Interface Inc Q4 2024 Earnings Call Transcript

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

Question: Brian Beavers - Bumson Research Group - Analyst : Hey, good morning. Thank you for taking my questions. To start with, I guess, I believe 2024 was the first full year of the one interface selling strategy. Seems to pay off very nicely. So I guess, how are you thinking about that impact to 2025 now? Are we thinking a similar level of benefit as you saw last year, maybe even greater benefit as the process is fine-tuned, improved upon? I know you mentioned you expect to outperform the industry, but any further details on how that looks in the '25 would be appreciated.

Question: Brian Beavers - Bumson Research Group - Analyst : And then I guess for the end of 24 and the start of 25, we had heard that, I guess the office segment in general was getting better. I know that's often a low base, but still not as good as other verticals, but there seemed to be some momentum building in office. Did you see this across your business and I guess what are you expecting for office for the full year for 25?

Question: Brian Beavers - Bumson Research Group - Analyst : Good to hear. And I squeeze one last one in. I guess you have a pretty solid balance sheet now, pay off a lot of debt leverage I think at 1.1 X. How are you thinking about just capital allocation priorities now, given there's less debt to pay off than a year or two ago? Thank you.

Question: Brian Beavers - Bumson Research Group - Analyst : Thanks, I'll pass it along.

Question: David McGregor - Longbow Research - Analyst : Yes, good morning, everyone, and thanks for taking my questions. While we're talking about capital, Bruce, the $45 million guide for 2025 is up fairly substantially from 2024. I'm guessing most of this is manufacturing automation, but maybe you could just talk about that for a moment. And then I guess, is this the peak for spending on automation, or how should we think about investments in the manufacturing model beyond 2025?

Question: David McGregor - Longbow Research - Analyst : Right. And can you just address the question regarding is this peak spending in this capital cycle, or do you envision that maybe moving higher as you begin to address non-U.S.?

Question: David McGregor - Longbow Research - Analyst : And, Laurel, are the capital projects impacting shipments at all?

Question: David McGregor - Longbow Research - Analyst : Good to hear. I wanted to ask, secondly, about the gross margin guide, the 37.2 to 37.4 implies 50bps to 70 bps of improvement. year over year. I mean, you've got a lot of moving parts in this gross margin model, obviously. You've got price cost. You've got the NORA mix, the LVT mix, the supply chain productivity with your new chief procurement officer. I'm guessing there's other things in there as well that you'd highlight. Can you just give us a sense of what the puts and takes are behind that 50 to 70 basis point improvement?

Question: David McGregor - Longbow Research - Analyst : Right. I guess with Laura's comments about NORA, the growth at NORA, the expansion of the NORA business has got to rank pretty highly within the mix of drivers behind that gross margin improvement.

Question: David McGregor - Longbow Research - Analyst : Great. Got it. And then, I guess, great job in the SG&A management. I mean, just over a period of a few years, in fact, you've done a lot there. Great discipline. I guess the question is, how much revenue growth capacity remains before you need to start making larger investments in SG&A? How much leverage opportunity remains at this point?

Question: David McGregor - Longbow Research - Analyst : Got it. Thanks for that. Last one for me, just a clarification. Your guiding interest expense is kind of flat year over year, $24 million. In fact, versus 23.2, you're up a little bit despite having paid down $110 million in debt. Is that just rate increases or is there something else going on there that we should be thinking about?

Question: David McGregor - Longbow Research - Analyst : Well, congratulations on all the progress, operationally, balance sheet, everything. You guys are doing a great job. Thank you.

Question: Alex Harris - Barrington Research - Analyst : Thank you and thank you all for taking my questions. Congrats on the strong finish to the year.

Question: Alex Harris - Barrington Research - Analyst : A couple of questions. First of all, I'll follow up on CapEx. So of the $45 million projection for this year, up from roughly $34 million last year, which is generally, as you said, 2.5% to 3% of revenue, what proportion is maintenance CapEx? What proportion is growth CapEx? This year and then maybe in general. Okay. This year and then maybe in general.

Question: Alex Harris - Barrington Research - Analyst : And then a question about return to office mandates. You know, I'm thinking about the recent election. I'm thinking about Doge. I'm thinking about mandatory return to work for government employees, and I I'm wondering, what is your exposure to government? I know based on billings, I think it is 6% roughly. What's the character of the government business? Is it federal? Is it state? Is it local? Is it all of the above?

Question: Alex Harris - Barrington Research - Analyst : Thank you. That colour's helpful. And then going just back to some earlier comments, retail was up for the year. Was it up in the second half and fourth quarter? I know you had an easy comp, I guess, because you had a weak second half in retail in 2023.

Question: Alex Harris - Barrington Research - Analyst : Gotcha. That's helpful. Last question, kind of like the return to office question. With the new administration, a lot of tariff talk is getting tossed around. Yesterday, I guess, they're going to implement Canada and Mexico. I don't think that's much of an exposure for you, but... What is your exposure in each of the three main product categories, carpet tile, LVT, and rubber?

Question: Alex Harris - Barrington Research - Analyst : So where are you sourcing your raw material for each of those three product categories?

Question: Alex Harris - Barrington Research - Analyst : And just to kind of summarize, no impact so far. You're watching closely. But it does look like from the outside that the exposure is fairly limited. And to the extent that there is exposure, you can pivot quickly. I think that's fair.

Question: Alex Harris - Barrington Research - Analyst : It sounds that way. All right, so thank you very much. I appreciate it. That's all I have.