Interface Inc 2026 Q2 Earnings Call

Welcome to Interface's conference call regarding second quarter 2026 results, hosted by Laurel Hurd, CEO, and Bruce 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 re-recorded or rebroadcasted 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 up the call for questions. Now, I will turn the call over to Laurel Hurd, CEO.

Thank you, Christine. Good morning, everyone. Interface delivered another strong quarter, exceeding our expectations, achieving 4% year-over-year currency neutral net sales growth, building on 7% currency neutral growth in the second quarter of last year. Growth was broad-based across regions, product categories, and primary market segments. We saw healthy contributions from both price and volume, reflecting the strength of our diversified portfolio. Profitability also improved significantly this quarter, driven in part by the IEEPA tariff refunds we recognized. More importantly, continued operational execution improvements also contributed to margin expansion, highlighting the underlying strength and durability of the business. Our strong results continue to reinforce that our One Interface strategy is working.

As we've discussed before, One Interface is a multi-year 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. noravant Timber, the rubber flooring innovation we launched earlier this year, which combines the durability and performance of rubber with a distinctive woodgrain aesthetic, is gaining momentum in the market. At Clerkenwell Design Week in London, it was named Best Product for Healthcare, and we're seeing encouraging specification activity from leading design firms. We believe noravant represents a meaningful opportunity to further expand in healthcare and other segments over time.

We also continue to expand our reach across price points with two notable additions to our carpet tile offering. First, building on our highly successful Open Air platform, we launched Open Air Neutrals at Chicago Design Days. This offering extends the collection to warmer, more neutral tones and works seamlessly across our carpet tile, LVT, and nora rubber flooring portfolios. Second, we previewed Twist and Texture, which pairs textile-inspired design with an accessible price point and quick delivery, giving customers the options they are looking for and continuing to drive share gains in the market. Clerkenwell Design Week and Chicago Design Days provided strong platforms to connect with customers and the design community and to showcase our latest products and innovations. The interest we're seeing across the portfolio reinforces our confidence in the innovation investments we're making to expand our addressable market.

Turning to manufacturing and supply chain, we're continuing to invest in automation and robotics to improve efficiency and expand margins. Last quarter, we highlighted the robotic solutions we brought online in our carpet tile manufacturing facilities in Europe and Australia, and I'm pleased to say those investments are exceeding expectations. We've also added new packaging automation in Australia and continue to invest in robotics in Germany to enhance efficiency in our rubber business. Overall, these investments are helping us reduce costs and support sustainable growth as we scale. I'd also like to share a few highlights from our recently published 2025 Impact Report. Sustainability is core to Interface and central to how we create long-term value for our employees, customers, shareholders, and the planet. In 2025, we reduced our product carbon footprint across all product lines by 4% compared to 2024. We achieve this improvement through material and manufacturing innovations.

Across our portfolio, 51% of materials are now recycled or bio-based, the highest in the commercial flooring industry, with innovative materials like captured carbon helping to further drive carbon reductions. In addition, 79% of our manufacturing energy came from renewable sources. Overall, we cut our global greenhouse gas emissions by 36% compared to our 2019 baseline. We are focused on reaching our 2030 science-based targets and making progress towards our ambitious all-in goal to be carbon negative by 2040 without offsets. Before we move to the financials, I'm proud to share that we were recently certified as a great place to work in all 14 countries where we are eligible. This represents 95% of our global workforce, including those in U.S., Germany, the Netherlands, China, and Australia.

Attracting and retaining great talent remains a crucial part of our success, and this recognition reflects the strength of our culture and the engagement of our teams around the world. Now let's turn to our second quarter results. We delivered 4% year-over-year currency neutral net sales growth in the second quarter. In the Americas, currency neutral net sales increased 3% year-over-year, driven by our One Interface combined selling teams and demand across our key market segments. In EAAA, currency neutral net sales increased 5%, driven by stronger volumes and encouraging broad-based growth. Turning to our market segments, our diversification strategy continues to drive growth. Healthcare had a standout quarter, with global billings up 19% on top of 28% growth in the second quarter of last year.

nora continues to be a meaningful growth engine in this market segment, and we continue to benefit from our combined Interface and nora selling teams in the U.S. Education billings were up 5% in the second quarter on top of 11% growth in the second quarter of last year. We remain well-positioned across both K-12 and higher education, supported by our low carbon, high-performing products, broad range of price points, and our design leadership. The market continues to benefit from strong macro drivers, including renovation, modernization initiatives, and new construction activity. Our ability to serve projects across a wide range of budgets is helping us win. Corporate office billings were up 5% in the second quarter on broad-based global growth, where we continue to gain share.

One factor contributing to our success is the Interface Design Studio, which pairs customers with experienced Interface design experts who help bring projects to life from concept to completion. By making it easier to evaluate flooring solutions across our portfolio, our design studio strengthens customer engagement and reinforces our competitive position as organizations make specification decisions. We continue to see healthy underlying demand supported by return to office trends, renovation activity, and an ongoing flight to quality in Class A space, where our brand, design leadership, and broad product portfolio are well-positioned. Turning to orders, consolidated currency neutral orders increased 5% year-over-year. Orders in the Americas grew 5%, while EAAA increased 6%, driven by strength across all regions and supported by continued development of our product portfolio.

Backlog was strong at the end of the quarter, up 22% year to date, reflecting continued momentum across the business, giving us confidence to raise our full year guidance. With that, I'll turn it over to Bruce.

Well, thank you, Laurel, and good morning, everyone. All comparisons provided are year-over-year versus the second quarter of 2025, unless otherwise noted. Second quarter net sales were $395.7 million, up 5.4% as reported and 3.8% on a currency neutral basis. Second quarter currency neutral net sales were up 3.5% in the Americas and up 4.5% in EAAA. Second quarter adjusted gross profit margin was 45%, up 524 basis points. Higher sales volumes, proactive pricing, favorable mix, and manufacturing efficiencies drove 131 basis points of that improvement, reflecting the strong operational execution that Laurel referenced. The remaining 393 basis points were driven by a $15.6 million benefit from IEEPA tariff refunds and represented approximately $0.19 of earnings per diluted share. As a reminder, this tariff refund was not included in our full year guidance that we provided last quarter during our Q1 2026 earnings release.

Second quarter adjusted SG&A expenses were $103.1 million, compared to $93.9 million, due to higher sales commissions and variable compensation on increased sales and profits and foreign currency exchange variances. Second quarter adjusted operating income was $74.9 million, up 34%, compared to $55.9 million. Second quarter adjusted net income was $51.5 million, compared to $35.4 million. Second quarter adjusted EBITDA was $87.7 million, compared to $64.8 million. Second quarter adjusted earnings per diluted share was $0.88, up 47%, compared to $0.60. With these results in mind, I'll 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.