Interface, Inc. (Nasdaq: TILE), a worldwide commercial flooring company and global leader in sustainability, today announced results for the second quarter ended July 4, 2021.
Quarterly Highlights:
- Q2 2021 orders increased 38% compared to Q2 2020.
- Net sales totaled $295 million, up 14% compared to Q2 2020.
- Q2 2021 GAAP earnings per share of $0.26; Q2 2021 adjusted earnings per share of $0.30.
- Strong liquidity of $401 million at quarter end comprised of approximately $102 million in cash and $298 million of availability under the revolving credit facility.
- Year to date cash generated by operating activities of $35 million.
“We delivered strong second quarter results with sales growth of 14%, driven by recovering economic activity throughout North America and parts of Europe. Orders came roaring back in the second quarter, increasing 38% year over year and 21% sequentially, with momentum accelerating across all market segments as the quarter progressed,” said Dan Hendrix, Chairman and CEO of Interface.
“Demand for our carbon negative backings continues to build in the marketplace, and we increasingly see these products written into customer specifications. We are encouraged by the positive momentum in this early stage of the rollout which bodes well for the second half of 2021.”
“Industry-wide supply chain volatility negatively impacted our bottom line in the second quarter, but was partially offset by our extensive use of recycled raw material inputs. Continued cost control measures, along with the steady acceleration of new orders, gives us confidence to project a strong second half of 2021,” added Bruce Hausmann, CFO of Interface.
Second Quarter 2021 Financial Summary
Sales: Second quarter net sales were $295 million, up 14% versus $260 million in the prior year period. The strong order and sales activity was a result of pent-up demand and a strong commercial recovery.
Gross profit margin was 37.0% in the second quarter, a decrease of 50 basis points from the prior year period. Adjusted gross profit margin was 37.5%, also a decrease of 50 basis points from adjusted gross margin for the prior year period.
Second quarter SG&A expenses were $79.8 million, or 27.1% of net sales, compared to $80.1 million, or 30.9% of net sales in second quarter last year. Adjusted SG&A expenses were $79.4 million, or 26.9% of net sales in second quarter 2021, compared to $71.1 million, or 27.4% of net sales, in the second quarter last year.
Operating Income: Second quarter operating income was $29.2 million, compared to operating income of $17.4 million in the prior year period. Second quarter 2021 adjusted operating income (“AOI”) was $31.1 million versus AOI of $27.5 million in second quarter of 2020.
Net Income and EPS: On a GAAP basis, the Company recorded net income of $16 million in the second quarter of 2021, or $0.26 per diluted share, compared to second quarter 2020 GAAP net income of $5 million, or $0.08 per diluted share. Second quarter 2021 adjusted net income was $18 million, or $0.30 per diluted share, versus second quarter 2020 adjusted net income of $16 million, or $0.27 per diluted share.
Adjusted EBITDA: In the second quarter of 2021, adjusted EBITDA was $43 million. This compares with adjusted EBITDA of $38 million in the second quarter of 2020.
First Six Months 2021 Financial Summary
Sales: Net sales for the first six months of 2021 were $548 million, flat versus $548 million in the prior year period.
Gross profit margin was 37.4% for the first six months of 2021, a decrease of 120 basis points from the prior year period. Adjusted gross profit margin was 37.9%, a decrease of 120 basis points from adjusted gross margin for the prior year period due to higher labor and raw material costs.
SG&A expenses for the first six months of 2021 were $159.1 million, or 29.0% of net sales, compared to $167.7 million, or 30.6% of net sales in the same period last year. Adjusted SG&A expenses were $157 million, or 28.6% of sales, for the first half of 2021 compared to $157 million, or 28.7% of net sales, in the same period last year.
Operating Income: Operating income for the first six months of 2021 was $46.1 million, compared to operating loss of $76.1 million in the prior year period. AOI was $51.0 million for the first six months of 2021 versus AOI of $56.8 million in the same period last year.
Net Income and EPS: On a GAAP basis, the Company recorded net income of $22 million in the first half of 2021, or $0.38 per diluted share, compared to first half 2020 GAAP net loss of $97 million, or a loss of $1.67 per diluted share. Six-month 2021 adjusted net income was $28 million, or $0.47 per diluted share, versus first half 2020 adjusted net income of $35 million, or $0.59 per diluted share.
Adjusted EBITDA: In the first six months of 2021, adjusted EBITDA was $75 million. This compares with adjusted EBITDA of $72 million in 2020 in the prior year period.
Cash and Debt: The Company had cash on hand of $102 million and total debt of $557 million at July 4, 2021, compared to $103 million of cash and $577 million of total debt at the end of fiscal year 2020.
Second Quarter Segment Results
At the beginning of 2021, the Company expanded its financial reporting into two operating and reportable segments: 1) Americas (“AMS”) and 2) Europe, Africa, Asia and Australia (collectively “EAAA”). The realignment solely impacts the Company’s segment reporting and there is no change to previously reported consolidated results. Segment AOI includes allocations of corporate SG&A expenses.
AMS Results:
- Q2 2021 net sales of $157 million, up 3.6% versus $151 million in the prior year period primarily due to the recovering commercial market.
- Q2 2021 orders were up 35% compared to the prior year period.
- Q2 2021 operating income was $21.1 million compared to $17.2 million in the prior year period.
- Q2 2021 AOI was $21.1 million versus AOI of $23.9 million in the prior year period.
EAAA Results:
- Q2 2021 net sales of $138 million, up 27.6% versus $108 million in the prior year period primarily due to the recovering commercial market.
- Currency fluctuations had an approximately $12 million positive impact on Q2 2021 sales as compared to Q2 2020 sales due to strengthening of the Euro, British pound sterling, Chinese Renminbi and Australian dollar against the U.S. dollar.
- Q2 2021 orders were up 43% compared to the prior year period.
- Q2 2021 operating income of $8.1 million compared to $0.2 million in the prior year period.
- Q2 2021 AOI was $10.0 million versus AOI of $3.5 million in the prior year period.
First Six Months Segment Results
AMS Results:
- Net sales for the first six months of 2021 were $284 million, down 8.3% versus $309 million in the prior year period primarily due to the impacts of COVID-19.
- Operating income for the first six months of 2021 was $32.7 million compared to $37.3 million in the prior year period.
- AOI for the first six months of 2021 was $33.0 million versus AOI of $47.5 million in the prior year period.
EAAA Results:
- Net sales for the first six months of 2021 were $264 million, up 10.9% versus $238 million in the prior year period primarily due to the recovering commercial market and favorable currency fluctuations.
- Currency fluctuations had an approximately $24 million positive impact on net sales in the first six months of 2021 as compared to the prior year period, primarily due to the strengthening of the Euro, British pound sterling, Chinese Renminbi and Australian dollar against the U.S. dollar.
- Operating income for the first six months of 2021 was $13.3 million compared to an operating loss of $113.4 million in the prior year period. The six-month period of 2020 includes a goodwill and intangible asset impairment charge of $118.6 million.
- AOI for the first six months of 2021 was $18.0 million versus AOI of $9.3 million in the prior year period.
Outlook
There continues to be disruption in the global economy due to COVID-19, and a significant level of uncertainty created by the global pandemic. As the Company continues to monitor this situation, it is anticipating:
- Net sales in the third quarter of 2021 of approximately $310 million to $320 million.
- Adjusted gross profit percentage in the second half of 2021 of approximately 36% to 37%.
- Adjusted SG&A expense for the full year of 2021 of approximately $325 million, with the remaining portion spread fairly evenly across the third and fourth quarters of 2021.
- Interest & Other expense for the full year of 2021 of approximately $31 million.
- The adjusted effective tax rate for the full year of 2021 is anticipated to be approximately 27%.
- Capital expenditures of approximately $30 million for full year of 2021.
Fully diluted share count at the end of the second quarter of 2021 was 59.1 million shares.
The full text of Interface’s 2Q21 earnings release, including all tables, and an archived replay of the company’s Aug. 6 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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