Interface, Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to the Interface Second Quarter 2026 Earnings Call.

[Operator Instructions] I will now hand the conference over to Christine Needles, Corporate Communications. Christine, please go ahead.

Good morning, and welcome to Interface's conference call regarding second quarter 2026 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 rerecorded 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. Interface delivered another strong quarter, exceeding our expectations, achieving 4% year-over-year currency-neutral net sales growth, building on 7% currency-neutral growth in the second quarter of last year. Growth was broad-based across regions, product categories and primary market segments.

We saw healthy contributions from both price and volume, reflecting the strength of our diversified portfolio. Profitability also improved significantly this quarter, driven in part by the IEEPA tariff refunds we recognized. More importantly, continued operational execution improvements also contributed to margin expansion, highlighting the underlying strength and durability of the business.

Our strong results continue to reinforce that our One Interface strategy is working. As we've discussed before, One Interface is a multiyear strategy focused on: building strong global functions to support our world-class local selling teams; accelerating growth through enhanced commercial productivity of our commercial teams; expanding margins through global supply chain management and simplifying operations; and leading in design, performance and sustainability.

We continue to invest in design and innovation that expands our addressable market. Noravant timber, the rubber flooring innovation we launched earlier this year, which combines the durability and performance of rubber with a distinctive wood grain aesthetic is gaining momentum in the market. At Clerkenwell Design Week in London, it was named Best Product for Health Care, and we're seeing encouraging specification activity from leading design firms. We believe noravant represents a meaningful opportunity to further expand in Healthcare and other segments over time.

We also continue to expand our reach across price points, with 2 notable additions to our carpet tile offering. First, building on our highly successful Open Air platform, we launched Open Air Neutrals at Chicago Design Days. This offering extends the collection to warmer, more neutral tones and works seamlessly across our carpet tile, LVT and nora rubber flooring portfolios.

Second, we previewed Twist & Texture, which pairs textile-inspired design with an accessible price point and quick delivery, giving customers the options they are looking for and continuing to drive share gains in the market. Clerkenwell Design Week and Chicago Design Days provided strong platforms to connect with customers and the design community and to showcase our latest products and innovations. The interest we're seeing across the portfolio reinforces our confidence in the innovation investments we're making to expand our addressable market.

Turning to manufacturing and supply chain. We're continuing to invest in automation and robotics to improve efficiency and expand margins. Last quarter, we highlighted the robotic solutions we brought online in our carpet tile manufacturing facilities in Europe and Australia. And I'm pleased to say that investments are exceeding expectations. We've also added new packaging automation in Australia and continue to invest in robotics in Germany to enhance efficiency in our rubber business. Overall, these investments are helping us reduce costs and support sustainable growth as we scale.

I'd also like to share a few highlights from our recently published 2025 Impact report. Sustainability is core to Interface and central to how we create long-term value for our employees, customers, shareholders and the planet. In 2025, we reduced our product carbon footprint across all product lines by 4% compared to 2024. We achieved this improvement through material and manufacturing innovations. Across our portfolio, 51% of materials are now recycled or bio-based, the highest in the commercial flooring industry with innovative materials like captured carbon helping to further drive carbon reduction.

In addition, 79% of our manufacturing energy came from renewable sources. Overall, we cut our global greenhouse gas emissions by 36% compared to our 2019 baseline. We are focused on reaching our 2030 science-based targets and making progress towards our ambitious all-in goal to be carbon negative by 2040, without offsets.

Before we move to the financials, I'm proud to share that we were recently certified as a Great Place to Work in all 14 countries where we are eligible. This represents 95% of our global workforce, including those in U.S., Germany, The Netherlands, China and Australia. Attracting and retaining great talent remains a crucial part of our success, and this recognition reflects the strength of our culture and the engagement of our teams around the world.

Now let's turn to our second quarter results. We delivered 4% year-over-year currency-neutral net sales growth in the second quarter. In the Americas, currency-neutral net sales increased 3% year-over-year, driven by our One Interface combined selling teams and demand across our key market segments. In EAAA, currency-neutral net sales increased 5%, driven by stronger volumes and encouraging broad-based growth.

Turning to our market segments. Our diversification strategy continues to drive growth. Healthcare had a standout quarter with global billings up 19% on top of 28% growth in the second quarter of last year. Nora continues to be a meaningful growth engine in this market segment, and we continue to benefit from our combined Interface and Nora selling teams in the U.S.

Education billings were up 5% in the second quarter on top of 11% growth in the second quarter of last year. We remain well positioned across both K-12 and higher education, supported by our low-carbon, high-performing products, broad range of price points and our design leadership. The market continues to benefit from strong macro drivers, including renovation, modernization initiatives and new construction activity. Our ability to serve projects across a wide range of budgets is helping us win.

Corporate Office billings were up 5% in the second quarter on broad-based global growth, where we continue to gain share. One factor contributing to our success is the Interface Design Studio, which pairs customers with experienced interface design experts who help bring projects to life from concept to completion.

By making it easier to evaluate flooring solutions across our portfolio, our Design Studio strengthens customer engagement and reinforces our competitive position as organizations make specification decisions. We continue to see healthy underlying demand, supported by return to office trends, renovation activities and an ongoing flight to quality in Class A space where our brand, design leadership and broad product portfolio are well positioned.

Turning to orders. Consolidated currency-neutral orders increased 5% year-over-year. Orders in the Americas grew 5%, while EAAA increased 6%, driven by strength across all regions and supported by continued development of our product portfolio. Backlog was strong at the end of the quarter, up 22% year-to-date, reflecting continued momentum across the business, giving us confidence to raise our full year guidance.

With that, I'll turn it over to Bruce.

Well, thank you, Laurel, and good morning, everyone. All comparisons provided are year-over-year versus the second quarter of 2025, unless otherwise noted. Second quarter net sales were $395.7 million, up 5.4% as reported and 3.8% on a currency-neutral basis. Second quarter currency-neutral net sales were up 3.5% in the Americas and up 4.5% in EAAA.

Second quarter adjusted gross profit margin was 45%, up 524 basis points. Higher sales volumes, proactive pricing, favorable mix and manufacturing efficiencies drove 131 basis points of that improvement, reflecting the strong operational execution that Laurel referenced. The remaining 393 basis points were driven by a $15.6 million benefit from IEEPA tariff refunds and represented approximately $0.19 of earnings per diluted share. As a reminder, this tariff refund was not included in our full year guidance that we provided last quarter during our Q1 2026 earnings release.

Second quarter adjusted SG&A expenses were $103.1 million compared to $93.4 million due to higher sales commissions and variable compensation on increased sales and profits and foreign currency exchange variances. Second quarter adjusted operating income was $74.9 million, up 34% compared to $55.9 million. Second quarter adjusted net income was $51.5 million compared to $35.4 million. Second quarter adjusted EBITDA was $87.7 million compared to $64.8 million and second quarter adjusted earnings per diluted share was $0.88, up 47% compared to $0.60.

With these results in mind, I'll turn to capital allocation. As a reminder, our capital allocation strategy is balanced and disciplined. First, we prioritize investing in the business in areas like innovation and productivity to drive growth and margin expansion. Second, we focus on managing leverage through a disciplined use of debt. Third, we continue to evaluate potential M&A opportunities that align with our strategy and that can accelerate growth and margins. Finally, and importantly, we remain committed to returning excess cash to shareholders through a combination of dividends and disciplined share repurchases.

To recap our progress against these objectives in the second quarter, we generated $38.4 million of cash from operating activities and capital expenditures were $12.2 million, which included continued investments in automation and robotics to support our growth and efficiency. We also repurchased $8.8 million of Interface common stock and paid our quarterly dividend, reflecting our ongoing commitment to return excess cash to shareholders.

Turning to our outlook. With a healthy backlog, strong order momentum and the margin performance we achieved in the first half, we are raising our full year guidance. A few dynamics are worth noting as you think about the balance of the year. Second quarter margins benefited from proactive pricing implemented to offset raw material cost increases that will flow through the P&L in future quarters.

We also recorded a $15.6 million tariff refund in the second quarter that equates to roughly 105 basis points of our improved full year margin outlook. This is reflected in our updated full year guidance. We are not assuming any additional refunds going forward. With that in mind, we anticipate, for the third quarter of fiscal 2026, net sales of $370 million to $380 million; adjusted gross profit margin of approximately 40.8% of net sales; adjusted SG&A expenses of approximately $100 million; adjusted interest and other expenses of approximately $4 million, an adjusted effective income tax rate of approximately 27.5% and fully diluted weighted average share count of approximately 58.2 million shares.

And for the full fiscal year of 2026, which, as a reminder, is a 53-week year for Interface with the extra week occurring in the first quarter of 2026, we anticipate net sales of $1.455 billion to $1.485 billion; adjusted gross profit margin of approximately 40.6% of net sales; adjusted SG&A expenses of approximately $395 million; adjusted interest and other expenses of approximately $15 million; an adjusted effective income tax rate of approximately 26% and capital expenditures of approximately $60 million.

And with that, I'll turn the call back to Laurel for concluding remarks.

Thank you, Bruce. Interface delivered a strong second quarter, and we're encouraged by the momentum we're building across the business. Growth was broad-based across all regions, product categories and primary market segments, reflecting the strength and diversification of our business.

Our strong financial position provides us with the flexibility to continue investing in the business while also returning capital to shareholders. With strong order momentum and backlog entering the second half of the year, we are well positioned to deliver another year of strong performance. I want to thank the entire Interface team for their continued execution and their passion for serving our customers every day.

And with that, I'll open it up to questions. Operator?

[Operator Instructions] Your first question comes from the line of Brian Biros with TRG.

Can you talk about the margins for Q3 and Q4 a little bit more? Q4 seems to imply a decline year-over-year. It sounds like that's mostly the timing of the flow-through of kind of the increased cost that I think you already put price through. So maybe just a little bit more finer point on the puts and takes for that would be helpful.

Yes, you got it, Brian. It's just the timing of the flow-through. We feel really good about the gross margins, not just the historical performance that we're seeing throughout the year, but also about our forward projection.

If you look at the back half in total, gross margins are around 39% in the back half in our guide, which is ahead of our ambition, as you might remember. And if we can achieve that for the full year, if we can achieve that for Q4 -- or I'm sorry, for the back half, it'd be up about 60 bps. And if we can achieve that for the full year, we'd be up about 100 bps off of our baseline. So we feel really good about gross margins going forward.

That's a good lead into my next question, which was going to be about gross margin going forward. I know long-term guidance before was kind of the 38.5%. And I think it kind of ramped up a little bit to 39%, which I think is what you delivered last year. And you said you might finish above that this year even without the tariff refund. So is there a different view of margins going forward? Or how would you phrase that at the moment?

Yes. We're -- the way we're thinking about that, Brian, is you think about the back half run rate around 39%. We feel really good about that. Again, that will be up about 60 bps year-over-year off of our baseline. We feel really good about the run rate for the full year being up about 100 basis points off of our baseline. And as we move into the year, we're going to continue to navigate it and continue -- we know that we have -- our job is to continue improving margins. And we feel really good about how we're going into the back half and how we're going into the future periods.

I'll just add on that, Brian. We're committed to continuing margin expansion. So we're ahead of where we thought we'd be. We continue to outperform. Our productivity initiatives are delivering ahead of our expectations. And yet we know it's a really volatile marketplace. So we're watching that, but we feel really good about our ability to continue to grow our margins.

Understood. On the guidance raise, it seems like it was mostly on the Q2 beat maybe, but you also talked about the increase in backlog and the order momentum giving you the confidence to raise the guidance. So just trying to gauge, I guess, if there's anything in the second half that is slightly expected to be better than you previously thought or if it really is just the Q2 beat?

Q2 came in ahead of our expectations, as you said, and we're pleased with that. We feel good about our momentum, which -- we felt good about our momentum last quarter as well when we provided full year guidance. So, nothing has really changed on that front. We still feel good. We came in a little bit better in Q2, and we'll see what happens for the back half.

Yes. And Brian, coming off of a really strong quarter and strong first half operationally, it was great to see all the broad-based growth globally across all of our geographies, all of our products and all of our key market segments. So it gives us confidence in the solid momentum going into the second half, which we feel really good about.

Great. And then last one for me, I think, just on Education, up 5% in the quarter on an 11% comp, which I think was also then on a 13% comp a year before that. So great growth there over the last 2, 3 years. Can you talk about the strength of that market and your position there? I mean it seems like the more approachable price points are working. And I just want to make sure that we aren't confusing the trend there of the lowering percentage, just how larger numbers work.

Yes, exactly.

But it's not slowing and it almost seems like it's getting stronger and I just want to make sure that's clear and give you guys a chance to talk to that.

Yes, that's great. So we feel great about our Education business, as you said, a strong quarter on -- its sort of growth on growth on growth. And as you said, it's becoming a much bigger, bigger piece of our business. So to grow on top of it is really impressive. And I think it's a few things. We love the macros in the Education space. There's a lot of activity there, both in K-12 and higher education. But we remain really well positioned.

Our approachable price points in both carpet tile and LVT have definitely helped us gain share there. And we're also selling nora, especially in K-12, which is one of our fastest-growing markets as well. So we're finding really selling across the portfolio is helping us grow that market as well.

Your next call comes from the line of David MacGregor with Longbow Research.

Congratulations on all the progress. Obviously, a lot of focus around gross margins here and just what you have been able to accomplish. And I realize there's a lot of moving parts. You talked about sales volume and pricing and mix and efficiencies. Can you help us understand just kind of maybe bridge for us the 131 basis points and just help us understand the composition of that growth? How much of it is volume leverage versus the mix, the pricing and the efficiencies?

Yes. As you pointed out, David, it's a mixture of all those things. The automation and robotics that we have put into our manufacturing facilities are a large piece of that 131 basis points of operational improvement. I think the key thing that is encouraging to us is these are durable and structural changes that we made to the business, which really help us on a go-forward situation. So -- and that obviously has informed our strong guide around gross margins in the second half of the year.

And maybe mix as well, if you could talk to the contribution from mix. It sounds like [ nora ] was pretty strong.

Yes, mix definitely helps. That's one of the things I love about Laurel. She has just really, really helped ingrain that into the organization, how important that is. really focusing on mix, and it's around geographic mix, product mix. And that's a huge helper, obviously as well, is helping us to improve our margins.

And also, David, the price that we took helped read through as well. So, it was a mix of all those things.

Yes. We mentioned we did take some proactive pricing. We're seeing and you're aware of this, David, we mentioned this on our last call. We're seeing low single-digit inflation cost increases in our raw materials. So we did do some proactive pricing in Q2. And obviously, as you know, the mechanics of the accounting, that's -- those costs sit up in inventory, but they flow through the P&L in future quarters. So...

Right. which gets back to your timing observation around 3Q versus 4Q gross profit.

Exactly. That's just how they flow.

Sure. Within nora, and I realize you've got a mix there of different products. But -- and you talked about noravant and the progress you made there with the PVC-free product. But can you just talk about norament and data centers and the extent to which you feel you're succeeding with that product in heavier gauges in data center markets?

Yes. I think data centers is still small for us. It's something that we've got a bit of success in, but really where we're seeing the success is in labs. So we've got strong performance throughout in bio, in labs, in higher education. And a lot of our corporate relationships that historically we've sold carpet tile and LVT to some of the strong, whether it's pharma or biotech companies, we're now selling nora and norament into their labs. So that's, I think, the play that has been really successful for us.

Okay. And just sort of leveraging off the story of success, maybe just talk about product innovation as a driver behind expanding total available markets and just what that might represent as you think longer, maybe 2, 3 years out, how you are expanding the total available market? You've got the medium price point now with the carpet tiles as well. So I realize it's happening in a number of different places within the mix. But just how should we think about that as a top line driver?

Yes, it's a great question, and we're really focused on the product portfolio. I'm pleased with the progress that we're making. And we think about it really in 2 buckets. The first is, how we drive market share gains in our existing markets, and we're focused on that day in and day out. And then really, as you said, continue to focus on where and how can we best expand our addressable market in a way that really suits our brand and also holds up our margin requirements and fits our selling system.

So, a few examples. As you said, there's approachable price point in carpet tile, and that's been really successful. We're expanding the Open Air collection, and we're also launching our next platform on that. So we're really pleased in carpet tile. We've done that consistently across our other product forms.

So LVT, we have a more approachable price point of LVT and a thinner gauge. And then we also have some noraplan rolled goods that are at more approachable price points. So we've been taking that consistently across our product portfolio. And then the other example of that, as you said, is noravant and our first launch of noravant Timber, the wood grain look, which takes all the benefits of rubber and adds this new design element, which is primarily -- the primary opportunity for that incrementally is really patient rooms, as we've talked about.

So that's another example of -- that's really going after the premium end of the vinyl sheet market that we don't play in today. So we're thinking about that really systematically looking category by category and how we can continue to expand the market.

And David, with all that interesting stuff that -- with all that stuff that Laurel articulated, I think it's really helped us diversify the company. And I think we're seeing the results of that in the P&L. When we're able to say quarter-to-quarter, and we've been able to say this for a while, all product lines are growing. and that we're growing in our key market segments consistently. And this quarter, we grew very broadly across geographies. It's really encouraging to see this -- the innovation really kicking in on the P&L and on the results.

Yes, it definitely is. And just to tie this back to capital allocation, do you feel like you've got sufficient capacity in place right now to support the expansion of your total available markets?

Yes. I would say at this point, we feel good about our ability to support demand. And the good news about things like the productivity and automation investments in our nora facility in Germany is those kind of -- they do a few things for us. They help improve our efficiencies. They're actually some of the toughest jobs to fill that we're automating, and they help us drive more throughput. So it helps enhance our customer service levels and increases our available capacity. So that's how we're looking at it today, but we're watching it regularly to see if we need to continue to expand and invest, which we'll do.

Got it. Last question for me is just, you mentioned back to the office or back to work as a driver in the Corporate segment. Where do you think we are in that journey? Are we in early innings, mid-innings, late innings? Just what's your sense from what you're hearing back from your sales people?

Yes. In Corporate, we've said for a while, we feel really good about the corporate space, and it fits so well with the Interface brand and our value proposition because there is such a strong return to work. I think it's accelerating. I would say people are really coming back to work around the world. I see it everywhere I go. And the need to update the office space to the new ways of working is happening. So we're seeing a lot of renovation work. And it feels on the early end of that, certainly as more and more companies are bringing people back.

How much forward visibility do you have on that?

I mean it's talking to customers and the trending that we're getting and thinking about the work that's coming through the A&D firms. So it's -- we see it in our opportunity pipeline, certainly, and then obviously, in the order book as it flows through. A lot of it is just feeling the market and getting out there with customers.

And David, you're aware one of the great dynamics of our business is just the lease turn rates. So when leases are turning, it typically means some sort of renovation remodel around, oftentimes flooring and paint. And so as those leases are turning and as companies are thinking about the design of the future of their office or landlords are encouraging tenants to stay and providing tenant improvement dollars to do that, all that kind of goes into this mix around the R&R work that we're seeing in office, which is really helpful for our business.

Are you still seeing pretty high levels of tenant improvement budgeting?

Yes, we are.

Yes.

Those dollars are still there. Congrats on all the progress.

Your next question comes from the line of Alex Paris with Barrington Research.

Congrats on the beat and raise. I got a couple of questions. First off, performance was led by Healthcare with global billings up 19%. Corporate and Education were both up 5%. Are there any other markets to call out, customer segments to call out beyond the big 3, government, retail, et cetera?

No. If I look at -- the big 3 really account for the majority of our business and our primary focus. The government was up a little bit. Our retail business was up a little bit. So nothing really notable outside of the ones that we've highlighted.

All right. Then perhaps we can dive a little deeper into Education. Q2 is really the education season, but I think that also bleeds into Q3 as well. What does Q3 look like?

So it's really -- most of the billing has happened in Q2 as we ship the product in time for renovations that happen before kids go back to school. So, again, as you said, we had a really strong Q2 and feel good about where we are for Q3 as well.

Yes. And it's coming off of double-digit growth. I feel really good. Education is -- we have such a great value proposition in that space. We feel really good about our momentum there and about our value proposition, about the future.

And within education, what are the strong product lines? Obviously, you talked about it before, design leadership, low-carbon, high-performing products, carpet tile, LVT, maybe some additional color there on product categories.

Yes. It's really -- so what does -- if I take -- I'll take it in pieces, K-12 our carpet tile does well in the kind of approachable price points. We've launched some colors, so the brighter colors are strong for that market. So we've got some new collections that are doing well there as well as LVT has also historically been really strong in K-12. And then as I mentioned briefly, nora has been a really strong growth driver in K-12 as well.

It sort of started in the cafeteria space and the maintenance folks in K-12 really, they love working with the product. It's easy to clean. So we've seen growth in nora as well. And then in higher education, again, it's really across categories. So we'll see LVT in some of the living spaces. We'll see carpet throughout the education buildings. And in labs and science spaces, we've got nora. So it's a cross-category sell there as well.

Great. And then regarding the tariff refunds, I think you had said last year that about 15% to 20% of your COGS are subject to tariffs. What did you pay in tariffs in 2025? And is this -- I know there's no further tariff refunds in your guidance, but is this one and done?

Well, it still holds true that about 15% to 20% of our COGS are subject to tariffs. We're paying those every day still. The refund that we got was the IEEPA tariff refunds that we -- and it was a onetime refund. That's the Supreme Court ruling that those were deemed illegal. So we filed for the refund. That was for the tariffs that we paid as a blend of last year and this year, sort of blended over the 2 different periods. But we're still subject to tariffs, and we're still paying tariffs every single day going forward. And that's baked into our guide.

Yes. So the $15.6 million you got, that's part of the new revised full year guidance.

Correct. And the ongoing tariffs that we're going to -- that we believe we're going to have to continue paying around 15% to 20% of our COGS are subject to tariffs. That's in our guide as well.

Got you. And then on proactive pricing, just to be clear, you said you're seeing raw material cost increases, inflation, and this is an attempt to get ahead of those increases.

Yes. I think as we said, we took -- we've taken price across the market, really across the globe in response to the known increases that we were getting in our input costs. And our teams are really effective at executing price increases. I'm proud of the work that they've done to get ahead of it and it flows through the P&L over time with inventory.

Great. And then last question for me. Repurchases in the second quarter, repurchases in the first half. I think it was $8.8 million in the second quarter and around $21 million year-to-date. Is this new or accelerating? It is opportunistic, obviously. What color can you put around share repurchases?

Yes. You've got the numbers right. So it's around $21 million year-to-date. Our thinking on that is just disciplined and opportunistic. And we're going to continue to return excess cash to shareholders through share repurchases and through dividends. We -- that's a key part of our balanced capital allocation strategy.

And how many shares did you repurchase in the second quarter? How many shares did you repurchase year-to-date?

Around 310,000 shares. So...

That's year-to-date?

No, that was in the second quarter. In the first quarter, it was...

Oh, that was in your quarter.

Yes, $461,000 in the first quarter.

Your next question comes from the line of Reuben Garner with Benchmark.

Congrats on the strong quarter. Let's see, so Healthcare and Education, obviously, very strong. If you said a Corporate or an office growth rate, I didn't hear it. But just curious, the -- what the opportunity there is to see an acceleration? You mentioned return to office. There's also some other pretty strong leading indicators, whether it's lease turnover, absorption, just general business confidence recoveries that have been on the way up. Like how do you think about the office portion of your business on a go forward? And can you remind us what percentage of your business that is today? I know it's probably much smaller than it was even just a few years ago.

Yes. So the Corporate Office grew 5% in the quarter. So we had strong -- and it was really broad-based growth across the globe. So we're seeing that return to work trend really helping us. And it's a few things. It's not only return to work, but there's also a flight to quality. So when folks are -- companies are looking at their space, it's that Class A space that's really driving the activity.

And -- sorry, excuse me, fighting a cold. So the underlying trends there are great really around the globe, and we're continuing to see that. It represents -- Bruce, what's the number year-to-date.

Yes. Office is around -- year-to-date, it was around 44% of our total billings. Yes.

But we feel great about it. We felt great about it for a while. I think it's still early days as folks are coming back to work. And we've got a really good -- we're selling across the product portfolio. We're also leveraging our Interface Design Studio, does a really nice job helping our customers design for what comes next after return to work and more need for collaboration space. Sometimes it makes the floor plate more complex to design. And they do a great job helping them. And when they work with our customers, we really sell across the portfolio across LVT, carpet tile and nora as well.

Great. And then new products-wise, I can't remember the name of the product, but at NeoCon, there was a new health care product launched. How is that launch gone? Is that a meaningful portion of the growth that you've seen? Or is that something that will take a little bit more time to kind of be material within your Healthcare results?

Yes. Thanks for mentioning that. The noravant timber is the new product that brings all the benefits of rubber with a wood grain look that you saw at NeoCon. And that's not really reflected in our Q2 Healthcare numbers. So we just launched that to the market. NeoCon was the first place that we showcased it and got samples to our sellers in late Q1. And that really starts with sampling and then mockups.

We're really pleased with the progress to date. It's early days. It will be a meaningful new platform for us. We've gotten some strong specs from our A&D customers and some major health care systems. So we're feeling really confident about it, but that's yet to come. That will really help impact our long-term growth in health care as we continue to expand the portfolio with noravant.

Got it. And then last one for me. The SG&A spending a little bit higher than we had, and I think it came up. Can you just talk about a couple of things? One, is that where we would see the bulk of the freight inflation impact? And two, the mix benefits that you're getting on the gross margin line, are there offsets in terms of selling expenses or otherwise that we need to think about going forward?

Yes. So just to clarify the geography in the P&L, the freight, most of the freight lands on the cost of goods sold line, not the SG&A line. So what we're seeing on the SG&A line, the increase in dollars is mostly due to variable selling commissions. I'm sure you noticed that we overachieved the high end of our net sales guide. So I'll take that all day long. We had to pay more variable sales commissions to our selling people as a result of that. And by the way, I think I'll take that all day long.

So, and also just variable comp -- we do have a variable comp that affects all employees around the globe. That has also increased the dollars as a result of the stronger sales and strong business performance that we're seeing. And then one last thing. We had foreign -- if you just look at it in U.S. dollars, foreign currency actually in USD also affected the dollars as we translated things like euro and Australian dollars into U.S. dollars. It increased the dollars of SG&A spend that you see on the P&L when we translate everything into USD.

But we -- I want to just -- kind of get on in front, we are all over SG&A. We know where every dollar is spent. We have a ton of discipline in this area and a management team that knows that we need to continue being really disciplined with our SG&A spend, being really thoughtful about it and being really thoughtful and knowing that we need to be generating margin expansion on that line. So I don't want that to get past us because it's a really important topic that we talk about regularly as a team.

And I'll jump in on that, too, Reuben. The -- as we've said a couple of times, like we're focused on really disciplined, and Bruce is an amazing partner in helping make sure that we stay really disciplined in our SG&A on the front end of the business, so sales commissions, our selling organization, innovation, we're spending in that area and really tightening up everything that doesn't touch the customer or innovation.

Your next question comes from the line of David MacGregor with Longbow Research.

I thought I'd circle back with a couple of sort of bigger picture questions. And you had mentioned that you're ahead of plan on the gross margin journey, if we can call it that. I guess what I'm trying to get at is how much of this is maybe how you're thinking about the destination or the terminal rate? Or as you think through the implementation of everything you're working on here, I'm sure in the back of your mind, you've got some sense of this is ultimately where I think maybe 2, 3, 4 years down the road, we can get gross margins. Is that number changing? Is that number migrating higher and higher as we go? Or is this really just kind of we're just pulling things forward faster and the terminal rate probably hasn't changed much?

So I appreciate the question. And if you remember back a ways, we had about -- we have 38.5% as our destination. And we said that's where we want to get to by 2030. And we're there ahead of where we thought we'd be and we're higher than we thought we'd be because all these things are really coming together with price and mix and all the efficiencies are really working well together.

So -- and that said, I'd say it's a really -- it's a dynamic world out there with a lot of input cost challenges and the tariffs back and forth and all of that. So we've been -- we haven't stated a new destination, but our goal is to continue to improve our margins and navigate the uncertainty while driving growth and making sure that we're focused on driving innovation and mix and everything else so we can continue to expand our margins.

Got it. I guess second question. And you talked about just kind of back to the office, and I asked you about that earlier. And I guess what I'm trying to get a sense of is, as you talk to architects and designers and you talk to corporate sponsors on a lot of these projects, to what extent do you think people have sort of moved on from thinking about workplace furnishings and the finishing of the environment of the office is just we need to spend this money, so our people have a place to work and thinking about it more in terms of a recruiting strategy.

And if I'm going to get the very best in human capital, I have to really invest in the workplace and all the new amenities to attract the best and the brightest. And so all this money that's being spent on the workplace environment is really more integrated within to how people are thinking about human capital costs rather than just outfitting a workspace.

Yes, absolutely. You're absolutely right there. And I think initially, we felt it was a -- everybody come back to work. And I think what companies found is that when they mandated, their employees came back and they came back to maybe the same office space that they had left. It wasn't what they needed anymore. And so there was a lot of employee dissatisfaction with man, I came back to the office. I don't have a place for collaboration. I don't have a quiet room for a Teams or a Zoom call.

And so just as you said, the customers have really found that they need to invest in their office space to get the best and brightest talent. And we're seeing more and more of that. I mean the discussions that we have with our customers aren't about what color carpet they want. It's really about what environment are they trying to create for their employees? How can they denote one space as, "This is the space to collaborate." And in another part, to denote that it's a really quiet space for concentrated work.

Those are things that our customers are trying to solve and we help them do every day. But you're absolutely right, it's much more about human capital management and having a workplace that they can be really proud of to encourage recruitment and retention.

And another dynamic that we're seeing, Dave, is that this is becoming more and more of a data-driven decision. Employee engagement surveys are -- have been around for a long time. But more and more companies are doing them, paying attention to them. And so many of the employee engagement surveys ask employees about their work environment and how they feel about it.

And as companies are trying to improve those scores and trying to have stronger employee engagement and trying to have stronger employee engagement scores, they're trying -- this is a very tangible way that they can address, by improving their space, improve those scores and we were so pleased at our scores and the certifications that we were able to get.

And, full disclosure, we had one remote location where we get some feedback that we need to upgrade the space, and we're going to do that because we know that that's important. And so, it's just pulling out the mirror, it's a tangible way that we're going to help improve our scores internally, and we see our customers doing the same thing.

Great. And then let me ask one more last one here, just looks like we've got a couple of minutes. AI, I mean, are you seeing people bringing up AI as a reason to sort of pause on spending? Or I'm not quite sure what our headcount is going to look like a year or 2 years from now? I think we're going to hold off on these projects? Or is this just a nonissue in your world?

Yes. I wouldn't say we're not hearing that. We certainly hear -- we get the question a lot of like how is this going to impact the workplace environment. And yet whether I'm out in the Bay Area meeting with tech customers or anywhere else around the world, it's not something that we're feeling slowing anything down. I think if anything, people want to encourage their workers to come back, as you said, we're not seeing people pause to say, I need to see what happens with AI before I make any transition. I think it's the opposite. They're getting ahead of it to really encourage and have the best and brightest talent.

There are no further questions at this time. I will now turn the call back to Laurel Hurd, President and Chief Executive Officer, for closing remarks.

Well, thank you all for joining us today. Thanks again to the Interface team for everything you do, and we look forward to speaking to you again next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Interface, Inc.'s First Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Christine Needles, Corporate Communications. Christine, Please go ahead.

Good morning, and welcome to Interface's conference call regarding first quarter 2026 results posted 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 rerecorded 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. Interface delivered a strong start to 2026 with 7% year-over-year currency-neutral growth in net sales and 64% growth in adjusted earnings per diluted share in the quarter, ahead of our expectations. Growth was broad-based across all product categories and key market segments, reflecting consistent execution and continued momentum across the business.

Our One Interface strategy is working and it continues to drive strong results. As we've discussed before, One Interface is a multiyear strategy, focused on building strong global functions to support our world-class local selling teams, accelerating growth through enhanced commercial productivity, expanding margins through global supply chain management and simplifying operations and leading in design, performance and sustainability.

As part of the next phase of our strategy, we recently aligned our EMEA commercial organization under a single leader. This will drive greater consistency across Europe, and build on the best thinking and results we've seen with our One Interface selling teams in the U.S. We also went live with our robotic solutions in Europe and Australia, which will further strengthen our manufacturing and supply chain operations.

These automation investments improve efficiency, reduce waste and enhance customer service levels, while positioning us for growth. From a product standpoint, we continue to invest in design and innovation that expands our reach across segments and price points. In late February, we launched Noravant a groundbreaking rubber flooring innovation that opens new design possibilities in the resilient category. Noravant complements our existing Nora Rubber portfolio and represents an incremental growth opportunity.

We expect it to meaningfully expand our addressable market over time, particularly in health care, where our initial product, Noravant timber, is an excellent solution for patient rooms. Customer response has been very positive, and we expect it to begin contributing to growth in the fourth quarter of 2026 and build over time.

During the first quarter, we also introduced 2 new carpet tile collections, which are both aimed at driving incremental growth in the middle of the market. Crafted connections launched globally and bring sophisticated texture and pattern to more accessible price points. Open Forms builds on our successful open air platform, extending the color pallet to warmer tons that are in demand from our customers.

Our carpet tile billings were up double digits in the quarter, reflecting strong progress in the category. And in Nora, we expanded Noravant Civo, enhancing its color range to include both vibrant accents and classic tones. K-12 education continues to be 1 of our fastest-growing segments for Nora. In this expanded color range to fit the budgets of our education customers will continue to maximize our potential.

We remain confident in our ability to drive both the premium end of the market with design leadership, and expand our addressable market with new offerings at more accessible price points and in our ability to expand margins while gaining market share and giving our customers what they're looking for. We also look forward to Clark in oil Design Week in May and NeoCon in June where we will showcase Neravant, along with our latest global carpet tile and LVT collections and other new products. These events provide excellent opportunities to connect with our customers and industry partners and to demonstrate our design, performance and sustainability leadership.

Turning to sustainability. Sustainability remains core to who we are at Interface. In conjunction with Earth Day, we launched Good Design Never Ends, a new campaign that makes circularity actionable for our customers. By specifying our products, customers can make informed choices that support a circular model. We design our flooring for high-performance and easy maintenance to extend its useful life. We also use innovative low-carbon inputs.

Globally, more than 50% of the materials in our products are recycled or bio based, which is the highest in commercial flooring. This lowers the carbon footprint from the start and means less virgin raw material inputs over time. Circularity is critical to carbon reduction and its important pathway to achieve our science-based targets by 2030 and our carbon-negative ambition by 2040.

Now let me turn to our first quarter results. We delivered 7% year-over-year currency-neutral net sales growth in the first quarter, ahead of our expectations. In the Americas, currency-neutral net sales increased 8% year-over-year, driven by our One Interface combined selling teams and strength across our key market segments.

In EAAA, currency-neutral net sales increased 4% in the first quarter despite a continued challenging macro environment. We are encouraged by the progress in the region, including improved commercial alignment and significant profitability improvement.

Turning to our market segments. Our diversification strategy continues to drive growth and strengthen the business. Corporate Office had a strong start to 2026, where we continue to take share. Global billings were up 16% with broad-based growth globally. We're continuing to see return to office and renovation activity and flight to quality in Class A space, where our brand, design leadership and product portfolio are well positioned.

In addition, our expanded product offering across a broader range of price points is helping us capture new opportunities and further strengthen our market position. In health care, global billings were up 11%, driven by our One Interface combined selling teams and favorable long-term demand trends.

Our broad differentiated product portfolio continues to position us well to capture an increasing share of market opportunities as demonstrated by our Nora rubber billings, which were up 15%. We also believe the launch of noravant will meaningfully expand our opportunity in health care over time. where design, durability and performance requirements align well with the product's value proposition.

Education billings were up 1% in the first quarter. We view this more modest growth rate as a matter of timing as we remain well positioned across both K-12 and higher education going into the education buying season. supported by our design leadership and low-carbon high-performing products. This market segment continues to benefit from supportive macro drivers, including renovation work, modernization initiatives and new build opportunities in some geographies. And our broad range of price points helps interface wind projects across all budgets.

Turning to orders. Consolidated currency-neutral orders increased 8% year-over-year in the first quarter of 2026. Orders in the Americas grew 6%, while EAAA increased 11%, driven by strength across all regions. Backlog was strong at the end of the quarter, up 18% year-to-date reinforcing our confidence that our strategy is working and positioning us well for the quarters ahead.

Before I turn the call over to Bruce, I want to briefly address the situation in the Middle East. We are closely monitoring developments and assessing the potential impacts on our people and our business. The safety and well-being of our employees and their families remain our top priority, and we continue to support them as needed. The Middle East represents approximately 1% of our net sales.

At this time, we expect these events to drive a low single-digit increase in input costs across our global business. Importantly, we have plans in place to offset this impact through incremental pricing and productivity actions, and this is reflected in our guidance. This remains a dynamic environment, and we will continue to monitor the situation and respond as needed. To manage costs, support growth and serve our customers.

With that, I'll turn it over to Bruce.

Well, thank you, Laurel, and good morning, everyone. All comparisons provided are year-over-year versus the first quarter of 2025, unless otherwise noted. And as a reminder, fiscal year 2026 is a 53-week year for Interface with the extra week occurring in the first quarter of 2026. First quarter net sales were $331 million, up 11.3% as reported and 6.8% on a currency-neutral basis. First quarter currency-neutral net sales were up 8.4% in the Americas and up 4.3% in EAAA. First quarter adjusted gross profit margin was 38.3%, and up 55 basis points on a favorable pricing and product mix plus manufacturing efficiencies.

First quarter adjusted SG&A expenses were $94 million compared to $86.8 million. As a percentage of net sales, first quarter adjusted SG&A expenses improved 78 basis points to 28.4% and reflecting our continued focus on leveraging SG&A and driving SG&A-related efficiencies.

First quarter adjusted operating income was $32.7 million, up 28.6% and compared to $25.5 million. First quarter adjusted net income was $23.9 million compared to $14.6 million. First quarter adjusted EBITDA was $46.8 million compared to $37 million and first quarter adjusted EPS was $0.41, up 64% compared to $0.25.

With these results in mind, I'll turn to capital allocation. As previously discussed, our capital allocation strategy is balanced and disciplined. First, we prioritize investing in the business in areas like innovation and productivity to drive growth, margin expansion and operational efficiencies. Second, we focus on managing leverage through a disciplined use of debt.

Third, we continue to evaluate potential M&A opportunities that align with our strategy and that can accelerate growth and margins. And lastly and importantly, we remain committed to returning excess cash to shareholders through a combination of dividends and disciplined share repurchases. To recap our progress against these objectives in the first quarter we generated $13.5 million of cash from operating activities. Capital expenditures were $10.3 million as we continue to invest in the business, and we repurchased $12 million of Interface common stock.

Turning to our outlook. We entered the second quarter with a healthy backlog and order momentum amidst the dynamic macro environment. And with that backdrop in mind, we are raising our full year guidance and anticipate the following: for the second quarter of fiscal 2026, net sales of $385 million to $395 million, adjusted gross profit margin of approximately 39.9% of net sales, adjusted SG&A expenses of approximately $100 million; adjusted interest and other expenses of approximately $4 million, an adjusted effective income tax rate of approximately 28% and fully diluted weighted average share count of approximately 59 million shares.

And for the full fiscal year of 2026 net sales of $1.45 billion to $1.48 billion, adjusted gross profit margin of approximately 38.8% to 39% of net sales. Adjusted SG&A expenses of approximately 26.2% to 26.4% of net sales, adjusted interest and other expenses of approximately $14 million to $16 million an adjusted effective income tax rate of approximately 26% and capital expenditures of approximately $60 million.

And with that, I'll turn the call back to Laurel for concluding remarks.

Thank you, Bruce. Interface delivered a strong start to 2026, and we are encouraged by the continued momentum as we move through the year. While the external environment remains dynamic, we are well positioned with a strong balance sheet, a diversified portfolio and a global team that is more connected than ever.

I'd like to thank the entire Interface team for their disciplined execution, commitment and passion for serving our customers each and every day. And with that, I'll open it up to questions. Operator?

[Operator Instructions] Your first question comes from the line of Brian Biros with TRG.

I want to talk about the One Interface strategy again here a bit more. It's not new anymore, but it's probably still early days across some of the initiatives there. I mean it feels like it's really paying off already. And you has improved in that last year, Q1 already. Some of the growth numbers you just cited for office, health care, it's obviously well above market growth. So I mean, maybe just remind us what is left to implement and kind of what is still not running at the full potential yet?

Yes. Thanks, Brian. It is -- I'm really proud of the team's execution on the One interface strategy. And we are seeing that really pay dividends. If I think about the U.S. teams, they were the first to start this initiative, and it's really still early days. So the selling organization across the U.S., and they've just done an incredible job selling as 1 team, market by market. But we're opening up new opportunities every day.

The more that these teams work together across the Neuro portfolio and the interface portfolio, we're finding more places that Nora can really help serve our customers, and our Interface customers are often opening the door for us there. So it feels like early days. We're learning from each other, learning from our customers where we continue to amplify that growth.

And as you said, the Nora growth, up 15% in the quarter is really incredible. And then as we also said, we've just announced our European business will be under 1 leader. And that's really different across country by country. it's really different. We're in different phases of our penetration across the product portfolio. Germany, for example, is really advanced. That's Nora's home market, and we have strong business in both Interface and Nora there. But like U.K., there's a ton of opportunity.

So I feel like we're really getting started in Europe and across the globe. Taking some of the key learnings, it will play out a little bit differently as we go, but there's just a ton of meaningful opportunity still in the U.S. and then as we move across the globe.

And Brian, on the growth -- in addition to the growth points that Laurel made. We continue to advance on the cost efficiency side, which is fantastic to see our supply chain organization now is working globally as 1 organization and really delivering results we continue to invest in our supply chain organization and in the machinery that's driving efficiencies around manufacturing.

So I think that, that's really was driven by the sort of 3 key things I think about for this quarter, strong Q1 results, solid momentum going into Q2, and it's apparent on our P&L that our strategy is working and we continue to outperform the industry. And I think that has a lot to do with the One Interface strategy.

I'm not going to hear. -- carpet tile, you guys quoted was up double digits for the quarter, and that's pretty surprising and good to hear. Can you put some more context behind that? I mean is that a large quarter? Is that timing? Just how to think about that rate for the rest of the year will be interesting.

Yes. So carpet tile being up double digits is certainly exciting to see. Some of that, I think, goes hand in hand. We said a corporate office up 16% in the quarter. So we sell carpet tile in a lot of places, but certainly, corporate office is a key part of that. So I think there are a couple of reasons for that.

One is we've done a lot of work across carpet tile to expand our addressable market through more accessible price points. And we've done that in a really disciplined way to make sure that we're happy with the margin structure that it's incremental business to us, and it's really been playing out well. So the combination of our expanded product offering and accessible price points really maintaining that design leadership with high-style, high-design products at the premium end.

And then we look at the trends in corporate and that really feels good. People are going back to work. There's a flight to quality, a lot of renovation activity, and that plays really well for Interface.

And then last 1 for me, maybe just on the CapEx. I think you stepped up a little bit for the year. Can you just talk about kind of what drove that decision to accelerate some of that spend and kind of what the effort is going towards?

Great question, Brian. This ties right into our capital allocation strategy. Where our #1 priority is investing in the business, and we're seeing nice returns, as you can see on our P&L and on our balance sheet around the investments that we've made I don't know if you look at our ROIC, or ROIC was 19% last 12 months. And so we just want to continue investing around product innovation and around efficiency initiatives. And so that incremental 5 is going into -- that we compared to last guide is going into those 2 areas.

Your next question comes from the line of Alex Paris with Barrington Research. Please go ahead.

Congrats on the beat and raise, very impressive first quarter with growth across all product categories and key markets.

Thank you.

Given this is a 53-week year with the extra week coming here in the First quarter, I wonder if you can quantify that extra week's impact on net sales and earnings, whether that's adjusted EBITDA or earnings per share, however you want to characterize it?

Great question. The extra week was baked into our guide, and there's noise in our year-over-year comps in Q1. It is really difficult to quantify the exact impact of the extra week with any sort of certainty I think the important thing, Alex, is that the trends are looking good.

The underlying growth rate of the business is around 3% to 5%. And as you pointed out, we have really broad-based growth geographically and from a market segmentation standpoint. Lastly, I'll just add, with the orders up 8% year-over-year, backlog up 18%. It gives us confidence in delivering to our guide, what again is a 3% to 5% growth for the rest of the year.

Awesome. You did though on the last conference call, say, the net impact for the full year of the 53 weeks is plus $10 million to $15 million, and that takes into account some dates of the holidays in this coming holiday season. So I assume there's a put and a take in that $10 million to $15 million estimate?

Really good memory. So if you think about Q4 not to get too complicated in the weeds, but this year in Q4, we'll have 2 holiday weeks versus last year, we only had 1 holiday week. So again, this is baked into our guide that there might be a little bit of drag on the growth rate in Q4. But again, that's all baked into our outlook.

Good. Helpful. And then you said global billings were up 16% in corporate. Obviously, it's obviously taking market share, and that's an acceleration from the fourth quarter when it was flat health care, a similar growth rate to the fourth quarter, up 11%. And then you mentioned education. I'm sorry, I might have missed it, but -- and I know it's an off-season quarter, so to speak, for education. But what was the growth in billings in Q1 on education?

Yes. Education was up 1% in Q1. And as you said, it's really -- we're heading into education season right now. So Q2 and early Q3 are when the bulk of our billings come for education, and we feel really confident in our continued momentum there. So a little bit of timing in Q1, but no change to the long-term outlook.

Great. And any other commentary on other segments? I know it drops off pretty quickly from there. But what's going on in retail, for example.

So yes, it does drop off. I mean, our 3 biggest segments, as you said, are Corporate, Education, Health. We had some nice growth in retail, a little bit of growth in retail in the quarter -- our government business was up a little bit, puts and takes here and there, but the big ones we've covered.

Great. And then -- the -- I think we talked about this last quarter, but -- and we anticipated a significantly lower tax rate year-over-year. Was that related to stock-based compensation, Bruce?

Well, that was in Q1 that we had that -- that's why our tax rate was low in Q1 is that our vesting happens for employees in Q1. And so -- it's -- again, it's very technical, but it's a discrete item. You take the deduction in the quarter that the vesting happens. However, I'm sure you noticed in our guide that our full year estimate is around 26%. So...

Okay. Great. And then last question, I think, for me, I mean I have 2 more. Backlog, up 18% -- can you offer some color there either by Americas versus EAAA or by a market segment? What's driving that -- I realize it's broad-based, but there should -- there's likely certain areas that stand out in terms of that up plus 18%?

I was going to say what you said, which is, honestly, it's really broad-based. Like we look across market segments, product category and region, and we're seeing really good backlog support. So it's pretty diverse and really healthy up 18%. So nothing really to call out specifically there.

Okay. And then this is truly my last question. It was about tariffs. What did you pay in tariffs in 2025, for example, what did you pay in Q1 of 2026 because these tariffs didn't come in play until Q2 of '25. And then related, is there a tariff refund possibility for Interface?

Yes. Great question. The tariff costs are all blended in our COGS. I think you might remember what we talked about previously is about 15% to 20% of our COGS are subject to tariffs. And of course, those rates are bouncing around a lot. There's nothing assumed in our guide around a tariff refund. It's a really dynamic situation, and we'll keep you posted as every evolves.

But Interface was the 1 paying the tax, right? It was a smart agent paying the tax.

Yes.

Yes. So theoretically, if it's out there, you could be eligible for it.

Yes. I mean I'm talking or no, that's how tariffs work is that the importer of record pays those tariffs. So yes.

Okay. Good. I'll wait and see how that unfolds. Thank you very much. And again, congrats on the quarter.

Thanks, Alex.

Your next question comes from the line of David MacGregor with Longbow Research.

Congratulations on the quarter. Strong quarter excellent EBITDA. Yes, really strong. I guess I wanted a few questions here, but maybe just start by talking about cadence within the quarter and I mean the office furniture guys are talking about having seen a very slow January and February and then March kind of picked up and yet underlying design and quote activity remained consistent throughout that period, which really implied people were kind of like just maybe tapping the brakes on purchase orders until the whole sort of dynamics from the Middle East kind of settled out a little bit at least.

Did you see a similar pattern like that in your business? And maybe just comment around what you saw in terms of patterns, timing-wise.

Yes. We actually -- we've been watching it like a hawk, obviously, like everybody and tracking it really closely. We haven't seen any real variation, like you're talking about, it's been really pretty steady and again, steady and broad based. So we've been watching it to see any tap of the brakes or pausing out there. We haven't seen any significant delays or anything like that, that would indicate that. And April looks good, too. So it sort of feels like really just steady growth.

Okay. And on the spec writing front, fairly consistent level of activity on...

Yes, really good activity. There's a lot. And as we talked a little bit about corporate office, there's a lot of activity. The return to work. We're definitely feeling continued strength in health care and then we're excited for the education season. So it feels honestly, it feels we're watching like crazy because it's a dynamic environment, but it feels really good out there.

Great. And within corporate office, how much of that is sort of tenant improvement with people renewing leases versus people just doing a refresh on the back to the office kind of dynamic?

It's probably mix. We would say, as you know, about 80% of our business is renovation work, and that's a combination of what you talked about versus new builds. So -- it's mostly that, but I think a lot of it is as people are encouraging folks to come back to work, they're refreshing their spaces and everybody is trying to get in the Class A space. So there's just a ton of activity that suits us really well.

Great. And then back to the office dynamic, what inning do you think we're in there?

It's -- I would say it's accelerating. It sort of started slow and some key companies mandating it, it's definitely accelerating. So we're seeing more and more -- just as you are more and more announcements of return to work and some of those put a time frame out like by August or by Q3 or that sort of thing giving their employees some notice. But man, it's -- it's accelerating everywhere...

More days being tacked on Yes. So if it was 2 days, as 4, now it's 4 or 5 use any more space.

Okay. interesting dynamics there. I guess if you could talk about the -- you mentioned mix as strength in the organic growth, price mix and manufacturing efficiencies -- can you just talk about carpet tile versus LVT versus Nora. I know there's a lot of new product that's rolling out in Nora and maybe in carpet tile as well. just how that mix dynamic played out and the extent to which you maybe think the line extensions drove that?

So we think about mix a lot. And if I start at the highest level, we look at country mix and our -- our U.S. business is our most profitable business. So what we do to grow the U.S. business is great and why we've been so focused on it. And then we go to product categories. And as you know, our Nora business, especially in the U.S., all of our product categories are good margins. But Nora is especially strong. So we love another reason why we've been really focused on accelerating that growth here in the U.S. So that certainly helps us.

And then carpet tile has been really really strong for us. A lot of the work that the organization, the supply chain organization has been doing on manufacturing efficiencies have helped certainly. But improving our volumes in our facilities is fantastic. The initiatives that we have on the approachable price points, so kind of line extensions, as you would say, in carpet tile, has been really exciting for our growth, but also for our profitability.

We've been really disciplined that teams, both across supply chain and design have done a really beautiful job designing product way for us to continue to expand our growth and margins.

Right Yes. tremendous success there. I wanted to ask you about the sustainability dynamic of your value proposition because tile has always been -- Interface has always been sort of perceived as the sustainability leaders goes all the way back to Ray Anderson, I guess -- yes. And I'm just wondering in this kind of an environment where energy prices are spiking. And so pretty much everything in the car a piece of car but comes out of a barrel of oil at some point or another.

Are you seeing some kind of competitive advantage off of that or more greater realization. I'm not asking the question very crisply here, but what I'm saying is you're getting an advantage out of this and...

I got you.

Other competitors are still producing from virgin elements and you've got a recycled backing recycled yarn product. I mean all of this should presumably give you some kind of an advantage. And I'm just wondering to the extent to which you may be realizing that?

Yes. It's a really good question. And over 50% of our inputs are recycled or bio-based materials. So that really helps us on the cost side, right? It's not that it's not tied to oil, but it's certainly mitigated because it's recycled content. So it helps on the cost side.

And then certainly, from a value perspective, -- our customers love buying our products because of our low carbon footprint, and they help their carbon goals is the built environment is such a big -- a big portion of those companies' carbon impact. So it helps us on the demand side and selling our product to customers to care about sustainability and then on the cost side as well.

I would just add on to that. It's really amplifies the value proposition of who we are and highlights the purpose and value behind our brand. So it's interesting, this all. We hope that all this Middle East conflict stuff gets resolved soon. But in -- the silver lining is that it really highlights some of the value of the company.

Yes. I wanted to ask you about manufacturing efficiencies because this is sort of the gift that keeps on giving under One Interface, I guess, and all the new products that are rolling out and everything that you're doing. From a magnitude standpoint, I'm trying to get a sense of how this contributes going forward. Do we see manufacturing efficiencies with the investments in automation and everything that you're doing contributing in a larger manner to the gross margin progression? Or do you feel like the biggest pieces of this have been realized it will continue to contribute, but maybe in a diminishing marginal pattern?

I would say the team is doing an incredible job and the power of the team working together across the globe as they find new ideas every day. And so when we think we've got our robotic solutions that we put in play as an example, we've now taken that just taken that live in our European and our Australia operations. So that's sort of yet to pay off. [

And then there are more and more efficiencies that we're finding whether it relates to robotics for packaging and for cutting. So I -- the team has made so much progress there, which I'm so proud of, but I think there's a lot more room to go.

A lot more to go. Interesting. I guess I have to ask about the balance sheet when you got 0.6% leverage. I mean, just a tremendous amount of progress made here over the past few years, obviously provide you with a lot more optionality Bruce, you walked through sort of the priorities of capital allocation, but it seems like you've got the latitude at this point to do a little bit of everything or a lot of everything as the case may be.

How do we think about sort of the acquisition opportunity here right now, notwithstanding the need to reinvest in the business and the desire to repurchase stock. But isolating M&A and just talking about how you're thinking about that opportunity. If you've got a funnel, how that funnel may be developing, where you see white space, where you see the need to maybe supplement the existing model. Just talk about that strategically, if you would.

Yes. I'll talk about it maybe at a higher level, which is -- and we say sort of you heard us say this before, M&A is not required to achieve our goals. But as you said, our balance sheet is in great shape. And we feel good about our strategy and execution and have clarity around where we think we can continue to grow and what opportunities that means for us.

So I'll tell you, we'll be rigorous and disciplined and it's got to align with our strategy, which I think we're clear about and then accelerate our growth and our margins. So we're working in that space and excited about what it may mean for us for the future, but also super heads down on our current execution of our organic plan.

Great. Do you proceed within kind of the existing lines where you've got the carpet tile and the LVT and the Nora, could you add a fourth category? Or would you be looking to kind of supplement what you've got?

We could -- I think we put it through the lens of our customer first and really see what is it that they need? How can we continue to help serve them -- as I think about our noravant expansion, that really came through the lens of the customer and looking at our hospital and health care systems and seeing that they were looking for a product that had the benefits of rubber but the look of a wood grain, a warmer look for their patient rooms.

And so the team did incredible work to launch that right through new products. That's an example of how we're thinking about it, whether it's an innovation we develop ourselves for an inorganic opportunity, it's really how can we continue to help our customers.

Your next question comes from the line of Reuben Garner with the Benchmark Company.

This is John McGlade on for Ruben. Just congratulations on the impressive quarter. Great way to end the week.

Thanks, John.

So I I know it's still early days, but I was hoping maybe you could dive into how the Norman reception has gone from the customers. Maybe any differences you're seeing in customers that are familiar with your existing products and then have that familiarity with the technical specs and requirements that they need for their facilities -- does that have any impact on maybe what that selling cycle looks like early days?

Yes, it's a great question. I'd start by saying it's off to a really great start. Our sellers got the products in their hands early -- end of Feb, early March. So -- and it's -- they're showing it to their customers really for the first time. The sample requests are really high, as you can imagine, as everyone is trying to really get an understanding for what this product can do. And it's building momentum as we expected.

And as you're suggesting, our current health care customers are the closest probably -- we sell Nora in a lot of places, obviously, but our health care customers, I think, are the closest in to understand the need. They understand the technical strength and properties of the current Nora offering and how well it does in infectious areas and maintenance control and that sort of thing.

So I think they're the closest in and really understanding what this product category can do. There's a lot of interest in other categories as well in other end markets as well. But I think we'll see the quickest uptake in health care where they're most familiar with the technical requirements, as you suggest.

Okay. That's great. I know you mentioned earlier and you just kind of mentioned it again that you're finding other places that Nora can kind of serve the market. in general, are those outside of health care and education? Or is that just kind of different subsegments within those end markets?

So I would say education has always been -- our team in Germany does an incredible job in education and has for years. And I would say that's an end market in the U.S. as our U.S. selling team has really amplified their focus on Nora that we've really unlocked in education. So that's been a real -- that's 1 of the strongest growth drivers is education.

And then when we look beyond that, other areas like labs, are continuing to grow. Industry transportation continues to be a strong end market, and there's a couple of different ways to think about that. One is on trains and subways and that sort of thing, which those are growing around the world and Nora is a great solution there. But then also in airports, Nora has been a really strong product category for airports, we're continue to seeing that grow as well.

So Health Care and Education are the biggest. Education is growing really, really well, especially in the U.S. and then we're really discovering additional opportunities for it, as I mentioned.

Okay. That's fantastic to hear. I guess also, I know you're still kind of monitoring the situation. But obviously, gross margin came in very strong for the quarter. And just kind of given all the macro changes that have happened since the last call. I know there was a comment earlier that there are some offsets that are available as costs change. Can you kind of run us through what levers you have available to pull maybe any lags between that? Is it as simple as just a surcharge or a price increase? Or is there some additional dynamics there with how customers are able to take these orders and take these cost pass-throughs?

So we're -- yes, it's -- as you said, it's dynamic, and we're navigating through it. We have deployed some modest pricing across the globe. So it's not as a surcharge. We try to do it the best we can with new product launches and other ways that are easy for our customers to absorb -- so I think pricing and then additional productivity will help us to offset it. The other thing that we have in our toolkit that we -- it's newer for us, I guess, is this focus on approachable price point products.

So in the past, if a customer -- our customers if they're under cost pressure, we may not have had a solution for them or we might have had to take a really aggressive price on a more premium product which would impact our margins. And now our sellers have a great option to offer something at a more approachable price points when those costs are tough for our customers. So I think we've got a really good way to augment the situation by taken a little bit of price, making sure that we've got good offerings for our customers at all price points and then continuing to push the productivity lever.

Okay. That's great strategy there. I appreciate you taking the questions, and congratulations on the quarter and look forward to talking to you soon.

There are no further questions at this time. I will now turn the call back to Laurel Hurd, President and Chief Executive Officer, for closing remarks.

Great. Well, I just want to say again, thanks to the entire Interface team for all the great work you do every day. So proud of this team, and thank you for everything you do to serve our customers, and thanks for everyone's time today listening to the call.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to Interface, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Christine Needles, Corporate Communications. Please go ahead.

Good morning, and welcome to Interface's conference call regarding fourth quarter and full year 2025 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 as supplemented in our first quarter 2025 10-Q. 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 rerecorded 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. 2025 was a record year for Interface as net sales, adjusted operating income and adjusted EBITDA reached their highest levels in the company's history driven by One Interface strategy.

We introduced the One Interface strategy in 2023 and committing to a set of initiatives that focus on building strong global functions to support our world-class local selling team, accelerating growth through enhanced commercial productivity, expanding margins through global supply chain management and simplifying operations and leading in design, performance and sustainability.

Since launching this strategy, we've carried out these initiatives and delivered growth and margin expansion that has outpaced the industry through strong execution across the business. For the full year, currency-neutral net sales increased 4% year-over-year driven by broad-based growth across all regions and key market segments. In addition, all 3 product categories grew in both price and volume. This growth, coupled with operational efficiency gains, expanded our adjusted gross profit margin to 39%. Commercial productivity has been a fundamental growth driver and remains central to our strategy. Our combined U.S. selling team model is a key enabler, allowing us to harness the full strength of our sales organization and present a single cohesive interface to our customers across carpet tile, LVT and nora Rubber.

The U.S. team is successfully cross-selling competing more effectively, winning more of the floor plate and deepening customer relationships. The growth of our nora Rubber business in 2025 is a standout example of how our combined teams can help drive momentum. Global rubber billings were up 17% in 2025 compared to the prior year. We will continue to build on this in 2026 and beyond. The success in the U.S. reinforces our confidence in the scalability of this model, and it provides a lot of runway for us to expand our business in health care and education across the globe, further leveraging our local selling team. We're just getting started and excited to build on our early success.

Supporting this commercial momentum, we have continued to strengthen and globalize our manufacturing and supply chain team. In 2025, we further aligned our global supply chain around productivity, continuous improvement and technology-enabled solutions. Our ongoing investments in automation and robotics generated productivity gains and margin expansion. During the year, we automated key processes in our U.S. carpet tile operations, including material handling and other labor-intensive sets. We also invested in automation in our nora plant to support growth in our Core nora platform. These actions have improved efficiency, reduced waste and enhanced customer service levels, while positioning us for growth.

Building on the success of automation in our U.S. carpet tile operations, we are now extending these robotic solutions to our facilities in Europe and Australia. We are also further automating our carpet tile facilities to include more efficient cutting and packaging processes that will drive additional efficiencies. Looking ahead, we will continue to reinvest efficiency-driven savings into additional automation, productivity initiatives and workflow optimization, scaling proven solutions across our global operations.

Paramount to our strategy is a continued focus on product innovation that expands our addressable market as a key driver of growth. With this as a backdrop, this week, we are launching nora vanta a groundbreaking rubber flooring innovation that will open new design possibilities in the resilient category. This sheet platform that is PVC-free combines high-performance, design flexibility and enhanced sustainability, complementing our existing nora ment and nora pon platform. We've developed a completely new rubber offering that will compete at the premium end of the vinyl sheet category. This is an incremental growth opportunity that we expect will meaningfully expand our addressable market and resilient over time.

Importantly, it will allow us to deliver elevated rubber aesthetics to more spaces where we continue to see opportunity for growth, particularly in health care and education. The initial product, Noravont Timber is the industry's first wood grain design and rubber flooring and expands the range of environments where rubber might be specified, including patient rooms, classrooms, corridors and waiting areas.

Looking specifically at our opportunity in health care, patient rooms represent a sizable portion of the hospital floor plate. Noravant Timber is ideal for this type of application. We launched with the Wood Grand look to support strong demand from health care customers for patient rooms to look more like luxury hotel rooms. Noravant is a design-forward PVC-free cheat solution that also meets elevated performance, cleaning and durability requirements, needs that aren't fully served by other products on the market or in our portfolio. We view Nora van as an important multiyear growth platform.

Given Nora's longer selling cycle, which can stand several quarters, we expect NoravantTimber to begin contributing to growth in the fourth quarter of 2026 and build over time. We will continue to invest in Nora automation to support growth in our existing Nora platforms while also expanding capacity to meet anticipated demand for Noront. We also continue to lead in design. We've been focused on expanding our addressable market by offering collections at more approachable price points while pushing our design leadership at premium price points. We've done this with the open air collection in Karpaty and with our 3-millimeter offering of LVT. These collections are largely incremental to our business and help us to better serve our customers' needs and to drive market share gains while also achieving our gross margin goals. We have the high confidence that this is working, and we will continue to expand our offerings in these areas in 2026.

Our commitment to sustainability continues to underpin our product development and innovation, and it differentiates us in the marketplace. We make sustainability specifiable with a broad range of low carbon products, the highest amount of recycled in bio-based materials globally in the flooring industry and tools that make it easier for our customers to understand the carbon impact of their choices, like our carbon calculator and carbon footprint data on our floor plans.

In 2025, we unveiled the first-ever cradle-to-gate carbon-negative rubber prototype and began incorporate and capture carbon in our U.S. and European carpet tile manufacturing processes. We also continue to be recognized externally, including earning a spot on Newsweek's most responsible companies list and being named for the 28th consecutive year in Global Scan and ERM's 2025 Sustainability Leader Survey. As we move forward, sustainability remains embedded in how we design and innovate in how we stand out and differentiate in the market.

Let me now turn to our financial results. For the full year, we delivered 4% year-over-year currency-neutral net sales growth with both price and volume increasing across all 3 product categories, reflecting strong execution and continued share gains. Growth was fueled by strong performance in the Americas, where currency-neutral net sales increased 5% year-over-year, driven by our One Interface combined selling team and strength across key market segments, particularly health care and education. In EAAA, currency-neutral net sales increased 2% for the year, reflecting improving trends despite still challenging macro environment in certain markets.

Turning to our market segments. In 2025, Global Healthcare billings were up 21% year-over-year with double-digit gains in the Americas and EAAA. Our broad and differentiated product portfolio with segment-focused offerings across carpet tile, LVT and rubber is helping us capture opportunities as the global health care sector evolves. We're seeing increased investment in health care facilities to adapt to the needs of aging population and a growing focus on preventative care. Nora remains a standout performer in this segment, and we continue to accelerate investments to support sustained growth in health care globally.

Education billings increased 8% for the full year, reflecting the success of our expanded, more approachable collection offering. We remain well positioned across both K-12 and higher education. Our design leadership, durable performance characteristics and low carbon footprint products are resonating with specifiers and procurement teams. Macro tailwinds continue to underpin multiyear demand. Modernization continues and our broader range of price points help us win projects cross a wide range of budgets.

Corporate office billings were up slightly for the year as expected. We continue to take share in Class A spaces where our brand positioning, design leadership and sustainability credentials differentiate us. Companies continue to reinvest in higher quality spaces and execute targeted refresh programs to support return to office and hybrid work environments. We are capturing refresh and SEC opportunities that position us well for continued growth.

As we look to 2026, our focus is to continue leveraging what's working and to advance to the next phase of our One Interface strategy. We expect to continue gaining share by expanding our addressable market through approachable price points in addition to our premium designs through launching innovative new platforms like Noravont Timber and through scaling commercial productivity globally. This will deepen our presence in health care and education to further strengthen our market segment diversification efforts and continue to drive growth. The progress we've made under our One Interface strategy also gives us confidence in our ability to continue expanding margins.

We will continue to pursue automation and productivity gains in our manufacturing facilities and leverage mix by prioritizing growth in our most profitable categories and markets. We will maintain a disciplined approach on SG&A prioritizing investments that drive profitable growth and innovation while continuing to deliver efficiencies that expand margins.

With that, I'll turn it over to Bruce.

Well, thank you, Laurel, and good morning, everyone. All comparisons provided are year-over-year versus the fourth quarter of 2024, unless otherwise noted. Fourth quarter net sales were $349.4 million, up 4.3% as reported and 1.6% on a currency-neutral basis. Fourth quarter currency-neutral net sales were flat in Americas on a strong prior year comp of 9.6% and up 4.1% in EAAA.

Adjusted gross profit margin was 38.6%, up 169 basis points on favorable pricing and favorable product mix, partially offset by higher input costs.

In the fourth quarter of 2025, we recorded a nonrecurring inventory reserve adjustment that benefited adjusted gross profit margin by approximately 80 basis points. This item will not recur going forward.

Adjusted SG&A expenses were $96.6 million in the fourth quarter compared to $90.8 million. The increase was primarily due to FX translation, higher salary and fringe on mirror related inflation and higher variable compensation on increased sales and profits.

Adjusted operating income was $38.2 million, up 16.7% compared to $32.8 million. Adjusted EBITDA was $49.8 million, up 8.2%.

Our fourth quarter adjusted effective income tax rate benefited from the release of a $2.9 million valuation allowance primarily related to the use of foreign tax credits. This benefit is not expected to recur and this nonrecurring benefit added $0.05 for our fourth quarter and full year adjusted EPS.

Fourth quarter's adjusted EPS was $0.49, up 44.1% and compared to $0.34. Fourth quarter consolidated currency-neutral orders increased 2% year-over-year, Americas was up 3% on top of a prior year order growth rate of 9%. EAAA's fourth quarter order growth was flat year-over-year on a softer macro environment.

Turning to our full year 2025 results. All comparisons provided are year-over-year versus the fiscal year 2024, unless otherwise noted. Full year net sales totaled $1.39 billion, up 5.4% and at the high end of our expectations. Currency-neutral net sales increased 4.3%. Currency-neutral net sales in the Americas increased 5.5%, while currency-neutral net sales in EAAA increased 2.4%, reflecting improving trends in our international markets.

Full year adjusted gross profit margin increased to 39%, up 187 basis points driven by favorable pricing, improved mix and manufacturing efficiencies, partially offset by higher input costs. This includes a 50 basis point benefit from a nonrecurring inventory reserve adjustment as a result of strong inventory management. Excluding this benefit, adjusted gross profit margin would have been approximately 38.5%.

Adjusted SG&A expenses were $366.7 million in 2025 compared to $346.7 million and flat year-over-year as a percentage of net sales. The increase in SG&A dollars was primarily due to FX translation, higher salary and fringe on merit-related inflation and higher variable compensation on increased sales and profits.

For the full year, adjusted operating income was $173.8 million, up 22.9% compared to $141.4 million. Adjusted EBITDA was $217.9 million, up 15.3% compared to $189 million.

Adjusted earnings per diluted share was $1.94, a 33% increase versus $1.46. With the strong results in this context, I'd now like to turn to capital allocation. As we've described previously, we follow a balanced capital allocation strategy that prioritizes investing in the business, in areas like innovation and productivity with the goal of driving operational efficiencies, margin expansion and growth.

Second, we focus on managing leverage through a disciplined use of debt to manage net debt conservatively.

Third, having achieved several operating goals ahead of schedule, reinforcing our confidence as we move into the next phase of our One Interface strategy, we will continue exploring potential M&A opportunities through a rigorous and disciplined process. We do not need M&A to achieve our goals, but we will continue to evaluate opportunities that are aligned with our current strategy and that can accelerate growth and margins.

Lastly, and importantly, we continue to be committed to returning excess cash to shareholders through a combination of dividends and disciplined share repurchases. These 4 objectives encapsulate our balanced capital allocation strategy. To recap our progress on these objectives, I'd like to highlight several key accomplishments from fiscal year 2025. We generated $167.9 million of cash from operating activities in 2025 compared to $148.4 million in fiscal year 2024.

With investing in the business as our top priority, capital expenditures were $46.2 million in fiscal year 2025 compared to $33.8 million in 2024. In fiscal year 2026, we expect capital expenditures to increase to $55 million as we invest in additional automation and productivity initiatives to support operational efficiencies and growth, including equipment investments related to the new nora vant product line.

We also managed net leverage conservatively through a disciplined use of debt. In December 2025, we opportunistically amended and extended the maturity date of our syndicated credit facility to 2030. The amendment added a new $170 million term loan facility that was used along with cash on hand to fully redeem our $300 million of senior notes that were due in 2028. These transactions strengthened our balance sheet by reducing interest expense and extending our remaining debt maturities while providing flexibility to continue paying down debt.

During fiscal year 2025, we repaid approximately $124 million of debt. In addition, we remain focused on returning excess cash to shareholders. In the fourth quarter of 2025, we repurchased $13 million of interface common stock. And for the full fiscal year, we repurchased $18.2 million. In 2026, we plan to continue executing share repurchases in a disciplined and opportunistic fashion. In addition, our Board recently approved an increase in the quarterly dividend from $0.02 to $0.03 per share, reflecting confidence in our cash flow generation and our earnings durability.

Turning to our outlook. We entered 2026 with solid orders and a healthy backlog up 7% year-to-date, while remaining mindful of ongoing macro uncertainty and a competitive industry environment. Notably, fiscal year 2026 includes 53 weeks, a realignment that happens every 5 or 6 years to synchronize our fiscal calendar with the calendar year. With an extra week in the first quarter of 2026 in the way that holidays fall in the fourth quarter of fiscal 2026, net-net, we anticipate this will add approximately $5 million to $10 million to net sales for the full fiscal year.

With that context, we anticipate the following: for the first quarter of fiscal 2026, net sales of $315 million to $325 million, adjusted gross profit margin of approximately 38% of net sales, adjusted SG&A expenses of approximately $94 million, adjusted interest and other expenses of approximately $4 million, an adjusted effective income tax rate of approximately 18% and fully diluted weighted average share count of approximately 59.1 million shares.

And for the full fiscal year of 2026, we anticipate net sales of $1.42 billion to $1.46 billion. Adjusted gross profit margin of approximately $38.5 million to 39% of net sales. Adjusted SG&A expenses of approximately 26.2% to 26.4% of net sales. Adjusted interest and other expenses of approximately $16 million. And adjusted effective income tax rate of approximately 25% to 26%. And capital expenditures of approximately $55 million.

And with that, I'll turn the call back to Laurel for concluding remarks.

Thanks, Bruce. I want to close by saying how proud I am of what our teams accomplished in 2025. And I want to thank our customers for trusting us and choosing Interface. This was a record year for the company delivered through strong execution of our One Interface strategy and we're just getting started. We entered 2026 with confidence in our strategy and our ability to create long-term value for our shareholders.

With that, I will open it up to questions. Operator?

[Operator Instructions] Your first question. Your first question comes from the line of Brian Biros of TRG.

Can you maybe talk a little bit further about the 1 interface selling strategy here? It seems like it's been very successful so far, a few years into it given the outperformance in sales and margins so far? Maybe just help us understand a little bit more on what is still to be rolled out and felt across the business?

Yes, it's a great question. So we're really proud of the execution today at the One Interface strategy, as he said, is -- especially with the combined selling teams in the U.S. is off to a really strong start. We're making a lot of progress, as you saw, our health care billings in the year were up 21%, our nora business was up 17%. And I really do think that's a lot to do with the combined selling teams. But I think we're just getting started. We have 2 main opportunities that I'll hit on. The first is the launch of noravant, which is really exciting for us. This is a wood grain look in rubber, a first of its kind, and we expect that to be a really exciting long-term growth opportunity.

As you know, our nora selling cycle is a bit longer. So we expect that we just rolled it out last week at our sales meeting, and our sellers now have samples in hand, so they're now starting to share that with customers. And we expect that to start generating revenue by the fourth quarter. It will probably be somewhere $5 million, $10 million this year, but then expand over time. So we're excited about that.

And then secondly, we've learned a lot about our combined selling teams in the U.S., and we're taking those learnings across the globe. We still have a lot of runway to go to expand health care and education, not only in the U.S. market, but in markets around the world.

On gross margins, came in very strong at the end of the year here, I guess, on an adjusted, adjusted basis, kind of at that aspirational 38.5%, you've talked about before, great to see. 2026 guidance, also great to see, continued expansion there, 38.5% to 39%. Can you, I guess, maybe just talk about some puts and takes for margins in 2026?

Yes. so Brian, thanks for noticing. It was great to see us achieve our long-term ambition of 38.5% and ahead of schedule. And as you mentioned, anything north of that baseline of 38.5% will be improvement. So just to put a finer point on it, if we achieve our high end, it's actually about 100 basis points of improvement that we will achieve this year. And there's 2 components to that. We're offsetting about 50 basis points of tariff-related headwinds and then we're offsetting about 50 basis points of -- due to the inventory adjustment that we mentioned in our prepared that got us to the baseline.

So we are very pleased with the progress that we've made around gross profit margin. A lot of the benefit is going to continue coming from the automation that we have put in a plate in our existing factories. I sometimes call out, we'll get a little bit of a wraparound effect of that. And we're also putting some more of that same equipment into our international markets. We're putting some equipment into our Australia plant, some equipment into our plant in Northern Ireland. And we continue to also make investments in automation and efficiency-related equipment in our nora plant. So you put all that together, and we're expecting to continue to drive gross margin expansion, and I think that we're really pleased with the progress. And we're off to a good start continuing continue driving for this year.

I see where that goes for '26. Last one for me. Can you talk about the introduction of these more accessible price point products kind of if that's fully rolled out already or if there are still more products in that kind of category to introduce in '26? And maybe if there's any difference in kind of the sales growth between those products and the other kind of legacy products?

Yes, sure. So we have one platform that we continue to build on. We call it the Open Air platform or the open collective as we continue to expand it. So we're seeing a lot of success in that collection. We continue to roll out new colors and styles there, which is great. We've got some warmer colors rolling out there. And then we will be launching a whole new collection as well in the middle of the year, which has a different design look and feel. So we're finding -- we do a lot, as you know, we do a lot of test and learns, and we wanted to make sure that we could maintain our premium offering in carpet tile as an example, while expanding incrementally this more mid-price point for us. And we really have proven that we could do that.

We've also done the design work. I'm really proud of our design and manufacturing teams working together. So the designs that we come out within those price points, we still are happy with the margins on, so we're not dilutive there. So we are pleased with the progress, and we'll continue the momentum in there.

Your next question comes from the line of David McGregor of Longbow Research.

Congratulations on all the progress. It's wonderful to see. I guess I wanted to begin by just asking you about the difference between kind of the corporate growth, which was kind of flat versus what was obviously very strong health care and education. How would you characterize the corporate market right now? And was there something was there as an offset that left you flat? Or just maybe help us better understand that differential.

Yes. So I would say this, the corporate business we've said we wanted to grow that business this year. We were up about 0.5 point globally for the year, and that was about in line with our expectations. The market continues to -- we feel great about the overall corporate market, as we've said before, the Class A space remains in demand. We're also excited to see that markets like New York and San Francisco are coming back stronger. But globally, it's a competitive market, and we continue to focus on gaining share in that space, which we're doing nicely.

And then as you said, our health care and education grew very nicely for the year, for the quarter and feel good about that. Our retail business in the quarter, I think that's what you're poking at in the quarter growth. Our retail business can be a little bit choppy as we've seen over time, and that was a little bit soft in the quarter. So that dragged this down a bit, but more than offset by the health care and education growth.

And David, I think what you're seeing is strong execution in place. We talked a lot about diversifying the company around product categories, which we've done with carpet tile, LVT and rubber. And we've also talked about continuing to strengthen the company through segmentation. And we're really seeing that demonstrated on the P&L through these growth rates in education and health care, which is fantastic to see. So often you see companies state a strategy and you wonder where is that showing up in the P&L. And I think we're the debt opposite of that. Our strategy is actually revealing itself on the P&L, which is fantastic to see.

Okay. Good. And then you talked about the 7% increase in backlog. Could you just kind of open that up a little bit to the extent you can or you feel comfortable discussing? And just help us understand North America versus EAAA and the contribution from the Open Air platform versus the premium spec product and just maybe a little more detail around that backlog number?

So it's our normal blended business. It's a good solid backlog. We feel really good about it. And we feel that gives us air cover as we enter into 2026, which also gives us comfort around -- as you can see, we gave a good, strong guide for Q1. And so with our order rates and our backlog, it gives us confidence as we enter into 2026 and enter our guide for Q1.

And it's pretty consistently spread across all the initiatives. I don't think there's one thing weighing it more heavily than others.

Yes. So it's pretty broad. Okay. That's interesting. And then just talk a little bit about -- you talked about the SG&A discipline on your prepared remarks. I mean a lot of growth opportunity here, which is really encouraging, but how do you make sure that as you pursue those growth opportunities, you're also kind of managing that SG&A and we don't repeat the sins of the past that occurred long before your arrival, but we're probably a big issue? And -- just talk about the leverage opportunity there.

Yes. I would say that, and Bruce is an awesome partner on SG&A control. I feel very comfortable. We know where every dollar is and are very, very disciplined in what and how we spend it. We do a lot of gating of spend as well. So we're sure that we're ready to spend the money.

As we've mentioned before, we're focused on making sure that we drive the front end of the business, so the sales and innovation get the investment while we do everything possible to be efficient on the back end of the business. And as you know, also, our -- a lot of our SG&A is variable compensation that's tied to revenue. So that's also another nice element that we have that will flex up and down.

Okay. the last question for me was just costs. And you talked about costs a couple of times, both on the quarter and on the annual numbers as offsets to price/mix benefit. How should we think about what you've got embedded in your guide and kind of where the surprises could potentially occur?

Well, let's talk about our assumptions first. We're assuming some modest inflation in our raw materials. We're assuming status quo around tariff-related costs. And obviously, that's a moving target that we're watching daily.

And David, the second part of your question was surprises. I think that one of the things that we are really focused on is that as a good management team and as being strong operators, surprises are going to come our way. We just have to navigate through, but we just have to work through them, and we need to -- for example, if there's an increase in tariff costs, we just need to make sure that we offset those through continued pricing and productivity initiatives. And so we take this business day by day, week by week, month by month and we make sure that whatever is coming at us that we continue to navigate through it and that we achieve our goals.

Congratulations on all the progress.

Your next question comes from the line of Reuben Garner, Benchmark.

I was wondering if you had any insight into your business in the U.S. by geography and/or customer size? In other words, any signs of acceleration in maybe some of the major cities, any signs of acceleration with some of your larger customers of late?

Yes. We've seen the -- in the U.S., I would say, and this is maybe particularly to the corporate side of the business. We've really seen New York and the Bay Area come back strong. So they were definitely obviously harder hit in COVID. It took a longer time to recover, but we're seeing those really strengthen, which is encouraging. Texas remains strong. The Southeast again remains strong. So we're seeing that regional migration continue to happen.

And with respect to our customer size, we do a lot of our business, about 80% of our business is renovation and 20% new construction. So I don't have a lot to add with respect to customer size. I think they're all kind of in the same trend.

Yes. And one thing that helps us, Reuben, is that our customer concentration is so low I think that that's another strength of the business. We're not dependent on any 1 or 2 or 3 or 4 customers. We have a big diverse group of customers, which I think is actually a strength.

Great. And then the health care and education pieces of your business were very strong. Can you dive a little more in -- how much of that do you think is share gain? How much kind of runway you see in spending in those 2 particular categories as we get into '26 and beyond?

Yes, sure. We love the macro environment about -- around both health care and education for Interface. But I'll take each of them. Education is, we both K-12 and higher ed, have some nice tailwinds around them. There's investment happening there. And they prefer products like Interface. So we've got a strong product offering. They care about their carbon footprint and really well aligned to our strategy.

There are some share gains in education. A lot of the expanding our approachable price points across both LVT and carpet has given us more access and share gains in K-12, especially. So that's been a nice win for us.

And then health care. Again, great macros there with the aging population, more focus on preventative care, a lot of technology happening in health care that we think will continue to benefit us to strong environment and then again, some share gains there. So this is the place that has been most strongly impacted by our combined selling team where we have our sales force focused on each market. They're focused on all of the product categories that we sell, Interface and nora, that's really unlocked some health care environment.

So an example of that, where we may have had a really strong nora business with a particular health care customer, but we hadn't had carpet tile in the waiting room or LVT in -- outside of an elevator bank. We're now selling them the full suite of products, which is really helping us grow our overall health care business.

And Brian -- I'm sorry, Reuben, we have a -- one of the things that's great about these 2 market segments because we just have such a strong right to win inside of them. If you look at how our products are made and how they are catered around design, performance and sustainability, both of these market segments are just so well suited for exactly what we do and we're -- and how we do it, which is -- that's why we are, I think, seeing the traction that we're seeing.

Great. Congrats on the strong close to the year and good luck in '26.

Your next question comes from the line of Alex Paris of Barrington Research.

And I'll just do a few cleanup cats and dogs here. Congrats on the quarter. Much better than expected, even if you exclude that nonrecurring inventory adjustment, I think adjusted gross margins would have been 37.8%. If you exclude it, and that's above both our estimates and consensus, yes. So -- and then EPS excluding that. So -- and that still exceeds. So I just wanted to talk, first of all, about Q1. I get it extra week. The -- and also before we get into it, adjusted gross margin is really just gross margin because the amortization is -- the add back of amortization is behind us, right?

Are you referring to the nora purchase accounting amortization?

Yes, I'm sorry, yes.

Yes. That's no longer hitting the P&L. That's totally burned off.

Okay. And that was essentially the add-back for adjusted gross margins. So we're just -- we're talking GAAP gross margins. All right. So the gross margin forecast for first quarter is above our expectations. Why is the tax rate so low? Does that have something to do with the inventory adjustment?

I know you're in Q1. Yes, the main reason is that -- so this is when stock or when our employees have their LTI vest, and -- this is pretty mechanical, but I'll get into it. So if you take the strike price between the market price, that is a tax deduction that we -- that the company gets and you get that deduction in the period of vesting, which happens in Q1. And so that is a tax deduction in the quarter in Q1, which is why the rate -- our tax rate is lower in Q1.

Got you, because for the full year, it's 25% to 26%, which is more in line with our expectations.

Exactly. But in Q1, we get a nice -- we get a deduction for that, what I just described.

Got you. I appreciate that color. And then Bruce, your comments about gross margins lead me to another question. For the full year, you're guiding for adjusted gross margin of 38.5% to 39%, you said at the high end, that would kind of represent a 100 basis point increase because you got a couple of grow-overs the tariff impact and the inventory adjustment. First question about the tariffs. What was the impact of tariffs in 2025? And what is the impact of tariffs based on what you know now? I know it's a moving target into '26.

So in 2025, if you look at our gross profit percentage, it diluted our percentage by around 20 basis points. And we're anticipating that it will be about 50 basis points year-over-year impact going into 2026.

Is that part of the -- is it because there was no impact in Q1 of 2025, you got 4 quarters of it this time?

That's right. I think tariffs started kicking in sort of in the middle of last year. They started, I think, in Q2, but they really started kicking in the back half. So anyway.

And then any impacts...

I just want to clarify, we're covering dollar-for-dollar. I want to make sure that I'm doing a good job communicating. We're covering dollar for dollar, but it does have a dilutive impact on our GP percentage.

Yes. I think you mentioned it last quarter. I appreciate that. And then any impact that you could determine at this point with the Supreme Court's decision to strike down the previous tariffs and replace them with 10% and 15% reciprocal tariffs? Is there any incremental impact? Or is it too soon to figure that out right now?

Yes. Great question. We're obviously watched day by day. It was interesting. We were at 15% tariffs last week and then the Supreme Court struck that down as you just mentioned. And then on Saturday, we were back to 15% kind of right back where we started. So we'll see. It's to be determined. It's obviously moving target day by day.

Okay. And then I think my last question here. Can I get global billings by category, health care, corporate office, education, for Q4? You gave it for a full year.

Yes, I can give you that, Alex. So let's see. Corporate globally in the quarter, corporate was flat. Education was up 11.6%, so between 11% and 12%, and health care was up $11.7 million.

Great. Just trying to see if there's anything else here. No, I think that said, again. Great quarter and great guide. Thanks for the additional color, and we will follow up offline.

Your next question comes from the line of David MacGregor of Longbow Research.

Just I guess a high-level question that kind of ties back to noravant. And you've made such great progress with One Interface in terms of the reconfiguration of how you go to market. So much more efficient. Your coverage is so much better now than it's been in the past. Does that lead you to -- within the broader thought of capital allocation, start thinking more about investing in new product development and coming up with whatever comes after noravant and just pursuing other product categories or the marketeers? Just maybe talk about the inclination to lean more aggressively into product development and leverage the benefits on go-to-market.

Yes. Thanks for asking the question, and we're really excited about noravon. I think you're hitting on exactly the right point. So I appreciate you bringing it up. we're really focused on innovation. And I think we're just getting started here as well. Obviously, innovation takes time, and we've got incredible folks across our R&D organization and our product organization and design who have incredible ideas and technology that really support our strategy and align with our brand.

So very sustainable technologies. And we're lining them up. As you know, we added a new leader of product category management, who's really focused on helping us identify the commercial opportunities that take all of the great innovation that we're working on and bring it to market effectively. So noravant, I think, is a really big platform for us that we expect to drive growth. We would say this product category, and it is really a new category for us, could deliver somewhere $50 million to $100 million over the next 5 years.

So it's a really important platform, and we'll continue to bring out the beauty of this product category. We're starting with a wood grain look, but it gives us a ton of design flexibility and the ability for us to bring interfaces design capabilities to rubber in a whole new way is really, really exciting. So I think you're going to see a lot of runway on this category for us. And we've got more in the work. So again, it takes time, but we're really focused on it and I think there's a lot of ammunition here for us to go.

There are no further questions at this time. And with that, I will now turn the call over to Laurel Hurd, President and Chief Executive Officer, for final closing remarks. Please go ahead.

Great. Thanks, Paul. I just want to thank the entire Interface team on -- for all of the progress in 2025, just a fantastic year. And thanks to everyone's support. Thanks to all of our customers. And thanks to everyone for joining the call.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

Thank you for standing by, and welcome to the Interface Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Christine Needles, Global Communications. You may begin.

Good morning, and welcome to Interface's conference call regarding third quarter 2025 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 as supplemented in our first quarter 10-Q.

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 rerecorded or rebroadcasted without Interface's expressed 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. Interface delivered another strong quarter, exceeding our expectations with currency-neutral net sales growth of 4% and significant profitability gains. We saw continued strength in the Americas and increased momentum in EAAA with broad-based growth across all regions, all product categories and the majority of our market segments. We are pleased with the quality of our earnings. Net sales increased through a balanced mix of price and volume and adjusted gross profit margin expanded by 208 basis points driven by favorable mix and manufacturing efficiencies. This consistent execution underscores the power of our diversified portfolio, the strength of our brand and ongoing share gains in key markets. I'm proud of the Interface team and their unwavering commitment to serving our customers.

Our One Interface strategy is driving these results. As we've discussed before, this multiyear plan is focused on building strong global functions to support our world-class local selling team, accelerating growth through enhanced commercial productivity, expanding margin through global supply chain management and simplifying operations and leading in design, performance and sustainability. Since launching our One Interface sales team structure in the U.S. in January 2024, we've been delivering a single cohesive customer experience across carpet tile, LVT and Nora Rubber. This unified approach has exceeded our expectations and continues to drive consistent quarterly growth.

Driven by our combined selling team, Nora Rubber grew 20% in the third quarter and is up 19% year-to-date. To build on this momentum, we will accelerate investments in automation, productivity and innovation to further strengthen the Nora product portfolio and drive long-term growth. We're preparing for the launch of a new rubber flooring innovation in early 2026 that we believe will accelerate growth in the Healthcare segment, among others. We look forward to sharing more about this on our next call.

Additionally, our investments in carpet tile automation and robotics are delivering meaningful productivity gains and margin improvement. These investments are exceeding expectations, improving efficiency, reducing waste and enhancing service levels. We are now extending these robotic systems to our facilities in Europe and Australia, and we continue to explore and identify new opportunities for automation across the company. From a product standpoint, we continue to expand our addressable market, delivering high design at compelling price points to create new opportunities for growth.

During the quarter, we introduced our stellar Horizon's carpet tile collection, which spans a range of price points and support segment versatility. The collection offers exceptional durability, acoustics and cleanability while balancing design and functional performance. We also introduced 3 new resilient products that expand color, design and aesthetic options across the category.

This includes 2 new LVT styles in the mix and raw materials and a refresh of our norament XP rubber offering. These new and updated styles gives customers more ways to specify Interface products across a range of spaces and budgets. We continue to differentiate our portfolio through exceptional design, superior performance and an unwavering commitment to sustainability.

Now let's turn to our third quarter results. We delivered a 4% increase in currency-neutral net sales reflecting strong execution and continued share gains. In the Americas, currency-neutral net sales increased 4% as our combined selling teams drove growth across key market segments. In EAAA, currency-neutral net sales were also up 4% through broad-based growth in all our regions.

Turning to market segments. Our diversification strategy continues to fuel our growth. Global health care billings were up 29% with double-digit gains across both the Americas and EAAA. Our broad and differentiated product portfolio continues to capture opportunities as the global health care sector evolves, driven by aging population, technological innovation and a growing focus on preventative care. In the U.S., our combined Interface and Nora selling teams are working together seamlessly, enabling us to compete more effectively and win new opportunities as we meet the complex and changing needs of modern health care environment.

Corporate office billings were up 5% in the third quarter, and they are also up year to date as expected. We continue to see share gains in this segment as companies move to Class A space where our brand strength, design leadership and broad product portfolio position us to win. Our solutions are well aligned with workplace trends as companies invest in refreshes and adapt environments to meeting the evolving needs of a hybrid workforce. And by expanding our product offerings across a wider range of price points, we are capturing new opportunities and broadening our reach.

Education billings declined slightly in the third quarter but remain up high single digits year-to-date. We view the slight quarterly decline of timing related as we are well positioned in both K-12 and higher education underpinned by our design leadership and low-carbon high-performing products. Strong macro drivers, modernization initiatives and regional migration continue to create meaningful growth opportunities in this segment.

Turning to orders. Consolidated currency-neutral orders increased 2.4% year-over-year. Americas was up 1.7% on top of prior year order growth of 17.1%. EAAA was up 3.5%, driven by strength in EMEA and Australia. We ended the third quarter with our backlog up 17% year-to-date, reflecting solid underlying demand. Our strong results this quarter reflect how well our teams are delivering for our customers. That's evident in the recognition we received from the design community. Interface earned multiple #1 ranking in the floor focus top 250 design survey, where designers named us an industry leader in service, quality, design and performance.

On the sustainability front, we were named Manufacturer of the Year in Ed's Net Zero Awards. and recognized by Metropolis in their Planet Positive Awards for our all-in strategy. These awards acknowledge the bold steps we are taking to be carbon-negative by 2040 without offsets, and they are a testament to the hard work and dedication of our entire team. Looking ahead, we remain confident in our strategy and disciplined execution, continued investments in innovation, automation and commercial excellence are strengthening our foundation for sustainable growth. With a talented global team, a powerful brand and a proven strategy, Interface is well positioned to deliver differentiated design, strong financial performance and long-term value for our shareholders.

With that, I'll turn it over to Bruce.

Well, thank you, Laurel, and good morning, everyone. Third quarter net sales were $364.5 million, up 5.9% as reported and 4.2% on a currency-neutral basis versus the third quarter of 2024, both ahead of our expectations. Third quarter currency neutral net sales were up 4.1% in the Americas and 4.3% in EAAA year-over-year. Adjusted gross profit margin was 39.5%, up 208 basis points versus the third quarter of 2024, driven by favorable pricing and product mix combined with manufacturing efficiencies, partially offset by higher raw material and tariff-related costs.

Adjusted SG&A expenses were $90 million in the third quarter compared to $85.5 million in the third quarter of 2024, primarily due to higher sales commissions and variable compensation on increased sales and profits, inflation and foreign currency exchange variances. Adjusted operating income was $54.1 million, up 24.5% year-over-year. Third quarter adjusted EBITDA was $66.2 million versus $53.7 million in the third quarter of 2024. Third quarter adjusted earnings per share was $0.61, a 27% increase versus $0.48 in the third quarter of 2024. We generated $76.7 million of operating cash flow during the third quarter and ended the period with $482 million of liquidity.

Net debt defined as total debt minus cash on hand was $120.4 million, and our net leverage ratio was 0.6x, calculated as net debt divided by the last 12 months of adjusted EBITDA. As part of our balanced capital allocation strategy, we repurchased $0.7 million of Interface common stock during the quarter. Overall, our strong balance sheet provides flexibility and optionality in today's dynamic environment and the ability to continue investing in the business for growth and margin expansion.

Turning to tariffs. You may recall, our exposure is limited and primarily tied to imports of Nora Rubber from Germany and LVT from South Korea into the U.S. We continue to offset tariff-related costs through pricing and productivity initiatives. When tariff costs are successfully offset on a dollar-for-dollar basis, we are able to protect our gross profit dollars but there is a dilutive impact to our gross profit percentage. In the third quarter, tariffs diluted our adjusted gross profit percentage by approximately 30 basis points and we anticipate a similar dilution of 50 basis points to fourth quarter's adjusted gross profit percentage.

In sum, we are successfully managing tariff-related costs and our plan is to continue doing so. With that backdrop in mind and on the strength of our year-to-date results, we are raising our full year guidance. For the full fiscal year of 2025, we now anticipate net sales of $1.375 billion to $1.390 billion, adjusted gross profit margin of 38.5% of net sales, adjusted SG&A expenses of $362 million, adjusted interest and other expenses of $25 million, and adjusted effective income tax rate of 26%, capital expenditures of $45 million and fully diluted weighted average share count of 59.1 million shares. To note, all figures are approximate.

And with that, I'll turn the call back to Laurel.

Thank you, Bruce. Interface delivered another strong quarter with growth in all product categories, growth in all regions and growth in the majority of our market segments while driving meaningful gross profit margin expansion. We are encouraged by the quality of these earnings and the strong execution in a challenging and uncertain macro environment. I want to thank the entire Interface team for their relentless focus on winning business and serving our customers.

With that, we will open up the call for questions.

[Operator Instructions] Your first question today comes from the line of Brian Biros from TRG.

Sales were above the guidance range, second quarter in a row of sales slightly above the guidance range. So clearly, something is working over there. Last quarter, you cited strong momentum and education outperformed a tough comp. It sounds like this quarter, maybe it's health care, that's the outperformer. So just curious to hear what the surprise was that drove the sales outperformance relative to your expectations 3 months ago.

Yes. Thanks, Brian. And it is health care. We noted health care was up 29% for the quarter, which is above our expectations. We've been really focused on the Healthcare segment. Our top 3 priority segments are really corporate office, education and health care. But we've been working to expand our product portfolio in health care. Obviously, the One Interface selling teams continue to exceed our expectations. And we grew in health care outside the U.S. as well. So really, really strong quarter that exceeded our expectations.

Brian, I would just also add, our One Interface selling teams are just executing so strongly. We just continue to upscale the organization, and we continue to see in our selling organization and our customer service organization, a relentless focus on winning for the customer and making sure we serve the customer and importantly, making sure we win business and take share.

It's definitely working for you guys. On the Nora and the rubber I guess, further investments you mentioned in the prepared remarks. I know you're going to provide some more color, I guess, next call. But any more commentary you can add on the investments you might make there that's across expanding capacity or just more automation in the Nora facility, it would be interesting to hear.

Yes. We've been making investments all along in Nora, and we will continue to amplify that as our sales growth continues to exceed expectations. So we're doing a few things. One, we're investing in making sure we can support the capacity. Secondly, we are investing in additional productivity initiatives to increase our throughput and also to really help drive efficiencies, and then we're also investing in innovation. So that's what we'll share more about on our next call, but we're excited about continued opportunities to grow the Nora business.

Brian, I would just add, if we think about CapEx in 2026, it may be slightly up, potentially around $10 or so million compared to 2025 levels as we invest in these productivity initiatives in innovation of initiatives. Again, it's all about growth. It's all about innovation and all about projects that generate margin expansion.

Last question for me on margins. Current guide for the year, it looks like it's 38.5%. It's been a nice step-up throughout the year to get there. I believe maybe the 38.5% level is also kind of the near-term margin level you might have cited in the past that you want to get to that kind of balances price with volume and cash generation. So if you're going to get at that level this year, how do we think about margins from here with all the positive things you still have between mix, efficiencies. Do we see further margin expansions from here? Or do you kind of keep it at this level to accelerate volumes even more? So just curious how you think about margins at this level and going forward.

Brian, thank you for noticing. As we've mentioned previously, our ambition is to get to 38.5%. And we got a good shot at hitting that number this year. To be fair, we have to deliver a strong Q4, which we intend to do. but it's a challenging dynamic environment and it's a balancing act between taking share, winning for our customers and also making sure that we can hit that nice sweet spot between taking share and growing the business.

Your next question comes from the line of Alex Paris from Barrington Research.

I just wanted to say congratulations on the beat and raise.

Thanks, Alex.

I have a few questions. I'll start with a question about the shape of your Q3 outperformance. In terms of momentum, how did it -- I think on the last call, you said July was strong from an order standpoint and broad-based. How about August and September? And then maybe to get a similar comment about the fourth quarter, how did October go?

Yes. I would say, Alex, it's pretty steady and consistent. So the quarter played out pretty consistently, and October, I would say, continues in that same event. The Americas especially continues to look good. And outside the U.S. is a little bit -- those macros are more challenging, certainly in Europe. So we're watching that order momentum as well, but we feel really good about where our guidance is for Q4.

Yes, I agree. And Alex, our demand is solid. Our backlog is strong, and we just need to continue executing strongly.

Great. And then the market segment discussion, health care, up 29% in global billings, corporate office up 5%, great performance. As you said, education declined slightly. Can we put some numbers on that? I mean was it down 3%? Or was it down 8%?

Down less than 3%. So -- just -- down just 2.5% or so.

Alex, that's just timing. Every -- things come in lumpy phases. It's up high single digits for the year. So we've got a great education business. We've got great product. We've got great momentum. So it's just timing in the quarter.

And not a big quarter for education as well. Q2 is really education season for us. So not something we're concerned about.

Okay. Great. And then on the gross margin expansion, you kind of listed the things that influenced that. It was similar to last quarter, favorable price and volume as well as manufacturing efficiencies. I think you said last quarter that 80% of the gain was manufacturing efficiencies. Is it sort of a similar thing going on this quarter?

About half and half. So our manufacturing efficiencies have been working very, very well. And that drove about half of the margin expansion and the rest was a combination of price and mix.

Great. And then you had a very unusual tax rate in the quarter of 4.8%. How about a little color. And then your guidance for the full year, I know it's on an adjusted basis, is unchanged at 26%. So what special items were in the Q3?

Yes. Thanks for noticing. And we put a comment on that in our press release. And what happened was in July of 2025, the Germany enacted tax legislation to reduce the German corporate income tax rate by 1% annually from 2028 to 2032. And of course, as you can -- as you know, Alex, that required us to go back and remeasure our deferred tax assets and liabilities and it resulted in a noncash pickup on our interest expense line of $10.4 million. And again, this is just an accounting requirement due to the change in legislation in Germany to remeasure those assets and liabilities.

Okay. That makes sense. But again, you gave guidance of 26% on an adjusted tax basis. So you're adding a $10.4 million back to the tax expense on a 9-month basis to get to that. Because otherwise, it's like 18% for the full year.

Yes, 2 different numbers. There's a GAAP number, and then there's the adjusted number. So the 26% is our adjusted effective income tax rate that excludes that pickup related to the German tax legislation.

Great.

Does that makes sense?

Yes, it makes perfect sense. And then lastly, I noticed these are just cats and dogs, but the amortization of intangibles fell. It must be running off. How should we think about that going forward? I think it was $1.4 million last quarter. And this quarter, it was about $0.5 million.

And I appreciate your attention to detail. Actually, so now we're all done with that amortization. It's now -- you'll no longer see it on the P&L. It will run it's course.

Okay. Got you. So that is a typical add back to gross income to get to adjusted gross income. So there won't be any add back in Q4 and going forward?

That's right. But of course, there's always a wash, because there was the expense in net income. And so we won't see the expense in net income, and hence, we won't see the add back.

Your next question comes from the line of David MacGregor from Longbow Research.

Congratulations on the results. Just got a great trajectory going here.

Thanks, David.

I wanted to -- yes, I guess I wanted to -- I had a few questions here on a few different things. But let me go back to the gross margins and 38.5%. I guess if you adjust for tariffs, it's even 30 bps better than that. when we talk about kind of the upside from this level, is that upside at this point driven by just volume leverage and just growing your units as you go forward? Is it -- is there more sort of a mix benefit that may be emphasizing health care and Nora that drives that? I'm just trying to get a sense of -- as opposed to just asking you what the upside is? Just trying to get a sense of what the drivers are to further upside from here.

Yes. Thanks, David. And as Bruce mentioned earlier, we had stayed at 38.5% as our ambition to get there. I'd say we got there earlier than we expected, to be honest. And that's because of really 3 things. One is mix. So both country mix, the U.S. doing really well as well as, as you mentioned, the Nora Rubber sales growth in the U.S. Productivity, our productivity initiatives are paying off better than we anticipated, the investments that we're making, and then there's volume leverage as well. So as we look forward, I think we've got more room to go on productivity. We'll continue to drive mix and volume leverage. And at the same time, as Bruce said, really look at how we drive share growth and make sure that it's a competitive market out there, and we don't want to -- there is a sweet spot that we'll need to navigate.

So if I could just sort of pick up on a couple of these things here. I don't know, operator, are there any other questions behind me in the queue?

No, there are not.

Okay. I have a few here for you, if you don't mind. I guess when you automate the front end of the manufacturing lines, it's obviously created a lot of productivity benefit, and now you're going to take those learnings and you're going to go to Europe and to Australia. If we isolate that, what could that represent in terms of gross margin upside?

Well, David, obviously, the U.S. is a bigger number. But it's going to -- these are all meaningful numbers. And we're investing in this machinery, investing in this robotics. And it's actually -- it's -- the benefit that we originally scoped out was a benefit because we had very difficult jobs to fill. We're also seeing benefit around less waste. So we're using -- we have less waste in our manufacturing facilities, which is helping us with our inventory and helping us with our cost of sales. It's helping us -- there's a lot of little things like we're just using fewer cones, for example. So there's a whole bunch of things that will help us -- that are helping us in the U.S. and that will also help us similarly in Australia and in Europe. Clearly, though, to be fair, those are smaller businesses in the U.S.

They are. But it sounds like when you talk about the 3 buckets mix, productivity and volume leverage, the big part of that productivity bucket is this migration of what you've learned [indiscernible]. And then on the volume leverage, we talked about sort of incremental margins right now. And I realize they're a little bit different from Nora versus LVT versus carpet tile and within carpet tile, you have various price points where you could get some variance in your operating leverage. But how should we be thinking about incremental margins and the potential upside from here on incremental margins?

I think the situation that we're in, David, is we are going to continue to be laser-focused on driving efficiencies in our manufacturing environment. It's just so important that we do that to maintain our competitiveness. And in a really challenging market to make sure that we have the right price points to meet our customers where they are so that we can continue driving volume and we can continue driving share.

The other thing, David, that we've been doing is we've talked about expanding our addressable market by pushing a bit more to accessible price points, particularly in carpet tile, and we've done that through design for manufacturing, making sure we maintain our efficiencies while we're doing that. But that's helping us drive growth. So we'll continue to do more of that as well and again, sort of manage that sweet spot.

Okay. So I mean, on the one hand, you get a little more Nora coming in here, you're making the capacity investments, we would presume that, that becomes a stronger part of the mix. On the other hand, you've got more medium price point product rolling out. So should we just be thinking incremental margins kind of remaining kind of in line where they are right now? I guess I'm just looking for a little bit of help there.

We want to deliver this year. We got a great year, great 9 months behind us, we got to deliver another 3 great months, and we'll have a solid year. And then if we do hit our ambition, and I think to be fair, David, I appreciate your question. I appreciate your probing. I think maybe when we release our year-end results, and we see how this all shakes out, we would be in a stronger position to talk about perhaps what is our next ambition around gross profit. But for right now, we just want to hit the current ambition.

Got it. Okay. That's fair. You had talked a while back now about adding kind of global product category management. I think you might have actually staffed somebody in that seat. And I guess this is all part of the One Interface program. Can you just talk about sort of the percentage of revenues and how that might be changing from jobs that are kind of across multiple categories and across multiple -- America and Europe or just sort of that expanded scope of an order as opposed to selling carpet tile to a guy in Cincinnati. We're getting more projects where we're selling all 3 products to companies spanning both America and European markets. I'm obviously making this stuff up. But just trying to get a sense of how that's changing. And I presume that's a margin driver for you. So I'm just trying to get a sense of proportion at this point.

Yes. So a couple of things in that. First of all, we did add global product category management. So we're really looking -- and that will help us drive our innovation funnel for the future. We're going to see some new innovation come next year, which I think will be really exciting. But -- and those are global innovations, global launches. We're looking at those on a real macro level that we think can really help us to further accelerate what you're talking about, which is the opportunity to sell our full portfolio of products to our customers. So rather than just selling Nora to health care and just selling carpet tile to corporate office, we're really selling that full suite. And as you're saying, we also have great global customers, and we're now offering the full suite of products to those global customers, that's obviously still in early days. I mean, we're still continuing to build that out, and we'll continue to do that further as we go forward.

Okay. That's helpful. And then, Bruce, you mentioned capital allocation up about $10 million next year in CapEx versus where you're going to be this year. Is that full $10 million associated with Nora or are there other programs?

A large portion of it is Nora, but there is innovation happening outside of Nora. And there is some automation investments happening outside of Nora as well.

Okay. And on capital allocation as well, you're buying back stock, which is a real milestone, I guess, for Interface. How do you think about sort of that program going forward? Is this kind of a residual. We don't have any other immediate use for the cash, so we buy back stock? Or are you sort of employing targets in mind with respect to what you want to accomplish on a repurchase level?

Yes. I mean, it's opportunistic. However, we always keep in mind our #1 priority, which is to invest in the business around growth, margin expansion. and making sure that -- and innovation. So while also making sure and being good stewards to the corporation and to our capital allocation priorities. And so when there's opportunity, we are making sure that we return capital back to our shareholders.

Got it. Well, congratulations on all the progress. Great to see.

Thanks, David. Appreciate it.

And that concludes our question-and-answer session. I will now turn the call back over to Laurel Hurd for closing remarks.

Great. Thanks to everyone for joining the call today, and thanks to the entire Interface team for another great quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.