Interface Inc at Raymond James Diversified Industrials Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : Terrific. Thank you. And Dan, I think your video is off too.

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : There we go. There you are. So I will do the questions here for the fireside. Your second quarter suggested that you are seeing a few inflection points certainly with demand. So let's talk about orders. It looks like your sequential organic sales growth is finally improving on a two-year stack for the first time since COVID hit. While you noted it was fairly broad-based, how would you rank order, where you are seeing the healthiest order activity, whether it's geographical, end-market applications, product lines, what have you? What are the two or three places where you are seeing the most profound strength? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 24, 2021 / 1:20PM, TILE.OQ - Interface Inc at Raymond James Diversified Industrials Conference (Virtual)

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : One concern I've heard is that demand this summer is overly benefited by the back to office rush in the fall, which suggests at least that the run rate in orders might not be sustainable. Is this a reasonable concern, Dan?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : That's a great point, Sam -- I mean Bruce.

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : (multiple speakers)

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : It is as if you are reading my questions in order, because that's exactly where I wanted to go with this. You talked about the carbon-negative product line. Ballpark, how much of your orders right now are coming from that product, which would very clearly indicate the share gains? And also second question on that would be, how much of a premium-priced product is that versus a comparable carbon-neutral type of product line?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : And what is the price premium?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : And you did mention in the last call that you are seeing increasing cost inflation. Where, specifically, is it most prevalent? And I'm also wondering, I know there's a significant lag between what we see in the price of oil and your cost, both virgin and otherwise. But if oil prices were to fall from here, how long might it be before we would see the benefit in your P&L?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : Right. That was my question which is you are chasing it so that suggests the price cost is negative now. When you do reach price cost neutrality, what would the incremental -- whenever that is, what would the benefit be to gross margins versus where you are at right now?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : Turned down in the third quarter? Next year?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : Oh, first quarter. Okay, sorry.

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : Okay, sure. And then SG&A, you're guiding $85 million a quarter back half of this year. As we look past this year, is that the right sort of run rate and what would you have to grow sales in order to leverage SG&A? I know SG&A has been a focal point for you folks for years. How should we think about the fixed variable element of SG&A?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : 26 --

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : I'm sorry, Dan. 26% SG&A, I think you said over the next couple of years. Is that right?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : 18 months. And that I'm guessing assumes sort of a mid-single digit, mid to high single-digit sales growth rate? Is that a fair representation? I'm not looking for guidance. What I'm getting at, Dan, is the 26% would require some leverage, right?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : Got it.

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : Got you. And then the international business, you are now breaking them out separately, which is terrific from an analytical standpoint. How do you get the international business to earn its cost to capital? I know SG&A is going to be a big part of that. But structurally, how do you get it to earn its cost to capital and how does it strategically fit in the overall scheme of things?

Question: Sam Darkatsh - Raymond James Financial, Inc. - Analyst : And with that, we are out of time. It's exactly 30 minutes. Perfect. Dan, Bruce, thank you so much for your time and for participating in our industrials conference. And onwards and upwards from here.