Thank you for standing by. My name is Bhavesh. I'll be your conference operator today. At this time, I would like to welcome everyone to the Q1 2023 Interface Incorporated Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by one on your telephone keypad. If you would like to withdraw your question, please press the star followed by one again. Thank you. I will now hand the call over to Christine Needles of Corporate Communications. You may begin your conference. Good morning, welcome to Interface's conference call regarding first quarter 2023 results, hosted by Laurel Hurd, CEO, and Bruce Hausmann, CFO. During today's conference call, any management comments regarding Interface's business, which are not historical information, are forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements regarding the intent, belief, or current expectations of our management team, as well as the assumptions on which such statements are based. Any forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties described in our most recent annual report on Form 10-K filed with the SEC. The company assumes no responsibility to update forward-looking statements. Management's remarks during this call also refer to certain non-GAAP measures. Reconciliations of the non-GAAP measures to the most comparable GAAP measures and explanations for their use are contained in the company's earnings release and Form 8-K furnished with the SEC today. Lastly, this call is being recorded and broadcasted for Interface. It contains copyrighted material and may not be re-recorded or rebroadcasted without Interface's express permission. Your participation on the call confirms your consent to the company's taping and broadcasting of it. After our prepared remarks, we will open up the call for questions. Now, I will turn the call over to Laurel Hurd, CEO. Thank you, Christine, and good morning, everyone. Before I move into the quarter's results, I want to update you on our progress with One Interface. As a reminder, we announced this multi-year strategy after a deep dive into the business with a focus on increasing value for our shareholders. We plan to emerge from this process with more consistent growth in our core business, expanded and sustainably higher gross margins, and a far more globally leverageable business. To do that, we will prioritize investment in our largest, most profitable markets, accelerate our leadership in design and innovation, and better leverage our selling system by delivering strong global products and innovations. We will continue to be committed to our mission to be the most sustainable company in the world across environmental, design, social, and economic aspects. This is our foundation. On our path to get there, our One Interface strategy is focused on 3 main objectives. First, we are working to reduce the complexity of our business model by transitioning from regional to global portfolio management that will drive more global product collections and simplify the operations required to support them. We have already begun this work. In the near term, we are looking at investments in automation and other areas with quick paybacks. Over the medium term, we are analyzing and optimizing our supply chain and global footprint to identify synergies and cost savings. As we told you, we are recruiting a global chief supply chain officer to lead these efforts. Second, we are continuously working to improve our pricing and mix management. We are enhancing our efforts in the fastest-growing, most profitable categories in flooring today. LVT, the FLOR rug business, and Nora rubber, which are all accretive to our core carpet tile business. In the resilient category, we have the best LVT on the market and continue to gain share. LVT remains one of the fastest-growing categories in floor care, commonly used in both corporate, office, and education. Our FLOR rugs are the perfect complement to LVT floor plates, and we are seeing double-digit growth of the FLOR brand in our commercial channels. Nora is the leading rubber flooring brand in the world, and we will continue to bring design into what has historically been a technical category. We believe the end markets of healthcare, life science, and education have tremendous durability, and expanding our focus on these markets remains a key priority. Carpet tile remains a core category and a critical component to our success. We're the leading premium player in this category, and we continue to deliver product and design innovation, staying ahead of our customer demand. While the carpet tile category doesn't have the tailwinds it once did, Interface will continue to gain share with new premium designs across our carbon neutral and carbon negative products, as well as efficiently designed collections at compelling price points. An example of the latter is our Open Air collection, which we further expanded in the U.S. this quarter. It has a compelling price point, and we have designed it to run efficiently in our plant to meet our margin requirements. To date, this collection is our fastest-growing in history in terms of volume sold, and we are building on the success here. Third, we are globalizing our core functions to support our world-class local selling team. Our recently appointed vice president of global marketing is uniting the local, regional, and corporate marketing teams into one global team versus separate teams across the globe. We are doing the same with R&D, design, and innovation, as well as our back-office functions. This will drive efficiency, eliminate redundancy, and enable the teams to deliver our best work. We're moving quickly on this front, though we recognize it's a transformation that will take time. My new leadership team is in place, and they are now working to build out their global team. For the first time in several years, we are bringing our design leaders together for a global design summit to accelerate the transition from regional to global design platforms. Quickly identify the designs in our pipeline with the biggest opportunities to drive global growth. We will be launching our first global collection in several years in the back half of this year and are excited about the impact this will have on our business. Similarly, our supply chain leaders came together to collaborate on our global productivity funnel and improvements in our manufacturing operations to enhance our margin performance. It's early days, but these are a few examples of the progress we're making to globalize the company. We believe the One Interface strategy will support our growth ambitions and ultimately create shareholder value by bringing the best of Interface to bear. Let's talk about the results for the first quarter. Interface delivered currency-neutral net sales up 5% year-over-year, driven by strength in the Americas, EMEA, and Australia, partially offset by weakness in Asia. We are investing in customer-facing activities and innovation to drive our short and long-term growth while managing all other costs and focusing on productivity to improve our margins. The team executed well despite a challenging operating environment, including persistent input cost inflation and currency headwinds. I continue to be impressed with their hard work and dedication to our customers. During the quarter, education and corporate office were our market segment growth leaders. We also saw growth across all product categories as customers leaned into our diversified product portfolio using a mix of flooring to meet their unique design needs. Our LVT category was up double digits in the quarter, driven by our differentiated offerings with superior acoustic properties, enhanced durability, and the most recycled content in the industry. Interface continues to win in the marketplace and take share in this growing category. Our growth margins this quarter are not where we need them to be. While we have been successful in capturing price to partially offset inflation, we're still working through extensive inventory on our balance sheet, and inflation for raw materials remained a headwind in the first quarter. We are starting to see signs of lower inflation and potentially some deflation in the future, but there will be a lag before these benefits flow into the P&L. Production rates in Q1 last year were elevated as our plants were catching up to meet the post-COVID pent-up demand. The good news about where we stand right now is our supply chain has stabilized in terms of raw material and labor availability, and we are meeting customer lead times back to normalized levels. However, production levels were down year-over-year compared to last year's catch-up environment, which adversely impacted fixed cost absorption in Q1 and is incorporated into our Q2 guide. Looking at orders, consolidated currency-neutral orders were down 2.2% compared to the prior year, which included Russia, a geography we have since exited. Excluding Russia, consolidated orders were up 1.2%. Currency-neutral orders in the Americas and Australia were up 6% and 19% respectively, and EMEA was up 3%, excluding Russia, reflecting continued steady demand that was fairly broad-based, with the exception of Asia, which was down 50% on slow and soft post-COVID recovery. We continue to see steady order flow. However, we are mindful of the tightening macro environment, and we have a challenging Q2 comps as net sales were up 18% year-over-year in Q2 2022. We experienced increased traffic at big trade events across Europe, we're looking forward to NeoCon. At NeoCon, we will launch several exciting new carpet tile and LVT offerings, and we look forward to sharing these new product launches with our customers and partners. We have launched several exciting new products across our portfolio in Q1. In carpet tile, we launched our new Third Space Collection to help our customers design for the third space trend, alternative places where people work, collaborate, and re-energize. This collection combines classic office design with a plush residential feel and a cozier color palette. We also expanded our very successful Open Air collection and launched Connected Ethos, featuring biophilic design, more recycled yarn content, and low embodied carbon. On the resilient side, we unveiled our new Northern Grain LVT, and we also launched Noraplan convia, which features a streamlined design at an attainable price point. It withstands heavy foot traffic, hides messes, and absorbs sound, making it ideal across our target segments. We have much more in the pipeline over the course of the year, including, as I said earlier, a global collection launch planned for the second half. Our differentiated product offering, best-in-class sustainability story, and strong financial position continue to set us apart from others in the industry and set us up well for long-term growth. With that, I'll turn it over to Bruce. Thank you, Laurel, and good morning, everyone. First quarter net sales totaled $295.8 million, an increase of 2.7% versus last year's first quarter. FX neutral net sales growth year-over-year was up 5.2%. First quarter FX neutral net sales growth in the Americas was up 9%, and EAAA was up 1% year-over-year. We had strong FX neutral year-over-year growth in EMEA and Australia, which was offset by Asia due to a soft post-COVID recovery in China. First quarter adjusted gross profit margin was 33.3%, a decrease of 466 basis points from the prior year period due to lower fixed cost absorption and higher raw material costs, partially offset by higher pricing. Adjusted SG&A expenses were $83.2 million or 28.1% of net sales in the first quarter, compared to $78.6 million or 27.3% of net sales in the first quarter last year. The increase was due to higher selling costs and inflation. First quarter adjusted operating income was $15.2 million, down 50% versus adjusted operating income of $30.6 million in the first quarter last year. The decrease was primarily due to lower gross profit margins on lower fixed cost absorption and inflationary raw material costs, partially offset by higher pricing. In the first quarter this year, raw material inflation was up 9% year-over-year. That was coming off of a 27% year-over-year increase in raw material costs in Q1 last year. Year-over-year net sales growth came from price, as carpet and rubber volumes were slightly down year-over-year, and LVT volumes were modestly up. First quarter adjusted EPS was $0.07 versus $0.28 in the first quarter last year. Adjusted EBITDA was $26.3 million this year versus $42.9 million in the first quarter last year. We generated $29.6 million of cash from operations. Liquidity at quarter end totaled $390 million, consisting of $101 million of cash and $289 million of revolver capacity. We repaid $19 million of debt in the quarter, resulting in net debt or total debt minus cash on hand of $399.8 million at the end of the first quarter. The last 12 month of adjusted EBITDA was $159.5 million, and our net leverage ratio was 2.5 times, calculated as net debt divided by adjusted EBITDA. Our required principal and interest payments on all outstanding debt are approximately $9.8 million per quarter, and with our strong balance sheet and strong cash generation, we plan to continue paying down debt as our top capital allocation priority. Capital expenditures were $5.7 million in the first quarter of 2023, compared to $4.8 million in 2022. Moving to our outlook, Interface is well positioned to navigate through continued macroeconomic uncertainty in 2023 and has successfully managed through challenging periods in the past. We remain cautious giving continued pressures from ongoing inflation and rising interest rates. As a result, we have updated our full year 2023 guidance and now anticipate the following. For the second quarter of 2023, net sales of $325 million-$345 million. As a reminder, we have challenging comps in Q2 as net sales were up 18% year-over-year in Q2 last year. Comps get easier in the back half of 2023 as net sales were up 2% year-over-year in the back half of 2022. We are also anticipating adjusted gross profit margin of approximately 33%. Adjusted SG&A expenses of $85 million-$86 million. Adjusted interest and other expenses of approximately $10 million. Fully diluted weighted average share count of approximately $58.2 million shares. For the full fiscal year of 2023, we are anticipating year-over-year net sales growth of 0%-3%. Adjusted gross profit margin of 33%-34%. Adjusted SG&A expenses that are 25%-25.5% of net sales. Adjusted interest and other expenses of approximately $36 million. An adjusted effective tax rate for the full year of approximately 30%. Capital expenditures of approximately $32 million. We are confident in our growth strategy, our market leadership position, and our ability to enhance value for our shareholders. With that, I'll turn the call back to Laurel for concluding remarks. Thank you, Bruce. I want to thank our team for their continued efforts and our customers for their ongoing support. I look forward to building on our momentum and executing on our strategy to position Interface for sustainable growth and enhanced value for our shareholders. Thank you. Ladies and gentlemen, at this time, I would like to remind everyone in order to ask a question, please press the star followed by one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Kathryn Thompson from Thompson Research Group. Please go ahead with your question. Hi, thank you for taking my questions today. I appreciated the color you gave in the prepared commentary on the outlook. Just a follow-up clarification on the adjustment and guidance. To what extent in the factors are play with just the quarter and what happened in Q1 versus any change in opinion you've had for the remainder of 2023 that may be different than what you outlined in Q4? Hey, Kathryn. I'll take that. I think, you know, we started off the year, really bullish from an order perspective. In January and February, our orders were really strong. They've remained steady in March and April, but have softened a bit. We're still seeing, really continued demand. We've got a tough Q2 comp, and certainly the market dynamics have gotten a bit more, bit more challenging since we last spoke. We've just moderated our guidance in the back half. We do have growth planned for the back half, and that's partially because our comps get much, gets much softer. If we look at March and April, to be fair, they were our highest order intake weeks last year throughout the months of March and April. They're our toughest order comps as well, and we're continuing to navigate through that. We're continuing, I would also say, to see, strong demand in healthcare and education. Excuse me. We're also seeing continued trends for Class A office space, so that continues to be strong. Also, the regional migration in the U.S., as you know, is continuing. I was in Dallas a couple weeks ago, and the activity there is just really exciting. If you were to look at some of just the moderating and pace that you described, are there any end markets or geographies or even a product type that you're seeing with that, with changes in trend or moderation? I think the one challenge that we spoke to in the prepared remarks is China. We are seeing a lot of project delays in China. We've got a pretty good pipeline, but that certainly has been challenging for us. The Australia remains really strong, so that continues. We see continued growth there. I would say again, our LVT business, our Nora rubber business are very, very strong. Our FLOR carpet tile business is strong, and we've had really good success with our Open Air platform, as we mentioned, which is still at a very premium price point, but a bit more moderate, which has been taking off like crazy. Okay. You know, it can be a hot button to push, or I'll acknowledge that in advance. Just a conversation we've had with many types of companies, broadly in the construction industrial value chain that have a global footprint, we have run across some that are just deciding not to do business in China just because it's not become... It's less predictable, it's not profitable and a variety of factors with public and private companies. What are your thoughts in terms of, you know, more specifically, your footprint and long-term view on, in China? Yeah, it's a great question, Katherine. Certainly, you know, it's something that we continue to look at our, you know, our business. We've been in that market for a long time, and our business there has been steady for a long time right now. It looks like a lot of project delays versus a significant trend change, but I'd say everything's on the table. We're continuing to consider all those alternatives. Katherine, this is Bruce. Hey, Bruce. I agree with what Laurel mentioned. I would just add, you know, we have a really strong government business in China, which serves us extremely well with particularly with the Nora business. That's something that we have a strong foothold in, which is great for us. It's profitable business. It also helps us with our fixed cost absorption in our plant. It's just that they're longer selling cycles, to be fair. Some of those is when Laurel mentioned about project delays, that's where we're really seeing it, in these really large government projects. For the long haul, we view that as a really good business. The other area where China is strategic for us is with our strategic accounts. You know, that is an area where our customers look to. They want us to have a presence in order to serve them with the same products that they're able to get in our you know, in the U.S. market, so. Okay, great. Thank you very much. Thank you. Our next question comes from the line of Mr. David MacGregor from Longbow Research. Please go ahead with your question. Yes, good morning. Thanks for taking the questions. I would like to maybe start by just getting your assessment of how disruptive is One Interface to results right now? I realize you're shaping the organization up. This is a big chore to consolidate on a global basis like this. It It also can be a distraction, obviously. I'm just trying to sort of pair that thought with sort of the published results and get an assessment from you of, you know, how disruptive that might ultimately be and how long that would last. Yeah, David, that's a great question. I would say certainly we're making changes, right? We believe that's the right thing to do for the long-term health of the company. The company has been wired historically as very regional organizations. It will take some time. It's not just a flip of the leadership team. We're changing how we innovate, how we build our brands around the world, really to better leverage our global scale and drive efficiencies for the long term. It's a fair point. There's a lot of change right now. What we're not touching are really our local selling teams. The folks on the street in the market, they're out there every day driving for results. I'd say in the, in the heart of the business right now, there's not a lot of disruption, but we're making some change that we believe long term will really bring the best of Interface to life. Do you have a means of just assessing quantitatively, the impact, in other words, you know, incremental expense or incremental revenue impact from your various initiatives? From a long-term perspective, we think it'll help us to drive, obviously, accelerated growth, sustainable growth. Right ... from a cost standpoint, there's some short-term hits on that. In year, cost savings is only about $5 million, so it's not a, it's not a massive number this year, and truly will come from as we continue to globalize the business over time. It's not just a cost-cutting exercise. We really do believe we can bring more products, better designs, more consistent marketing that'll drive more growth long term. Right. just on China- To add to that Yeah, go ahead. I was just gonna add to Laurel. You know, part of what Interface is all about is about operational efficiencies, and that's what we're driving here, and nimbleness and quicker decision-making, which ultimately serves the customer better. While there are some, you know, as Laurel mentioned, there are some nominal cost opportunities inside of One Interface, it really is also about serving the customer better and serving the customer in a, in a standardized and way around the globe so that we can meet their needs and we can serve them where they are. Right. just wanted to ask you about China. you know, 50% drop in orders is obviously a big number. how much of that is sort of the environment as you referenced and how much of that might just be, sort of fall on from some of the changes that you're making in that part of the world? Yeah, I think it's, you know, about half our business there as Bruce had stated, is our Nora rubber business, which is really project delays, government, you know, government-funded things like airports, high-speed rail, that we believe will be consistent but are delayed. The other half is our corporate office business, which a lot of that, as Bruce said, is our global customers, and we've seen delays from them as well in some of the work that they've been doing in their office environments. Okay. Then finally for me, on the guidance revision around gross margins, is there any way to talk at least qualitatively about U.S. versus rest of world, how they're factoring into that revision? Yeah. David, we're really seeing the dynamics that are going on with gross margins are pretty broad-based globally. To overly simplify a fairly complicated topic, there really is two things. It's persistent inflation, and then it is lower volumes which are driving less fixed cost absorption in our plants. Which is, I know you know this, but it's not unique to us. That is an industry-wide phenomenon. We think that we're faring better than the rest of the industry. You know, our volumes were only down mid-single digits, which and so all of our growth, as we mentioned in our prepared remarks, came through price. Even with price being basically at parity with inflation, we still, you know, had some margin erosion as a result of inflation, and then the rest of the erosion came from fixed cost absorption. It wasn't unique in any particular area. It was something that we saw basically in all of our locations. Got it. Thanks very much. Good luck. Thank you. Our final question of the day comes from the line of Keith Hughes from Truist Securities. Please go ahead with your question. Thank you. In the second quarter guidance, what kind of influence do you expect from currency, and then what influence from price? Keith, on the top line, Hang on one second. That's what I'm referring to. Top line is what I'm referring to. Okay. Yeah. On the, on the top line, year-over-year, we don't, from a translation standpoint, we don't think that currency is going to have a large effect in Q2. It did in Q1. On the top, the translation costs about $7 million on the top, and it cost us about $1 million on the bottom. That, if currency stay where they are today and don't move, then that sort of normalizes in Q2, where it's about flat on the top and flat on the bottom from a currency standpoint. If currencies again stay where they are today, it actually would be a helper in the back half. It would help us on the top, and it would help us on the bottom year-over-year. Okay. What about price the second quarter? Are you asking if we're gonna increase prices or decrease prices? I just wanna make sure I understand the question. Just in the guide. Yeah, sure. Just in the guide, how much pricing gain do you expect? Yeah. Most of our growth that we're forecasting in Q2 is coming from price. Okay. The midpoint would have you down a couple points. I guess that would mean you're expecting a pretty weak unit number in the second quarter. Am I reading that correctly? We are expecting volume to be down year-over-year in Q2, like we saw in Q1, at similar levels. At similar levels. Okay. Okay. You're kind of forecasting growth with the guidance in the second half of the year. Is that again more price, or do you expect units to turn positive? A lot of the growth will come from price. We're thinking that units will be slightly down in the back half. The biggest difference between the first half and the back half is the comps. You know, the back half we're comping a 2% growth rate versus the first half where we're comping, you know, a double-digit increase year-over-year last year. What were your units last year? I mean, there was just a lot of price coming in last year. I think you started off with some pretty strong units in the first quarter. I'm not sure what they did the rest of the year in 2022. Sorry. Can you ask that question again? I'm not sure if I understood it. What kind of unit growth did you see in 2022? In 2022, units were relatively flat year-over-year. Well, it changed. In the first half, they were up. In the back half, they were relatively flat. Of course, what we're seeing now is we're seeing units being slightly down mid-single digits. Okay. I guess also, you had talked about weaker orders in May and April, and, excuse me, March and April. I know you got a tough comp, as you had said. What kind of order rate on that tough comp? What kind of order percentages are you seeing year-over-year? If you look at where we landed at the end of Q1, I'm gonna give you a bunch of different numbers 'cause to help you get some context on this. If you look at total company, our FX neutral orders were down 2.2%. If you look at, but remember, that includes the Russia business that we exited. Right. If you exclude Russia, our orders were up 1.2% FX neutral, total company. Now, you double-click down on that and there's a lot of different pieces. Actually, our Americas orders were up nicely, up about 6%. Our EMEA orders were up nicely around 3%, excluding Russia. The biggest challenge that we have is our orders were down in Asia, and they were down about 50%. We think that what we saw in Q1 around delayed projects in Asia, principally in China, is gonna continue through Q2 based on the best information that we have, and that's all built into our guide. Okay. I assume that the numbers you just gave me, March and April, the numbers were below that in terms of order rates and the geographies, is that correct? The dollars that are flowing in are fairly steady, the year-over-year growth rates are more challenged because we had such strong order growth rates in March and April. We have really tough comps from an order standpoint in March and April. I wanna make sure I'm communicating effectively. The order flow is steady from a dollar standpoint. It's just really tough comp. Okay. All right. That's it for me. Thank you very much. Thank you. I apologize. We have a follow-up question from David MacGregor from Longbow Research. Please go ahead with your question. Yeah, just one more for me. Thanks for taking the follow-up. Could you help us with your expectations around working capital for the year? I'm just trying to round out the cash flow model here. You've given us a CapEx number, but. Yeah I guess we can sort of imply an EBITDA number, but how are we thinking about the balance sheet? Yeah. That's Thank you for asking because we're very focused on working capital. We think that, you know, I think you saw some nice progress around inventory in Q1. Year-over-year it was down 2%, while our revenue was up FX neutral 5%. That was a good outcome. We're gonna continue to be, you know, managing our inventory and making certain that our inventories stay at the right level. You also probably saw that we generated a lot of cash around accounts receivable. We're very focused on making certain that we collect the cash. I think that this will be a good year for us from a working capital standpoint. Certainly Q1 was very strong. I don't think the rest of the year will be as strong as Q1. We believe that working capital, we're focused on increasing our turns, making sure that our inventory stays in line with our growth rates, and making sure that our accounts receivable is managed effectively. Again, I think it'll be a good cash flow year. Do you have a conversion rate in mind? Is there a number that you can share or...? Not something that we necessarily publish, David. you know, I think it'll be in line with, you know, as you know, last year was not where we wanted it to be from a cash flow standpoint. I think if you look back in the years prior to that, I think it should be similar, if not a little bit better, given the focus that we have on it. Thanks, Bruce. There are no further questions at this time. I will now turn the call back over to Laurel Hurd for closing remarks. Great. Thank you, everyone. Appreciate the questions. Appreciate you listening today. I just wanna thank all of our associates and our customers for their continued support and their hard work. Thank you. That does conclude the conference call today. You may now disconnect your line.