Interface, Inc. (TILE) Q3 2026 Earnings Call Transcript

Operator: Hello, everyone. Thank you for joining us. Welcome to Interface Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, please press *1 again. I will now hand the conference over to Christine Needles, corporate communications. Christine, please go ahead.

Christine Needles: Good morning, and welcome to Interface's conference call regarding third quarter 2026 results. Hosted by Laurel Hurd, CEO and Bruce A. Hausmann, 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 8-K 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 rebroadcast 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 the call for questions. Now I will turn the call over to Laurel Hurd, CEO.

Laurel Hurd: Thank you, Christine, and good morning, everyone. Interface delivered a solid third quarter. Adjusted earnings growth exceeded our expectations, and billings increased across all 3 of our primary market segments demonstrating broad based demand, and continued momentum in the business particularly in The Americas. These results reflect the strength of our diversified portfolio and our execution, and I am proud of our team and their unwavering commitment to serving our customers. In this dynamic environment, we are continuing to execute our 1 Interface strategy to drive industry outperformance. As we have discussed before, 1 interface is a multiyear strategy focused on building strong global functions, to support our world class local selling teams, accelerating growth through enhanced commercial productivity of our commercial team, expanding margins through global supply chain management, and simplifying operations, and leading in design, performance, and sustainability. We continue to invest in design and innovation that expands our addressable market and grows our diversified product portfolio. All 3 of our product categories carpet tile, LVT, and rubber, are up year to date, and we expect each to grow for the full year. In rubber, building on strong early momentum, we are expanding Norament timber to more markets in EMEA. Following the initial rollout in the Americas, Germany, and the UK. As we have discussed before, Norament combines the durability and performance of rubber with a distinctive wood grain aesthetic. We believe it represents a meaningful opportunity to further expand health care and other market segments over time. This early momentum is being reinforced by growing industry recognition, Norament timber recently won the most sustainable product award at the 2026 healthcare facilities symposium at Expo. Highlighting our unique position in this category. In carpet tile, we continue to deliver a range of styles across price points, with several launches in Q3. From the more design forward between the notes at the premium end, to twist and texture at the more accessible end. We are building on what we have learned with our highly successful OpenAir platform. Driving more opportunity at accessible price points, while delivering the level of design our customers need. We also expanded perfect pitch, 1 of our most popular collections. With new warmer neutrals as we are seeing growing demand for these residential inspired colorways across market segments. Turning to manufacturing and supply chain. Our investments in automation and robotics continue to deliver productivity gains and margin improvement. While reducing waste and enhancing service levels. The robotic solutions we brought online in Europe and Australia earlier this year have been a success. In addition, we continue to uncover new efficiency opportunities across the business. Including expanding automation within our US cutting and packing operations. Now let's turn to our third quarter results. Consolidated currency neutral net sales increased 0.4% year-over-year. In the Americas, currency neutral net sales increased 0.5% with growth across our key market segments of corporate office, health care, and education. 2 timing related items affected sales in the quarter. As we have discussed previously, retail is a small percentage of our overall net sales. However, the timing of several store remodel projects had an outsized impact on the Americas' growth this quarter. As those projects shifted into future quarters. Second, the timing of Nora's installation cycles can create quarter to quarter variability in billings which we experienced to this quarter. Importantly, we have not lost this business These are timing shifts, not a change in underlying demand. Underlying momentum in the Americas remains healthy and we are encouraged by the strong order growth in the quarter. In EAAA, currency neutral net sales were up 0.3% despite a more challenging demand environment, particularly in EMEA, which represents less than 30% of net sales. While market conditions in Europe softened during the quarter, we are encouraged by the progress we are making to simplify the organization and strengthen the business for the future. We are taking proactive steps to improve our competitive position and capitalize on future growth opportunities. We have aligned our EMEA commercial organization under a single leader, who is now building out the leadership team. Next year, we will move to a 1 team selling structure supported by centralized customer service and commercial analytics. This will create a simpler, more consistent commercial model across Europe building on what we have learned from our 1 interface combined selling teams in the US. Turning to our market segments, Our diversification strategy continues to drive growth and strengthen the business. We saw growth in all 3 of our primary market segments this quarter. Led by healthcare, with billings up 5% on top of 29% growth in the third quarter last year. Our 1 interface combined selling teams in the US continue to open doors with health care customers while the long term demand drivers in this market remain favorable. Education billings were up 3% in the third quarter, We remain well positioned across both K-12 and higher education. Supported by our design leadership, low carbon, high performing products, and a broad range of price points. Corporate office billings were up 2% in the third quarter. Underlying demand remains healthy, as companies are bringing people back to the office. Renovation activity is steady, and customers continue to move towards high quality class a space. Where our brand, design leadership, and broad product portfolio keep us well positioned. Turning to orders. Consolidated currency neutral orders increased 1% year over year. Orders in The Americas grew 6%. Reflecting continued momentum across the region, and the benefits of our 1 interface combined selling teams. These teams are helping us deepen customer engagement and capture additional growth opportunities. EAAA orders declined 7%, as the macro environment, particularly in Europe, softened in the quarter. We ended the third quarter with our backlog up 14% year to date, reflecting solid underlying demand. On the sustainability front, we were recognized by EDI, for decarbonization strategy of the year. And named to Newsweek's list of America's greenest companies. We were also named a finalist in the Reuters Global Sustainability Awards in the circularity category. These awards acknowledge our bold steps to be carbon negative by 2040 without offsets. And speak to the hard work and dedication of our entire team. As we look ahead to 2027, we remain confident in our strategy while recognizing the continued uncertainty in the broader market. Third quarter order growth in the Americas is an encouraging sign the continued momentum we are seeing in the region. In EMEA, although market conditions remain softer, we are focused on actions within our control including simplifying our operations, and enhancing efficiency. To strengthen our competitive position and support long term growth. Across the company, our continued investments in automation, productivity, and innovation, are strengthening our foundation for sustainable growth. With that, I will turn it over to Bruce.

Bruce A. Hausmann: Well, thank you, Laurel, and good morning, everyone. All comparisons provided are year over year versus the third quarter of 2025 unless otherwise noted. Third quarter net sales were $366.7 million, up 0.6% as reported and 0.4% on a currency neutral basis. This was slightly below the low end of our outlook range, primarily reflecting the shift in timing of certain retail billings that Laurel mentioned and softer conditions in Europe. Third quarter currency neutral net sales were up 0.5% in the Americas, and up 0.3% in EAAA. Third quarter adjusted gross profit margin was 40.6%, up 103 basis points, driven by favorable pricing, product mix, manufacturing efficiencies which more than offset higher raw material and tariff related costs. Third quarter adjusted SG and A expenses were $91.5 million compared to $90 million in the third quarter of last year. SG and A came in lower than we previously guided, reflecting disciplined expense management and lower variable compensation and commissions. Third quarter adjusted operating income was $57.2 million up 5.7%. Third quarter adjusted net income was $39.9 million, compared to $35.9 million. Third quarter adjusted EBITDA was $69.3 million. Up 4.7%, and third quarter adjusted earnings per diluted share was $0.68, up 11.5%. The strength of our operating discipline enabled us to deliver adjusted earnings growth ahead of our expectations even with modest net sales growth in the quarter. With these results in mind, I will turn to capital allocation. As a reminder, our capital allocation strategy is balanced and disciplined. First, we prioritize investing in the business in areas like innovation and productivity to drive growth, and margin expansion. Second, we focus on managing leverage through a disciplined use of debt. Third, we continue to evaluate potential M&A opportunities that align with our strategy and that can accelerate growth and margins. Finally, and importantly, we remain committed to returning excess cash to shareholders, through a combination of dividends, and disciplined share repurchases. To recap our progress against these objectives in the third quarter, we generated $86.3 million of cash from operating activities compared to $76.7 million in the third quarter of last year. Capital expenditures were $9.1 million which included continued investments in automation and robotics. To support our growth and efficiency. Also returned excess cash to shareholders through our quarterly dividend. Turning to our outlook, we are reaffirming our full fiscal year earnings outlook Supported by our strong third quarter earnings performance and continued operating discipline. At the same time, we revised our full fiscal year net sales outlook to reflect softer conditions in Europe. Our outlook also incorporates higher input costs from elevated oil prices new tariffs affecting our business in Canada. We remain confident in our ability to deliver on this outlook supported by our solid backlog, a healthy balance sheet, our continued focus on cost discipline. For the full fiscal year of 2026, which as a reminder, is a 53-week year for Interface, the extra week occurring in the first quarter of 2026, we anticipate net sales of $1.440 billion to $1.455 billion. Adjusted gross profit margin of approximately 40.4% of net sales Adjusted SG and A expenses of approximately $387 million Adjusted interest and other expenses of approximately $14 million an adjusted effective income tax rate of approximately 25%, Fully diluted weighted average share count of approximately 58.5 million shares and capital expenditures of approximately $60 million. As a reminder, our full year adjusted gross profit margin guidance includes the 1 time benefit of the IEPA tariff refund that we received in the second quarter. Excluding that benefit, our baseline full year adjusted gross profit margin for the year is approximately 39.3%. And with that, I will turn the call back to Laurel for concluding remarks.

Laurel Hurd: Thank you, Bruce. Interface delivered a solid third quarter in a dynamic environment. And we are encouraged by the momentum we continue to see in the Americas. We grew global billings in all 3 of our primary market segments, and our operating discipline drove adjusted earnings growth ahead of our expectations. Our 1 Interface strategy together with the transformation underway in EMEA, prepares us well to navigate the softer European environment while strengthening our competitive position for the long term. With a solid backlog, a healthy balance sheet, and a connected global team, we are reaffirming our full year earnings outlook and remain focused on delivering sustainable profitable growth. I want to thank the entire Interface team for their relentless focus on serving our customers every day. And with that, I will open it to questions. Operator?

Operator: We will now begin the question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, please press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Biros with TRG. Brian, please go ahead.

Brian: Hey, good morning. Thank you for taking my questions today. On gross margin for Q3, slightly below guidance, but still very good. Margins for Q4 look to imply, I think, down year over year on input costs and some of the other stuff you mentioned in the prepared remarks. Can you just talk a bit more about the puts and takes in the quarter? For Q4? And then how we should think about gross margins into next year.

Bruce A. Hausmann: Good morning, Brian. What you are seeing is exactly what we talked about last quarter. In Q4. And it is really just the flow through and timing inside the quarter. Of how the raw material costs are. That was just previously sitting on the balance sheet. Are flowing through into Q4. I think the important thing that we are really focused on is looking at the run rate of gross profit margin. Which is around 39% And so if you look at the. If you sort of step back and do not just look at just a quarter, but if you sort of look at it for the second half of the year, you look at it for the full year, structurally, we are around 39%.

Brian: Got it and that is. it is impressive. You have been able to hold it at that level with all the headwinds that have come at you.

Bruce A. Hausmann: Yep.

Brian: Thanks for-- sorry.

Bruce A. Hausmann: Yeah. Go ahead.

Laurel Hurd: Hey, Brian. it is Laurel. I was just going to jump on. Jump in on that, and I appreciate you saying that. As you know, our stated ambition for a few years from now was to get to 38.5%. So the fact that we are at 39%, we feel great about that with all the volatility. And we are not gonna stop. Right? We are going to continue to press forward on all of our growth initiatives and our margin expansion initiatives. So we are working through it all, but appreciate you acknowledging that.

Brian: Yeah. On corporate office, I think you mentioned it was 2% in the quarter. Good to see continued growth there. We have heard some pretty good trends from office R&R and the return to work kinda driving growth there. I mean, maybe we would have expected to see a little bit stronger growth this quarter. I think you had pretty good growth numbers in Q1 and Q2 from office. So was kind of. I want to understand, is that momentum for office R&R still there?

Laurel Hurd: Yeah. It is for sure. And I think we are feeling good about the overall office environment. As you said, there is a ton of R&R work happening. And some of that has to do with the softness in Europe that we are seeing. We did grow office in Europe, but that market just softened a bit. And if I comment on Europe for a second, the macro environment became a little more challenging in the quarter. Our dock market, so Germany and Switzerland as well as France were softer. But our UK market continued to grow which is encouraging. And then when we look at our opportunity pipeline, development across Europe, it looks strong, and up year over year. Our win rates are consistent. Our activity is good. it is really just taking a little bit longer for opportunities to convert to orders. And then orders to convert to billings. So that is really the lag that we are I would say from the office side, A lot of momentum still everywhere across the globe.

Brian: And the last 1 for me, I think, still on Europe there then. You are rolling out kind of the 1 Interface selling strategy across Europe next year, it sounds like. Do you need-- the macro in Europe to come back and be stronger to really execute on that strategy, or can you still execute it to pretty much the same degree regardless of the macro? Yeah. it is a great question. I am thrilled about the progress that we are making there and that we have embarked on the journey to take the. All of the learnings from the US and the success we have had to Europe. We have aligned that commercial organization under a single leader where previously it was run as really 3 separate selling organizations. And that leader is building out their selling team now. And then next year, we will start to move to the 1 interface selling team structures. That will be supported with centralized customer service, commercial analytics, really running the playbook and all of the lessons from the US that resonate for Europe. And if I think about that, it is a good time to do it. So with. We will do that. We have done that. You know, the macros were not great in the US when we started that, and we still were able to methodically drive consistent growth And so we are happy that we are doing that now. If I think about it, coupling this commercial reorganization with all of our productivity initiatives to strengthen our supply chain and margins, and then also while expanding our addressable market with new designs and innovations. Putting all that together, I am really optimistic about the future of our business in Europe. The rollout across the US seemed very successful in my view. So excited to see how that goes in Europe next year. I will pass it along. Thank you.

Laurel Hurd: Thanks, Brian.

Operator: Your next question comes from the line of David MacGregor with Longbow Research. David, please go ahead.

David MacGregor: Good morning, everyone, and thanks for taking my questions. I guess I wanted to just ask about sort of how much of the cost inflation you are incurred in the quarter was not expected as you came into the quarter? So in other words, about during the quarter.

Bruce A. Hausmann: Yeah. The additional costs that we saw were principally related to Canadian tariffs. That was new inside the quarter, as well as we did see some oil Obviously, some of the energy costs increased during the quarter. The good news is that we were able to offset you know, most of that We largely came in at our guide. I realized it was 0.4 for Q3 and we are largely. And we are holding and reaffirming our earnings guidance for the year. But to be fair, we did see additional cost increases kind of rolling through, and those are the 2 main ones.

David MacGregor: Okay. Are you able to quantify that?

Bruce A. Hausmann: I can annualize it for you. The Canadian tariffs are in the range of $5 million to $10 million annually. The-- we are-- the oil prices and the energy prices are changing daily. And so there is a piece of that is rolling through. And, honestly, the oil has bounced around from $90 to $115 a barrel. So it really changes a lot. it is bounced around, David, so we are we are watching it closely. And what we have done is we have activated plans to make. To do everything we can to offset those costs, and we have been successful in doing that.

David MacGregor: Right. Okay. Good. And I guess, you know, that kind of feeds into the next question, which is, you know, how are you planning to protect margins heading into 4Q and into 2027, more importantly?

Laurel Hurd: Yeah. We will continue to execute on pricing. So we have you know, we have been doing that pretty effectively. I think about our model in the US. It actually it is really effective in that we have our commission based selling organization. And we can put price in the market pretty quickly, which is what we have been doing. Where, you know, our sellers are quick to get that actioned and we will con. Continue to do that across the globe. So first, pricing is our a big important lever. And then second to that is productivity, and we have been driving just a ton of productivity projects continuing to invest in invest in automation. That drive efficiencies and those continue to pay back. So we will push on both of those. And then the third piece is really mix. As we have been driving importantly you know, putting our growth aligned with our most profitable categories and end markets. Right.

David MacGregor: What do you think productivity can give you in 2027 just given all the investments you have made in automation, I would think it is a meaningful number. But what is a good way to think about that?

Bruce A. Hausmann: David, it will be. We are not providing 2027 guidance right now, but as you have seen this year, the productivity has been rolling through the P&L. And we have done other initiatives this year. That will activate. We get partially Partial productivity lift this year, and then it rolls through into next year as well. As well as a multiyear rollout around these productivity initiatives. it is meaningful. And that is how that is how we are able to that is how we are able to get that gross profit margins that you are seeing. So it is meaningful.

Laurel Hurd: I will jump on that as well. You know, some of the things that we have done with the automation in our carpet tile manufacturing in Georgia. We have rolled that now to Australia and Europe, and we are seeing those read through favorably. And then we have got some additional automation in our carpet tile manufacturing in, again, in Georgia and in Australia around cutting and packaging, which is also you know, that will go live next year, which should also be meaningful. And then we continue to invest in Nora. And the nice thing about our Nora investments is they help us not only with efficiencies, but also with capacity. So modernizing our equipment there and automating does-- it dividends for us to support the growth that we continue to see in Nora.

David MacGregor: Sounds good. I wanted to maybe ask you a little more about some of the discussion on the previous question about market conditions and you were talking about sort of a timing delay that occurred in the third quarter. The discussion was around office. I am guessing it is around everything, not just office. But what are you seeing in terms of presale indicators? If this is a timing issue, are the presale indicators, the underlying presale indicators still positive? And that sort of pointing towards good growth and are you seeing order cancellations? Or is this really just kind of things just taking longer to transpire?

Laurel Hurd: Yeah. I think there is. And I put this sort of in 2 buckets. So in the Americas, I would say our momentum remains really strong, and it is strong in office. it is strong in all of our key end markets, health care and education. We had 2 specific timing items in the quarter that affected the Americas. And the first is retail. And you will remember, David, over time, we have a bit of quarter to quarter variation in our retail store installations. And that happened in the quarter. We did not lose that business. That will come in future quarters. So that is sort of a unique item.

David MacGregor: And then we have also shared that our nora projects, those are larger projects that can cause Some variability quarter to quarter and so that.

Laurel Hurd: that is the situation in the Americas. There was a bit of retail and a bit of nora timing variability, so we have not seen any order cancellations. We have not seen a slowdown in momentum. What I was referring to on this delay in. or sort of pausing-- Delay in orders was specific to Europe. So that is really where we have seen And we have got a ton of opportunity. Our opportunity pipeline looks strong. The activity remains good. Our team was at a trade event 2 weeks ago. There was a there was a bunch of momentum there. it is really just about converting that pipeline into orders and billings, Specifically in Europe. Yeah.

David MacGregor: I mean, the office furniture guys are seeing exactly the same thing. so it is visible in a number of different points. How much of this do you think is just construction project delays and the ability to get the construction work done to get ready for the installation of your product. How much of it do you think is just budget exhaustion because of inflation and this work just needs to get pushed forward into the 2027 budgets? To what extent do you think those factors are coming into play here?

Laurel Hurd: I think there is probably all of that. I think there is some labor availability challenges and other things. But I think the good news about our category, and we have discussed this, is customers can only push the timing so far. 1, they need to refresh their spaces, but also for projects that are in flight, you know, the flooring needs to be installed to get their certificate of occupancy. So that really helps us to get the projects over the finish line.

David MacGregor: Great. Last question for me is just, you know, how would you characterize competitive conditions right now and how they are evolving as inflation becomes more of an issue for everyone?

Laurel Hurd: Yeah. it is a good question. I would say, we have great competitors, and I think we are all faced with the same challenges. So we are responding accordingly. there is a lot of-- there is a lot of price in the market, and yet it remains competitive. We need to win every order and every job every day. And we feel like we are doing a good job. We feel like we are taking good market share. And outpacing the market, but everyone's Everyone's faced with the same challenges, which in some ways makes it, you know, certainly a fair playing field, and we need to win on our merits every day.

David MacGregor: Got it. Thanks very much.

Laurel Hurd: Thanks, David.

Operator: There are no further questions at this time. I will now turn the call back to Laurel Hurd president and chief executive officer, for closing remarks.

Laurel Hurd: Great. Well, thank you all for joining us today, and thanks again to the team for everything you do. And we look forward to speaking to you again next quarter.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.