Interface, Inc.

Good morning, and welcome to Interface's conference call regarding third quarter 2024 results, hosted by Laurel Hurd, CEO, and Bruce Hausman, 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 statements, 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. 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. Lastly, this call is being recorded and broadcasted for interface. It contains copyrighted material and may not be rerecorded or rebroadcasted without Interface's express permission. Your participation on the call confirms your consent to the company's taping and broadcasting of it. After our prepared remarks, we will open up the call for questions. Now, I will turn the call over to Laurel Hurd, CEO.

Thank you, Christine, and good morning, everyone. To begin our call, I want to thank the interface team for an impressive quarter. Our strong results reinforce the fact that our one interface strategy is working and yielding tangible results. The strategy is focused on building strong global functions to support our world-class local selling team, accelerating growth through enhanced productivity of our commercial team, expanding margins through global supply chain management and complexity reduction, and leading in design, innovation, and sustainability. We're in the early stages of our multi-year plan, and we're encouraged by the results we're seeing across the business. We've talked about the new integrated selling approach that we implemented in Q1 of this year, which combines NORA and Interface selling teams in the US. These coordinated teams are continuing to yield tremendous results in the Americas business, resulting in currency neutral net sales up an impressive 18% in the quarter. We're seeing momentum in NORA rubber sales expanding beyond healthcare into other growth segments, including education, biopharma, and manufacturing. Our combined selling teams are effectively unlocking new opportunities across the product portfolio while enhancing the customer experience. This is what we'd hoped to see and were encouraged by the team's progress. Additionally, we recently added the Nora brand to our refreshed brand attitude made for more. This platform brings our brands closer together to drive consistency in how we show up for our customers. It creates efficiency in our marketing and brand efforts and ultimately provides additional sales opportunities. Turning to our financial results, we delivered a very strong third quarter with currency neutral net sales growth of 10% and significant profitability expansion. We continue to drive strong momentum in the Americas. And as mentioned, currency neutral net sales were up 18% year over year, continued market share gains. In EAAA, currency neutral net sales were flat as growth in EMEA was largely offset by lower net sales in Australia. Additionally, Billings in all product categories were up here to date in both price and volume, which is a great testament to our selling organization and their ability to execute and gain share. Moving to our market segments, global education billings remain strong, up 18% year over year, led by Strength in the Americas. Our expanded open-air collection, Nora Rubber, and 3mm LVT collections continue to resonate with our K-12 and higher education customers. This is a great example of our combined selling teams effectively supporting our customers across the full product portfolio. Global corporate office billings were up 2% year over year, where we continue to gain market share when you compare us with overall industry trends. As companies return to the office and update their spaces, our sales team leverages their deep relationships with architects and design firms to meet their needs with our differentiated product portfolio. Overall activity continues to increase, particularly in Class A space, where we are differentiated by our premium products, design, and sustainability leadership. Healthcare billings were soft in the third quarter. However, we saw strong double-digit year-over-year order growth. As a reminder, we typically have a longer sales and installation cycle related to our NORA products in healthcare, and our strong healthcare orders will convert to billings in the coming quarters. And as expected, retail billings were up in the quarter compared to a soft prior year period. Retail is a small part of our overall net sales, but can have periodic unplanned deferrals of store remodel projects, which we experienced in the prior year period. Turning to orders, strong commercial execution drove a 10% increase in consolidated currency neutral orders in the third quarter. Currency neutral orders in the Americas were up 17%, with growth across all product categories. In EAAA, currency-neutral orders were flat year-over-year. Growth in Asia was largely offset by Australia, with EMEA essentially flat. As we head into the fourth quarter, our backlog is strong, up 29% year-to-date. We remain focused on commercial productivity, improving the customer experience, and aligning our sales teams with the fastest-growing geographic markets and segments beginning in the U.S. Turning to supply chain and manufacturing. We continue to focus on reducing complexity through automation in our manufacturing facilities. As previously mentioned, we will continue to implement new automation and robotics solutions over the next three quarters. We are encouraged by the results of these investments in our U.S. manufacturing plants and continue to evaluate other automation opportunities, which will be funded through manufacturing efficiency savings. Before Bruce gets into the financials, I want to share some notable accomplishments related to sustainability. First, we recently announced that we are making it easier for customers to understand the carbon impact of their product selection. We are delivering embodied carbon metrics on all floor plans created by the Interface Design Studio by using a unique combination of technology and data to calculate the carbon footprint of a project's flooring. This helps to put carbon footprint data at the forefront where we know we lead with differentiated, low-carbon products. and it contributes to helping our customers achieve their own sustainability and carbon goals. Second, we've recently announced that we've expanded our carpet recycling capabilities at our facility in the Netherlands, building on 30 years of progress in support of the circular economy. We can now process Sequest Bio and Sequest Bio X-backed carpet in EMEA to turn used products into new ones, helping us reduce our carbon footprint. Third, I'm pleased to share that Interface received the highest distinction and Reuters' recent sustainability awards in the net zero leadership category for our decision to go all in on becoming carbon negative without offset. And finally, I'm proud to report that Interface was added to Newsweek's greenest companies list, which is the ranking of top companies in the U.S. that are committed to environmental sustainability. Interface continues to be at the forefront of sustainability as we work to become carbon negative by 2040, and we appreciate the recognition of our progress. With that, I'll turn it over to Bruce to go over the financials.

Bruce? Well, thank you, Laurel, and good morning, everyone. Third quarter net sales totaled $344.3 million, an increase of 11% versus the third quarter of 2023. Third quarter FX neutral net sales in the Americas were up 18% year over year, driven primarily by strength in the education market segments, as well as strong retail billings. FX neutral net sales in the AAA were flat year over year, and on an FX neutral basis, EMEA was up 2%, Asia was down 1%, and Australia was down 9% year over year on a strong prior year comparison. Third quarter adjusted gross profit margin was 37.5%, an increase of 158 basis points on raw material cost deflation and higher fixed cost absorption due to increased volume compared to the same period last year. Adjusted SG&A expenses were 85.5 million, or 24.8% of net sales in the third quarter, compared to 79.2 million, or 25.5% of net sales in the third quarter last year. Third quarter adjusted operating income was 43.5 million, up 34%. versus adjusted operating income of $32.4 million in the third quarter last year. The increase was driven by higher net sales and higher gross profit margins in the quarter. Our third quarter effective tax rate benefited from the release of a $2.7 million valuation allowance. This is driven by strong business performance in the U.S. and lower interest expense from accelerated debt repayment. The release of this valuation allowance was unique to Q3 2024 and is not expected to recur. Third quarter adjusted EPS was 48 cents versus 28 cents in the third quarter last year. Third quarter's adjusted EBITDA was 53.7 million versus 43.7 million in the third quarter last year. We generated 76.2 million of cash from operating activities in the third quarter. In line with our capital allocation strategy, we repaid 51.3 million of debt in the third quarter and 80.9 million year to date. Our balance sheet remained strong with 415 million of liquidity at quarter end and our net leverage ratio was 1.1 times calculated as net debt divided by the last 12 months of adjusted EBITDA. Capital expenditures were 6.5 million in the third quarter of 2024 compared to 5.9 million in 2023. Turning to our outlook, we delivered impressive results in the third quarter of 2024 and entered fourth quarter with strong orders and a healthy backlog. As a reminder, in the fourth quarter last year, gross profit margin benefited 168 basis points from non-recurring items that reduced cost of sales in that quarter. Separately, we continue to anticipate strong retail billings in the fourth quarter of 2024, which has slightly lower gross profit margins than our more typical premium products. With that backdrop in mind, we are raising our full year outlook and are now anticipating the following for the full fiscal year 2024. Net sales of $1.315 billion to $1.325 billion. Adjusted gross profit margin of approximately 36.6%. Adjusted SG&A expenses of approximately 345 million. Adjusted interest and other expenses of approximately 27 million. An adjusted effective tax rate for the full year of approximately 25%. Fully diluted weighted average share count of approximately 58.89 shares. and capital expenditures of approximately $37 million. And with that, I'll turn the call back to Laurel for concluding remarks.