Interface, Inc. (NASDAQ:TILE) Q3 2023 Earnings Call Transcript

David McGregor: So beneficial to operating expense leverage?

Laurel Hurd: Yes.

David McGregor: Okay. And I also was going to — I’m sorry, go ahead.

Laurel Hurd: No, go ahead.

David McGregor: No. Okay. I also wanted to ask you about your comment that commercial markets were turning more sluggish just in general. And I think that’s probably the general sense amongst most people. But could you elaborate a little further in to — maybe offer up some specifics in terms of what you’re seeing in terms of forward visibility, in terms of order flow, in terms of competitive behavior? Just if you could elaborate a little further, a little more granularity would be helpful.

Laurel Hurd: Yes, of course. And again, I feel like sluggish is the right word. We’re seeing a lot of — our markets are holding up well. But we’re really watching some of the project delays and things pushing out a bit and watching order rates, primarily in corporate office. But again, it’s, I would say, sluggish not a dramatic trend change. The big trend change for us is the retail segment. And Bruce, do you want to elaborate on that at all?

Bruce Hausmann: Sure. I mean, David, I would just say that we’re really putting the pedal down on our diversification strategy. So while office is hanging in there stronger than I think any of us had anticipated quite frankly, we’re putting the pedal down on education and health care, which is doing extremely well. What hurt us the most this quarter, as Laurel mentioned, was the retail sector, which, to be fair, is only 4% of our revenue, but it did have an outsized impact on Q3’s results.

Laurel Hurd: And we’re just watching the macro indicators. As you said, we’re seeing some — the headlines, I think we’re being cautious looking into Q4 to make sure we’re not naive to the market conditions.

David McGregor: I mean one of the things in striking is you’re talking about retail, our revenue is down 5% and 4% of that was related to retail, but it’s only 4% of your total mix. So it must have been — it’s really gone off the air. I guess my question would be more with respect to 2024 and what’s the opportunity to accelerate progress on health care and education and any forward visibility you have into that as an offset to further to the challenges in retail and office?

Laurel Hurd: Yes. First, I’d say, on retail, I will say that it was substantially one customer in the U.S. So we’re — it’s a bit more widespread, and we’ve seen some softness in Europe as well. But as retailers have had challenges, they’ve postponed a lot of their planned remodeling efforts. The good news is those floors do get worn and the stores will get remodeled. So we do think that, that will come back. We’ve won the business. We feel good about that. It’s a matter of when that will hit. So I just wanted to hit.

Bruce Hausmann: That’s a really good point that Laurel is making. We haven’t lost that business. We haven’t lost that customer. It was really just a deferral in year. We think that, that business will come back because those stores will need to be refurbished, so…

Laurel Hurd: And then we continue to see strength in health care and education. And again, as the examples in the prepared remarks, we really are selling systems. Our nora business is doing incredibly well, and we continue to focus more and more on the health care segment with the nora brand. And we’re adding feet on the street in the U.S. to continue to accelerate that growth and push our diversification strategy. We’re also finding that product doing well in data centers and labs, which are also growing as well as airports. So we’re focusing to continue to push our diversification beyond just health care and education.

Bruce Hausmann: And David, I would just add, there’s just so much pent-up spend still coming around education. There’s still a lot of federal money that has not been — the shovels haven’t been to the ground yet. So a lot of that spend is still to come, and we’re incredibly well positioned to get that business, particularly with our sustainability story and our differentiation around sustainability with our products.