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II

INTERFACE INC (TILE)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered modest top-line growth and stable adjusted profitability: revenue $297.4M (+2.6% YoY) and adjusted EPS $0.25 (+4.2% YoY) amid expected margin pressure from higher EAAA manufacturing and freight costs .
  • Results modestly beat consensus: revenue $297.4M vs $297.1M consensus* and adjusted EPS $0.25 vs $0.21 consensus*; Americas strength offset softer EAAA; backlog up 12% YoY supporting Q2 trajectory .
  • FY 2025 guidance raised at the low end for revenue ($1.340B–$1.365B from $1.315B–$1.365B) and tax rate cut to 27% from 28%; Q2 outlook calls for $355M–$365M revenue and ~37.2% adjusted gross margin .
  • Narrative drivers: One Interface strategy continues to drive mix/pricing and sales execution (healthcare +16% billings; education +13% billings), with tariff impacts (<15% of product cost) planned to be offset by pricing and productivity — already reflected in guidance .

What Went Well and What Went Wrong

What Went Well

  • Americas momentum: net sales +6% YoY; currency-neutral orders +9.8% with combined selling teams; backlog up 12% YoY, positioning Q2 strongly .
  • Diversification wins: global billings up double-digits in Healthcare (+16%) and Education (+13%), validating segment strategy and product fit .
  • Strategic execution: “We delivered a solid start to 2025 with 4% year-over-year currency-neutral growth in net sales… strong momentum going into the second quarter,” and One Interface initiatives to accelerate growth and lead in design and sustainability .

What Went Wrong

  • Margin compression: adjusted gross margin -82 bps YoY to 37.7% due to higher EAAA manufacturing and freight costs, partially offset by pricing .
  • EAAA softness: net sales -2.0% YoY; operating income down 34.6%; currency-neutral orders -5.7% reflecting regional macro pressure .
  • Sequential decline from seasonal Q4: revenue fell to $297.4M from $335.0M; adjusted EPS to $0.25 from $0.34, in line with typical seasonality highlighted on Q4 call .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$289.7 $335.0 $297.4
Gross Profit Margin %38.1% 36.5% 37.3%
Adjusted Gross Profit Margin %38.6% 36.9% 37.7%
Operating Income ($M)$24.4 $29.6 $23.2
Adjusted Operating Income ($M)$25.5 $32.8 $25.5
Net Income ($M)$14.2 $21.8 $13.0
Diluted EPS ($)$0.24 $0.37 $0.22
Adjusted EPS ($)$0.24 $0.34 $0.25
Adjusted EBITDA ($M)$38.8 $46.0 $37.0
SG&A ($M)$86.0 $92.7 $87.7
SG&A % of Net Sales29.7% 27.7% 29.5%

Segment breakdown (Q1 YoY):

SegmentQ1 2024 Net Sales ($M)Q1 2025 Net Sales ($M)Q1 2024 OI ($M)Q1 2025 OI ($M)Q1 2024 AOI ($M)Q1 2025 AOI ($M)
AMS$169.9 $179.9 $18.2 $19.1 $18.1 $19.9
EAAA$119.8 $117.5 $6.3 $4.1 $7.4 $5.6

KPIs and Balance Sheet:

KPIQ1 2025Reference
Currency-neutral net sales growth YoY+4.1%
Currency-neutral orders growth YoY+3.3%
Backlog YoY+12%
Net leverage (Net Debt / LTM Adjusted EBITDA)1.1x
Cash ($M)$97.8
Total Debt ($M)$302.9
Net Debt ($M)$205.1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($)FY 2025$1.315B–$1.365B $1.340B–$1.365B Raised (low end)
Adjusted Gross Margin %FY 202537.2%–37.4% 37.2%–37.4% Maintained
Adjusted SG&AFY 202526% of sales 26% of sales Maintained
Adjusted Interest & Other ($M)FY 2025$24 $24 Maintained
Adjusted Effective Tax Rate %FY 202528.0% 27.0% Lowered
Capital Expenditures ($M)FY 2025$45 $45 Maintained
Net Sales ($)Q2 2025N/A$355M–$365M New
Adjusted Gross Margin %Q2 2025N/A~37.2% New
Adjusted SG&A ($M)Q2 2025N/A~$90 New
Adjusted Interest & Other ($M)Q2 2025N/A~$6 New
Adjusted Effective Tax Rate %Q2 2025N/A~27.5% New
Diluted Shares (M)Q2 2025N/A~59.3 New

Earnings Call Themes & Trends

TopicQ3 2024 (Q-2)Q4 2024 (Q-1)Q1 2025 (Current)Trend
AI/technology initiatives (automation, robotics)Investing in automation; margin benefits emerging Continued globalizing supply chain; automation at carpet tile and nora plants to expand margins Ongoing global rollout; new VP Global Product Category Management to accelerate product innovation Improving
Supply chain & productivityEfficiency gains; lower unit costs drove margin expansion Global CSCO driving productivity; robotics scaling across regions Pricing/productivity planned to offset tariffs; inventory seasonality noted Improving
Tariffs/macroMonitoring; limited exposure; FX headwinds flagged Exposure limited; carpet local, LVT Korea, rubber Germany; plan to pivot; FX headwinds in 2025 Exposure <15% of product cost; ~$10–$15M annualized; mitigation via pricing/productivity baked into guidance Neutral to manageable
Product performance (Education, Healthcare)Education billings +18%; Corporate Office +2% YoY, share gains Education +10% FY; Healthcare up in Q4; office down 1% FY but improving Education billings +13%; Healthcare +16%; Corporate Office -7% in Q1 but expected to grow in FY Mixed: Education/Healthcare improving; Office recovering
Regional trendsAmericas orders +17%; EAAA flat, Asia up, Australia soft Americas up 9.6% FX-neutral; EAAA down 1.7% FY Americas net sales +6%; orders +~10%; EAAA softer; Asia strong double-digit in local currency Americas strong; EAAA soft; Asia improving
R&D/sustainabilityCarbon-negative product leadership emphasized Carbon-negative rubber prototype; shift from offsets to direct reductions; Reuters award Strategic investment to incorporate captured carbon in manufacturing in U.S./Europe Improving

Management Commentary

  • CEO: “Interface delivered a solid start to 2025 with 4% year-over-year currency-neutral growth in net sales, 4% growth in adjusted earnings per share and strong momentum going into the second quarter… Our One Interface strategy is working.”
  • CEO: “Global billings in both Healthcare and Education grew double digits… diversifying and strengthening our business.”
  • CFO: “First quarter results exceeded our expectations… strong balance sheet provides optionality and flexibility. We remain focused on delivering long-term value.”
  • CFO: “We generated $11.7M of cash from operating activities… liquidity totaled $397.2M… Net leverage ratio was 1.1x.”

Q&A Highlights

  • Guidance raised (low end) driven by Q1 outperformance and strong April orders; backlog strength underpinned confidence in Q2 .
  • Tariffs exposure quantified (<15% product cost; ~$10–$15M annualized); mitigation via pricing/productivity with timing alignment; carpet local manufacturing reduces risk .
  • Regional detail: APAC sales up double digits in local currency; Europe/Australia softer; Americas leading growth .
  • Inventory increase primarily seasonal (education ramp), not tariff prebuy; supports Q2 demand .
  • Capital allocation: prioritize investing in growth and plant productivity with high-return automation; maintain strong balance sheet .

Estimates Context

MetricQ1 2025 ConsensusQ1 2025 ActualSurprise
Primary EPS (Adjusted) ($)0.21*0.25 +0.04 — bold beat
Revenue ($USD Millions)297.1*297.4 +$0.3M — beat
EBITDA ($USD Millions)35.0*Adjusted EBITDA 37.0 Note: company reports adjusted EBITDA; consensus methodology may differ
MetricQ4 2024 ConsensusQ4 2024 ActualSurprise
Primary EPS (Adjusted) ($)0.287*0.34 +0.053 — beat
Revenue ($USD Millions)340.5*335.0 -$5.5M — miss

Values retrieved from S&P Global*.
Bold indicates significant beats/misses.

Key Takeaways for Investors

  • Americas execution remains the core growth engine; EAAA softness is manageable given tariff mitigation plans and localized carpet manufacturing .
  • Near-term setup: strong backlog (+12% YoY) and April double-digit orders support Q2 guide ($355M–$365M revenue; ~37.2% adj. GM) — a potential positive catalyst if delivered .
  • Mix/pricing and One Interface productivity actions continue to offset cost headwinds, but EAAA manufacturing and freight costs are the swing factors for margins in 1H .
  • FY guidance raised at the low end with lower tax rate (27%), signaling confidence while acknowledging macro uncertainty — watch for H2 margin recapture as automation benefits scale .
  • Strategic sustainability/R&D investments (carbon storage materials; carbon-negative prototypes) deepen product differentiation in healthcare/education where billings are compounding .
  • Balance sheet optionality (net leverage 1.1x) supports continued high-return capex and selective capital returns without sacrificing flexibility .
  • Trading lens: stock should be sensitive to Q2 execution vs guide and tariff pass-through pacing; monitor segment/region mix (Americas vs EAAA) and office demand cadence (Class A refresh) .

Appendix: Additional Press Releases (Q1 2025)

  • Regular quarterly dividend declared: $0.01 per share payable April 11, 2025 .

Appendix: Prior Trends

  • Q3 2024: Revenue $344.3M (+10.7% YoY), adj. EPS $0.48; education billings +18%, Americas orders +17% .
  • Q4 2024: Revenue $335.0M (+3.0% YoY), adj. EPS $0.34; FY adj. gross margin +173 bps; 2025 seasonality and FX headwinds outlined .