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II

INTERFACE INC (TILE)·Q3 2025 Earnings Summary

Executive Summary

  • Beat-and-raise quarter: Q3 net sales $364.5M and adjusted EPS $0.61 exceeded S&P Global consensus of $358.2M and $0.48; GAAP EPS $0.78 benefited from a $10.4M non‑cash German deferred tax credit . EPS and revenue estimates marked with *; Values retrieved from S&P Global.
  • Gross margin expanded materially YoY: GAAP GM 39.4% (+233 bps) and adjusted GM 39.5% (+208 bps) on favorable mix, pricing, and manufacturing efficiencies; tariffs diluted Q3 adjusted GM by ~30 bps and are expected to dilute Q4 by ~50 bps .
  • Full‑year FY25 guidance raised: net sales to $1.375–$1.390B (low end up) and adjusted GM to 38.5% (from 37.7%); other guidance items maintained .
  • Execution tailwinds: healthcare billings up 29%, nora rubber +20% in Q3, backlog up 17% YTD; automation/robotics productivity driving margins and now being rolled out to Europe/Australia .
  • Capital strength: Q3 operating cash flow $76.7M; net debt cut to $120.4M; net leverage 0.6x; dividend increased to $0.02/share (Aug) and maintained in Nov .

What Went Well and What Went Wrong

What Went Well

  • Healthcare strength and diversified demand: “Global billings grew across all regions… highlighted by a 29% increase in Healthcare” and corporate office +5% .
  • Margin execution: Adjusted GM up 208 bps YoY to 39.5% from pricing, mix, and manufacturing efficiencies; adjusted operating income +24.5% YoY to $54.1M .
  • Productivity and automation: “Investments in carpet tile automation and robotics are delivering meaningful productivity gains” with extensions to Europe/Australia; nora rubber +20% in Q3 .

What Went Wrong

  • Tariff headwinds: Tariffs diluted Q3 adjusted GM by ~30 bps and likely ~50 bps in Q4; exposure primarily U.S. imports of nora (Germany) and LVT (South Korea) .
  • EAAA profitability mixed: EAAA adjusted operating income improved YoY in Q3 but remains below prior-year for the nine months; macro in Europe remains challenging per management .
  • Unusual tax rate: GAAP effective tax rate fell to ~4.8% due to German tax law change; management clarified full‑year adjusted ETR remains 26% .

Financial Results

Quarterly trend vs prior quarter and YoY

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$297.4 $375.5 $364.5
GAAP Diluted EPS ($)$0.22 $0.55 $0.78
Adjusted Diluted EPS ($)$0.25 $0.60 $0.61
Gross Margin (%)37.3% 39.4% 39.4%
Adjusted Gross Margin (%)37.7% 39.8% 39.5%
Operating Income ($M)$23.2 $52.0 $53.4
Adjusted Operating Income ($M)$25.5 $55.9 $54.1
Adjusted EBITDA ($M)$37.0 $64.8 $66.2
SG&A ($M)$87.7 $95.9 $90.3
Adjusted SG&A ($M)$86.8 $93.4 $90.0
Operating Cash Flow ($M)$11.7 $30.1 $76.7

Q3 2025 performance vs prior year and estimates

MetricQ3 2024Q3 2025Consensus (Q3 2025)
Revenue ($USD Millions)$344.3 $364.5 $358.2*
Adjusted Diluted EPS ($)$0.48 $0.61 $0.48*
GAAP Diluted EPS ($)$0.48 $0.78 n/a
Gross Margin (%)37.1% 39.4% n/a
Adjusted Gross Margin (%)37.5% 39.5% n/a
Operating Income ($M)$42.2 $53.4 n/a
Adjusted Operating Income ($M)$43.5 $54.1 n/a
Adjusted EBITDA ($M)$53.7 $66.2 n/a
Estimates marked with *; Values retrieved from S&P Global.

Segment breakdown

Segment MetricQ1 2025Q2 2025Q3 2025
AMS Net Sales ($M)$179.9 $239.4 $218.6
AMS Operating Income ($M)$19.1 $48.8 $40.4
EAAA Net Sales ($M)$117.5 $136.1 $145.9
EAAA Operating Income ($M)$4.1 $3.2 $12.9

KPIs and balance sheet

KPIQ1 2025Q2 2025Q3 2025
Currency‑neutral orders YoY (%)+3.3% +2.9% +2.4%
Backlog change+12% YoY +24% YTD +17% YTD
Cash ($M)$97.8 $121.7 $187.4
Net Debt ($M)$205.1 $182.7 $120.4
Net Leverage (Net Debt / LTM Adj. EBITDA)1.1x 0.9x 0.6x
Liquidity ($M)$397.2 $419.9 $482.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net sales ($B)FY 2025$1.370–$1.390 $1.375–$1.390 Raised (low end)
Adjusted gross margin (%)FY 202537.7% 38.5% Raised
Adjusted SG&A ($M)FY 2025$362 $362 Maintained
Adjusted interest & other ($M)FY 2025$25 $25 Maintained
Adjusted effective tax rate (%)FY 202526.0% 26.0% Maintained
Capital expenditures ($M)FY 2025$45 $45 Maintained
Share count (FD avg, M)FY 202559.1 59.1 Maintained
Dividend per share ($)Ongoing$0.01 (prior) $0.02 (Aug/Nov) Raised

Quarter guidance vs actual (from Q2 guide):

MetricQ3 2025 Guidance (from Q2)Q3 2025 ActualOutcome
Net sales ($M)$350–$360 $364.5 Beat
Adjusted gross margin (%)38.0% 39.5% Beat
Adjusted SG&A ($M)$92 $90.0 Beat
Adjusted interest & other ($M)$6 n/a (quarter not disclosed)n/a
Adjusted effective tax rate (%)27.0% GAAP ~4.8% (German tax law) Unusual GAAP; FY adj unchanged

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Automation/Robotics productivityUS carpet tile automation fully operational; applying learnings to Europe/Australia Extending robotics to Europe/Australia; ~half of GM expansion from productivity, rest price/mix Positive, expanding
Tariffs & supply chainExposure limited (<~15% COGS); mitigation via price/productivity; in‑year impact ~$8–$10M; annualized $20–$25M ~30 bps dilution to Q3 adjusted GM; ~50 bps expected in Q4; offset continues Manageable headwind
Healthcare & product performanceQ2: healthcare billings +28%; nora rubber +~40% in Americas Q3: healthcare +29%; nora rubber +20%; new rubber innovation slated for early 2026 Strong growth driver
Regional trendsAmericas strong (Q1 +6% FXN, Q2 +11% FXN); EAAA softer but orders +4% Q2 Americas steady; EAAA momentum; Europe macro challenging per mgmt Mixed; improving
Regulatory/legal (tax)n/aGerman corporate tax rate path (2028–2032) drove $10.4M deferred tax credit in Q3 One‑time GAAP boost
Portfolio expansionNew collections, accessible price points (Open Air/LVT); Stellar Horizons launch in Aug Continued launches and price‑point expansion to broaden reach Ongoing product pipeline

Management Commentary

  • CEO: “Third quarter results exceeded our expectations… Global billings grew across all regions… highlighted by a 29% increase in Healthcare and a 5% increase in Corporate Office.”
  • CEO: “Investments in carpet tile automation and robotics are delivering meaningful productivity gains… now extending these robotic systems to our facilities in Europe and Australia.”
  • CFO: “Gross profit margin expanded 233 basis points… favorable mix and manufacturing efficiencies… We generated $76.7 million of operating cash flow… net leverage 0.6x.”
  • CFO: “Tariffs diluted our adjusted gross profit percentage by approximately 30 basis points… anticipate ~50 bps dilution to fourth quarter’s adjusted gross profit percentage.”
  • CFO: “German tax legislation… resulted in a non‑cash pickup… $10.4M… the 26% adjusted effective income tax rate excludes that pickup.”

Q&A Highlights

  • Sales outperformance driver: Healthcare surprised to upside; One Interface selling teams cited as key execution lever .
  • Nora investments: Capacity, productivity, and innovation investments planned; early‑2026 rubber innovation targeted .
  • Margin drivers: Q3 adjusted GM expansion split ~50/50 between manufacturing efficiencies and price/mix; Q2 was ~80% productivity .
  • Tax rate anomaly: GAAP ETR ~4.8% due to German law; adjusted ETR for FY maintained at 26% .
  • Capital allocation: Opportunistic buybacks alongside investment priority; CapEx may be up ~$10M in 2026 focused on nora/productivity .

Estimates Context

  • Q3 2025 results vs S&P Global consensus: Adjusted EPS $0.61 vs $0.48*; revenue $364.5M vs $358.2M*; both beats. EPS estimate count: 3; revenue estimate count: 3. Estimates marked with *; Values retrieved from S&P Global.

Key Takeaways for Investors

  • Beat-and-raise with quality: Adjusted GM and AOI beat guidance; full‑year GM target raised to 38.5% despite tariff dilution—underscoring operational execution .
  • Mix and automation are compounding: Healthcare and nora growth plus robotics productivity delivered half of Q3 margin expansion; program is scaling to Europe/Australia .
  • Cash generation and deleveraging: $76.7M operating cash flow in Q3, net leverage 0.6x, dividend increased/maintained—balance sheet optionality to support growth and returns .
  • Tariffs manageable: Dollar-for-dollar offset plan via pricing and productivity; expect ~50 bps adjusted GM dilution in Q4—watch quarterly GM prints versus target .
  • One Interface selling model gaining share: Broad-based demand with strong Americas execution; backlog up 17% YTD offers revenue visibility into Q4 .
  • Non-GAAP clarity: GAAP EPS boosted by a one‑time German tax credit; evaluate adjusted EPS ($0.61) for core performance and sustainability .
  • Near-term focus: Monitor Q4 GM, tariff impact, healthcare/nora momentum, and order/backlog conversion; medium-term, automation ROI and price‑point expansion broaden TAM .