Interface(TILE) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion of the company's financial performance and condition Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated condensed financial statements, including balance sheets, income statements, comprehensive income, and cash flows, with detailed explanatory notes Consolidated Condensed Balance Sheets This section presents the consolidated condensed balance sheets, detailing assets, liabilities, and equity at specific reporting dates Consolidated Condensed Balance Sheet Highlights (in thousands): | Item | June 29, 2025 | December 29, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Assets | | | | | | Cash and cash equivalents | $121,701 | $99,226 | $22,475 | 22.65% | | Accounts receivable, net | $194,251 | $171,135 | $23,116 | 13.51% | | Inventories, net | $288,165 | $260,581 | $27,584 | 10.59% | | Total current assets | $643,086 | $564,297 | $78,789 | 13.96% | | Total assets | $1,278,222 | $1,170,816 | $107,406 | 9.17% | | Liabilities & Equity | | | | | | Accounts payable | $86,621 | $68,943 | $17,678 | 25.64% | | Accrued expenses | $122,850 | $134,996 | $(12,146) | -8.99% | | Total current liabilities | $223,548 | $216,717 | $6,831 | 3.15% | | Total liabilities | $703,197 | $681,668 | $21,529 | 3.16% | | Total shareholders' equity | $575,025 | $489,148 | $85,877 | 17.56% | | Total liabilities and shareholders' equity | $1,278,222 | $1,170,816 | $107,406 | 9.17% | Consolidated Condensed Statements of Operations This section provides the consolidated condensed statements of operations, presenting revenues, expenses, and net income for specified periods Consolidated Condensed Statements of Operations Highlights (in thousands, except per share data): | Item | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | % Change (3M) | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | % Change (6M) | | :-------------------------------- | :------------------------------- | :------------------------------- | :-------------- | :------------------------------- | :------------------------------- | :-------------- | | Net sales | $375,522 | $346,635 | 8.33% | $672,935 | $636,378 | 5.75% | | Gross profit | $147,977 | $122,613 | 20.68% | $258,940 | $233,018 | 11.12% | | Operating income | $52,047 | $38,151 | 36.42% | $75,274 | $62,597 | 20.26% | | Net income | $32,561 | $22,558 | 44.35% | $45,563 | $36,737 | 23.99% | | Earnings per share – basic | $0.56 | $0.39 | 43.59% | $0.78 | $0.63 | 23.81% | | Earnings per share – diluted | $0.55 | $0.38 | 44.74% | $0.77 | $0.63 | 22.22% | Consolidated Statements of Comprehensive Income This section presents the consolidated statements of comprehensive income, detailing net income and other comprehensive income components Consolidated Statements of Comprehensive Income Highlights (in thousands): | Item | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income | $32,561 | $22,558 | $45,563 | $36,737 | | Foreign currency translation adjustment | $33,445 | $(2,022) | $49,279 | $(13,114) | | Pension liability adjustment | $(1,782) | $534 | $(2,477) | $992 | | Other comprehensive income (loss) | $31,663 | $(1,488) | $46,802 | $(12,122) | | Comprehensive income | $64,224 | $21,070 | $92,365 | $24,615 | Consolidated Condensed Statements of Cash Flows This section presents the consolidated condensed statements of cash flows, categorizing cash movements from operating, investing, and financing activities Consolidated Condensed Statements of Cash Flows Highlights (in thousands): | Item | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | :------- | | Net cash provided by operating activities | $41,867 | $34,158 | $7,709 | 22.57% | | Net cash used in investing activities | $(14,821) | $(11,567) | $(3,254) | 28.13% | | Net cash used in financing activities | $(13,740) | $(36,960) | $23,220 | -62.82% | | Effect of exchange rate changes on cash | $9,169 | $(1,942) | $11,111 | -572.14% | | Net increase / (decrease) in cash | $22,475 | $(16,311) | $38,786 | -237.79% | | Cash and cash equivalents at end of period | $121,701 | $94,187 | $27,514 | 29.21% | Notes to Consolidated Condensed Financial Statements This section provides detailed notes explaining the significant accounting policies and specific financial statement line items NOTE 1 – Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited financial statements, discusses global economic challenges, and details recently issued accounting pronouncements - The unaudited financial information includes all necessary normal recurring adjustments for fair presentation, but interim results are not indicative of full-year expectations[21] - Global economic challenges, including tariffs, inflation, supply chain disruptions, and geopolitical conflicts, pose risks and uncertainties that could materially affect financial statements if actual results differ from estimates[23] - The FASB issued ASU 2024-03 (effective after Dec 15, 2026) requiring additional footnote disclosures for disaggregating income statement costs and expenses, and ASU 2023-09 (effective after Dec 15, 2024) requiring improved income tax disclosures. The Company is evaluating their impact[25][26] NOTE 2 – Revenue Recognition This note details the company's revenue sources, primarily from flooring materials and installation services, disaggregated by geographical segments - Revenue from sales of flooring material accounted for 98% of total revenue for both the three and six months ended June 29, 2025, and June 30, 2024, with the remaining 2% from installation services[28] Revenue Disaggregation by Geography: | Geography | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :---------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Americas | 63.8 % | 62.0 % | 62.3 % | 60.5 % | | Europe | 27.2 % | 27.6 % | 28.3 % | 29.4 % | | Asia-Pacific | 9.0 % | 10.4 % | 9.4 % | 10.1 % | NOTE 3 – Inventories This note provides a breakdown of the company's inventories, net, showing changes across finished goods, work-in-process, and raw materials Inventories Summary (in thousands): | Item | June 29, 2025 | December 29, 2024 | Change | % Change | | :-------------- | :------------ | :---------------- | :----- | :------- | | Finished goods | $210,910 | $192,705 | $18,205 | 9.45% | | Work-in-process | $21,243 | $18,552 | $2,691 | 14.50% | | Raw materials | $56,012 | $49,324 | $6,688 | 13.56% | | Inventories, net | $288,165 | $260,581 | $27,584 | 10.59% | NOTE 4 – Earnings Per Share This note details the computation of basic and diluted earnings per share, including the treatment of participating and non-participating securities Earnings Per Share Computation (in thousands, except per share data): | Item | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income | $32,561 | $22,558 | $45,563 | $36,737 | | Shares for basic EPS | 58,555 | 58,281 | 58,495 | 58,260 | | Shares for diluted EPS | 59,073 | 58,692 | 59,123 | 58,703 | | Basic EPS | $0.56 | $0.39 | $0.78 | $0.63 | | Diluted EPS | $0.55 | $0.38 | $0.77 | $0.63 | - All unvested stock awards with non-forfeitable dividend rights are considered participating securities and included in basic EPS. Non-participating securities (restricted share units and performance shares) are included in diluted EPS when dilutive[33] NOTE 5 – Long-Term Debt This note details the company's long-term debt, including the Syndicated Credit Facility and Senior Notes, and confirms covenant compliance Long-Term Debt Summary (in thousands): | Item | June 29, 2025 (Outstanding Principal) | December 29, 2024 (Outstanding Principal) | Interest Rate (June 29, 2025) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :---------------------------- | | Revolving loan borrowings | $1,306 | $0 | 5.06% | | Term loan borrowings | $5,590 | $5,564 | 5.02% | | Total borrowings under Syndicated Credit Facility | $6,896 | $5,564 | 5.03% | | 5.50% Senior Notes due 2028 | $300,000 | $300,000 | 5.50% | | Total debt, net | $304,449 | $302,757 | | | Total long-term debt, net | $303,943 | $302,275 | | - The Company is in compliance with all covenants under its Syndicated Credit Facility and Senior Notes due 2028 and anticipates continued compliance[38][40] NOTE 6 – Shareholders' Equity This note details changes in shareholders' equity, including net income, stock issuances, dividends, share repurchases, and compensation costs Shareholders' Equity Activity (Six Months Ended June 29, 2025, in thousands): | Item | Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Foreign Currency Translation Adjustment | Pension Liability | Total | | :-------------------------------- | :------------ | :----------- | :------------------------- | :---------------- | :-------------------------------------- | :---------------- | :------ | | Balance, at December 29, 2024 | 58,304 | $5,830 | $261,028 | $405,441 | $(143,317) | $(39,834) | $489,148 | | Net income | — | — | — | $45,563 | — | — | $45,563 | | Issuances of stock related to RSUs and performance shares | 659 | $66 | $(66) | — | — | — | — | | Cash dividends declared | — | — | — | $(1,227) | — | — | $(1,227) | | Compensation expense related to share-based plans, net | (352) | $(35) | $(781) | — | — | — | $(816) | | Share repurchases | (218) | $(22) | $(4,423) | — | — | — | $(4,445) | | Foreign currency translation adjustment | — | — | — | — | $49,279 | — | $49,279 | | Pension liability adjustment | — | — | — | — | — | $(2,477) | $(2,477) | | Balance, at June 29, 2025 | 58,393 | $5,839 | $255,758 | $449,777 | $(94,038) | $(42,311) | $575,025 | - During the six months ended June 29, 2025, the Company repurchased 217,500 shares of common stock at a weighted average price of $20.44 per share under its $100 million share repurchase program[43] - Unrecognized compensation cost for unvested restricted share units was $9.3 million as of June 29, 2025, expected to be recognized by Q1 2028. For performance shares, unrecognized compensation expense was approximately $9.9 million, also expected by Q1 2028[46][48] NOTE 7 – Leases This note summarizes lease-related balance sheet items, lease costs, and provides a maturity analysis for operating and finance leases Lease Balances (in thousands): | Item | June 29, 2025 | December 29, 2024 | | :-------------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $80,619 | $76,815 | | Total operating lease liabilities | $85,112 | $80,388 | | Total finance lease liabilities | $8,448 | $8,454 | Total Lease Cost (in thousands): | Period | June 29, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :---------------- | | Three Months Ended | $6,975 | $6,525 | | Six Months Ended | $13,897 | $13,276 | Weighted-Average Lease Terms and Discount Rates: | Item | June 29, 2025 | December 29, 2024 | | :-------------------------------- | :------------ | :---------------- | | Weighted-average remaining lease term – finance leases (in years) | 3.47 | 3.61 | | Weighted-average remaining lease term – operating leases (in years) | 7.44 | 7.68 | | Weighted-average discount rate – finance leases | 6.60 % | 6.44 % | | Weighted-average discount rate – operating leases | 6.41 % | 6.39 % | NOTE 8 – Employee Benefit Plans This note details the company's multi-employer and defined benefit pension plans, including net periodic benefit costs - Multi-employer pension expense was $0.6 million for the three months and $1.3 million for the six months ended June 29, 2025, consistent with the prior year[57] Net Periodic Benefit Cost (in thousands): | Plan | Period | June 29, 2025 | June 30, 2024 | | :-------------------------------- | :----- | :------------ | :---------------- | | Defined Benefit Retirement Plans (Europe) | 3 Months | $313 | $58 | | | 6 Months | $607 | $116 | | Salary Continuation Plan | 3 Months | $322 | $326 | | | 6 Months | $644 | $652 | | nora Defined Benefit Plan | 3 Months | $293 | $386 | | | 6 Months | $567 | $776 | NOTE 9 – Goodwill and Other Intangible Assets This note details the company's goodwill and other intangible assets, including foreign currency translation impacts and segment allocation Goodwill and Other Intangible Assets (in thousands): | Item | June 29, 2025 | December 29, 2024 | | :-------------------------------- | :------------ | :---------------- | | Goodwill balance | $111,636 | $99,887 | | Foreign currency translation impact on goodwill | $11,749 (increase) | | | Net carrying value of intangible assets (other than goodwill) | $51,100 | $48,300 | - The goodwill balance is entirely allocated to the AMS reportable segment[59] NOTE 10 – Segment Information This note provides financial information for the Americas (AMS) and Europe, Africa, Asia, and Australia (EAAA) segments, evaluated by Adjusted Operating Income - The Company has two reportable segments: Americas (AMS) and Europe, Africa, Asia and Australia (EAAA)[62][64] - Segment performance is evaluated using Adjusted Operating Income (AOI), which excludes nora purchase accounting amortization, restructuring, asset impairment, severance, and cyber event impacts[63] Segment Net Sales (in thousands): | Segment | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | AMS | $239,443 | $215,012 | $419,380 | $384,927 | | EAAA | $136,079 | $131,623 | $253,555 | $251,451 | | TOTAL | $375,522 | $346,635 | $672,935 | $636,378 | Segment Adjusted Operating Income (AOI) (in thousands): | Segment | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | AMS | $48,845 | $26,947 | $68,708 | $45,027 | | EAAA | $7,065 | $12,658 | $12,655 | $20,103 | | TOTAL | $55,910 | $39,605 | $81,363 | $65,130 | Total Segment Assets (in thousands): | Item | June 29, 2025 | December 29, 2024 | | :---------------- | :------------ | :---------------- | | AMS | $608,894 | $644,085 | | EAAA | $643,327 | $587,639 | | Total segment assets | $1,252,221 | $1,231,724 | | Total reported assets | $1,278,222 | $1,170,816 | NOTE 11 – Supplemental Cash Flow Information This note provides supplemental cash flow details, specifically cash paid for interest and income taxes for the reported periods Supplemental Cash Flow Information (in thousands): | Item | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Cash paid for interest | $8,935 | $11,977 | | Cash paid for income taxes, net of refunds | $18,803 | $16,014 | NOTE 12 – Income Taxes This note discusses the company's income tax provision, effective tax rates, and the impact of new tax legislation and unrecognized tax benefits Income Tax Provision and Effective Tax Rate: | Period | Pre-Tax Income (in thousands) | Income Tax Provision (in thousands) | Effective Tax Rate | | :-------------------------------- | :---------------------------- | :-------------------------- | :----------------- | | Six Months Ended June 29, 2025 | $61,302 | $15,739 | 25.6% | | Six Months Ended June 30, 2024 | $50,145 | $13,408 | 26.7% | | Three Months Ended June 29, 2025 | | | 26.3% | | Three Months Ended June 30, 2024 | | | 27.6% | - The decrease in the effective tax rate for the six months ended June 29, 2025, was primarily due to favorable changes in the geographic mix of earnings and an increase in tax benefits related to share-based compensation[74] - The Company is assessing the impact of the U.S. OBBBA (enacted July 4, 2025) and expects to meet Transitional Country-by-Country (CbCR) Safe Harbor rules for most jurisdictions under OECD Pillar Two Model Rules for fiscal year 2025, with no material impact expected[75][76] - As of June 29, 2025, the Company accrued approximately $5.0 million for unrecognized tax benefits, with no material impact expected from their recognition within the next 12 months[77][78] NOTE 13 – Items Reclassified from Accumulated Other Comprehensive Loss This note details amounts reclassified from accumulated other comprehensive loss to the consolidated condensed statements of operations Loss Reclassified from AOCL (in thousands): | Statement of Operations Location | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Amortization of benefit plan net actuarial losses and prior service cost (Other expense (income), net) | $(403) | $(371) | $(787) | $(745) | | Total loss reclassified from AOCL | $(403) | $(371) | $(787) | $(745) | NOTE 14 – Commitments and Contingencies This note outlines the company's legal proceedings, including a new PFAS lawsuit and an ongoing lawsuit by a former CEO - In April 2025, Interface, Inc. and its subsidiary were named as defendants in a PFAS lawsuit alleging contamination of a water supply, which has been moved to Multi-District Litigation (MDL). The Company believes it has meritorious defenses and intends to defend vigorously[83][84][85] - There have been no material changes to the lawsuit by the former CEO in connection with termination since December 29, 2024[86] NOTE 15 – Fair Value of Financial Instruments This note presents the carrying and estimated fair values of financial instruments, categorized by the fair value hierarchy Fair Value of Financial Instruments (in thousands): | Item | June 29, 2025 Carrying Value | June 29, 2025 Fair Value (Level 1) | June 29, 2025 Fair Value (Level 2) | December 29, 2024 Carrying Value | December 29, 2024 Fair Value (Level 1) | December 29, 2024 Fair Value (Level 2) | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Company-owned life insurance | $22,977 | $0 | $22,977 | $22,911 | $0 | $22,911 | | Deferred compensation investments | $30,248 | $7,213 | $23,035 | $30,521 | $8,697 | $21,824 | | Borrowings under Syndicated Credit Facility | $6,896 | $0 | $6,896 | $5,564 | $0 | $5,564 | | 5.50% Senior Notes due 2028 | $300,000 | $0 | $295,236 | $300,000 | $0 | $294,738 | - The fair value of borrowings under the Syndicated Credit Facility approximates carrying value due to variable interest rates similar to market rates. The fair value of Senior Notes is derived using quoted prices for similar instruments[89][90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, liquidity, and capital resources Executive Overview This overview highlights key consolidated financial performance metrics, including sales, operating income, and net income growth Consolidated Financial Performance Overview (in millions, except per share data): | Metric | Q2 2025 | Q2 2024 | % Change (Q2) | H1 2025 | H1 2024 | % Change (H1) | | :-------------------- | :------ | :------ | :------------ | :------ | :------ | :------------ | | Net Sales | $375.5 | $346.6 | 8.3% | $672.9 | $636.4 | 5.7% | | Operating Income | $52.0 | $38.2 | 36.1% | $75.3 | $62.6 | 20.3% | | Net Income | $32.6 | $22.6 | 44.2% | $45.6 | $36.7 | 24.2% | | Diluted EPS | $0.55 | $0.38 | 44.7% | $0.77 | $0.63 | 22.2% | - Q2 2025 net sales increase was primarily due to higher customer demand in education, healthcare, and corporate office segments, and higher average sales prices. Operating income and gross profit margin improved due to lower manufacturing costs from favorable fixed cost absorption and production efficiencies[95] Impact of Macroeconomic Trends This section discusses global economic challenges, such as tariffs, inflation, and supply chain disruptions, and their potential impact on performance - Global economic challenges, including tariffs, fluctuating freight costs, supply chain disruptions, commercial office market pressures, inflation, and geopolitical conflicts, continue to pose risks to future performance[97] - The Company plans to evaluate its cost structure and global manufacturing footprint to identify opportunities for cost reduction and optimization[97] Analysis of Results of Operations This section provides a detailed analysis of the company's consolidated and segment-specific operating results, including sales, costs, and profits Consolidated Results (as a percentage of net sales) This section presents consolidated financial results expressed as a percentage of net sales for comparative periods Consolidated Results as % of Net Sales: | Item | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net sales | 100.0 % | 100.0 % | 100.0 % | 100.0 % | | Cost of sales | 60.6 % | 64.6 % | 61.5 % | 63.4 % | | Gross profit | 39.4 % | 35.4 % | 38.5 % | 36.6 % | | Selling, general and administrative expenses | 25.5 % | 24.4 % | 27.3 % | 26.8 % | | Operating income | 13.9 % | 11.0 % | 11.2 % | 9.8 % | | Net income | 8.7 % | 6.5 % | 6.8 % | 5.7 % | Consolidated Net Sales This section analyzes consolidated net sales, detailing changes driven by volume, pricing, and currency impacts across market segments Consolidated Net Sales (in thousands): | Period | June 29, 2025 | June 30, 2024 | Percentage Change | | :-------------------------------- | :------------ | :------------ | :---------------- | | Three Months Ended | $375,522 | $346,635 | 8.3 % | | Six Months Ended | $672,935 | $636,378 | 5.7 % | - Q2 2025 net sales increased 8.3% due to higher sales volume (approx. 6%) and average sales prices (approx. 2%), with a positive currency impact of $4.4 million (1.3%) from a stronger Euro. Sales growth was primarily in education, healthcare, and corporate office market segments[99] - H1 2025 net sales increased 5.7% due to higher sales volume (approx. 5%) and average sales prices (approx. 1%), with no material currency impact. Sales growth was mainly in education, healthcare, and retail, partially offset by a decrease in corporate office[100] Consolidated Cost and Expenses This section analyzes the company's consolidated cost of sales, gross profit, and selling, general, and administrative expenses Consolidated Cost of Sales This section details changes in consolidated cost of sales, influenced by sales volume, input costs, and manufacturing efficiencies Consolidated Cost of Sales (in thousands): | Period | June 29, 2025 | June 30, 2024 | Percentage Change | | :-------------------------------- | :------------ | :------------ | :---------------- | | Three Months Ended | $227,545 | $224,022 | 1.6 % | | Six Months Ended | $413,995 | $403,360 | 2.6 % | - Q2 2025 cost of sales increased 1.6% due to higher sales and input costs, largely offset by lower manufacturing costs from favorable fixed cost absorption and production efficiencies. As a percentage of net sales, cost of sales decreased to 60.6% from 64.6%[102] - H1 2025 cost of sales increased 2.6% due to higher sales, partially offset by lower manufacturing costs. As a percentage of net sales, cost of sales decreased to 61.5% from 63.4%[103] Consolidated Gross Profit This section analyzes consolidated gross profit and gross profit margin, highlighting impacts from manufacturing costs and efficiencies - Q2 2025 gross profit as a percentage of net sales increased to 39.4% from 35.4% in the prior year, primarily due to lower manufacturing costs per unit (approx. 4%) driven by favorable fixed cost absorption and production efficiencies[104] - H1 2025 gross profit as a percentage of net sales increased to 38.5% from 36.6% in the prior year, primarily due to lower manufacturing costs (approx. 2%)[105] Consolidated Selling, General and Administrative ("SG&A") Expenses This section details changes in consolidated SG&A expenses, driven by labor costs, variable compensation, and severance Consolidated SG&A Expenses (in thousands): | Period | June 29, 2025 | June 30, 2024 | Percentage Change | | :-------------------------------- | :------------ | :------------ | :---------------- | | Three Months Ended | $95,930 | $84,462 | 13.6 % | | Six Months Ended | $183,666 | $170,421 | 7.8 % | - Q2 2025 SG&A expenses increased 13.6% due to higher employee benefits and labor costs ($5.0 million), higher variable compensation ($2.9 million) from increased sales and improved operating results, and higher severance costs ($2.7 million). As a percentage of net sales, SG&A increased to 25.5% from 24.4%[106] - H1 2025 SG&A expenses increased 7.8% due to similar factors as Q2. As a percentage of net sales, SG&A increased to 27.3% from 26.8%[107] Interest Expense This section analyzes changes in interest expense, primarily influenced by outstanding term loan borrowings - Interest expense decreased by $1.7 million to $4.4 million for Q2 2025 and by $3.7 million to $8.9 million for H1 2025, primarily due to lower outstanding term loan borrowings under the Facility[108] Provision for Income Taxes This section discusses the effective tax rate and its drivers, including geographic mix of earnings and share-based compensation benefits - The effective tax rate decreased to 26.3% for Q2 2025 (from 27.6% in Q2 2024) and to 25.7% for H1 2025 (from 26.7% in H1 2024)[109] - The decrease in effective tax rate was primarily due to favorable changes in the geographic mix of earnings and increased tax benefits related to share-based compensation, and for Q2, favorable changes related to the cash surrender value of Company-owned life insurance[109] Segment Operating Results This section provides a detailed analysis of net sales and Adjusted Operating Income for the AMS and EAAA segments AMS Segment – Net Sales and Adjusted Operating Income ("AOI") This section analyzes the AMS segment's net sales and Adjusted Operating Income, highlighting growth drivers and margin improvements AMS Segment Performance (in thousands): | Metric | Q2 2025 | Q2 2024 | % Change (Q2) | H1 2025 | H1 2024 | % Change (H1) | | :-------------------- | :------ | :------ | :------------ | :------ | :------ | :------------ | | Net Sales | $239,443 | $215,012 | 11.4% | $419,380 | $384,927 | 9.0% | | AOI | $48,845 | $26,947 | 81.3% | $68,708 | $45,027 | 52.6% | | AOI as % of Net Sales | 20.4% | 12.5% | | 16.4% | 11.7% | | - AMS net sales increased due to higher sales volume and average sales prices, primarily in education, healthcare, and corporate office market segments[111][112] - AMS AOI increased significantly due to higher sales and gross profit margin, driven by favorable product mix, production efficiencies, and fixed cost absorption[113][114] EAAA Segment – Net Sales and AOI This section analyzes the EAAA segment's net sales and Adjusted Operating Income, noting currency impacts and margin changes EAAA Segment Performance (in thousands): | Metric | Q2 2025 | Q2 2024 | % Change (Q2) | H1 2025 | H1 2024 | % Change (H1) | | :-------------------- | :------ | :------ | :------------ | :------ | :------ | :------------ | | Net Sales | $136,079 | $131,623 | 3.4% | $253,555 | $251,451 | 0.8% | | AOI | $7,065 | $12,658 | (44.2)% | $12,655 | $20,103 | (37.0)% | | AOI as % of Net Sales | 5.2% | 9.6% | | 5.0% | 8.0% | | - EAAA net sales increased 3.4% in Q2 2025, primarily due to favorable currency fluctuations ($4.6 million, 3.5%) partially offset by lower volume. Sales growth was mainly in public buildings and transportation[116] - EAAA AOI decreased 44.2% in Q2 2025 and 37.0% in H1 2025, primarily due to lower gross profit margin driven by unfavorable fixed cost absorption and higher input costs[118][119] Financial Condition, Liquidity and Capital Resources This section discusses the company's financial position, liquidity, capital resources, cash flows, share repurchases, and future outlook General This section provides an overview of the company's cash position, outstanding debt, borrowing capacity, and liquidity expectations - As of June 29, 2025, the Company had $121.7 million in cash, $6.9 million in borrowings under its Syndicated Credit Facility, and $300.0 million in Senior Notes outstanding[121] - The Company had an additional borrowing capacity of $298.2 million under its Facility and anticipates sufficient liquidity to meet both short-term and long-term obligations[121] - Non-guarantor subsidiaries had net sales of approximately $154 million (Q2 2025) and $283 million (H1 2025), with total indebtedness of approximately $115 million as of June 29, 2025[122] Balance Sheet This section analyzes key balance sheet changes, including increases in accounts receivable and inventories - Accounts receivable, net, increased by $23.1 million to $194.3 million at June 29, 2025, primarily due to higher net sales from increased customer demand[123] - Inventories, net, increased by $27.6 million to $288.2 million at June 29, 2025, primarily due to finished goods inventory build in anticipation of higher expected customer demand[124] Analysis of Cash Flows This section analyzes cash flows from operating, investing, and financing activities, detailing significant changes and their drivers Summary of Cash Flows (Six Months Ended, in thousands): | Activity | June 29, 2025 | June 30, 2024 | Change | | :-------------------------------- | :------------ | :------------ | :----- | | Operating activities | $41,867 | $34,158 | $7,709 | | Investing activities | $(14,821) | $(11,567) | $(3,254) | | Financing activities | $(13,740) | $(36,960) | $23,220 | | Net change in cash and cash equivalents | $22,475 | $(16,311) | $38,786 | - Cash provided by operating activities increased by $7.7 million, primarily due to higher net income, partially offset by higher inventory build[125] - Cash used in investing activities increased by $3.3 million, mainly due to greater capital investment in manufacturing automation and robotics solutions[126] - Cash used in financing activities decreased by $23.2 million, primarily due to lower outstanding borrowings under the credit facility and lower repayments, partially offset by common stock repurchases[127] Share Repurchases This section details the company's common stock repurchases under its authorized share repurchase program - During the six months ended June 29, 2025, the Company repurchased 217,500 shares of common stock at a weighted average price of $20.44 per share under its $100 million share repurchase program, which has no specific expiration date[128] Outlook This section provides the company's updated fiscal year outlook, anticipating sales growth and discussing future liquidity - Based on strong Q2 2025 results, the Company increased its full fiscal year 2025 outlook, anticipating net sales growth in Q3 2025 compared to the prior year[129] - The Company expects to incur tariff costs in the remainder of 2025 and plans to offset these through pricing and productivity initiatives[129] - Cash flows from operations and other liquidity sources are expected to be sufficient, though subject to factors like raw material availability, cost, and product demand[130] Backlog This section reports the consolidated backlog of unshipped orders and discusses factors influencing its fluctuations - As of July 20, 2025, the consolidated backlog of unshipped orders was approximately $263.2 million, an increase from $223.4 million as of February 2, 2025[131] - Disruptions in supply and distribution chains have caused, and may continue to cause, fluctuations in backlog due to delays in construction projects and flooring installations[131] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to interest rate and foreign currency exchange rate risks, using sensitivity analysis - A hypothetical immediate 100 basis point increase in interest rates would result in a net decrease of $8.9 million in the fair value of fixed-rate long-term debt as of June 29, 2025, while a 100 basis point decrease would result in a $5.3 million net increase[135] - A 10% decrease or increase in foreign currency exchange rates against the U.S. dollar would result in a respective decrease or increase of $13.7 million in the net fair value of financial instruments as of June 29, 2025[136] - Changes in variable interest rates on the Syndicated Credit Facility would impact interest expense, not the fair value of the debt instrument[134] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures, with no material changes reported - The Company's disclosure controls and procedures were effective as of June 29, 2025, providing reasonable assurance that objectives are met[138][140] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[141] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings This section refers to Note 14 for summaries of legal proceedings, including a new PFAS lawsuit and an ongoing lawsuit by a former CEO - Legal proceedings are summarized in Note 14 of Part I, Item 1, including a PFAS lawsuit and a lawsuit by a former CEO[144] Item 1A. Risk Factors This section directs readers to the company's Annual Report on Form 10-K and Quarterly Report on Form 10-Q for comprehensive risk factors - Readers should refer to the risk factors in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2024, and the Quarterly Report on Form 10-Q for the quarter ended March 30, 2025[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchases made under the company's share repurchase program during the reported quarter Common Stock Repurchases (Q2 2025): | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------ | | March 31 – April 27, 2025 | 325 | $19.51 | — | $82,828,595 | | April 28 – May 25, 2025 | 45,000 | $20.35 | 45,000 | $81,912,902 | | May 26 – June 29, 2025 | 172,500 | $20.46 | 172,500 | $78,383,890 | | Total | 217,825 | $20.43 | 217,500 | | - The Company's share repurchase program, adopted in May 2022, authorizes repurchases of up to $100 million of common stock and has no specific expiration date[146] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[147] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the Company[147] Item 5. Other Information This section confirms no director or officer adopted or terminated Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 29, 2025[148] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - The report includes Section 302 and 18 U.S.C. § 1350 certifications from the Chief Executive Officer and Chief Financial Officer, along with various XBRL documents[150] SIGNATURE This section contains the signature block, confirming the report was duly signed by the Chief Financial Officer - The report is signed by Bruce A. Hausmann, Chief Financial Officer of Interface, Inc., on August 5, 2025[154]