Interface(US:TILE)2021-08-08 20:34Financial Data and Key Metrics Changes - In Q2 2021, sales totaled $295 million, an increase of 13.6% from the prior year, with organic sales up 8.5% [17] - Adjusted gross profit margin for Q2 was 37.5%, slightly below expectations due to raw material shortages and higher costs [18] - Adjusted operating income was $31.1 million, compared to $27.5 million in the same quarter last year [20] - Adjusted net income for Q2 was $17.6 million, or $0.30 per diluted share [20] - Liquidity at the end of the quarter was $401 million, with $102 million in cash and $298 million in borrowing availability [21] Business Line Data and Key Metrics Changes - Sales in the Americas increased by 3.6%, primarily driven by LVT, while EAAA sales rose by 27.6% across all product categories [18] - The dealer discretionary market is gaining traction, particularly with Open Air products and LVT [13][14] - The K-12 education sector is experiencing a surge in new projects due to federal stimulus, leading to increased flooring upgrades [13] Market Data and Key Metrics Changes - Orders increased by 38% year-over-year and 21% sequentially, with Americas orders up 35% and EAAA up 43% [9] - The company noted strong recovery signs in the Americas, parts of Europe, and Asia Pacific, particularly in China and Australia [8][10] - The ongoing pandemic continues to present challenges, including rising COVID cases and supply chain disruptions [10] Company Strategy and Development Direction - The company is focusing on its carbon-negative product line, which is gaining market recognition and aligns with global carbon reduction commitments [14][15] - There is a strong pipeline of new products being rolled out across various categories, including carpet tile, LVT, and rubber [16] - The company is preparing for NeoCon, showcasing new products that reflect biophilic design trends [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued recovery as vaccinations expand globally, despite potential challenges from the Delta variant [24] - Anticipated raw material cost increases and labor challenges are expected in the latter half of 2021 [25] - The company expects Q3 2021 net sales between $310 million and $320 million, with adjusted gross profit percentage projected at 36% to 37% [26] Other Important Information - The company generated $10.3 million in cash from operations in Q2 2021, with a year-to-date total of $35 million [21] - Inventory decreased by $6 million or 2% year-over-year, with finished goods carpet inventory down 5% [22] - The company is committed to debt reduction, with a net leverage ratio of 3.1 times at the end of Q2 [22][23] Q&A Session Summary Question: Are the orders more short cycle renovation jobs or longer-term construction? - Management indicated that most orders are renovation work, which constitutes 80% of the business, but there are also new construction projects, particularly on the West Coast [34] Question: Is the growth in orders more towards the US or outside the US? - Management noted a mix, with strong momentum in both the US and certain European markets [35] Question: Is debt reduction still the primary goal of cash flow? - Yes, debt reduction remains the top capital allocation priority, with a focus on getting the leverage ratio below 2.5 before considering dividends [36][38] Question: Can you discuss gross margins and the impact of inflation? - Management acknowledged challenges in passing through all cost increases to customers, anticipating some pressure on gross profit margins in the second half of the year [42][45] Question: What is the outlook for the dealer channel? - Management reported success in the dealer channel, particularly with the Open Air product, which is seeing strong demand [49] Question: How is inventory being managed with the dealer channel expansion? - The dealer program operates on a make-to-order basis, minimizing inventory conflicts [50] Question: What is the expected SG&A trend moving forward? - Management aims for SG&A to reach 26% of net sales, driven by top-line growth [79] Question: What is the product mix and market performance? - The product mix remains similar, with notable strength in K-12 education and corporate markets, particularly in Europe [73][75]