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Interface Reports Fourth Quarter and Full Year 2023 Results

Staff Report From Georgia CEO

Thursday, February 29th, 2024

Interface, Inc. (Nasdaq: TILE), a worldwide commercial flooring company and global leader in sustainability, today announced results for the fourth quarter and full fiscal year ended December 31, 2023.

Fourth quarter highlights:

  • Net sales totaled $325.1 million, down 3.1% year-over-year.

  • Gross profit margin increased to 37.9%, up 646 basis points year-over-year.

  • GAAP earnings per share of $0.33; Adjusted earnings per share of $0.41.

  • Generated $27.8 million of cash from operations, repaid $29.6 million of debt in the quarter.

 

Fiscal Year:

  • Net sales totaled $1,261.5 million, down 2.8% year-over-year.

  • Gross profit margin increased to 35.0%, up 124 basis points year-over-year.

  • GAAP earnings per share of $0.76; Adjusted earnings per share of $1.00.

  • Generated $142.0 million of cash from operations, repaid $105.3 million of debt in the year.

"Strong fourth quarter performance rounded out a solid year, reinforcing our confidence that our strategy is working. Education remains a standout market segment with total sales up 5% for the full year, and notable strength in the Americas. We continue to take share in Corporate Office, as global sales increased 4% in the fourth quarter and were flat for the year in an incredibly dynamic market," commented Laurel Hurd, CEO of Interface.

"Continued softness in the retail sector drove the majority of our year-over-year net sales decline both in the fourth quarter and the full year. While retail remains a small percentage of our overall revenue, it did have an outsized impact on net sales in the second half of 2023 and we expect this headwind to persist through the first half of 2024," continued Hurd. "The team did a great job driving mix and holding price, and our margins further benefited from raw material cost deflation."

"We are intently focused on commercial excellence and leveraging our strengths as one global organization. Our sales teams are aligned to our fastest growing markets and are working collaboratively across our brands to accelerate growth and drive value for our shareholders," concluded Hurd.

"Interface ended 2023 with strong momentum on the gross profit margin line as we continued to hold price and drive favorable mix geographically and across product lines. During 2023, we delivered on our capital allocation commitments by aggressively paying down debt while investing in the business. Looking ahead, we remain focused on debt repayment and reinvesting in the business to drive automation and innovation for the future. We believe our strong financial position enables us to effectively capitalize on opportunities to accelerate growth," added Bruce Hausmann, CFO of Interface.

 

Fourth Quarter 2023 Financial Summary

Sales: Fourth quarter net sales were $325.1 million, down 3.1% versus $335.6 million in the prior year period.

Gross profit margin was 37.9% in the fourth quarter, an increase of 646 basis points from the prior year period. Adjusted gross profit margin was 38.3%, an increase of 507 basis points from adjusted gross profit margin for the prior year period due primarily to input cost deflation, higher selling prices and product mix, partially offset by unfavorable fixed cost absorption.

Fourth quarter SG&A expenses were $88.0 million, or 27.1% of net sales, compared to $83.5 million, or 24.9% of net sales in the fourth quarter of 2022. Adjusted SG&A expenses were $83.5 million, or 25.7% of net sales, in the fourth quarter of 2023, compared to $79.4 million, or 23.7% of net sales, in the fourth quarter of 2022.

Operating Income: Fourth quarter operating income was $35.2 million, compared to operating loss of $14.6 million in the prior year period. Fourth quarter 2023 adjusted operating income ("AOI") was $41.0 million versus AOI of $32.0 million in the fourth quarter of 2022.

Net Income and EPS: On a GAAP basis, the Company recorded net income of $19.6 million in the fourth quarter of 2023, or $0.33 per diluted share, compared to fourth quarter 2022 GAAP net loss of $24.6 million, or $0.42 per diluted share. Fourth quarter 2023 adjusted net income was $23.8 million, or $0.41 per diluted share, versus fourth quarter 2022 adjusted net income of $18.1 million, or $0.31 per diluted share.

Adjusted EBITDA: In the fourth quarter of 2023, adjusted EBITDA was $52.2 million. This compares with adjusted EBITDA of $41.3 million in the fourth quarter of 2022.

Fiscal Year 2023 Financial Summary

Sales: Net sales for fiscal year 2023 were $1,261.5 million, down 2.8% versus $1,297.9 million in the prior year.

Gross profit margin was 35.0% for fiscal year 2023, an increase of 124 basis points from the prior year. Adjusted gross profit margin was 35.4%, an increase of 70 basis points from adjusted gross profit margin for the prior year period primarily due to input cost deflation, higher selling prices and product mix, partially offset by unfavorable fixed cost absorption.

SG&A expenses for fiscal year 2023 were $339.0 million, or 26.9% of net sales, compared to $324.2 million, or 25.0% of net sales in the prior year. Adjusted SG&A expenses were $329.8 million, or 26.1% of sales, for fiscal year 2023 compared to $317.6 million, or 24.5% of net sales, in the prior year.

Operating Income: Operating income for fiscal year 2023 was $104.5 million, compared to operating income of $75.4 million in the prior year. AOI was $116.4 million for fiscal year 2023 versus $132.4 million in the prior year.

Net Income and EPS: On a GAAP basis, the Company recorded net income of $44.5 million in fiscal year 2023, or $0.76 per diluted share, compared to fiscal year 2022 GAAP net income of $19.6 million, or $0.33 per diluted share. Adjusted net income for fiscal year 2023 was $58.6 million, or $1.00 per diluted share, versus fiscal year 2022 adjusted net income of $73.4 million, or $1.25 per diluted share.

Adjusted EBITDA: In fiscal year 2023, adjusted EBITDA was $162.0 million. This compares with adjusted EBITDA of $176.1 million in fiscal year 2022.

Cash and Debt: The Company had cash on hand of $110.5 million and total debt of $417.2 million at the end of fiscal year 2023, compared to $97.6 million of cash and $520.2 million of total debt at the end of fiscal year 2022.

Fourth Quarter 2023 Segment Results

AMS Results:

  • Q4 2023 net sales were $188.2 million, down 3.9% versus $196.0 million in the prior year period.

  • Q4 2023 orders were up 3.1% compared to the prior year period on a currency neutral basis.

  • Q4 2023 operating income was $28.0 million compared to $17.6 million in the prior year period.

  • Q4 2023 AOI was $29.2 million versus $27.9 million in the prior year period.

EAAA Results:

  • Q4 2023 net sales were $136.9 million, down 1.9% versus $139.6 million in the prior year period.

  • Currency fluctuations had an approximately $4.6 million positive impact on Q4 2023 sales as compared to Q4 2022 sales due to strengthening of the Euro, partially offset by the weakening of the Australian dollar and Chinese Renminbi against the U.S. dollar. Excluding positive foreign currency impacts, EAAA's Q4 2023 net sales were down 5.2% year-over-year.

  • Q4 2023 orders were down 4.1% compared to the prior year period on a currency neutral basis. EMEA was down 4.8%, Australia was down 6.7%, partially offset by Asia, which was up 3.1%.

  • Q4 2023 operating income was $7.1 million compared to operating loss of $32.2 million in the prior year period.

  • Q4 2023 AOI was $11.8 million versus $4.1 million in the prior year period.

Fiscal Year 2023 Segment Results

AMS Results:

  • Net sales for fiscal year 2023 were $737.0 million, down 2.2% versus $753.7 million in the prior year.

  • Operating income for fiscal year 2023 was $85.0 million compared to $92.2 million in the prior year.

  • AOI for fiscal year 2023 was $87.8 million versus $102.4 million in the prior year.

EAAA Results:

  • Net sales for fiscal year 2023 were $524.5 million, down 3.6% versus $544.2 million in the prior year.

  • Currency fluctuations had an approximately $3.5 million positive impact on net sales in fiscal year 2023 as compared to the prior year, primarily due to the strengthening of the Euro, partially offset by the weakening of the Australian dollar and Chinese Renminbi against the U.S. dollar. Excluding positive foreign currency impacts, EAAA's net sales were down 4.2% year-over-year.

  • Operating income for fiscal year 2023 was $19.5 million compared to operating loss of $16.8 million in the prior year.

  • AOI for fiscal year 2023 was $28.6 million versus $30.1 million in the prior year.

Outlook

Interface anticipates the following for the first quarter of fiscal year 2024:

  • Net sales of $280 million to $290 million.

  • Adjusted gross profit margin of approximately 36.0%.

  • Adjusted SG&A expenses of approximately $83 million.

  • Adjusted Interest & Other expenses of approximately $8 million.

  • Fully diluted weighted average share count of approximately 58.8 million shares.

For the full fiscal year 2024:

  • Net sales of $1.26 billion to $1.28 billion.

  • Adjusted gross profit margin of approximately 35.5% to 35.8%.

  • Adjusted SG&A expenses of approximately 26.0% of net sales.

  • Adjusted Interest & Other expenses of approximately $32 million.

  • An adjusted effective tax rate for the full year of approximately 29.0%.

  • Capital expenditures of approximately $42 million.

Webcast and Conference Call Information

Interface will host a conference call on February 27, 2024, at 8:00 a.m. Eastern Time, to discuss its fourth quarter and full fiscal year 2023 results. The conference call will be simultaneously broadcast live over the Internet.

Listeners may access the conference call live over the Internet at: https://events.q4inc.com/attendee/392372040, or through the Company's website at: https://investors.interface.com.

The archived version of the webcast will be available at these sites for one year beginning approximately one hour after the call ends.