Interface (NasdaqGS:TILE) Q3 2025 Earnings Call October 31, 2025 08:00 AM ET Speaker1Thank you for standing by, and welcome to the Interface Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. 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 one on your telephone keypad. If you would like to withdraw your question, again press th ...

Core Viewpoint - Mohawk Industries, Inc. is expected to report a decline in both earnings and net sales for the second quarter of 2025 due to ongoing macroeconomic challenges and industry headwinds, particularly in the residential remodeling market [2][4][10]. Financial Performance - The adjusted earnings for the last reported quarter beat the Zacks Consensus Estimate by 3.7% but declined 18.3% year over year [2]. - The consensus estimate for Mohawk's earnings per share (EPS) for the upcoming quarter is $2.63, reflecting a decrease of 12.3% from the previous year [3]. - Net sales are projected at $2.79 billion, indicating a 0.3% decrease from the year-earlier level [3][10]. Segment Performance - The Global Ceramic segment, which accounted for 39.3% of first-quarter 2025 net sales, is expected to decline by 0.5% to $1.1 billion year over year [5]. - The Flooring Rest of World segment, contributing 26.6% to net sales, is anticipated to decrease by 1.2% to $718.5 million [5]. - Conversely, the Flooring North America segment, which represents 34.1% of net sales, is expected to see a slight increase of 0.1% year over year to $959.1 million [5]. Cost and Margin Outlook - Cost inflation remains a significant challenge, particularly in raw materials, labor, and energy, making it difficult for the company to fully offset rising costs through pricing actions alone [6]. - The company expects adjusted EPS in the range of $2.52-$2.62, down from $3 in the previous year, with an adjusted gross margin decline of 170 basis points year over year to 25.4% [7][10]. Strategic Initiatives - Mohawk is implementing restructuring efforts expected to yield $100 million in incremental savings in 2025 and $285 million on a run-rate basis by 2026 [8]. - Strategic investments in new products, particularly in premium laminate and LVT, are anticipated to provide long-term pricing and margin benefits [8].

Core Viewpoint - The Autorité des marchés financiers (AMF) has approved Tarkett Participation's public buyout offer for Tarkett shares at a price of 17 euros per share, which will be followed by a squeeze-out of remaining shares [1][8]. Transaction Terms - The offer price of 17 euros per share represents a premium of 40.6% and 46.1% compared to the volume-weighted average share price over the last 20 and 60 trading days prior to the announcement on February 20, 2025 [3][8]. - Following the offer, Tarkett Participation will execute a squeeze-out for all shares not tendered, compensating minority shareholders at the same offer price of 17 euros per share [6][8]. Board Recommendations - Tarkett's Supervisory Board, after reviewing the independent expert Finexsi's report, concluded that the financial terms of the offer were fair and recommended shareholders to tender their shares [4][5].

Financial Data and Key Metrics Changes - Interface reported a 4% year-over-year currency neutral growth in net sales for Q1 2025, with net sales totaling $297.4 million, an increase of 2.6% compared to Q1 2024 [6][17] - Adjusted gross profit margin for Q1 was 37.7%, a decrease of 82 basis points from the prior year due to higher manufacturing and freight costs [17] - Adjusted EPS increased to $0.25 from $0.24 in Q1 2024, while adjusted EBITDA decreased to $37 million from $38.8 million [18] Business Line Data and Key Metrics Changes - Global education billings increased by 13%, supported by modernization initiatives and regional migration [12] - Health care billings rose by 16% year-over-year, driven by strong orders converting to billings [12] - Corporate office billings decreased by 7% year-over-year, attributed to timing, but growth is expected for the full year [13] Market Data and Key Metrics Changes - In The Americas, net sales grew by 6% and currency neutral orders were up 10% [11] - EAAA experienced a softer macro environment, with currency neutral orders down 6% year-over-year [15] - Consolidated currency neutral orders increased by 3% year-over-year, with a strong backlog up 12% [15] Company Strategy and Development Direction - The "One Interface" strategy is focused on building strong global functions, enhancing productivity, expanding margins, and leading in design performance and sustainability [6][10] - A new VP of Global Product Category Management was appointed to optimize the product innovation pipeline [7] - The company is committed to sustainability, aiming to be carbon negative by 2040 and incorporating captured carbon into manufacturing processes [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong order momentum and backlog, anticipating a strong second quarter despite global macro uncertainties [20][21] - The company is monitoring the tariff environment, with plans to offset impacts through pricing and productivity [16][19] - Management highlighted the importance of local manufacturing to mitigate tariff exposure [16][54] Other Important Information - Capital expenditures for Q1 2025 were $7.5 million, up from $4 million in 2024, with a focus on strategic investments [19] - The company expects net sales for Q2 2025 to be between $355 million and $365 million [20] Q&A Session Summary Question: Q1 results were better than expected, particularly on gross margin and SG&A - Management confirmed that the "One Interface" strategy is delivering results, with strong growth in all product categories globally [23][24] Question: Guidance was raised on the lower end; what drove this? - The increase in guidance was based on strong Q1 results and positive outlook for Q2, supported by strong order growth [31][32] Question: How did EAAA perform compared to The Americas? - EAAA had softer results, but Asia Pacific showed strong double-digit growth [37][39] Question: What is the status of the government business? - The government segment, while small, showed strength in Q1, with activity holding steady [42] Question: Any changes to capital allocation given the strong balance sheet? - The focus remains on investing in the business and executing on those investments to drive growth [47] Question: Concerns about timing mismatch with tariffs and pricing? - Management believes the timing of cost increases and pricing adjustments will align well [61] Question: How is the new global product category management role expected to impact growth? - This role is aimed at optimizing the innovation funnel and is expected to yield long-term benefits [65][66] Question: What is the outlook on the return to office dynamic? - Management sees ongoing churn and opportunities for modernization in office spaces, indicating a positive outlook for growth [71][72]

Financial Data and Key Metrics Changes - Interface reported a 4% year-over-year currency neutral growth in net sales for Q1 2025, with net sales totaling $297.4 million, an increase of 2.6% compared to Q1 2024 [5][16] - Adjusted earnings per share grew by 4% year-over-year, reaching $0.25 compared to $0.24 in Q1 2024 [5][18] - Adjusted gross profit margin was 37.7%, a decrease of 82 basis points from the prior year due to higher manufacturing and freight costs [16][17] - Adjusted operating income remained flat at $25.5 million compared to Q1 2024 [18] Business Line Data and Key Metrics Changes - Global education billings increased by 13%, driven by modernization initiatives and strong demand in both K-12 and higher education sectors [11] - Health care segment saw a 16% increase in global billings, supported by strong orders converting to billings [12] - Corporate office billings decreased by 7% year-over-year, attributed to timing, but growth is expected for the full year [12][13] Market Data and Key Metrics Changes - In the Americas, net sales grew by 6% with currency neutral orders up 10%, while EAAA experienced a decline in orders by 6% due to a softer macro environment [10][14] - Consolidated currency neutral orders increased by 3% year-over-year, with a strong backlog up 12% [14] Company Strategy and Development Direction - The "One Interface" strategy is focused on building strong global functions, enhancing productivity, expanding margins, and leading in design performance and sustainability [5][6] - A new VP of Global Product Category Management was appointed to optimize the product innovation pipeline [6] - The company is committed to sustainability, aiming to be carbon negative by 2040 and incorporating captured carbon into manufacturing processes [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strong balance sheet and regional manufacturing approach, which mitigates tariff impacts [15][22] - The outlook for Q2 2025 is strong, with expectations of net sales between $355 million and $365 million [20] - The company anticipates continued growth driven by strong order momentum and a healthy backlog [20][22] Other Important Information - Capital expenditures for Q1 2025 were $7.5 million, up from $4 million in 2024, reflecting strategic investments in the business [19] - The company is facing tariff impacts on approximately 15% of global product costs, primarily affecting U.S. imports of nora rubber and LVT [15][50] Q&A Session Summary Question: Q1 results were better than expected, can you elaborate on gross margin and SG&A performance? - Management noted strong performance in the Americas and growth across all product categories, contributing to better-than-expected results [24][26] Question: What drove the raised guidance on revenue? - The raised guidance was based on strong Q1 results and positive outlook for Q2, supported by order growth and a strong backlog [29][33] Question: How did EAAA perform compared to the Americas? - EAAA had softer results, but Asia Pacific showed strong double-digit growth, particularly in local currency [36][38] Question: What is the status of the government business segment? - The government business, while small, showed strength in Q1, benefiting from return-to-work mandates despite some staff reductions [41][43] Question: What are the plans for capital allocation given the strong balance sheet? - The primary focus for capital allocation is to invest in the business and execute on those investments to drive growth [46][48] Question: How will the company manage tariff-related costs? - The company plans to offset tariff costs through pricing and productivity measures, with minimal impact expected due to local manufacturing [49][52] Question: What is the outlook on the return to office dynamic? - Management sees ongoing churn in the return to office trend, which presents opportunities for growth as companies modernize their office spaces [67][69]