Interface Reports Second Quarter 2022 Results
Interface, Inc. (Nasdaq: TILE), a worldwide commercial flooring company and global leader in sustainability, today announced results for the second quarter ended July 3, 2022.
Quarterly Highlights:
- Net sales totaled $347 million, up 17.6% year-over-year. Excluding negative foreign currency impacts, net sales were up 22.8% year-over-year.
- GAAP SG&A expenses at 23.5% of net sales, down from 27.1% in Q2 2021; adjusted SG&A expenses at 23.2% of net sales, down from 26.9% in Q2 2021.
- GAAP operating income up 18.1% year-over-year; adjusted operating income up 24.0% year-over-year.
- GAAP earnings per share of $0.28, up 7.7% year-over-year; adjusted earnings per share of $0.36, up 20.0% year-over-year.
- Orders increased 10% year-over-year on a currency-neutral basis.
“We delivered strong second quarter results, with revenue up 18%, reflecting growth across the business. Continued strong demand for our carbon neutral and carbon negative products drove a 10% year-over-year increase in backlog, highlighting our established leadership in design and sustainability,” said Laurel Hurd, CEO of Interface. “We continue to be encouraged by the activity we are seeing in our business globally, despite ongoing inflationary pressures and FX-related headwinds. We remain focused on our growth and diversification strategy, which we believe positions Interface for continued success over the long term.”
“Our balance sheet remains strong and supports our balanced capital allocation strategy. We repurchased $5.6 million of shares in the quarter while continuing to invest in the business and reducing leverage. We remain focused on maintaining a strong financial foundation and returning value to our shareholders as we enter the second half of the year, which, from a seasonal perspective, is the period when the business customarily generates the most cash,” added Bruce Hausmann, CFO of Interface.
Second Quarter 2022 Financial Summary
Sales: Second quarter net sales were $346.6 million, up 17.6% versus $294.8 million in the prior year period on broad-based growth.
Gross profit margin was 33.7% in the second quarter, a decrease of 330 basis points from the prior year period. Adjusted gross profit margin was 34.3%, a decrease of 315 basis points from adjusted gross margin for the prior year period due primarily to higher freight and raw material costs, partially offset by higher selling prices.
Second quarter SG&A expenses were $81.4 million, or 23.5% of net sales, compared to $79.8 million, or 27.1% of net sales in the second quarter last year. Adjusted SG&A expenses were $80.4 million, or 23.2% of net sales in the second quarter of 2022, compared to $79.4 million, or 26.9% of net sales, in the second quarter last year.
Operating Income: Second quarter operating income was $34.5 million, compared to operating income of $29.2 million in the prior year period. Second quarter 2022 adjusted operating income (“AOI”) was $38.5 million versus AOI of $31.1 million in second quarter of 2021.
Net Income and EPS: On a GAAP basis, the Company recorded net income of $16.8 million in the second quarter of 2022, or $0.28 per diluted share, compared to second quarter 2021 GAAP net income of $15.5 million, or $0.26 per diluted share. Second quarter 2022 adjusted net income was $21.1 million, or $0.36 per diluted share, versus second quarter 2021 adjusted net income of $17.6 million, or $0.30 per diluted share.
Adjusted EBITDA: In the second quarter of 2022, adjusted EBITDA was $49.0 million. This compares with adjusted EBITDA of $43.2 million in the second quarter of 2021.
First Six Months of 2022 Summary
Sales: Net sales for the first six months of 2022 were $634.6 million, up 15.8% versus $548.0 million in the prior year period.
Gross profit margin was 35.2% for the first six months of 2022, a decrease of 219 basis points from the prior year period. Adjusted gross profit margin was 36.0%, a decrease of 198 basis points from adjusted gross margin for the prior year period due to higher labor and raw material costs, partially offset by higher selling prices.
SG&A expenses for the first six months of 2022 were $159.9 million, or 25.2% of net sales, compared to $159.1 million, or 29.0% of net sales in the same period last year. Adjusted SG&A expenses were $159.0 million, or 25.1% of sales, for the first half of 2022 compared to $156.9 million, or 28.6% of net sales, in the same period last year.
Operating Income: Operating income for the first six months of 2022 was $61.9 million, compared to operating income of $46.1 million in the prior year period. AOI was $69.2 million for the first six months of 2022 versus AOI of $51.0 million in the same period last year.
Net Income and EPS: On a GAAP basis, the Company recorded net income of $30.1 million in the first half of 2022, or $0.51 per diluted share, compared to first half 2021 net income of $22.4 million, or $0.38 per diluted share. Six-month 2022 adjusted net income was $37.9 million, or $0.64 per diluted share, versus first half 2021 adjusted net income of $27.6 million, or $0.47 per diluted share.
Adjusted EBITDA: In the first six months of 2022, adjusted EBITDA was $91.9 million. This compares with adjusted EBITDA of $74.7 million in the prior year period.
Cash and Debt: The Company had cash on hand of $91.7 million and total debt of $545.4 million at the end of the second quarter 2022, compared to $97.3 million of cash and $518.1 million of total debt at the end of fiscal year 2021.
Second Quarter Segment Results
AMS Results:
- Q2 2022 net sales of $206.8 million, up 32.0% versus $156.7 million in the prior year period primarily due to the continued recovery of the commercial market.
- Q2 2022 orders were up 16.8% compared to the prior year period.
- Q2 2022 operating income was $28.4 million compared to $21.1 million in the prior year period.
- Q2 2022 AOI was $28.4 million versus AOI of $21.1 million in the prior year period.
EAAA Results:
- Q2 2022 net sales of $139.8 million, up 1.2% versus $138.1 million in the prior year period.
- Currency fluctuations negatively impacted Q2 2022 net sales by approximately $15.0 million as compared to Q2 2021 sales due to weakening of the Euro, Australian dollar and British pound sterling against the U.S. dollar. Excluding negative foreign currency impacts, EAAA’s Q2 2022 net sales were up 12.1% year-over-year.
- Q2 2022 orders were down 8.7% compared to the prior year period but up 1.7% on a currency neutral basis. Order growth was negatively impacted by the Russia/Ukraine war and COVID-19 lockdowns in China.
- Q2 2022 operating income of $6.1 million compared to $8.1 million in the prior year period.
- Q2 2022 AOI was $10.1 million versus AOI of $10.0 million in the prior year period.
First Six Months Segment Results
AMS Results:
- Net sales for the first six months of 2022 were $363.3 million, up 28.1% versus $283.6 million in the prior year period.
- Operating income for the first six months of 2022 was $49.7 million compared to $32.7 million in the prior year period.
- AOI for the first six months of 2022 was $49.5 million versus AOI of $33.0 million in the prior year period.
EAAA Results:
- Net sales for the first six months of 2022 were $271.3 million, up 2.6% versus $264.4 million in the prior year period.
- Currency fluctuations had an approximately $22.9 million negative impact on net sales in the first six months of 2022 compared to the prior year period, primarily due to the weakening of the Euro, British pound sterling and Australian dollar against the U.S. dollar. Excluding negative foreign currency impacts, for the first six months of 2022, EAAA’s net sales were up 11.3% year-over-year.
- Operating income for the first six months of 2022 was $12.3 million compared to $13.3 million in the prior year period.
- AOI for the first six months of 2022 was $19.6 million versus AOI of $18.0 million in the prior year period.
Outlook
There continues to be significant macro-economic and geopolitical uncertainty in the global economy, aggravated by the Russia-Ukraine war. Persistent inflation and rising interest rates present challenges to the business, while FX-related headwinds negatively impact the foreign currency denominated net sales we generate outside the U.S. when they are translated into U.S. dollars.
At the same time, these challenges are being partially offset by strong execution by our sales and manufacturing teams, continued demand in the commercial market, and a strong backlog as the Company moves into the second half of the year.
As the Company continues to monitor this situation, it is anticipating:
For the third quarter of 2022:
- Net sales of $325 million to $345 million.
- Adjusted gross profit margin of approximately 33.5%.
- Adjusted SG&A expenses of approximately $83 million.
- Adjusted Interest & Other expenses of approximately $9 million.
- An adjusted effective tax rate of approximately 28%.
- Fully diluted weighted average share count at the end of the third quarter of approximately 59.1 million shares.
For the full fiscal year 2022:
- Net sales of $1.3 billion to $1.325 billion.
- Adjusted gross profit margin of 34.5% to 35.0%.
- Adjusted SG&A expenses of approximately $326 million.
- Adjusted Interest & Other expenses of approximately $32 million.
- An adjusted effective tax rate of approximately 28%.
- Fully diluted weighted average share count at the end of the fiscal year of approximately 59.2 million shares.
- Capital expenditures of approximately $30 million.
These estimates are subject to the risks and uncertainties referenced in our Safe Harbor statement, including the risk that the currently reduced Russian exports of natural gas to Europe, or future further reductions, may materially impede our European manufacturing operations.
Fully diluted share count at the end of the second quarter of 2022 was 59.1 million shares. Guidance regarding fully diluted weighted average share count does not include the impact of any potential future share repurchases the Company may choose to execute.
The full text of Interface’s 2Q22 earnings release, including tables, and an archived replay of the company’s Aug. 5 conference call webcast may be accessed at https://investors.interface.com.
About Interface
Interface, Inc. is a global flooring company specializing in carbon neutral carpet tile and resilient flooring, including luxury vinyl tile (LVT) and nora® rubber flooring. We help our customers create high-performance interior spaces that support well-being, productivity, and creativity, as well as the sustainability of the planet. Our mission, Climate Take Back™, invites you to join us as we commit to operating in a way that is restorative to the planet and creates a climate fit for life.
Learn more about Interface at interface.com and blog.interface.com, our nora brand at nora.com, our FLOR® brand at FLOR.com, and our Carbon Neutral Floors™ program at interface.com/carbonneutral. Learn more about our carbon negative products at interface.com/carbonnegative.
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