Interface Inc 17th Annual Midwest IDEAS Conference

Good afternoon, everyone. Thank you for joining us for the last presentation of the day. I am John McNamara with Three Part Advisors. Our next presentation is Interface, Inc. Interface is a global provider of commercial flooring for more than 50 years. It trades under the symbol TILE on the Nasdaq. Presenting to us from management is Bruce Hausmann, Chief Financial Officer.

Bruce? Thanks, John, and thank you all for staying here.

Saved the best for last. I was actually wondering if anyone was going to be here. It has been an incredible day, and I have been super impressed. This is my first year at this conference, and I have been super impressed with the engagement. So thank you for being here. I want to tell you about the best flooring company in the world and why that is, why I work for this company, been here for about nine years, and why, if I was you, I would invest in this company. I am going to try to be a little funny along the way and hopefully make you laugh. If my jokes don't land, then sorry about that. I don't know if you have noticed, there is a lot of commercial flooring out there. There is a lot. That is the space that we play in.

So it is a really, really large market. Just a few factoids on us. We have three brands. We have the Interface brand, we have the nora brand, which is our nora rubber flooring, and we have our FLOR brand, which is our consumer brand. 98% of our business is commercial. About 2% is residential, and that is on the FLOR brand. We do have a very large geographic footprint in over 100 countries where we distribute. We have manufacturing on six continents. If you look up the makeup of our revenue, we are about $1.4 billion in revenue. If you look up the makeup or the composition, it is about 60% in the Americas, 29% in Europe, 11% in Asia-Pacific. We focus maniacally on three market segments, corporate office, education, and healthcare.

That is not to say we don't take business in other spots, transportation, government, retail, hospitality, but we are really focused where we have a strong right to win on those three market segments, and about 3,600 employees globally. We are not the biggest in the industry, that would be Mohawk, but we have the best company in the industry. I would say we have a lot of data points to prove that out. If you look at our net promoter scores, if you look at our growth rates, where we have been overachieving top-line growth rates quarter after quarter, overachieving in the industry. If you look at our margins and our margin expansion and our margin structure, we have the best margins in the industry. We have the best brand in the industry, and I think the best products in the industry.

If you are looking for a place, if you say, "Man, commercial flooring is a big market. It's an interesting space to allocate some of my portfolio." I think you cannot go wrong with betting on us. We compete on three major fronts, design, performance, and sustainability. I came from outside the industry. I did not appreciate until I came to this company how important design is. People look at a floor, and so much of that is where it all starts when a designer or an architect is trying to figure out the layout of a room. That is the beginning face plate, and then they build from there. Design plays a huge part in what we do. Interestingly, we have an amazing product. We have a 15-year warranty on our product, on our carpet tile product.

It lasts, and it holds up extremely well in really, really rough commercial environments. A lot of times, it does not get replaced because it is worn out. It usually gets replaced just because of style. People say, "Hey, this is out of style now. We want to refresh it." Sustainability, I do not know if that is important to you. For some people, it is super important. If sustainability is important to you are going to love our company because it is in the DNA of who we are. If you do not care about sustainability, that is okay too because we have plenty of brand differentiators and plenty of reasons why we excel in the marketplace, whether sustainability is important to you or not. We have a very strong balance sheet. Our net debt-to-EBITDA ratio is 0.5 times. We have a very strong purpose-driven culture.

One of the things that we are proud of, I am 57 years old. I have been doing employee engagement surveys for many years at many different companies. It is really hard to get good scores. One thing I have noticed is that if you ask your employees to give candid feedback anonymously, they are going to do that. I have been put on my heels over the course of my career with some pretty candid feedback from employees saying, "Here is where to do well," and "Man, you are terrible in these areas." I am just amazed and blown away at the scores that we get. I do not know if you are familiar with this employee engagement survey called Great Place to Work, but we are certified in every place that you can be certified in. Over 95% of our employee population is certified as a Great Place to Work.

I can tell you from personal experience, that is really, really hard to do. It tells me that we have got a very engaged workforce who likes being a part of the company, who really believes in what we are doing. I think that that is manifesting itself on the P&L as well, which is why I am spending some time talking about it. As I mentioned, these are our three brands, Interface, nora, and FLOR. We are maniacally focused on three product lines. I talk about focus a lot on this presentation because I think that is part of the key to our success. Some of our competitors have way more products in the bag than we do, and they are just less focused.

I think part of our success is that three product lines, carpet tile, which we invented, luxury vinyl tile, which we got into in 2017, and we've grown that business organically with accretive margins, been very successful. And we got into the rubber business with the acquisition of nora flooring in 2018. If you're curious about acquisitions and M&A strategy and all that stuff, I'll talk about it at the end of this presentation. But we've done one acquisition in about 20 years, and it has been a huge success. But to be just stating who we are and what we do and how we think, all these successes that we've talked about have really, other than the nora acquisition of 2018, have come organically. And we're the dead opposite of an acquisition machine.

We've been really, really focused on sticking to the knitting and being great at what we do. We play in a very large market. To be fair, data is really challenging in our industry to get your arms around, but it's a $39 billion commercial flooring industry globally. Our TAM is around $9 billion plus. If you look over on the right here of this chart, this Mekko chart, that's soft surface, so that's carpet. So carpet tile is about a $5 billion industry. Broadloom is about a five-ish billion dollar industry. Carpet tiles continue to take share from broadloom. LVT entered the scene a number of years ago. It has been taking shares. It's about a three-ish billion dollar TAM. It's been taking share from all of the hard surface.

There was a period when it was taking some share from soft surface and commercial, and we've seen a slowing down of that now, significantly. And then rubber is a highly differentiated product. So we're very intentional about these product lines. We know that they have the highest growth rates and the highest margin profile in the business, which is why we focus on these and why these are the product lines that we've chosen to be in. Maybe three-ish years ago, we brought in a new CEO. Her name is Laurel Hurd. She's incredible. She came from outside the industry. She had a lot of observations around, I'll call, the good and the opportunity inside the company. And one of Laurel's observations was, "Man, we are so sub-optimized.

We have so much opportunity if we just reorganized and rewired the way that we operate as a company." We used to be very regionally based. We had an Americas region, an EMEA region, an APAC region, with a holding company on the top. It was all very decentralized, and we weren't leveraging the power of one company. Each one of those regions had a president. They all had their finance organization, their supply chain organization. They're all running their own VP of marketing. Laurel came in and said, "Man, if we just operated as one, we could be so much better for our customers globally, so much better internally at our being nimble and servicing the market." So we've been on this journey for coming up on three years.

This will be our third year where we do a planning process in this new model, where we've rewired how we operate. We brought in a supply chain leader to head up supply chain globally. That's how we look at. We don't look at supply chain regionally anymore. We look at it globally. We have one finance organization, one market globally. We have one IT organization globally, one marketing organization globally. To be fair, there's been some cost cutting, but it's been more about speed of business and nimbleness in growth. A really easy example around some fewer costs is we used to have four VPs of marketing. Now we have one. By the way, all of those marketing organizations had their own communications or their own PR firm, their own product launch schedules, our product management, their own product management organizations.