tile-20240929

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 September 29, 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 October 31, 2024:


Class			Number of Shares
Common Stock, $0.10 par value per share			58,303,571

TABLE OF CONTENTS


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	3

		Consolidated Condensed Balance Sheets – September 29, 2024 and December 31, 2023	3

		Consolidated Condensed Statements of Operations – Three Months and Nine Months Ended September 29, 2024 and October 1, 2023	4

		Consolidated Statements of Comprehensive Income – Three Months and Nine Months Ended September 29, 2024 and October 1, 2023	5

		Consolidated Condensed Statements of Cash Flows – Nine Months Ended September 29, 2024 and October 1, 2023	6

		Notes to Consolidated Condensed Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

	Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	39

	Item 1A.	Risk Factors	39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 3.	Defaults Upon Senior Securities	41

	Item 4.	Mine Safety Disclosures	41

	Item 5.	Other Information	41

	Item 6.	Exhibits	42

SIGNATURE			43

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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)


	SEPTEMBER 29, 2024		DECEMBER 31, 2023
	(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents	$	115,601	$	110,498
Accounts receivable, net	173,859		163,386
Inventories, net	283,096		279,079
Prepaid expenses and other current assets	35,605		30,895
Total current assets	608,161		583,858
Property, plant and equipment, net	284,845		291,140
Operating lease right-of-use assets	81,716		87,519
Deferred tax asset	21,604		21,721
Goodwill and intangible assets, net	159,428		161,703
Other assets	87,510		84,154

Total assets	$	1,243,264	$	1,230,095

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	78,279	$	62,912
Accrued expenses	136,626		130,890
Current portion of operating lease liabilities	12,888		12,347
Current portion of long-term debt	8,593		8,572
Total current liabilities	236,386		214,721
Long-term debt	329,347		408,641
Operating lease liabilities	72,861		78,269
Deferred income taxes	32,945		33,832
Other long-term liabilities	70,162		68,685

Total liabilities	741,701		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 September 29, 2024 and December 31, 2023	—		—
Common stock, par value $0.10 per share; 120,000 shares authorized; 58,304 and 58,112 shares issued and outstanding at September 29, 2024 and December 31, 2023, respectively	5,830		5,811
Additional paid-in capital	257,282		252,909
Retained earnings	384,258		320,833
Accumulated other comprehensive loss – foreign currency translation	(111,573)		(119,590)
Accumulated other comprehensive loss – pension liability	(34,234)		(34,016)

Total shareholders’ equity	501,563		425,947

Total liabilities and shareholders’ equity	$	1,243,264	$	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				NINE MONTHS ENDED
	SEPTEMBER 29, 2024		OCTOBER 1, 2023		SEPTEMBER 29, 2024		OCTOBER 1, 2023
Net sales	$	344,270	$	311,006	$	980,648	$	936,380
Cost of sales	216,645		200,748		620,005		618,463
Gross profit	127,625		110,258		360,643		317,917

Selling, general and administrative expenses	85,450		79,273		255,871		251,049
Restructuring, asset impairment, and other gains, net	—		—		—		(2,502)
Operating income	42,175		30,985		104,772		69,370

Interest expense	5,721		8,163		18,317		24,986
Other expense, net	381		6,702		237		7,674

Income before income tax expense	36,073		16,120		86,218		36,710
Income tax expense	7,630		6,241		21,038		11,748

Net income	$	28,443	$	9,879	$	65,180	$	24,962

Earnings per share – basic	$	0.49	$	0.17	$	1.12	$	0.43
Earnings per share – diluted	$	0.48	$	0.17	$	1.11	$	0.43

Common shares outstanding – basic	58,305		58,107		58,275		58,087
Common shares outstanding – diluted	58,871		58,342		58,754		58,233

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				NINE MONTHS ENDED
	SEPTEMBER 29, 2024		OCTOBER 1, 2023		SEPTEMBER 29, 2024		OCTOBER 1, 2023
Net income	$	28,443	$	9,879	$	65,180	$	24,962
Other comprehensive income (loss), after tax:
Foreign currency translation adjustment	21,131		(9,176)		8,017		(2,885)
Pension liability adjustment	(1,210)		202		(218)		(877)
Reclassification from accumulated other comprehensive loss – discontinued cash flow hedge	—		150		—		749
Other comprehensive income (loss)	19,921		(8,824)		7,799		(3,013)

Comprehensive income	$	48,364	$	1,055	$	72,979	$	21,949

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)


	NINE MONTHS ENDED
	SEPTEMBER 29, 2024		OCTOBER 1, 2023
OPERATING ACTIVITIES:
Net income	$	65,180	$	24,962
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	29,246		30,591
Share-based compensation expense	9,160		7,334
Loss (gain) on disposal of property, plant and equipment, net	139		(2,531)
Loss on foreign subsidiary liquidation	—		6,221
Deferred income taxes	(1,160)		438
Other	(2,318)		(1,109)
Amortization of acquired intangible assets	3,895		3,886
Working capital changes:
Accounts receivable	(10,656)		37,396
Inventories	(2,395)		14,135
Prepaid expenses and other current assets	(4,583)		(2,842)
Accounts payable and accrued expenses	23,879		(4,264)

Cash provided by operating activities	110,387		114,217

INVESTING ACTIVITIES:
Capital expenditures	(20,108)		(17,238)
Proceeds from sale of property, plant and equipment	1,040		6,593
Insurance proceeds from property casualty loss	2,374		—

Cash used in investing activities	(16,694)		(10,645)

FINANCING ACTIVITIES:
Repayments of long-term debt	(114,241)		(149,738)
Borrowing of long-term debt	33,381		74,000
Tax withholding payments for share-based compensation	(4,770)		(1,514)
Dividends paid	(1,755)		(1,742)
Finance lease payments	(2,160)		(1,853)

Cash used in financing activities	(89,545)		(80,847)

Net cash provided by operating, investing and financing activities	4,148		22,725
Effect of exchange rate changes on cash	955		(656)

CASH AND CASH EQUIVALENTS:
Net increase	5,103		22,069
Balance, beginning of period	110,498		97,564

Balance, end of period	$	115,601	$	119,633

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 nine-month periods ended September 29, 2024 and October 1, 2023 both include 39 weeks. The three-month periods ended September 29, 2024 and October 1, 2023 both include 13 weeks.

Risks and Uncertainties

Global economic challenges, including the impacts of the Russia-Ukraine and Israel-Hamas wars or other conflicts around the globe, supply chain disruptions, and slow macro environments in certain geographical regions 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.

Reclassifications

Certain reclassifications to previously reported information have been made in the consolidated condensed statements of cash flows to conform to the current period presentation. The previously reported line item “deferred income taxes and other” was separated into two line items in the current period presentation of the consolidated condensed statements of cash flows to provide additional information. These reclassifications had no effect on cash provided by operating activities as previously reported.

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. We are currently assessing the updated guidance; however, it is not expected to have a material impact to our consolidated financial statements.

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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 has completed its evaluation of ASU 2023-07 and has determined that the new guidance will enhance our segment disclosures, but will not have a material impact to our consolidated financial statements.

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NOTE 2 – REVENUE RECOGNITION

The Company generates revenue from sales of modular carpet, resilient flooring, rubber flooring, and other flooring-related material, and from the installation of carpet and other flooring-related material. A summary of these revenue streams, as a percentage of net sales, for the three and nine months ended September 29, 2024 and October 1, 2023 is as follows:


	Three Months Ended				Nine Months Ended
	September 29, 2024		October 1, 2023		September 29, 2024		October 1, 2023
Revenue from the sale of flooring material	96	%	98	%	97	%	98	%
Revenue from installation of flooring material	4		2		3		2

Disaggregation of Revenue

For the three and nine months ended September 29, 2024 and October 1, 2023, revenue from the Company’s customers is broken down by geography as follows:

Three Months Ended

Nine Months Ended

Geography

SEC Form 10-Q filed by Interface Inc.