TILE Q3 2026 earnings call transcript, November 6, 2026

After today's prepared remarks we will host a question and answer session. If you would like to ask a question please press star 1 to raise your hand. To withdraw your question press star 1 again. I will now hand the conference over to Christine Needles, Corporate Communications. Christine, please go ahead.

Good morning and welcome to Interface's conference call regarding third quarter 2026 results. Hosted by Laurel Hurd, CEO. And Bruce Haussman, 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 8K 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 rebroadcasted without interface.

Thank you, Christine, and good morning, everyone. Interface delivered a solid third quarter. Adjusted earnings growth exceeded our expectations, and billings increased across all three 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'm proud of our team and their unwavering commitment to serving our customers. In this dynamic environment, we're continuing to execute our One Interface strategy to drive industry outperformance. 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 our 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 three of our product categories, carpet tile, LBT, 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're expanding Noravant timber to more markets in EMEA. Following the initial rollout in the Americas, Germany, and the UK. As we've discussed before, Noravant combines the durability and performance of rubber with a distinctive wood grain aesthetic. We believe it represents a meaningful opportunity.

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 AAA. Third quarter adjusted gross profit margin was 40.6% up. 103 basis points, driven by favorable pricing, product mix, and manufacturing efficiencies, which more than offset higher raw material and tariff related costs. Third quarter adjusted SG&A expenses were 91%. compared to 90 million in the third quarter of last year. SG&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%. And third quarter adjusted net income was $39.9 million, compared to $35.8 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.

Thank you, Bruce.

I'll open it up to questions. Operator. We will now begin the question and answer session. If you would like to ask a question. Please press star one to raise your hand. To withdraw your question. Press star one again. We ask that you pick up your handset when asking a question to allow for opt. If you were muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your next question.

Good morning, everyone.

Thanks for taking my questions.

I guess I wanted to just ask by about sort of how much the cost inflation occurred in the quarter was not expected as you came into the quarter. So in other words, came about during the quarter. 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 point for Q3. And, you know, we're largely and we're holding and reaffirming our earnings guidance for the year. But to be fair, we did see additional costs increases. Kind of rolling through. And those are the two main ones.

Are you able to quantify that?

I can annualize it for you. The Canadian tariffs, you know. Are in the range of five to 10 million annually. The oil prices and the energy prices are changing daily. And so there is a piece of that that's rolling through. And honestly, the oil has bounced around from 90 to 115 a barrel. So it really, really changes a lot about the round. So we're watching it closely. And what we've done is we've activated. Plans to make sure to do everything we can to offset those costs. And we've been successful in doing that.

Right. OK, good. And I guess, you know, that kind of feeds into the next question, which is, you know, how are you planning to.

Tech margins heading into 4Q and into 2027, more importantly. Yeah, we'll continue to execute on pricing. So we've you know, we've been doing that pretty effectively. I think about our model in the U.S. It actually. 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've been doing where, you know, our our sellers are quick to get that action and we'll. Continue to do that across the globe. So first pricing is our big important lever and then second to that is productivity and we've been driving just a ton of productivity projects continuing to invest and invest in automation that drive efficiencies and. those continue to pay back so we'll push on both of those and then the third piece is really mix as we've been driving importantly you know putting putting our our growth aligned with our most profitable categories and and markets.

Right. What do you think productivity can give you in 2027 just given all the investments you've made in automation I would think it's a meaningful number but what's a good way to think about that.

David it'll be we're of course not providing 2027 guide right now but you know as you've seen this year the productivity has been rolling through the P&L and we've. done other initiatives this year. That'll activate we get we get partially partial productivity lift this year, and then it rolls through into next year as well, as well as a multi year rollout around these productivity initiatives. It's meaningful and that's. That's how we're able to that's how we're able to get the gross profit margins that you're seeing. So it is meaningful. I'll just jump on that as well. You know, some of the things that we've done with the automation in our carpet tail manufacturing in Georgia, we've rolled that now. to Australia and Europe, and we're seeing those read through favorably. And then we've got some additional automation in our carpet tail manufacturing in again in Georgia and in Australia around cutting and packaging, which is also, you know, that'll 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 does, you know, it pays dividends for us to support the growth that we continue to see in Nora.

Sounds good. I wanted to maybe ask you a little more about. Some of the discussion on the previous question about market conditions and and you were talking about sort of the timing delay that occurred in the third quarter. The discussion was around office. I'm guessing it's around everything, not just office. But what. What are you seeing in terms of pre-sale indicators? If this is a timing issue, are the pre-sale indicators, the underlying pre-sale indicators still positive and and sort of pointing towards good growth? And are you seeing order cancellations or. Or is this really just kind of things just taking longer to transpire? Yeah, I think there's and I put this sort of in two buckets. So in in the Americas, I would say our momentum remains really strong and it's strong. It's strong in all of our key end markets, health care and education. We had two specific timing items in the quarter that affected the Americas. And the first is retail. And you'll remember Dave. But over time, we have a bit of quarter to quarter variation in our retail store installations. And that happened in the quarter. We didn't lose that business that will come in future quarters. So that's sort of a unique item. And then we've also shared that our Nora projects, those are larger projects that can cause some variability quarter to quarter. And so that's the situation in the Americas. There was a bit of retail and a bit of Nora time.

Variability. So we haven't seen any order cancellations. We haven't 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's really where we've seen. And we've got a ton of opportunity. Our opportunity pipeline looks strong. The activity remains good. Our team was at a trade event two weeks ago. There was a there was a bunch of. Ventum there. It's really just converting that pipeline into orders and billings. Specifically in Europe. Yeah. I mean the office furniture guys are seeing exactly the same thing. So. It's 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 some of this work just needs to get pushed forward into the 27 budgets. I mean to what extent do you think those factors are coming into play here. I think I think there's probably all of that I think it. You know there's there's some some labor chat labor availability challenges and other things, but I think that the the good news about our category and and we've discussed this is customers can only push the timing so far one they need to refresh their spaces, but also. But 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. Right, right. Last question. The question for me is just, you know, how would you characterize competitive conditions right now and how they're evolving as inflation becomes more of an issue for everyone?

Yeah, it's a good question.

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

Got it.

Thanks very much.

Thanks, David.

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

This concludes today's call.

Thank you for attending.

You may now disconnect.