tile-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

Form 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2024

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33994

INTERFACE INC

(Exact name of registrant as specified in its charter)


Georgia						58-1451243
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


1280 West Peachtree Street	Atlanta	Georgia	30309
(Address of principal executive offices)			(zip code)

Registrant’s telephone number, including area code: (770) 437-6800

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.10 Par Value Per Share	TILE	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

Number of shares outstanding of each of the registrant’s classes of common stock, as of August 1, 2024:


Class			Number of Shares
Common Stock, $0.10 par value per share			58,304,101

TABLE OF CONTENTS


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	3

		Consolidated Condensed Balance Sheets – June 30, 2024 and December 31, 2023	3

		Consolidated Condensed Statements of Operations – Three Months and Six Months Ended June 30, 2024 and July 2, 2023	4

		Consolidated Statements of Comprehensive Income – Three Months and Six Months Ended June 30, 2024 and July 2, 2023	5

		Consolidated Condensed Statements of Cash Flows – Six Months Ended June 30, 2024 and July 2, 2023	6

		Notes to Consolidated Condensed Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

	Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	38

	Item 1A.	Risk Factors	38

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

	Item 3.	Defaults Upon Senior Securities	40

	Item 4.	Mine Safety Disclosures	40

	Item 5.	Other Information	40

	Item 6.	Exhibits	41

SIGNATURE			42

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except par values)


	JUNE 30, 2024		DECEMBER 31, 2023
	(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents	$	94,187	$	110,498
Accounts receivable, net	179,604		163,386
Inventories, net	281,074		279,079
Prepaid expenses and other current assets	36,953		30,895
Total current assets	591,818		583,858
Property, plant and equipment, net	281,719		291,140
Operating lease right-of-use assets	80,696		87,519
Deferred tax asset	21,577		21,721
Goodwill and intangible assets, net	154,605		161,703
Other assets	85,702		84,154

Total assets	$	1,216,117	$	1,230,095

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	78,524	$	62,912
Accrued expenses	114,961		130,890
Current portion of operating lease liabilities	12,692		12,347
Current portion of long-term debt	8,526		8,572
Total current liabilities	214,703		214,721
Long-term debt	379,027		408,641
Operating lease liabilities	71,531		78,269
Deferred income taxes	31,639		33,832
Other long-term liabilities	68,052		68,685

Total liabilities	764,952		804,148

Commitments and contingencies (Note 15)

Shareholders’ equity
Preferred stock, par value $1.00 per share; 5,000 shares authorized; none issued or outstanding at June 30, 2024 and December 31, 2023	—		—
Common stock, par value $0.10 per share; 120,000 shares authorized; 58,303 and 58,112 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	5,830		5,811
Additional paid-in capital	254,666		252,909
Retained earnings	356,397		320,833
Accumulated other comprehensive loss – foreign currency translation	(132,704)		(119,590)
Accumulated other comprehensive loss – pension liability	(33,024)		(34,016)

Total shareholders’ equity	451,165		425,947

Total liabilities and shareholders’ equity	$	1,216,117	$	1,230,095

See accompanying notes to consolidated condensed financial statements.

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INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JUNE 30, 2024		JULY 2, 2023		JUNE 30, 2024		JULY 2, 2023
Net sales	$	346,635	$	329,582	$	636,378	$	625,374
Cost of sales	224,022		217,796		403,360		417,715
Gross profit	122,613		111,786		233,018		207,659

Selling, general and administrative expenses	84,462		85,522		170,421		171,776
Restructuring, asset impairment, and other gains, net	—		(2,644)		—		(2,502)
Operating income	38,151		28,908		62,597		38,385

Interest expense	6,173		8,318		12,596		16,823
Other expense (income), net	832		(528)		(144)		972

Income before income tax expense	31,146		21,118		50,145		20,590
Income tax expense	8,588		5,321		13,408		5,507

Net income	$	22,558	$	15,797	$	36,737	$	15,083

Earnings per share – basic	$	0.39	$	0.27	$	0.63	$	0.26
Earnings per share – diluted	$	0.38	$	0.27	$	0.63	$	0.26

Common shares outstanding – basic	58,281		58,074		58,260		58,077
Common shares outstanding – diluted	58,692		58,170		58,703		58,180

See accompanying notes to consolidated condensed financial statements.

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INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JUNE 30, 2024		JULY 2, 2023		JUNE 30, 2024		JULY 2, 2023
Net income	$	22,558	$	15,797	$	36,737	$	15,083
Other comprehensive (loss) income, after tax:
Foreign currency translation adjustment	(2,022)		1,361		(13,114)		6,291
Reclassification from accumulated other comprehensive loss – discontinued cash flow hedge	—		300		—		599
Pension liability adjustment	534		(800)		992		(1,079)
Other comprehensive (loss) income	(1,488)		861		(12,122)		5,811

Comprehensive income	$	21,070	$	16,658	$	24,615	$	20,894

See accompanying notes to consolidated condensed financial statements.

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INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	SIX MONTHS ENDED
	JUNE 30, 2024		JULY 2, 2023
OPERATING ACTIVITIES:
Net income	$	36,737	$	15,083
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	19,344		20,146
Share-based compensation expense	6,531		5,125
Gain on disposal of property, plant and equipment, net	—		(2,541)
Deferred income taxes and other	(4,805)		(618)
Amortization of acquired intangible assets	2,584		2,584
Working capital changes:
Accounts receivable	(18,907)		17,770
Inventories	(5,661)		19,943
Prepaid expenses and other current assets	(6,332)		(3,611)
Accounts payable and accrued expenses	4,667		(25,957)

Cash provided by operating activities	34,158		47,924

INVESTING ACTIVITIES:
Capital expenditures	(13,607)		(11,331)
Proceeds from sale of property, plant and equipment	1,040		6,593
Insurance proceeds from property casualty loss	1,000		—

Cash used in investing activities	(11,567)		(4,738)

FINANCING ACTIVITIES:
Repayments of long-term debt	(46,930)		(112,107)
Borrowing of long-term debt	17,334		67,000
Tax withholding payments for share-based compensation	(4,754)		(1,487)
Dividends paid	(1,173)		(1,161)
Finance lease payments	(1,437)		(1,308)

Cash used in financing activities	(36,960)		(49,063)

Net cash used in operating, investing and financing activities	(14,369)		(5,877)
Effect of exchange rate changes on cash	(1,942)		1,248

CASH AND CASH EQUIVALENTS:
Net decrease	(16,311)		(4,629)
Balance, beginning of period	110,498		97,564

Balance, end of period	$	94,187	$	92,935

See accompanying notes to consolidated condensed financial statements.

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INTERFACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

References in this Quarterly Report on Form 10-Q to “Interface,” “the Company,” “we,” “our,” “ours” and “us” refer to Interface, Inc. and its subsidiaries or any of them, unless the context requires otherwise.

As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Commission.

The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the financial information included in this report contains all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature unless otherwise disclosed. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The December 31, 2023, consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”).

The six-month periods ended June 30, 2024 and July 2, 2023 both include 26 weeks. The three-month periods ended June 30, 2024 and July 2, 2023 both include 13 weeks.

Risks and Uncertainties

Global economic challenges, including the impacts of the Russia-Ukraine and Israel-Hamas wars, inflation, supply chain disruptions, and the slow macro environment in China could cause economic uncertainty and volatility. In connection with the Cyber Event discussed below, security breaches may expose us to fines and other liabilities to the extent sensitive data stored in our IT systems, including data related to customers, suppliers or employees, are misappropriated. The Company considered these impacts and subsequent general uncertainties and volatility in the global economy on the assumptions and estimates used herein. These uncertainties could result in a future material adverse effect to the amounts reported within the Company’s consolidated condensed financial statements if actual results differ from these estimates.

Cybersecurity Event

On November 20, 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems (the “Cyber Event”). In response to this Cyber Event, we notified law enforcement and took steps to supplement existing security monitoring, including scanning and protective measures. The investigation of the Cyber Event by our forensic experts was completed during fiscal year 2023.

Recently Issued Accounting Pronouncements – Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU requires public entities on an annual basis to disclose a rate reconciliation with explicit categories, as outlined in the ASU, and requires additional disclosures for reconciling items that meet certain quantitative thresholds. Other disclosures include disaggregation of income taxes paid, pre-tax income, and income tax expense. The new guidance is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this ASU to its income tax disclosures.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU requires additional disclosures in annual and interim periods for significant segment expenses included in the measure of segment profit provided to the chief operating decision maker (“CODM”). Disclosure of other segment items by reportable segment as well as a description of its composition is also required. The new guidance is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this ASU to its segment disclosures.

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NOTE 2 – REVENUE RECOGNITION

For the three and six months ended June 30, 2024 and July 2, 2023, revenue from sales of modular carpet, resilient flooring, rubber flooring, and other flooring-related material was approximately 98% of total revenue. The remaining 2% of revenue was generated from the installation of carpet and other flooring-related material for both three-month and six-month periods ended June 30, 2024 and July 2, 2023.

Disaggregation of Revenue

For the three and six months ended June 30, 2024 and July 2, 2023, revenue from the Company’s customers is broken down by geography as follows:


	Three Months Ended				Six Months Ended
Geography	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023
Americas	62.0	%	61.1	%	60.5	%	59.2	%
Europe	27.6		28.0		29.4		29.9
Asia-Pacific	10.4		10.9		10.1		10.9

Revenue from the Company’s customers in the Americas corresponds to the AMS reportable segment, and the EAAA reportable segment includes revenue from the Europe and Asia-Pacific geographies. See Note 10 entitled “Segment Information” for additional information.

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NOTE 3 – INVENTORIES

Inventories are summarized as follows:


	June 30, 2024		December 31, 2023
	(in thousands)
Finished goods	$	208,956	$	201,821
Work-in-process	21,297		20,892
Raw materials	50,821		56,366
Inventories, net	$	281,074	$	279,079

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NOTE 4 – EARNINGS PER SHARE

The Company computes basic earnings per share (“EPS”) by dividing net income by the weighted average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings.

The Company includes all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding for basic EPS as these awards are considered participating securities. Any unvested stock awards considered non-participating securities are included in diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following table shows the computation of basic and diluted EPS:


	Three Months Ended				Six Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023
	(in thousands, except per share data)
Numerator:
Net income	$	22,558	$	15,797	$	36,737	$	15,083
Less: distributed and undistributed earnings available to participating securities	(109)		(189)		(282)		(207)
Distributed and undistributed earnings available to common shareholders	$	22,449	$	15,608	$	36,455	$	14,876

Denominator:
Weighted average shares outstanding	58,001		57,381		57,812		57,279
Participating securities	280		693		448		798
Shares for basic EPS	58,281		58,074		58,260		58,077
Dilutive effect of non-participating securities	411		96		443		103
Shares for diluted EPS	58,692		58,170		58,703		58,180

Basic EPS	$	0.39	$	0.27	$	0.63	$	0.26
Diluted EPS	$	0.38	$	0.27	$	0.63	$	0.26

For the three and six months ended June 30, 2024, there were no securities excluded from the computation of diluted EPS that would have been antidilutive. For the three and six months ended July 2, 2023, 1,476,804 and 1,322,278 respectively, of non-participating securities were excluded from the computation of diluted EPS because the effect would have been antidilutive.

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NOTE 5 – LONG-TERM DEBT

Long-term debt consisted of the following:


	June 30, 2024				December 31, 2023
	Outstanding Principal		Interest Rate(1)		Outstanding Principal		Interest Rate(1)
	(in thousands)				(in thousands)
Syndicated Credit Facility:
Revolving loan borrowings	$	7,334	7.96	%	$	—	—	%
Term loan borrowings	83,916		6.18	%	121,658		6.61	%
Total borrowings under Syndicated Credit Facility	91,250		6.32	%	121,658		6.61	%

5.50% Senior Notes due 2028	300,000		5.50	%	300,000		5.50	%

Total debt	391,250				421,658
Less: Unamortized debt issuance costs	(3,697)				(4,445)

Total debt, net	387,553				417,213
Less: Current portion of long-term debt	(8,526)				(8,572)

Total long-term debt, net	$	379,027			$	408,641

(1) Represents the weighted average rate of interest for borrowings under the Syndicated Credit Facility and the stated rate of interest for the 5.50% Senior Notes due 2028, without the effect of debt issuance costs.

Syndicated Credit Facility

The Company’s Syndicated Credit Facility (the “Facility”) provides to the Company U.S. denominated and multicurrency term loans and provides to the Company and certain of its subsidiaries a multicurrency revolving credit facility. Interest on base rate loans is charged at varying rates computed by applying a margin depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. Interest on SOFR-based and alternative currency loans is charged at varying rates computed by applying a margin over the applicable SOFR rate or alternative currency rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. In addition, the Company pays a commitment fee per annum (depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility.

Fees for commercial letters of credit are computed as a percentage of the amount available to be drawn under such letters of credit. Fees for standby letters of credit are charged at varying rates computed by applying a margin of the amount available to be drawn under such standby letters of credit, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. As of both June 30, 2024 and December 31, 2023, the Company had $1.6 million in letters of credit outstanding under the Facility.

As of both June 30, 2024 and December 31, 2023, the carrying value of the Company’s borrowings under the Facility approximated its fair value as the Facility bears interest rates that are similar to existing market rates. The fair value of borrowings under the Facility is estimated using observable market rates and is considered Level 2 within the fair value hierarchy.

Under the Facility, the Company is required to make quarterly amortization payments of the term loan borrowings, which are due on the last day of the calendar quarter.

The Company is in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future.

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Senior Notes due 2028

The 5.50% Senior Notes due 2028 (the “Senior Notes”) bear an interest rate at 5.50% per annum and mature on December 1, 2028. Interest is paid semi-annually on June 1 and December 1 of each year. The Senior Notes are unsecured and are guaranteed, jointly and severally, by each of the Company’s material domestic subsidiaries, all of which also guarantee the obligations of the Company under its Facility.

As of June 30, 2024, the estimated fair value of the Senior Notes was $283.2 million, compared with a net carrying value recorded in the Company’s consolidated condensed balance sheet of $296.9 million ($300.0 million gross, excluding the impact of $3.1 million of unamortized debt issuance costs). The fair value of the Senior Notes is derived using quoted prices for similar instruments and is considered Level 2 within the fair value hierarchy.

The Company is in compliance with all covenants under the indenture governing the Senior Notes and anticipates that it will remain in compliance with the covenants for the foreseeable future.

Debt Issuance Costs

Debt issuance costs associated with the Company’s Senior Notes and term loans under the Facility are reflected as a reduction of long-term debt in accordance with applicable accounting standards. As these fees are expensed over the life of the outstanding borrowing, the debt balance will increase by the same amount as the fees that are expensed. As of June 30, 2024 and December 31, 2023, the unamortized debt issuance costs recorded as a reduction of long-term debt were $3.7 million and $4.4 million, respectively.

Debt issuance costs related to the issuance of revolving debt, which include underwriting, legal and other direct costs, net of accumulated amortization, were $1.2 million and $1.4 million as of June 30, 2024 and December 31, 2023, respectively. These amounts are included in other assets in the Company’s consolidated condensed balance sheets. The Company amortizes these costs over the life of the related debt.

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NOTE 6 – SHAREHOLDERS’ EQUITY

The following tables depict the activity in the accounts which make up shareholders’ equity for the six months ended June 30, 2024 and July 2, 2023:


	SHARES	COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		FOREIGN CURRENCY TRANSLATION ADJUSTMENT		PENSION LIABILITY		TOTAL
	(in thousands, except per share data)
Balance, at December 31, 2023	58,112	$	5,811	$	252,909	$	320,833	$	(119,590)	$	(34,016)	$	425,947
Net income	—	—		—		14,179		—		—		14,179
Issuances of stock related to restricted share units and performance shares	472	47

SEC Form 10-Q filed by Interface Inc.