Interface(US:TILE)2020-08-07 20:01Financial Data and Key Metrics Changes - Sales in Q2 2020 were down 27% compared to the same period last year, with adjusted operating income of $27 million [8][21] - Gross profit margin was 37.5%, a decrease of 190 basis points year-over-year, while adjusted gross profit margin was 38%, down 170 basis points [17][22] - SG&A expenses were $80 million, representing 30.9% of sales, with adjusted SG&A at $71 million or 27.4% of sales [18][22] - Net income for Q2 was $5 million, or $0.08 per diluted share, while adjusted net income was $16 million, or $0.27 per diluted share [21][22] - The company ended the quarter with $331 million in liquidity and net debt of $528 million, resulting in a leverage ratio of 2.9 times [23] Business Line Data and Key Metrics Changes - Sales in the Americas declined 28%, with the steepest declines in carpet tile, while resilient flooring remained largely flat [14] - EMEA sales were down 23% in local currency and 25% in U.S. dollars, with significant declines in carpet tile [14] - Asia-Pacific sales decreased 31% in local currency and 33% in U.S. dollars, although there was sequential improvement in June [15] - The company saw growth in living segments, including student housing and healthcare, while the office market was significantly impacted [16][96] Market Data and Key Metrics Changes - Orders were down 32% year-over-year in April, 35% in May, and 29% in June, with July orders down 24% [12][13] - The Americas experienced a 28% decline in orders, EMEA saw a 23% decline, and Asia-Pacific had a 14% decline [13] Company Strategy and Development Direction - The company is focused on product innovation, including the launch of a carbon-negative carpet tile and resilient flooring with 39% pre-consumer recycled content [10][26] - There is a commitment to expanding market opportunities in non-office segments such as healthcare and education [27][30] - The company is adapting to the current working environment by developing flooring solutions that support physical distancing [28] Management's Comments on Operating Environment and Future Outlook - Management noted that the office market has been hit hardest, impacting carpet tile sales, while other segments like healthcare and education are performing well [96] - The company anticipates continued pressure on sales and operating income in Q3, similar to Q2, due to ongoing order trends [13][87] - Management expressed confidence in emerging from the pandemic as a stronger company, emphasizing the importance of cash flow and liquidity [30][91] Other Important Information - The company amended its credit facility to provide enhanced financial covenant flexibility through Q1 2022 [9] - SG&A expenses are expected to increase in Q3 due to the absence of government-sponsored wage relief and other temporary pickups realized in Q2 [20][76] Q&A Session Summary Question: Differences by end market and region - Management indicated a mixed recovery across regions, with the office market being the hardest hit while non-office segments are performing better [35] Question: Changes to shipping rates - No significant changes in freight rates were observed, although a deflationary environment for input costs is anticipated [39][40] Question: Structural changes impacting margins - Management is right-sizing the business to meet demand and focusing on innovation and selling systems [42] Question: Gross margin profile - The gross margin is expected to remain stable, with a focus on managing variable costs [86] Question: Performance of resilient flooring vs. carpet tile - Resilient flooring has performed better due to its focus on healthcare and education, while carpet tile is more affected by the office market downturn [74][96]