TILE - Earnings call transcript Q2 2018

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Operator

Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Q2 2018 Interface, Inc. Earnings Conference Call. Thank you. Communications, begin Corporate conference. Global Needles, you your may Christine

Christine Needles

Jay morning, Denise, to quarter Thank CEO; by and much, Vice good Bruce XXXX President and Hausmann, and hosted second you so CFO. regarding and welcome President and call Interface's results Gould, conference

information conference historical management's are call, statements. today's regarding Interface's forward-looking During which business comments not are

with release this to Form cautions direct no call statements remarks and the any contained Securities non-GAAP Risk We XX, and of reconciliation statements Commission. responsibility economic Exchange for uncertainties December forward-looking risks any company's results to the place statements. in A update XA measures actual to to such all the Annual company's made or comparable uncertainties to involve non-GAAP assumes and refer could in the the that measures cause ended and commercial the document. year XXXX, as discussed the which a earnings under Forward-looking forward-looking Management's heading measures. in listeners these reliance undue of XX-K revise risks listeners The on company this not materially during conditions fiscal that number such the from Factors has filed the interiors uncertainties is Report associated been well including Form of yesterday. with on risks with certain Item X-K most and call as the during SEC statements, filed GAAP differ industry and

be Interface's It may is broadcasted Interface. copyrighted contains material express rerecorded recorded rebroadcasted not and or call this without being permission. Lastly, and for

the call and confirms taping of Your participation broadcasting company's the consent it. your to on

CEO. to turn like I'd the to Now, Jay over Gould, call

Jay D. Gould

performance. our Good another line We morning, exciting with and at quarter time you It's Interface. an strong solid of delivered top joining results second quarter operating call. for results thank

team for the our flooring leader the We to global worldwide leader as also and our globe deliver work performance a another as shareowners, all our of team enter in to our results look work employees, such team acquire talented for value-creation the rubber on all solid for our the I second of on the entire and entire concentrate around to was to continued again the continued forward all course, the members create I'm appreciate and intent proud strategy. to done a systems, want flooring hard I Interface working including in focus that XXXX and value thank focus announced their the team forward our half alongside quarter. to with customers, to we execution stakeholders, deliver category. look of to also our share we environment. nora the global

again, down quarter. highlights XX.X% and through Let Once me the second the the net some organic talk second delivered of with of growth solid performance growth quarter of year-over-year XX.X%. sales GAAP P&L of we sales

with the to We see and our growth continue in across equally tile these contributing LVT portfolio core our quarter. to carpet increases sales

foreign of and momentum, our which are strong up with orders, Turning adjust impact fluctuations, pace the year-over-year. currency revenue expectations. these Overall, to on order our organic trends were for X.X% order

would we our may in the release, second during As range. one grow XX% anticipated net quarter, earnings to that recall, the you X% sales quarter in

expectations. enabling the in factors is which see and order driving were There the results key of revenue a quarter to to continue our second those pleased we So, actual marketplace. number gaining are in-line us with share growth

plan kicked our sales importantly, is results. most continues delivering off in and transformation perhaps and that be on First, to XXXX we track

marketplace an they've methodology, improve received, training have effectively, support leads as their everyone ensure our and customers us with customers This our comfortable to qualified more that our we Our the activate advantage more selling with continue to productivity. frontline and effectiveness the work in better, tools gives that sales team continued the to to understand wins. and become new they important

Hard tile with Second, product our a across quarter, new which NeoCon. coveted Also, designed our in-line the who was our Mart by and a LVT requirements designed year's exclusive collection from Design In carpet by both who's very Interface. product so global Drawn Award David that space new product vitality in-house carpet tile was great and category, we at second resilient product designer. LVT. is It time product very Oakey, first submitted win. Kari customer a called This called ever developed at Lines, Surface we've designer was the strategically this NeoCon. many strong efforts Code, our we Visual our category as customers development to it internal Interior launched to and Interface's the planned feedback product we in Magazine received We've visited HiP which this was Pei, the positive earned first launched lead in showroom

half of year, are track to the the acquisition the we've as into back move this planned. we As close quarter we in nora on third

June, activates of during value-creation strategy to our our second fit is for a build the announcement in a flooring us pillar this fantastic As resilient acquisition explained as business. it

how particularly in sciences the the We I'm market include which moving really over nora further and segments, flooring expand life already the with this industrials penetrate new healthcare, have our delighted town conducted I as accelerate is associates. expect is where into forward product nora we prepare growth to Bruce to of strong. XXX family. halls performance as process acquisition key smoothly and our with we and Interface bring portfolio

calls and transaction earnings to share officially future more our integration We will closes. the after plans on nora about have

highlight we second the important to announcement NeoCon I'd quarter. during made another like at Lastly,

carbon we are first once our all both Carbon now the Neutral own carbon this mission. industry our that are the industry the is the and Take reduction their customer meet no a carbon carbon-neutral after products to manufacturer carbon global goals We addressing emissions our able at Climate in Back do modest a every are Floors direct in our cost, LVT, and customers We to our company for offer as our reducing create participate an program. lowest This again for on and announce fit Zero Mission then and offset of endeavor milestone a standard We to carpet is extra journey opportunity through climate leading our significantly as to to were life. to this we emissions major continue products, of already through which ultimately incredible for remaining program.

with like So, over turn to call review details. for a the I'd Bruce financial of our to that,

go please So, Bruce, ahead.

Bruce Hausmann

sales organic order morning the retail. as and of growth And Jay. QX the Good everyone. sales, to foreign exited as exclude a specialty in adjust morning. Thanks, year, Good to we organic floor fluctuations impact fully last and reminder, currency organic growth impact

adjusted acquisition. related and income, specialty income to operating In last nora transaction and adjusted EPS related to adjusted the exclude retail adjust year's QX costs addition, net exiting floor to charge

Let's take closer a XXXX results. second quarter look at

organic a that included continued gross the growth Taking year-over-year Second in to year-over-year toward local increased year-over-year. last SG&A and benefited healthcare, growth $XXX XX.X% year, the currency in and initiatives over office our global of currency, last quarter our dollars, U.S. and which million, million sales, productivity broad-based as InterfaceServices period; of XX.X%, change $X segments transaction or business. a with – were was weighted we to up net And EMEA's contributing up see EMEA's a basis heavily with into Breaking revenue a region. million organic we revenue detail. carpet X.X% and to relatively up year-over-year. the of were were due GAAP China. period more Net costs down in look QX's were sales Asia-Pacific, equally. Orders reflecting net acquisition. this Core year non-office last were our And was throughout in X.X% grew Americas as market XX.X% And XX grew the to volume result year retail, XX.X% including same tailwinds. more education. nora QX over XX.X% In increases net continued net related mix the sorry, margin and in X.X% sales segmentation. expenses sales were with I'm compared from up double-digit QX's $XX XX.X% tile prior-year saw momentum point net decrease quarter's in delayed sales at QX or, LVT sales year-over-year to up sales compared growth sales hospitality

Now, was basis excluding costs, XX XX.X% was these SG&A transaction of sales, a net point year-over-year. which improvement

$XX XX.X% XX.X% $XX of Second quarter XX.X% $XX And net was in $XX which $X.XX was share $X.XX income $XX per million compared income $X.XX last diluted diluted the share year. per net net GAAP And or compared or $X.XX diluted or diluted in sales. million or period. prior-year adjusted sales net million And was or income QX's compares to was last adjusted income million million $XX QX of year. or operating to operating with of per share, share million per

Moving as our liquidity, was the $XXX credit of the expense ended amortization last quarter $X QX's we compared year. and in available second depreciation $X cash of And had $XXX and of $XX strong in on flow in sheet Interest million were in million year. compared QX year. QX revolving $X.X to QX's And million was QX million of cash QX We million with $X.X of statement. million balance $X.X capital debt and million under with to hand, expenditures facility. with million compared last last $X.X million

a the to company's for refinancing will from depending amended transaction company's all components it's will transaction. the of be like credit years. push as cost to our dates close the favorable of date. refinance facility incorporate the outcome with of of I'd that financing average for facility the date the new as five the rates, effectively will nora X%, the debt nora five anticipated of nora mention and weighted debt to existing on This future and rates, near-term very from able to finance under Lastly, LIBOR debt extended the fantastic out both acquisition debt credit debt, that, and and years the be new is at be maturity the refinance current X.X% we're transaction company's part nora And existing Interface, maturity

approximately And turn when we EBITDA at to year mentioned fiscal an outlook. closing our we mid-XXXX. times decreasing to to now, update Jay times debt ratio approximately XXXX ratio back that EBITDA close like we transaction, by previously, As the X provide the on leverage will to to net I'd call nora anticipate X our and expand

Jay D. Gould

Bruce. Thanks,

So you're the on happy team.

rate on puts the a In half valuable the company. expectations, value with XX% in planned first to anticipate growth EPS. consistent to services the become execution our our increase creation. acquisition our accelerate of we full continue to on GAAP year-to-date and focus adjusted growth strategic systems, XX% interior to We of nora products And us agenda XXXX, with of world's EPS a year-to-date we commitments. and increase EPS year track This in our deliver delivered most

you our through our the up of before Let again wrap me outlook XXXX we blocks walk prepared building remarks.

third XXXX the XX It margin determine year growth, will to gross X% Interface's the EPS will is at XX will results. of which and Full relatively by the of force and transformation, will in solid It historic with the and impacts year on to LVT gross strategic forecast business comparables, drives closing XXXX $X.XX flat summary, and funding and increase XX% on a current Interface's post-closing year it exact to facility. our expenses incremental of organic being strongest SG&A global points. targeted meaningful achieve the be its increase quarters. expected in productivity, XXXX basis full which year to date the are closing, full and start company's to fourth interest acquisition the our a to on And enhance million. X% XX a supply the company. sustainability in softer that It spot as for margins operating Looking first year $XX XXXX acquisition Capital sales in that sales XXX industry-leading chain In other anticipated to includes company approximately the to are targeting in Depending profit interest performance into quarters talent million through is progress expenses investments are to results, projected for will be full have to upgrading sales. expenses existing as the the expect results be carpet percent to improve progress programs, when very Based marks agenda, $XX and Interface's loan continued and that second will business high-water our XXXX, seasonality, tax growth effective points. nora post expense on with and nora's for million, $X.XX a nora percent included transaction growth financial million net following another by tile income of innovation business $XX related future SG&A XXXX. term basis XX% $XX in our capabilities increase rate formally a adjusted profit company of by sales XX% to continues prior-year to to growth, expenditures the growth. to

so, And turn operator the I'll with for to that, questions.

Operator

Your first Research. from Thompson Brian comes question Biros with

is line Your open.

Brian Biros

questions, and quarter on results. congratulations Hey. good Thank you taking the for my

Jay D. Gould

Thanks, Brian.

Brian Biros

might any increased add a year half continued problem risk the from guidance? reaching slight any delays to delays? and of the Given further margins have. think sales that full to any growth due cause we poses that volume in volume, back it's the the color year how to going drop into the XX% if you if Can productivity And good to about the

Jay D. Gould

stronger Well, about million feel a was XX% that's our productivity year. $X confident We've be the bps slightly will to going some first in of to number. for a delay hit than the had initiatives, the We do the XX.X%. achieve margins back-half XX% we've saying our We all, of productivity targeted the in as talked that anticipate programs front-half so range year margins very began we about. XX being

experiencing not about. from that materials we've inflation input other are heard companies talk cost We raw

in those raw as are for all our year, materials I and coming think we planned. forecast appropriately the

Brian Biros

you. Thank

Operator

question Your from with Michael comes Nomura Instinet. Wood next

Your is open. line

Mason Marion

Mason Hi. Mike. This Marion is on for

your shortages are currently? issues sourcing impacted or peers you So, that last LVT. of enough you shortage this reported were one the night, they experiencing Were by quarter, seeing during

Jay D. Gould

subject We're No, is I that, And not. not shortages. tariff conversations. to to we would not are add the we're seeing Mason, the any other thing

asset-light source of heavy not the went capital. made in And sourcing into working business out decision Korea. way, are We actually We of we the an because into out went China. we we

way got do we've the support growth So, well expectations. by plenty is in of inventory market. of exceeding the the to continues our to really LVT, which LVT

Mason Marion

call growth? you. strong you can Great. perhaps there XQ? anything reported then, here. you quarter out you Is order order growth there driving there called like Thank another another of Is in in that's And large this out

Jay D. Gould

with our in But carpet the who in the retail or we're bit a I really geographically, the across well a LVT. with talked seeing doing it's bunch Plus, really think really, little come growth local remodeling mean, but U.S., one No, Bruce I of about portfolio, broad-based organic whether growth really stores. the seen back in U.S. customers currency; Europe we've are X% strong. of strength

growth. our last think the are our two, feeling One, transformation things. sales force driving year; and, impact we're that I So, two of we started efforts new big products incremental really

Bruce Hausmann

and retail, this The so We other thing healthcare, had strong office, in I we hospitality growth quarter. was the growth would add, education. segmentation had in core Jay, is

standpoint, And fantastic was quarter. it so just a from a segmentation

Jay D. Gould

Yeah.

Mason Marion

you. Thank

Operator

Global with Your question from Seaport McCall comes Securities. Matt next

open. is line Your

Matt McCall

morning, you. Good guys. Thank

Jay D. Gould

Matt. morning, Good

Matt McCall

that So, a $X want maybe more. to little it just again. – hit I million those bit understand

things So, that you – said called two there you were out.

about mix talked pressures, $X You Is and I productivity talked million, of delays, it pressure? sources encompass you guess. both about of does those that

Jay D. Gould

Matt. Yeah, it does,

of last amount On every to is rate produce labor labor we've four people had for the two I more Sunday in front, volume, this issue. plants to things. which run the we've add I'll a say mean, the and months,

issue our business. to So, is the mix Services related

margin it's We much. we don't labor. so a sourced similar on we our not on a it we much make make because labor, up use carpet, labor as mark margin lower Although selling own

of piece lower. the gross margin is business that So, on

Matt McCall

So, of million Bruce. – ahead, $X go the

Sorry.

Bruce Hausmann

want Yeah. to clarify. I just

We on million then you to to we're $XX of We're bit capture know, a going It's As million year. to we're year. cost journey year. – going going $XX to $XX a $XX productivity. and pause, captured capture a still of this little million capture last million just of next that we're

a and on is pause, track on just we our to this short-term across the continue journey. So, company be

Jay D. Gould

We'll XXXX expected we exactly yeah. be. exit to where Yeah,

Bruce Hausmann

Yeah.

Matt McCall

help cost talked savings, steps and then, occurring? manufacturing initiatives and you at of the savings beyond along how when the about – issues South what and understand savings, these productivity talk What the the like and the helpful. occurs much is that's can the changes that? then, the cost we that facilities. as at the for cost going eliminate hit temporary about understand, I'm trying And what's thresholds, labor to But just things you way? Sundays, Georgia, I need the working to actually And

Jay D. Gould

location. extensions manufacturing Well existing we are building an onto

months proof-of-concept course XX that more long-run could a the of we Then, first run to the of over operation step, machines. facility. Matt, process installing was tufting were then prove we in we year, last ago So, in put tufting this the

seven have tufting to build onto had have tufting XX building. ultimately machines. now We'll we we an So, the XX to extension machines. But

So, that's now. in of this That right will be end complete year. the by fully process

seven add tufting facility, of end planned build square-foot have machines. already haven't construction five the that another we'll So, XXX,XXX to Then, that. we we started on the other but onto the XXXX. is We'll which at complete extension to

go delivering we in actually built facility promised. be initiative that have million that XXXX, we'll productivity another out which benefits, million. will savings so that $XX $XX the additional We then, So, and through be on fully bring of XXXX XXXX the and will beyond and will starts

left productivity still of we So, funnel. that room in have a lot

Matt McCall

in is very that any there will rolling there to be, are associated Okay. over few additional the – an XXXX me question this, plan? XXXX on to CapEx – helpful, the Thank And the any years. thanks. layer Jay. they're the update with plans give spending That's additional going But – you. (XX:XX:XX) Including, tied then I to how next guess

Jay D. Gould

– I $XX million this the $XX we're mean, by which includes way. year, to going I just Well, million spend nora, so to

But So, But to we to that get capital be their into some we're a We'll in you. give addition. square-foot the relatively amount want We'll to planning. because to delayed a fine. slightly probably XXX,XXX we're build-out as next We probably spend $XX similar inside need through They quarter sure. year, just for million, as year $XX nora, our need we honest spending. little into million with bit modest have fourth guidance dive get make to tackle we LaGrange. next we

Matt McCall

your of indicators well. some Okay. the question you office, about you have in the and, line Bruce, seen just Jay, about how me. it watch some the then, we And improvement. viewpoint, strength for changed from have sorry, about can as talked come you macro But – I'm working you any show your But changes we through in segmentation has cyclical is in changes? Washington? cyclical We've just kind policy top some out of overall as we've XXXX talked into And quarter. a the any outlook What's pure more pretty Obviously, talk one move of seen the changes? benefits seen perspective? these you Jay,

Jay D. Gould

a of our enacted, the Well, assets If coming look, lot tactics. conversation I think purely got we've Washington are out globally. negotiation tariffs deployed of is

penalty tariffs So, if We're forecasting we're get do fine. enacted. no the

Europe. we yesterday made think I progress with

in to global even business, I I the pretty for economic robust. impact of So, think our GDP X%, pretty mean, quarter, solid mean, it's we're global still later in this that's growth. week. see And mean, the But being Matt, I positive up feeling European feeling us. growth we're I announced going

Matt McCall

Jay. Okay. you, Perfect. Thank

Operator

next Research. David with Your comes question Longbow MacGregor from

is line open. Your

David S. MacGregor

and one, distinguished the kind things to to a start question if really your two earlier of sourcing. question. not you could Jay, this responding the me bit everyone. But morning, number sourcing set just up business is, really Good you're little that LVT of have sort on LVT I in

got contract it's maybe secondly, channel. China. if arrangement, reliable out, which rather nuanced You've that it's then, pointed as Korea correctly, more a a And manufacturing differences than some I understand has you but supply

some of whether here but I saber-rattling unfold, is the come a you impediment to guess guess that and U.S. for to does ultimately whether let's it to assume bunch flow question start actually they tariffs I expected provide market, meaningful a you? just or moment to all? a of pass to And competitive a for as seen, the So remains is sized advantage be have into these become is that foreign come to how of at this kind much

Jay D. Gould

couple do me Korea. world-class then tariffs. a and assumptions, actually the a of talk to not to are Are by company – a countries then first redundant have validate your company, for and year, well owned contract the said we'd Potentially. when in in the upsides? We It's we to make look launched Absolutely a chose actually manufacturing manufactured, I'll second We design us. We for about capabilities this two we business, beat Japanese track it so and sourced. Asia. in product that. there manufacturer Let is we in million on different we the went $XX

our business really can because it momentum I world. the factored the is into how around say know haven't don't to gain outlook all in. to But We continues that factor I

David S. MacGregor

Yeah.

If you share, market revenue? XX% were up what market pick you extra X% can increment terms would quantify in of or represent an that share to

Jay D. Gould

But is growing business commercial a percent. I'd couple massive. – tile carpet the at $X.X say so like billion, That's to globally

commercial the say category, $X.X XX-plus business at is growing billion would metrics Our LVT percent.

David S. MacGregor

Yes.

Jay D. Gould

market So, business. just with the $XX right now we are million our skimming

David S. MacGregor

Right.

Bruce Hausmann

of If we room We huge. have it points, picked would grow. X up be plenty share to

David S. MacGregor

I that. Okay. got

Interface (TILE) 26 Jul 182018 Q2 Earnings call transcript