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II

INTERFACE INC (TILE)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered an across-the-board beat and raise: net sales $375.5M (+8.3% YoY), GAAP EPS $0.55 (+44.7% YoY), adjusted EPS $0.60 (+50% YoY), and adjusted gross margin up 402–403 bps; Interface raised FY25 net sales, margin, and tax rate guidance, signaling confidence despite macro uncertainty .
  • Americas momentum and mix/productivity drove outperformance: currency-neutral net sales +11.5% in AMS; CFO attributed ~80% of margin expansion to manufacturing productivity and ~20% to price/mix .
  • Q2 results beat S&P Global consensus: revenue $375.5M vs $360.6M*, EPS $0.60 vs $0.47*; the beat was broad-based across carpet tile, LVT, and Nora rubber, with Nora Americas up nearly 40% .
  • Guidance raised: FY25 net sales to $1.370–$1.390B (from $1.340–$1.365B), adjusted gross margin to ~37.7% (from 37.2–37.4%), and tax rate to ~26% (from 27%); Q3 guide calls for $350–$360M sales and ~38% margin .
  • Balance sheet optionality remains a catalyst: liquidity $419.9M, net leverage 0.9x, net debt $182.7M; capital returns included share repurchases ($4.3M) and a dividend hike to $0.02 per share post-quarter .

What Went Well and What Went Wrong

  • What Went Well
    • Broad-based growth and market share gains, especially in Americas: “currency-neutral net sales growth of 11% driven by our combined selling teams and expanded product offerings” .
    • Significant margin expansion: adjusted gross margin +402 bps on higher pricing, favorable mix, and manufacturing productivity; CFO quantified drivers (~80% productivity, ~20% price/mix) .
    • Segment strength in Healthcare (+28% billings), Education (+11%), and a return to growth in Corporate Office (+3%); “One Interface strategy continues to yield measurable results” .
  • What Went Wrong
    • EAAA softness: EAAA GAAP operating income fell to $3.2M from $11.3M YoY; adjusted operating income down 44% YoY, with currency-neutral net sales slightly down and orders -4.3% YoY .
    • SG&A pressure: adjusted SG&A rose $9.1M YoY on higher commissions/variable comp, healthcare costs, inflation, and FX; adjusted SG&A as % of sales up 56 bps YoY .
    • Tariffs remain a headwind (though managed): ~15% of COGS subject to tariffs; annualized impact ~$20–$25M, in-year effects ~$8–$10M; largely neutral vs pass-through pricing in Q2 .

Financial Results

Headline metrics vs prior quarters and consensus

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$335.0 $297.4 $375.5
Revenue Consensus Mean ($USD Millions)$340.5*$297.1*$360.6*
GAAP EPS ($)$0.37 $0.22 $0.55
Adjusted EPS ($)$0.34 $0.25 $0.60
Gross Profit Margin %36.5% 37.3% 39.4%
Adjusted Gross Margin %36.9% 37.7% 39.8%
Operating Income ($USD Millions)$29.6 $23.2 $52.0

Notes: Values with asterisks retrieved from S&P Global.*

Segment breakdown (Q2 2025 vs Q2 2024)

SegmentQ2 2024 Net Sales ($M)Q2 2025 Net Sales ($M)YoY %Currency-Neutral Q2 2025 ($M)Q2 2025 GAAP OI ($M)Q2 2024 GAAP OI ($M)Q2 2025 Adjusted OI ($M)Q2 2024 Adjusted OI ($M)
AMS$215.0 $239.4 +11.4% $239.6 $48.8 $26.8 $48.8 $26.9
EAAA$131.6 $136.1 +3.4% $131.5 $3.2 $11.3 $7.1 $12.7
Consolidated$346.6 $375.5 +8.3% $371.1 $52.0 $38.2 $55.9 $39.6

KPIs and balance sheet

KPIQ4 2024Q1 2025Q2 2025
Adjusted EBITDA ($M)$46.0 $37.0 $64.8
LTM Adjusted EBITDA ($M)$189.0 $187.2 $201.6
Cash ($M)$99.2 $97.8 $121.7
Total Debt ($M)$302.8 $302.9 $304.4
Net Debt ($M)$203.5 $205.1 $182.7
Net Debt / LTM Adjusted EBITDA (x)1.1x 1.1x 0.9x
Currency-Neutral Orders YoY+4.7% +3.3% +2.9%
Cash from Ops ($M)FY $148.4 $11.7 $30.1
Backlog——+24% YTD

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2025$1.340B–$1.365B $1.370B–$1.390B Raised
Adjusted Gross MarginFY 202537.2%–37.4% ~37.7% Raised
Adjusted SG&AFY 202526% of net sales ~$362M Clarified/updated basis
Adjusted Interest & OtherFY 2025~$24M ~$25M Raised
Adjusted Effective Tax RateFY 2025~27.0% ~26.0% Lowered
Capital ExpendituresFY 2025~$45M ~$45M Maintained
Net SalesQ3 2025—$350M–$360M New
Adjusted Gross MarginQ3 2025—~38.0% New
Adjusted SG&AQ3 2025—~$92M New
Adjusted Interest & OtherQ3 2025—~$6M New
Adjusted Effective Tax RateQ3 2025—~27.0% New
Diluted Share CountQ3 2025—~59.1M New
DividendRegular Quarterly$0.01 (prior)$0.02 (payable Sep 12, 2025) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Americas executionFY24 grew AMS 8.7%; margin progress; combined selling strategy gaining traction AMS c-n net sales +11.5%; strong share gains; Nora Americas nearly +40% Strengthening
EAAA demandFY24 EAAA sales -1.8%; AOI up FY but Q4 weaker; Q1 2025 EAAA c-n orders -5.7% EAAA c-n net sales slightly down; orders +4% in quarter; AOI down YoY Mixed/gradual improvement in orders
Margin driversFY24 margin up 174 bps YoY; Q1 adjusted GM -82 bps due to EAAA/freight Adjusted GM +402 bps; ~80% productivity, ~20% price/mix Improving via productivity
Supply chain/automationOngoing manufacturing productivity focus US carpet tile automation fully operational; rollouts to AU/EU underway; benefits in 2026 Scaling
Tariffs/macroFX translation headwinds in FY25 guide ~15% COGS tariff exposure; annualized $20–$25M; in-year $8–$10M; largely neutral Q2 Managed headwind
Segments (Healthcare/Education/Corporate)FY24: Education +double digits; Corporate share gains Healthcare +28% billings; Education +11%; Corporate +3% growth Positive, diversified

Management Commentary

  • CEO: “We delivered strong second quarter results ahead of our expectations… currency-neutral net sales growth of 7% and significantly expanded profitability… strong momentum and market share gains in the Americas” .
  • CEO: “Second quarter global billings increased 28% in Healthcare, 11% in Education, and 3% in Corporate Office… despite market uncertainty” .
  • CFO: “Gross profit margin expanded 403 basis points driven by higher pricing, favorable product mix, and higher sales volumes that generated manufacturing cost benefits” .
  • CFO (call): Margin drivers were “around 20% driven by price and mix and about 80% driven by manufacturing productivity” .
  • CEO (call): Nora rubber in the Americas “was up nearly 40%… we’re finding more and more uses for it” .
  • CFO (call): Tariffs “around 15% of our COGS… annualized ~$20–$25M… in-year impacts ~$8–$10M… offset through price or productivity” .

Q&A Highlights

  • Order momentum/backlog: April strong, mid-Q2 softer, then re-accelerated; July orders strong; backlog up 24% YTD with most shipping in 2025 .
  • Capital allocation: Share repurchases resumed ($4.3M in Q2; last in 2022); balanced approach with growth investments, dividend, and optionality from strong balance sheet .
  • Margin mix/productivity: CFO sized Q2 margin drivers (~80% productivity, ~20% price/mix); sustainable operational excellence cited .
  • Automation rollout: US systems exceeding expectations; Europe and Australia installations underway with benefits expected into 2026 .
  • Tariffs: Largely neutral impact in Q2 due to pricing offsets; exposure concentrated in U.S. imports of Nora (Germany) and LVT (South Korea) .

Estimates Context

  • Q2 2025 vs consensus: EPS $0.60 vs $0.47* (beat by $0.13); revenue $375.5M vs $360.6M* (beat by $14.9M). Three estimates contributed to both EPS and revenue .
  • Prior quarters: Q1 2025 EPS $0.25 vs $0.21*; revenue $297.4M vs $297.1M*; Q4 2024 adjusted EPS $0.34 vs $0.29*; revenue $335.0M vs $340.5M* .
  • Implication: Estimates likely need to move higher for FY25 given raised topline, higher margin guide, and strong AMS momentum .

Notes: Values with asterisks retrieved from S&P Global.*

Key Takeaways for Investors

  • Beat-and-raise quarter with material margin expansion; productivity improvements are the primary driver, enhancing durability of earnings power .
  • Americas execution remains the growth engine (c-n net sales +11.5%); Nora rubber’s near-40% growth underscores mix quality and cross-selling via “One Interface” .
  • EAAA is a watch item: orders improved (+4%), but profitability compressed; execution on automation and pricing/mix will be key to recovery .
  • FY25 guidance raised on sales and margin; lower tax rate and continued capex support operational upgrades; expect estimate revisions upward .
  • Balance sheet strength (net leverage 0.9x, rising cash) enables continued investment and shareholder returns (buybacks + dividend increase to $0.02) .
  • Tariff risk is quantified/managed (~15% COGS exposure; neutral Q2 impact); ongoing pricing and productivity actions mitigate volatility .
  • Near-term: Momentum into Q3 supported by strong backlog and education seasonality; medium-term: automation scaling to EU/AU and expanded addressable market at mid-price points should sustain share gains .