Speaker Change: Interface delivered a solid start to 2025 with 4% year over year currency neutral growth in net sales.
Speaker Change: 4% growth in adjusted earnings per share and strong momentum going into the second quarter.
Speaker Change: Amid an uncertain and dynamic macro environment I'm proud of our accomplishments this quarter the disciplined execution of our global team and the passion that our team members bring everyday to serve our customers.
Speaker Change: Our one interface strategy is working and it continues to position us for long term growth and success because we're still in early days of activation as.
Laurel Hurd: Our One Interface strategy is working, and it continues to position us for long-term growth and success as we are still in early days of activation. As mentioned previously, One Interface is a multi-year strategy focused on building strong global functions to support our world-class talent. Accelerating growth through enhanced productivity of our commercial. expanding margins through global supply chain management and simplifying operations. and leading in design performance and sustainability.
Speaker Change: As mentioned previously one interface is a multiyear strategy focused on building strong global functions to support our world class selling teams.
Speaker Change: Accelerating growth through enhanced productivity of our commercial team.
Speaker Change: Spending margins through global supply chain management and simplifying operations.
Speaker Change: And leading in design performance and sustainability.
Speaker Change: In the first quarter, we appointed our first VP of global product category management. This was an important addition to the organization that will work cross functionally to accelerate and optimize our product innovation pipeline, ensuring we deliver world class products that meet the commercial needs of the markets, we serve well I wasn't body the essence of interface.
Laurel Hurd: In the first quarter, we appointed our first VP of Global Product Category Management. This role is an important addition to the organization that will work cross-functionally to accelerate and optimize our product innovation pipeline. I was ensuring we deliver world-class products that meet the commercial needs of the markets we serve, while I was embodying the essence of innovation. This new position will build our product portfolio with the customer at the center and prioritize category investments that will ensure our portfolio is aligned with the needs of the market as we focus on accelerating growth. On the product front, in Q1, we launched two carpet tile collections that expand on our I2 portfolio, Material Impressions and Open Roads.
Speaker Change: This new position will build our product portfolio with the customer at the center and prioritize category investments that will ensure our portfolio is aligned with the needs of the market as we focus on accelerating growth.
Speaker Change: On the product front in Q1, we launched to carpet tile collection that expand on our <unk> portfolio material impressions and open road.
Laurel Hurd: We first introduced I2 with the launch of our popular Entropy product 25 years ago. It was the first in the industry representing a major mindset shift in carpet tile design. I2 styles are truly modular, with mergeable dialogs and random installation. They continue to be a favorite of our customers because they're incredibly flexible and adaptable over time. continue to expand this portfolio to offer even more design options. especially to suit the needs of our education and corporate office space. We also look forward to Clerkenwell Design Week in May and Neocon in June, where we will showcase our latest global carpet tile and LVT collections.
Speaker Change: We first introduced I too with the launch of our popular entropy product 25 years ago.
Speaker Change: It was the first in the industry, representing a major mindset shift in carpet tile design.
Speaker Change: I too styles are truly modular with multiple dialogues and random installation. They continued to be a favorite of our customers because they are incredibly flexible and adaptable over time.
Speaker Change: We continue to expand the portfolio to offer even more design options, especially to suit the needs of our education and corporate office spaces.
Speaker Change: We also look forward to Clerkenwell design, we can may in neocon in June where we will showcase our latest global carpet tile and <unk> collections as well as our innovative carbon negative Nora rubber prototype and other new products. These events provide excellent opportunities to connect with our customers and industry partners and to demonstrate our design.
Laurel Hurd: as well as our innovative carbon-negative Nora rubber prototype and other new products. These events provide excellent opportunities to connect with our customers and industry partners and to demonstrate our design, performance, and sustainability leadership.
Speaker Change: Performance and sustainability leadership.
Speaker Change: Turning to sustainability true to our roots interface continues to be at the forefront of innovation.
Laurel Hurd: Turning to sustainability, true to our roots, Interface continues to be at the forefront of innovation. We've made strides towards achieving our science-based targets by 2030 and being carbon negative by 2050. Part of this journey, we recently announced a strategic investment to incorporate captured carbon into our manufacturing processes in the U.S. and Europe. This raw material stores more carbon and lowers the carbon footprint of our carpet tile products without compromising on design and at no additional cost to our customers. This is a notable example of our sustainability leadership as we continue to innovate and activate tangible solutions that drive carbon reduction and storage, while also helping customers meet their own sustainability goals.
Speaker Change: Made strides towards achieving our science based targets by 2030 and being carbon negative by 2040.
Speaker Change: Part of this journey, we recently announced a strategic investment to incorporate captured carbon into our manufacturing processes in the U S and Europe.
Speaker Change: This raw material stores more carbon and lowers the carbon footprint of our carpet tile products without compromising on design and at no additional cost to our customers.
Speaker Change: This is a notable example of our sustainability leadership as we continue to innovate and activate tangible solutions that drive carbon reduction in storage, but also helping customers meet their own sustainability commitments.
Speaker Change: Now, let's turn to our first quarter results.
Laurel Hurd: Now let's turn to our first quarter results. You delivered a solid start to the year, with year-over-year currency-neutral net sales growth of 4%. Strong momentum continued in the Americas, where net sales grew 6%. Currency Neutral Orders were up 10% partially offset by a softer macro environment in EAAA. Turning to our market segments, our diversification strategy continues to drive growth. Global education billings were up 13% as Interface stands out in both K-12 and higher education due to our reputation for design leadership. Sustainable, durable, high-performing solutions across a broad portfolio of products. Our education segment is supported by strong macro drivers, modernization initiatives, and regional migration.
Speaker Change: We delivered a solid start to the year with year over year currency neutral net sales growth of 4%.
Speaker Change: Strong momentum continued in the Americas, where net sales grew 6% and currency neutral orders were up 10%, partially offset by a softer macro environment and each AAA.
Speaker Change: Turning to our market segments, our diversification strategy continues to drive growth.
Speaker Change: Global Education Billings were up 13% as interface stands out in both K through 12, and higher education due to our reputation for design leadership.
Speaker Change: And sustainable durable high performing solutions across a broad portfolio of products.
Speaker Change: Our education segment is supported by strong macro drivers modernization initiatives and regional migration at all.
Laurel Hurd: We also continue to broaden our addressable market with expanded collections and accessible prices. In healthcare, global billings were up 16% year-over-year, as our strong healthcare orders from prior quarters converted to billings. Our differentiated portfolio continues to meet the evolving needs of aging populations, technological advancements, and a growing emphasis on preventative care. In this expanding market, our U.S. selling teams are gaining traction and uncovering new opportunities to deliver comprehensive solutions to health care. Corporate office billings were down 7% year-over-year in the quarter. We view this as timing as we are expecting growth in office for the full year.
Speaker Change: Also continue to broaden our addressable market with expanded collections and accessible price points.
Speaker Change: And health care Global Billings were up 16% year over year as our strong health care orders from prior quarters converted the billings.
Speaker Change: Our differentiated portfolio continues to meet the evolving needs of aging populations technological advancements and a growing emphasis on preventative care.
Speaker Change: In this expanding market our U S. Selling teams are gaining traction and uncovering new opportunities to deliver comprehensive solutions to health care systems.
Speaker Change: Corporate office billings were down 7% year over year in the quarter. We view this as timing as we are expecting growth in office for the full year.
Laurel Hurd: We are still seeing momentum with a continued flight to quality in Class A space where we're well positioned to win. Companies also continue to refresh their spaces to adapt to the changing needs of their teams as more employees return to the office. We expect these trends to continue throughout the year, creating more opportunities for us in this segment. Turning to orders, in the first quarter of 2025, consolidated currency neutral orders increased 3% year over year. Currency neutral orders in the Americas were up 10% year over year, driven by the success of our one interface strategy and combined selling.
Speaker Change: Still seeing momentum with a continued flight to quality and class a space, where we're well positioned to win companies.
Speaker Change: Companies also continue to refresh their spaces to adapt to the changing needs of their teams as more employees return to the office.
Speaker Change: We expect these trends to continue throughout the year, creating more opportunities for us in this segment.
Speaker Change: Turning to orders in the first quarter of 2025 consolidated currency neutral orders increased 3% year over year.
Speaker Change: Currency neutral orders in the Americas were up 10% year over year, driven by the success of our one interface strategy and combined selling teams.
Speaker Change: And each AAA first quarter currency neutral orders were down 6% year over year on a softer macro environment.
Laurel Hurd: In EAAA, first-quarter, currency-neutral orders were down 6% year-over-year on a softer macro environment. Our backlog was strong at the end of the first quarter, up 12% year-over-year, which gives us confidence that our strategy is working and positions us well for the coming quarter.
Speaker Change: Our backlog was strong at the end of the first quarter up 12% year over year, which gives us confidence that our strategy is working and positions us well for the coming quarters.
Speaker Change: Before I turn the call over to Bruce I want to take a moment to discuss the current global market dynamics and tariff environment.
Laurel Hurd: Before I turn the call over to Bruce, I want to take a moment to discuss the current global market dynamics and tariff environment. We benefit by having local carpet tile manufacturing in each of our regions. limits our exposure to the recently announced tariffs to primarily U.S. imports of Nora rubber from Germany and LVT from South Korea. This represents approximately 15% of our global product costs that will be impacted by the recent tariff announcement. We have plans in place to offset this impact through incremental pricing and productivity, which has been baked into our guidance. This is obviously a dynamic environment, which we continue to monitor and respond as necessary to offset tariff-related costs, grow our business, and serve our customers.
Speaker Change: We benefit by having local carpet tile manufacturing in each of our regions, which limits our exposure to the recently announced tariffs to primarily U S imports of Nora rubber from Germany, and Obeche from South Korea.
Speaker Change: This represents approximately 15% of our global product cost that will be impacted by the recent tariff announcements.
Speaker Change: We have plans in place to offset this impact through incremental pricing and productivity, which has been baked into our guidance.
Speaker Change: This is obviously, a dynamic environment, which we continue to monitor and respond as necessary to offset tariff related costs grow our business and serve our customers.
Bruce Hausmann: And with that, I'll turn it over to Bruce to go over the financials. Well, thank you, Laurel. And good morning, everyone. First quarter net sales totaled $297.4 million. an increase of 2.6% versus first quarter of 2024 and slightly better than anticipated. FX Neutral Net Sales increased 4.1% compared to the prior year's first quarter, and first quarter FX Neutral Net Sales were up 6.3% in Americas and up 1% in EAAA year-over-year. First quarter adjusted gross profit margin was 37.7 percent, a decrease of 82 basis points from the prior year's first quarter, as expected, due to higher manufacturing costs on the AAA and higher freight costs, partially offset by higher prices.
Speaker Change: With that I'll turn it over to Bruce to go over the financials.
Speaker Change: Yes.
Bruce Hausmann: Well, thank you Laurel and good morning, everyone.
Bruce Hausmann: First quarter net sales totaled 297 4 million.
Bruce Hausmann: An increase of two 6% versus first quarter of 2024 and slightly better than anticipated.
Bruce Hausmann: FX neutral net sales increased four 1% compared to the prior year's first quarter and first quarter FX neutral net sales were up six 3% in Americas, and up 1% and he'd triple eight year over year.
Bruce Hausmann: First quarter adjusted gross profit margin was 37, 7% a decrease of 82 basis points from the prior year's first quarter as expected due to higher manufacturing costs in the AAA and higher freight costs, partially offset by higher pricing.
Bruce Hausmann: Adjusted SG&A expenses were $86 8 million in the first quarter compared to $86 2 million in the first quarter of 2024.
Bruce Hausmann: Adjusted SG&A expenses were $86.8 million in the first quarter, compared to $86.2 million in the first quarter of 2024. First quarter adjusted operating income was $25.5 million, flat compared to the adjusted operating income in the first quarter of 2024. First quarter adjusted EPS is $0.25 versus $0.24 in the first quarter of 2024. First quarter adjusted EBITDA was $37 million versus $38.8 million in the first quarter of 2025. We generated $11.7 million of cash from operating activities in the first quarter of 2025, which was a positive outcome, as we customarily had the largest use of cash from operations in the first quarter.
Bruce Hausmann: First quarter adjusted operating income was $25 5 million flat compared to the adjusted operating income in the first quarter of 2024.
Bruce Hausmann: First quarter adjusted EPS was <unk> 25 versus 24 in the first quarter of 2024.
Bruce Hausmann: First quarter, adjusted EBITDA was $37 million versus $38 8 million in the first quarter of 2024.
Bruce Hausmann: We generated $11 7 million of cash from operating activities in the first quarter of 2025, which was a positive outcome as we customarily have the largest use of cash from operations in the first quarter.
Bruce Hausmann: And liquidity was strong at the end of the quarter, totaling $397.2 million. Net debt, or total debt minus cash on hand, was $205.1 million at the end of the quarter. Our net leverage ratio was 1.1 times, calculated as net debt, divided by the last 12 months of adjusted EBITDA. Our balance sheet remains strong, which provides optionality, flexibility, and strength in today's dynamic macro environment.
Bruce Hausmann: And liquidity was strong at the end of the quarter totaling $397 2 million.
Bruce Hausmann: Net debt our total debt minus cash on hand was $205 1 million at the end of the quarter.
Bruce Hausmann: Our net leverage ratio was one one times calculated as net debt divided by the last 12 months of adjusted EBITDA.
Bruce Hausmann: Our balance sheet remains strong, which provides optionality flexibility and strength in today's dynamic macro environment.
Bruce Hausmann: Our focus in 2025 is to continue investing strategically in the business while maintaining a disciplined capital allocation approach to drive long-term value. Capital expenditures were $7.5 million in the first quarter of 2025 compared to $4 million in 2024.
Bruce Hausmann: Our focus in 2025 is to continue investing strategically in the business, while maintaining a disciplined capital allocation approach to drive long term value.
Bruce Hausmann: Capital expenditures were $7 5 million in the first quarter of 2025 compared to $4 million in 2024.
Bruce Hausmann: Returning to our outlook, we are forecasting a strong second quarter. We remain focused on delivering a strong year amid a dynamic macro environment with increased global macro uncertainty. We entered the second quarter with a healthy backlog and order momentum which supports our expectations for a strong second quarter. With that backdrop in mind, we anticipate the following. For the second quarter of fiscal 2025, we anticipate net sales of $355 million to $365 million. adjusted gross profit margin of approximately 37.2% of net sales. adjusted SG&A expenses of approximately $90 million. adjusted interest and other expenses of approximately.
Bruce Hausmann: And turning to our outlook, we are forecasting a strong second quarter.
Bruce Hausmann: We remain focused on delivering a strong year amid a dynamic macro environment with increased global macro uncertainty.
Bruce Hausmann: We entered the second quarter with a healthy backlog and order momentum, which supports our expectations for a strong second quarter.
Bruce Hausmann: With that backdrop in mind, we anticipate the following.
Bruce Hausmann: For the second quarter of fiscal 2025, we anticipate net sales of 355 million to $365 million.
Bruce Hausmann: Adjusted gross profit margin of approximately 37, 2% of net sales.
Bruce Hausmann: Adjusted SG&A expenses of approximately $90 million.
Bruce Hausmann: Adjusted interest and other expenses of approximately $6 million.
Bruce Hausmann: an adjusted effective income tax rate of approximately 27.5%. a fully diluted weighted average share count of approximately 59.3 million shares.
Bruce Hausmann: And adjusted effective income tax rate of approximately 27, 5%.
Bruce Hausmann: Fully diluted weighted average share count of approximately $59 3 million shares.
Bruce Hausmann: And for the full fiscal year of 2025, we anticipate the following.
Bruce Hausmann: And for the full fiscal year of 2025, we anticipate the following. Net sales of 1.340 to 1.365 billion. adjusted gross profit margin of approximately 37.2% to 37.4% of net sales. adjusted SG&A expenses of approximately 26% of net sales. adjusted interest and other expenses of approximately $24 million. on Adjusted Effective Income Tax Rate of approximately 27%. capital expenditures of approximately $45 million.
Bruce Hausmann: Net sales of 1.340 to 136 5 billion.
Bruce Hausmann: Adjusted gross profit margin of approximately 37, 2% to 37, 4% of net sales.
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 27% and capital expenditures of approximately $45 million.
Laurel Hurd: And with that, I'll turn the call back to Laurel for closing remarks. Thank you, Bruce. Thank you all for joining our call today. Interface delivered a solid start to the year, and we are encouraged by the continued momentum as we enter the second quarter. While there is considerable uncertainty in the global economy, we are well positioned with a strong balance. a regional carpet tile manufacturing approach, and a global team that is more connected than ever.
Loral: With that I will turn the call back to Loral for closing remarks.
Speaker Change: Thank you Bruce Thank you all for joining our call today interface delivered a solid start to the year and we are encouraged by the continued momentum as we enter the second quarter.
Speaker Change: While there is considerable uncertainty in the global economy, we are well positioned with a strong balance sheet, a regional carpet tile manufacturing approach and a global team that is more connected than ever I would like to thank the entire interface team for their disciplined execution commitment and passion for serving our customers each and every day.
Laurel Hurd: I would like to thank the entire Interface team for their disciplined execution, commitment, and passion to serving our customers each and every day.
Operator: With that, I'll open it up to questions. Operator. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: That I will open it up to questions.
Speaker Change: Operator.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad you raise your hand and join the queue if you'd like to withdraw your question simply press Star one again.
Brian Biros: Your first question comes from a line of Brian Biros from Thompson Research Group. Your line is open. Hey, good morning. Thank you for taking. And Brian. to a few more results, slightly better than... on the Gross Margin and SG&A line, both slightly better than Guy. I think part of that is the success of the One Interface Strategy Panoff.
Speaker Change: First question comes from the line of Brian barrels from Thompson Research Group. Your line is open.
Brian Barrels: Hey, good morning, and thank you for taking my question.
Brian Barrels: Jim and Brian results good morning.
Brian Barrels: So Q1 results slightly better than expected I think notably on the gross margin and SG&A line.
Brian Barrels: Likely better than guidance.
Brian Barrels: I assume part of that is the success of the wondering if a strategy paying off.
Do you expand more on how those two items kind of performed in the quarter to come in ahead of expectations.
Laurel Hurd: Can you expand more on how those two items kind of performed in the quarter to come in ahead of expectations? Sure, Brian, our, you know, I feel like we had a really good start to the quarter, as you said, to the year. And our one interface strategy continues to deliver results. We had a really strong Americas business, that business continues to grow, due to the combined selling teams. A couple things I'll note from a growth standpoint, all product categories grew, for us in the quarter globally. So Carpetile, LVT, and Rubber. And they grew in volume as well as a little bit in price, mostly volume, a little bit price.
Brian Barrels: Sure Brian I'll.
Art: Art I feel like we had a really good start to the quarter as he said to the year.
Brian Barrels: One interface strategy continues to.
Brian Barrels: Our results, we had a really strong Americas business that business continues to grow due to the combined selling teams a couple of things I'll note from a growth standpoint.
Brian Barrels: All product categories grew.
Brian Barrels: For us in the quarter globally, so a carpet tile L V T in rubber and they grew in volume as well as a little bit in price, mostly volume a little bit price.
Laurel Hurd: And then the success we're seeing in healthcare and education, growing double digits globally. We've been really focused on diversifying our business, and we're seeing the success pay out in those areas. I would just add to we just can we continue to see momentum as we move into second quarter, the orders continue to be strong, our backlog continues to be up, and great momentum in the business as we're moving through Q2.
Brian Barrels: And then the.
Brian Barrels: The success, we're seeing in health care and education growing double digits globally, we've been really focused on diversifying our business and we're seeing the success payout in those areas.
Brian Barrels: I would just add too we just can we continue to see momentum as we move into the second quarter. The orders continued to be strong our backlog continues to be up and great momentum in the business as we're moving through Q2.
Laurel Hurd: I'll piggyback on that for a second. And what we didn't mention is that our momentum really strengthened throughout the quarter from an order generation perspective. And the month of April, our orders are up double digits globally, up double digits in the Americas and up double digits in EAAA. So we feel like we've got a really solid growth plan.
Brian Barrels: Piggy back on that for a second and what we didn't mention is.
Brian Barrels: That our momentum really strengthen throughout the quarter from an order generation perspective.
Brian Barrels: In the month of April our orders are up double digits globally.
Brian Barrels: Up double digits in the Americas and up double digits in your AAA. So we feel like we've got a really solid.
Brian Barrels: Growth plans.
Brian Biros: That sounds pretty good, and I guess a good segue to my next question, I'm guided. rate it a little bit on the lower. I just wonder what the driver of that was. I'm sorry, Brian, we couldn't hear the word that you used. Something is on the lower end. We didn't catch that word. Just I think guiding Revenue Guidance. Yes. 315 to 1.34. Yes. Yeah, so so that's a great question. So we brought up the lower end of the range. And that really has to do with how we landed q1 and our outlook for q2. So as we said, we're guiding for a really strong q2.
Speaker Change: That sounds pretty good and I guess, a good segue to my next question on guidance just.
Brian Barrels: Raised a little bit on the lower end.
Brian Barrels: I was just wondering what the driver of that was it goes.
Speaker Change: FX.
Speaker Change: And the visibility here again in Q1 and Q2 it sounds like it's more like that if I may just.
Speaker Change: Rents on guidance given the strength you're seeing thank you.
Speaker Change: I'm sorry, Brian.
Speaker Change: We couldnt hear the word that you used something is on the lower end and we didn't catch that word.
Speaker Change: I think guidance was revenue guidance was raised on the lower end from one point to 151% to three four.
Speaker Change: Yes.
Speaker Change: Yes, so that's a great question. So we brought up the lower end of the range and that really has to do with how we landed Q1 and our outlook for Q2, so as we said.
Speaker Change: We're guiding for a really strong Q2, and we feel like we've got.
Laurel Hurd: And we feel like we've got Strong order growth, up 3% globally in Q1. are backlogged strong in a strong month for April, so order growth for April. So that gave us the confidence to take up the lower end of the guide. Great, I'll pass it along.
Speaker Change: Strong order growth up 3% globally in Q1.
Speaker Change: Backlog is strong and a strong month for April.
Speaker Change: Order growth for April so that gave us the confidence to take up the lower end of the guide.
Speaker Change: Okay.
Speaker Change: Great I'll pass it along thank you.
Laurel Hurd: Thank you.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Alex Paris from Barrington Research. Your line is open.
Alex Paris: Your next question comes from a line of Alex Paris from Barrington Research.
Alex Paris: Your line is open.
Alex Paris: Hey, guys. Thanks for taking my questions I wanted to.
Alex Paris: Hi guys, thanks for taking my questions. I wanted to ask a question about... Geographic growth. So in the Americas, we were up 6.4% currency neutral net fails. And in EAAA, we were up 1.1% on the same basis.
Speaker Change: Ask a question about.
Speaker Change:
Speaker Change: Geographic growth so show in the Americas, we were up six 4% currency neutral net sales.
Speaker Change: And in each AAA, we were up one 1% on the same basis I was wondering can you.
Laurel Hurd: I was wondering, can you unpack AMEA and APAC, how they did? And I'm particularly interested in China. Yeah, Alex, it was, uh, we had a good result there, local currency. Obviously, the currency gave us a little bit of a headwind in the quarter. Hence, the difference between FX neutral and as reported growth. Asia Pac was, Asia in particular, was a strong quarter. It was up double digits. So we saw some really nice growth there.
Speaker Change: Pac EMEA and APAC.
Speaker Change: How they did and I'm, particularly.
Speaker Change: Really interested in China.
Alex Paris: Yes, Alex it was.
We had a good result, there local currency, obviously, the currency gave us a little bit of a headwind in the quarter.
Alex Paris: Hence the difference between FX neutral and as reported growth Asia Pac was.
Alex Paris: Asia in particular was a strong quarter.
Alex Paris: Up double digits. So we saw some really nice growth there.
Laurel Hurd: In Europe, it was a little softer. And in Australia, it was a little softer. So it was a decent mix of business, but with Asia particularly strong.
Alex Paris: In Europe, it was a little softer.
Alex Paris: And in Australia, It was a little softer.
Alex Paris: So it was it was a it was a decent mix of business.
Alex Paris: But with Asia, particularly strong.
Laurel Hurd: And were you referring to Currency Neutral or Reported Debt? I'm referring to currency. Yeah, yeah. As you know, the currency's gyrated a lot in Q1 month-to-month. And so, and that's how we'd like to look at the underlying and intrinsic growth rates of the business. Okay, so on a currency-neutral basis.
Speaker Change: And were you referring to currency neutral or reported net sales.
Alex Paris: Im referring to currency, yes, yes, as you know.
Alex Paris: Currency Gyrated a loss in Q1 month to month, and so and that's how we like to look at that business to look at the underlying an intrinsic growth rates of the business.
Alex Paris: Okay, so on a currency neutral basis.
Sales were up double digits in APAC or was that bookings.
Laurel Hurd: Sales were up double digits in AIPAC, or was that book? Sales. Billings. Okay. Billings. Great. In Asia, in Asia, when we talk about Asia-Pac, we normally say Asia plus Australia, so they were up in Asia double digit.
Alex Paris: Sales of billings and billings were great.
Alex Paris: And in Asia in Asia.
Alex Paris: When we talk about Asia Pac.
Alex Paris: Normally say Asia, plus Australia, so they were up in Asia double digits.
Alex Paris: Got you. Thank you.
Laurel Hurd: Gotcha, thank you. And then I was gonna ask you about government also. I know that's a small part of the business. 3 or 4% or so. You're working with all types of government buildings, museums, military, et cetera, both local and at the federal level. And I'm just wondering what the pushes and the pulls are in there. You know, return to office, layoffs, doge. There's both a risk and opportunity in there, I think. I agree, Alex, and I'll tell you what we saw. It is exactly as you said. It's really a mix of return to work mandates offset by staff reductions.
Alex Paris: And then.
Alex Paris: That was going to ask you about government also.
Alex Paris: That's a small part of the business.
Speaker Change: Three or 4% or so.
Speaker Change: You're working with all types of government buildings museums military et cetera, both local and at the federal level.
Speaker Change: And I'm just wondering what the pushes and pulls are in their return to office layoffs.
Speaker Change: <unk>.
Speaker Change: Yeah.
Speaker Change: There is both a risk and opportunity in there I think mhm.
Alex Paris: Well I agree Alex and I'll tell you what we thought it is exactly as you said, it's really a mix of return to work mandate offset by staff reductions and with that comes a lot of.
Laurel Hurd: And with that comes a lot of churn. And as you said also, our public building, our government business is a small percentage of our total. It actually was up in Q1, and we're seeing some strength there as well. So there's a lot of activity. The net is it's small, and it's holding steady. It was up in Q1. Gotcha.
Alex Paris: Churn and as you said also our public building our government business is a small percentage of our total.
Alex Paris: It actually was up in Q1, and we're seeing some strength there as well. So there's there's a lot of activity then the net is it small and it's holding steady it was up in Q1.
Speaker Change: Gotcha I asked the question only because you covered tariffs in the prepared remarks that I thought that that could be a potential area of risk, but as I thought about it opportunity given the churn.
Laurel Hurd: I asked the question only because you covered tariffs in the prepared remarks, and I thought that that could be a potential area of risk. But as I thought about it, opportunity given the churn likelihood. That's right.
Alex Paris: That's right.
Alex Paris: That's right.
Alex Paris: Good and then the last question for me is balance sheet.
Alex Paris: Good, and then the last question for me is balance sheet. You know, given where debt stands today and where the leverage ratio is 1.1 times, it looks like you paid off the vast majority of the variable rate debt, and all we have left is the 5.5% senior notes due 2028. Wondering if you are contemplating any changes to capital allocation going forward as such. Yeah, I agree, Alex. The balance sheet is strong. And I would just say with this, all the macro uncertainty right now, it's a great time to be in that situation. It puts us in a position of strength.
Alex Paris: Given where that stands today and where the leverage ratio is one one times. It looks like you paid off the vast majority of the variable rate debt and no. We have left is the five 5% senior notes due 2028.
Speaker Change: Wondering if you are contemplating any changes to capital allocation going forward as such.
Alex Paris: Yes agree.
Alex Paris: Agree Alex.
Alex Paris: The balance sheet is strong.
Alex Paris: And I would just say with this all the macro uncertainty right now.
Alex Paris: Great time to be in that situation it puts us in a position of strength.
Laurel Hurd: For this year, our number one capital allocation priority is to invest in the business and to execute flawlessly on those investments so that they yield their intended return. And you might remember, we're investing in some plant equipment that's going to help us drive some margin expansion. And we're making some investments in our selling organization to drive growth. And so for this year, that's really where our primary focus is. Great.
Alex Paris: For this year, our number one capital allocation priority is to invest in the business and to execute flawlessly on those investments so that they yield theyre intended return.
Alex Paris: Remember, we're investing in some plant equipment, that's going to help us drive some margin expansion and we're making some investments in our selling organization to drive growth and so for this year, that's really where our primary focus is.
Alex Paris: Yes.
Alex Paris: Great and then.
Laurel Hurd: And then I just want to add one on back to the tariffs as I think about it. You said basically the exposure is fairly limited. Nora in Germany and LTV from South Korea. It's about 15% of your total global cost. Is that what you said? Yeah, it's it's fairly minimal. It's less than 15% of our product cost. And if you sort of size that, it's roughly 10 to 15 million of expense annualized. And again, we are planning to offset that through pricing and productivity. And you you got it exactly right. Our primarily, our primary exposure is rubber imported from Germany into the US and LVT imported from South Korea into the US.
Alex Paris: I just wanted to add one on back to the tariffs as I as I think about it.
Speaker Change: You said basically the exposure is fairly limited Nora.
Alex Paris: In Germany and.
Alex Paris: LTV is from South Korea, it's about 15% of your total global costs is that what you said.
Alex Paris: It's fairly minimal.
Alex Paris: Less than 15% of our product cost.
Alex Paris: And if you sort of size that its roughly $10 million to $15 million of expense annualized.
Alex Paris: And again, we are planning to offset that through pricing and productivity.
Alex Paris: And you got it exactly right our primarily our primary exposure is rubber imported from Germany into the U S and <unk> imported.
Alex Paris: From South Korea into the U S and again, we have plans in place to offset.
Laurel Hurd: And again, we have plans in place to offset these fairly minimal tariff related costs. And I think you said those plans are reflected in your guidance. They are, they are. One thing I should also add, you know, we we benefit by manufacturing carpet tile locally, and we source most of our raw materials locally. So we, you know, despite all the noise that we're all reading in the newspapers, we feel really good, like we're in a good position competitively and into into manage through the tariff situation.
Alex Paris: These fairly minimal tariff related costs.
Speaker Change: And I think you said those plans are reflected in your guidance.
Speaker Change: They are there. They are one thing I should also add we benefit by manufacturing carpet tile locally and we source most of our raw materials locally so we.
Speaker Change: Despite all the noise that we're all reading in the newspapers, we feel really good like we're in a good position competitively and.
Speaker Change: And to manage through the tariff situation.
Speaker Change: Excellent. Thanks that'll do it for me for now.
Alex Paris: Excellent. Thanks.
Operator: That'll do it for me for now. Again, if you'd like to ask a question, press star 1 in your telephone keypad.
Thanks, Alex.
Speaker Change: Again, if you'd like to ask a question press star one on your telephone keypad. Your next question comes from the line of David Macgregor from Longbow Research. Your line is open.
David Macgregor: Your next question comes from a line of David MacGregor from Longbow Research. Your line is open. Good morning, everyone. Thanks for taking the questions. If I could just pick up on on hey, good morning.
David Macgregor: Good morning, everyone. Thanks for taking the questions.
If I could just pick up on hey, good morning.
David Macgregor: If I could just pick up on the last topic of tariffs. Bruce, you talked about 10 to 15 million annualized.
David Macgregor: If I could just pick up on the last topic of tariffs.
Speaker Change: Bruce you talked about $10 million to $15 million annualized is there.
Bruce Hausmann: Is there perhaps some timing concern or timing mismatch in 2Q as the expense kicks in immediately, but maybe there's a little bit of a delay in the ramping of the pricing and productivity as an offset? Yeah, I'll take that. And then you can you can follow it up from a pricing standpoint, the thing that works so well in our America's organization is that, you know, we've got a commission based selling team. And when we put that price in the market, it hits pretty quick. We also have inventory in-house that is not impacted by tariffs, so we feel pretty good that the timing should flow, you know, when we're working through that inventory is when those new orders will come in.
Speaker Change: Perhaps some timing concern or timing mismatch in QQ <unk> expense kicks in immediately but maybe there's a little bit of a delay in ramping up the pricing and productivity.
Speaker Change: The offset.
Speaker Change: Yes.
Speaker Change: Yes, I'll take that and then you can follow it up from a pricing standpoint, the thing that worked so well in our Americas organization is that.
Speaker Change: You know, we've got a commission based selling team and when we put that.
Speaker Change: Price in the market it it hits pretty quick we also have inventory in house that is not impacted by tariffs. So we feel pretty good that the timing should flow.
Speaker Change: When we're working through that inventory is one of those new orders will come in.
Speaker Change: Yes, I think theres going to be.
Bruce Hausmann: I think there's going to be timing of the cost versus the revenue and the and the incremental pricing and productivity to offset the cost.
Speaker Change: Timing of cost versus the revenue.
Speaker Change: And the incremental pricing and productivity to offset the costs.
Speaker Change: Im sorry, Bruce you cut out there just at the beginning if I could try to repeat that.
Bruce Hausmann: I'm sorry, Bruce, you cut out there just at the beginning, if I could trouble you to repeat that. Yeah, I think the timing will be pretty in sync between covering the costs and when we have mitigation plans in place to cover those costs through pricing and productivity. Pretty good lineup on the timing. Thanks for that. Got it.
Speaker Change: I think the timing will be pretty in sync between covering the costs and when we have mitigation plans in place to cover those costs through pricing and productivity pretty good pretty good lineup.
Speaker Change: On the Tommy Thanks for that got it and.
Bruce Hausmann: And on inventory, I noticed on the increase, how much of the increase was seasonal versus pre-buy ahead of tariffs versus maybe some of the investments in education and healthcare? Yeah, I love that you're looking at the balance sheet. Very, very little pre-buying due to tariffs. It's really just seasonal. You might remember that we often build a little inventory around this time of year. It's because we're getting ready for a strong Q2 around education, as well as it can also incur a tax. Okay.
Speaker Change: And then on inventory I noticed on the increase how much of the increase was seasonal versus pre buy ahead of tariffs versus maybe some of the investments in education health care, just trying to understand that that increased yeah, I loved that youre looking at the balance sheet.
Speaker Change: Very very little pre buying due to tariffs.
Speaker Change: It's really just seasonal you might remember that we often build a little inventory around this time of year.
Speaker Change: Because we're getting ready for a strong Q.
Speaker Change: Ron education as well as it can.
Speaker Change: Also in Europe.
Speaker Change: Yes.
Speaker Change: Okay, Hey, Bruce Youre fading away again, but I think I got the gist of the answer moral global product category management could you just talk about how youre thinking about the incremental benefits of bringing that positioning to play in and also from a timing standpoint is this somewhat of a longer term.
Laurel Hurd: Hey, Bruce, you're you're fading away again, but I think I got Laurel, global product category management, could you just talk about how you're thinking about the incremental benefits of bringing that position into play, and also from a timing standpoint? Is this somewhat of a longer-term incremental benefit, or do we expect to see something a little more immediate? Yeah, great, a great question. And I would say that adding this role is, it's an important step in our one interface journey. And we're really working to accelerate and optimize our innovation funnel, to focus on driving growth across our categories, the more we work as one team around the globe, the more we're uncovering opportunities to better service our customer from a product perspective.
Speaker Change: Incremental benefit or do we expect to see something a little more immediate.
Speaker Change: Yeah, Great Great question.
Speaker Change: I would say that's adding this role is it's an important step in our.
Speaker Change: One interface journey.
Speaker Change: And we're really working to accelerate and optimize our innovation funnel.
Speaker Change: Our focus on driving growth across our categories. The more we work as one team around the globe than more we're uncovering opportunities to better service our customer from a product perspective.
Laurel Hurd: So we felt the need to really add this role to help us amplify that. And you know, innovation takes time. So this is not something you're going to see read through in the next couple quarters, but it's something that we think will really help us. accelerate our growth over the long term. It's exciting.
Speaker Change: We felt the need to really add this role to help us amplify that and you know innovation takes time.
Speaker Change: So this is not something youre going to see read through in the next couple of quarters, but its something that we think will really help us.
Speaker Change: Accelerate our growth over the long term.
Speaker Change: It's exciting.
Speaker Change: And it brings to mind.
Laurel Hurd: And it brings to mind that you more recently added resources within your procurement organization. Can you just talk about the extent to which you think that is contributing to gross margins now and how long it took to get a payback on that? Yeah, so we, we have our chief supply chain officer who's really globalizing not just procurement, but also things like our productivity initiatives and automation and robotics, and looking at that from a global lens. So we're seeing some nice benefits of that paying off. So an example of that the robotics and automation that we put into our carpet tile manufacturing in the US, we've got great lessons from that.
Speaker Change: More recently added.
Speaker Change: Resources within your procurement organization can you just talk about the extent to which you think that is contributing to gross margins down and how long it took to get payback on that.
Speaker Change: Yeah. So we we have our chief supply chain officer, Who's really globalizing and not just procurement, but also things like our productivity initiatives and automation and robotics and looking at that from a global lens. So we're seeing some nice benefits of that paying off so an example of that.
Speaker Change: The robotics and automation that we put into our carpet tile manufacturing in the U S. We've got great lessons from that and we're rolling that now to Europe as well as to Australia.
Laurel Hurd: And we're rolling that now to Europe as well as to Australia. So really nice look at and we wouldn't have done that, necessarily have done that before, because we've been much more focused regionally. So we've got a real strong global look across from a manufacturing standpoint. And then similarly, from procurement, you know, in these times, it's really nice to have a global lead, we have a fantastic lead, who's driving global procurement with both our strong finished goods suppliers, as well as our material suppliers. So It's been, it's been a really, really good opportunity, and we have real confidence in the productivity funnel that we have to continue to expand our margins.
Speaker Change: So really nice look at and we wouldn't have done that necessarily have done that before because we had been much more focused regionally. So we've got a real strong global look across from a manufacturing standpoint, and then similarly from procurement.
In these times, it's really nice to have a global lead we have a fantastic lead his.
Speaker Change: He is driving global procurement with both are strong.
Speaker Change: Finished goods suppliers as well as our material supplier so.
Speaker Change: It's been it's been a really really good.
Speaker Change: <unk> and we have real confidence in the productivity funnel that we have to continue to expand our margin.
Speaker Change: Great last question for me I guess, just high level question, but.
Laurel Hurd: Great.
Laurel Hurd: Last question for me, I guess just high level question, but it came up in an earlier conversation, the whole return to the office dynamic, I think it was with respect to government. But maybe my question is, in broader terms, if you could just talk about the extent to which you see that coming into play across your your many verticals, and and, you know, what inning you think we're in the whole return to office dynamic as a as a demand driver. Um, you know, it's it we're still feeling like that. There's so much I'll use the word churn, but there are so many people who are returning to work, and what they're finding is that the office that they entered needs updating or needs to be modernized into how we work today.
It came up in an earlier conversation the whole return to the office dynamic I think it was with respect to government, but maybe my question is in broader terms. If you could just talk about <unk>.
Speaker Change: Would you see that coming into play across your.
Speaker Change: Many verticals.
Speaker Change: What inning, you think we're in the whole return to office dynamic as a demand driver.
Speaker Change:
Speaker Change: We're still feeling like that there is so much.
Speaker Change: Okay.
Speaker Change: Turn happening I'll use the word churn, but there are so many people who are returning to work and what they're finding is that the office that they that they entered needs updating or needs to be modernized into how we work today.
Speaker Change: There is also the flight to quality. So people are moving into much more premium buildings, which aligns with our brand so.
Laurel Hurd: There's also the flight to quality, so people are moving into much more premium buildings, which aligns with our brand. So I'd say we're encouraged by the opportunity to continue to help us grow for the long term. Yeah, I would say, hopefully you can hear me better on this microphone, David, I would say early innings and all. The momentum in office continues. All those macro dynamics that Laurel articulated are real. And again, the churn is helpful for our business. We really benefit from that, and that's what we're seeing. We're seeing strong momentum in the business, and we're seeing particularly a lot of strength in America.
Speaker Change: I'd say, we're encouraged by the opportunity to continue to help us grow for the long term, yes, I would say hopefully you can hear me better on this microphone David I would say early innings on all of that.
Speaker Change: So the momentum in office continues all of those all of those macro dynamics that loral articulated are real.
Speaker Change: And again the churn is helpful for our business, we really benefit from that so.
Speaker Change: So and that's what we're seeing we're seeing strong momentum in the business and were seeing particularly a lot of strength in Americas.
Speaker Change: Great. Thanks, very much and congratulations on all the progress.
David Macgregor: Great. Thanks very much. Congratulations on all the progress. Thank you. Thanks, David.
David Macgregor: Thank you David.
Speaker Change: And that concludes our question and answer session I will now turn the call back over to Laurel for closing remarks.
Laurel Hurd: And that concludes our question and answer session. I will now turn the call back over to Laurel for closing remarks. Great. Well, thanks for everyone for joining the call this morning and thanks to the entire Interface team to a really solid start to the year and for everything that you do every day. Appreciate you all.
Speaker Change: Great well, thanks for everyone for joining the call. This morning, and thanks to the entire interface team to a really solid start to the year and for everything that you do every day I appreciate you all.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Please wait, the conference will begin shortly.
Speaker Change: Please wait the conference will begin shortly.
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