Interface Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 25, 2025

There are 7 speakers on the call.

Operator

welcome to Q4 to Fourth Quarter twenty twenty four Interface Inc. Earnings Conference Call. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. Thank you.

Operator

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

Speaker 1

Good morning and welcome to Interface's conference call regarding fourth quarter and full year twenty twenty four results hosted by Laurel Hurd, CEO and Bruce Hausman, 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 ks filed with the SEC. The company assumes no responsibility to update forward looking statements.

Speaker 1

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 eight ks furnished with the SEC today. Lastly,

Speaker 2

this

Speaker 1

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.

Speaker 2

Thank you, Christine, and good morning, everyone. Interface delivered a strong year in 2024, achieving a 4% increase in currency neutral net sales and significantly boosting profitability despite continued headwinds in our industry. We're confident that our strategy is working. As a reminder, our One Interface strategy is a multiyear effort focused on building strong global functions to support our world class local selling teams, accelerating growth through enhanced productivity of our commercial team, expanding margins through global supply chain management and simplifying operations and leading in design, innovation and sustainability. I'm incredibly proud of our team and all that we've achieved this year.

Speaker 2

Let me run through a few highlights of our strategy execution in 2024. Looking at commercial productivity, you may recall that in Q1 twenty twenty four, we implemented an integrated selling approach combining nora and interface selling teams in The U. S. This collaborative strategy is delivering accelerated results, including double digit order growth in The Americas region year over year. The team is successfully tapping into new opportunities across our product portfolio and we're excited to see Nora sales expanding beyond healthcare into other high growth segments.

Speaker 2

In our continued efforts to globalize our functional team, we appointed our first Chief Supply Chain Officer about eighteen months ago to optimize our supply chain globally and drive productivity improvements that will help expand gross profit margins. We realigned our supply chain organization to focus on productivity and continuous improvement in technology enabled solutions. As a result of this newly globalized supply chain team, we've made significant progress in driving operational efficiencies. Throughout 2024, we invested in automation and robotics solutions at key manufacturing plants, including our carpet tile manufacturing in The U. S.

Speaker 2

And our Noor Rubber plant in Germany, contributing to improved margins and greater operational efficiency. The initial results of these investments have been very promising, boosting efficiency, consistency and scalability in our manufacturing processes. As we've shared on prior calls, we will continue to implement these automation investments over the next several quarters and we will invest in additional opportunities across our global manufacturing footprint. Looking forward, we remain focused on further enhancing productivity, streamlining workflows and optimizing resources. Importantly, by reinvesting efficiency driven savings directly into these advancements, we continue to drive growth and position ourselves for long term success.

Speaker 2

We also delivered several important initiatives in 2024 to help elevate our brand positioning. For example, we introduced Made for More, a fresh brand attitude designed to unite our brands and create greater consistency in the way we service our customers, bringing our Interface and Nora brands together and demonstrating the power of our portfolio. This platform streamlines our marketing and branding efforts and is an example of how we're benefiting from globalizing as one interface. In addition, last spring, we executed our second global product launch aligned to our biggest interior design and trade events. And importantly, we announced that we're going all in on our goal to be carbon negative by 02/1940 without the use of carbon offsets, which is an important elevation of our sustainability strategy.

Speaker 2

This allows us to repurpose offset dollars into innovations and R and D that focus on direct impacts including carbon reduction and carbon storage opportunities. In fact, Interface received a top honor in Reuters twenty twenty four Sustainability Awards with the highest distinction in the net zero leadership category for our shift from offsets and recommitment to our carbon negative goal. In January, we also introduced a proof of concept carbon negative rubber flooring prototype at the Bau, a major trade event in Germany. This is a great example of how we are bringing our long track record of carbon reduction and innovation to our nora product category. It's also a proof point for investing in R and D where we can have the most direct positive impacts to meet our ambitious sustainability targets and deliver product innovations that help our customers achieve their own carbon reduction goals.

Speaker 2

I'm proud of our continued progress and recognition in sustainability and I'm encouraged by the tremendous amount of work that has gone into our products. Our deep expertise and commitment truly differentiate Interface in the industry. As I think about the year overall, I'm incredibly pleased with the global organization's execution of our strategy, which is delivering solid initial results and in some areas even faster results than we anticipated. With our strong strategy execution as the backdrop, let's turn to how we drove our financial results. In 2024, we delivered currency neutral net sales growth of 4% year over year and nearly doubled GAAP earnings per diluted share.

Speaker 2

Global billings were up across all product categories, including carpet tile, LVT and rubber. Growth was fueled by strong performance in The Americas, but currency neutral net sales increased 9% year over year. In EAAA, currency neutral net sales were down 2% on a softer macro. Lower net sales in Australia were partially offset by higher net sales in Asia with EMEA being slightly down for the year. Moving to our market segments.

Speaker 2

Global Education billings were up 10% for the year, driven by strength in The Americas. Interface is strategically positioned in both K-twelve and higher education based on the work we've done to align our product portfolio with the needs of our customers in these markets. By offering more approachable price points and differentiating through design and sustainability, we've expanded our addressable market. Strong macro drivers are at play in these markets, including regional migration, where families follow company relocations that increase the need for schools and healthcare facilities. In higher education, there's still pent up demand following the COVID years, with institutions investing in campus spaces to attract students in a highly competitive environment.

Speaker 2

In K-twelve, schools are undergoing renovations to modernize and expand facilities. These powerful market trends are expected to drive steady growth in the education sector with a projected increase in the mid single digits over time. In healthcare, global billings were down 2% year over year in 2024, but up 12% in the fourth quarter as orders converted to billings. Interface is positioned for success in healthcare through differentiated products that are ready to meet the needs of an aging population, longer life expectancies, increased technology and a focus on preventative care. In this growing environment, we are seeing success with our integrated selling team in finding new opportunities to sell our full suite of products to healthcare systems.

Speaker 2

Moving to the corporate office segment, global billings were down 1% for the year, which was favorable compared to the overall industry and a found outcome in a challenging market. We continue to see an increase in return to office mandates and many companies are refreshing their spaces, especially Class A space, where we are positioned to win with our competitive advantage in premium products, innovative design and sustainability leadership. As we move into 2025, Interface is well positioned to capture this continuing demand. Finally, retail billings were up in 2024 compared to a soft 2023. And while retail is a small percentage of our total revenue, it had an outsized favorable impact on net sales in 2024 as previously deferred projects were activated.

Speaker 2

Turning to orders. In the fourth quarter of twenty twenty four, consolidated currency neutral orders increased 5% year over year. Currency neutral orders in The Americas were up 9% year over year, driven by effective execution from our combined selling team. EAAA's fourth quarter currency neutral orders were down 1% year over year on a softer macro environment. EMEA was up slightly, partially offset by softness in Australia.

Speaker 2

Our backlog was strong at the end of '20 '20 '4, up 15% year over year, which puts us in a strong position as we head into fiscal twenty twenty five. The results we delivered in 2024 from our ONE Interface strategy give us confidence that there is more growth to come. In 2025, we will continue to execute our One Interface strategy and expect growth to outpace the industry. We will continue to simplify our supply chain operations and drive operational efficiencies and productivity in our manufacturing environment. We're excited about our product pipeline that will launch in 2025, which we are confident will demonstrate our design and sustainability leadership.

Speaker 2

Overall, we feel good about the momentum in The U. S. Market and the strong position we hold with our premium products, design and sustainability leadership. We are closely monitoring the global, geopolitical and macroeconomic environments around the world as the European and Australia macro environments are softer right now. With that background in mind and with an incredible year under our belt, I want to thank the entire Interface team around the globe for their relentless commitment to our strategy and dedication to serving our customers with best in class flooring solutions.

Speaker 2

With that, I'll turn it over to Bruce to go over the financials. Bruce?

Speaker 3

Well, thank you, Laurel, and good morning, everyone. Fourth quarter net sales totaled $335,000,000 an increase of three percent versus twenty twenty three's fourth quarter. This was in line with our implied fourth quarter guidance despite $6,000,000 of FX in the fourth quarter that we did not anticipate. FX neutral net sales increased 3.4% compared to the prior year's fourth quarter. In fourth quarter, FX neutral net sales in The Americas were up 9.6% year over year.

Speaker 3

FX neutral net sales in EAAA were down 5.2% driven by a softer macro environment. Fourth quarter adjusted gross profit margin was 36.9%, a decrease of 139 basis points from the prior year's fourth quarter as expected because gross profit margin benefited 160 basis points from non recurring items in the fourth quarter of twenty twenty three. Adjusted

Speaker 4

SG

Speaker 3

and A expenses were $90,800,000 in the fourth quarter compared to $83,500,000 in the fourth quarter of twenty twenty three. Fourth quarter adjusted operating income was $32,800,000 compared to adjusted operating income of $41,000,000 in the fourth quarter of twenty twenty three. The decrease was primarily due to lower adjusted gross profit margin in the quarter, as mentioned earlier, higher sales commissions and higher variable compensation on stronger full year results. Fourth quarter adjusted EPS was $0.34 versus $0.41 in the fourth quarter of twenty twenty three. Fourth quarter adjusted EBITDA was $46,000,000 versus $52,200,000 in the fourth quarter of twenty twenty three.

Speaker 3

Turning to our full year results. Full year 2024 net sales totaled $1,320,000,000 an increase of 4.3 versus fiscal year '20 '20 '3. FX neutral net sales increased 4.4% year over year. FX neutral net sales in The Americas were up 8.8% year over year. FX neutral net sales in AAA were down 1.7%.

Speaker 3

Twenty twenty four adjusted gross profit margin was 37.1%, an increase of 173 basis points from the prior year period, primarily due to strong execution from the selling organization, favorable mix, lower input costs and higher volumes. Adjusted SG and A expenses were $346,700,000 in 2024 compared to $329,800,000 in 2023. The increase was primarily due to higher sales commissions and incentive comp on stronger business performance. Full year 2024 adjusted operating income was $141,400,000 compared to $116,400,000 in 2023. The increase was primarily due to higher sales and higher gross profit margins in the year.

Speaker 3

Adjusted EBITDA for 2024 was 189,000,000 versus $162,000,000 in 2023. We generated $148,400,000 of cash from operating activities in 2024 and liquidity was strong at the end of the year, totaling 398,500,000 In line with our capital allocation strategy, we repaid $115,200,000 of debt in 2024, resulting in net debt or total debt minus cash on hand of $203,500,000 at the end of the year. We also brought our net leverage ratio down to 1.1 times as calculated as net debt divided by the last twelve months of adjusted EBITDA. Our balance sheet is strong and it provides resilience and optionality as we move into 2025. Our focus in 2025 is to maintain a disciplined capital allocation strategy by investing wisely in the business to drive growth and accelerate value creation.

Speaker 3

Capital expenditures were $33,800,000 in 2024 compared to $26,100,000 in 2023. Turning

Speaker 5

to

Speaker 3

our outlook, we entered 2025 with a strong backlog and we expect customary seasonality in the year, which typically means a lighter Q1 sequentially followed by a stronger Q2 and Q3 sequentially. Separately, given current strength of the U. S. Dollar compared to other foreign currencies, we are forecasting translation FX to negatively impact our year over year net sales growth rate by approximately 2% in Q1 twenty twenty five and approximately 1% to 2% in the full fiscal year of 2025. This is included in our Q1 and full year 2025 guidance.

Speaker 3

As we report earnings during the year, we will continue to provide FX neutral net sales growth, which measures underlying growth rates of the business without the distortion caused by translation FX. And with that backdrop in mind, we are anticipating the following. For the first quarter of fiscal twenty twenty five, net sales of $290,000,000 to $300,000,000 adjusted gross profit margin of approximately 37.5% of net sales adjusted SG and A expenses of approximately $88,000,000 adjusted interest and other expenses of approximately $6,000,000 an adjusted effective income tax rate of approximately 28% and fully diluted weighted average share count of approximately 59,200,000 shares. And for the full fiscal year of 2025, we are anticipating net sales of 1,315,000,000 to $1,365,000,000 adjusted gross profit margin of approximately 37.2% to 37.4% of net sales adjusted SG and A expenses of approximately 26% of net sales adjusted interest and other expenses of approximately $24,000,000 an adjusted effective income tax rate of approximately 28% and capital expenditures of approximately $45,000,000 And with that, I'll turn the call back to Laurel for concluding remarks.

Speaker 2

Thank you, Bruce. I want to thank everyone for joining the call today. I would like to give a special thank you to the entire Interface team for their contributions and achievements in 2024. We've made great strides in our business with strong execution of our One Interface strategy in many areas outpacing the industry and achieving success faster than we anticipated. We enter 2025 with strong momentum and expect this to be another year of growth and margin expansion.

Speaker 2

And while we continue to monitor the dynamic macro and geopolitical environment, we are confident in our ability to deliver long term value to our shareholders. With that, I will open it up to questions. Operator?

Operator

Your first question comes from Brian Bainbridge from Thompson Research Group. Your line is now

Speaker 5

Hey, good morning. Thank you for taking my questions. To start with, I guess, I believe 2024 was the first full year of the ONE Interface selling strategy. It seems to pay off very nicely. So I guess, how are you thinking about that impact to 2025 now?

Speaker 5

Are we thinking a similar level of benefit as you saw last year, maybe even greater benefit as the process is fine tuned, improved upon? I know you mentioned you expect to outperform the industry, but any further details of kind of how that looks into 2025 would be appreciated.

Speaker 2

Yes, thanks. Good morning, Brian. We're really proud of the work that the teams have done with the one interface strategy and the combined selling team. And as you said, the success that we've seen, if we think about where we were a year ago, we had just announced the new program. We just announced that we were hiring additional Nora sellers and they came online throughout the first half of the year.

Speaker 2

And the teams were just getting to know each other and operate together as one team. So we're really pleased with the momentum. The Americas business was up 9%. It's a fantastic year. And we think we're still in early days.

Speaker 2

So the combined selling strategy is working and we expect it to continue to pay off.

Speaker 3

I agree. Brian, as you mentioned, the strategy is working. We continue to grow. We continue to take share. And in terms of how that sort of folds into our 2025, we baked that into our guide.

Speaker 3

And that's kind of how we're thinking about it. Clearly early days in the year so far, but we enter the year with solid momentum.

Speaker 5

Got you. And then I guess for the end of twenty twenty four and the start of 2025, we heard that I guess the office segment in general was getting better. I know that's often a low base, but still not as good as other verticals, but there seem to be some momentum building in office. Did you see this across your business? And I guess, what are you expecting for office for the full year for '25?

Speaker 2

So I'll make a couple of points on office. First, the fact that we grew our business 4% for the year with corporate option being down 1% globally. It's really a testament to our teams driving that diversification and amplifying growing across the market. So we're really pleased with that. And we're confident that we're gaining share in office, which is also great.

Speaker 2

And we feel really good about office in 'twenty five for really three reasons. First, the return to office mandates are on the rise. So what were suggestions over the past couple of years have turned to mandates in many cases with more and more companies realizing that, in person work matters. The second, the demand for premium Class A space is also on the rise. So we've been talking about that a lot.

Speaker 2

As companies bring workers back, it's the best buildings that are really getting, the most attention. And then the third, when landlords are looking to lease space, they offer more TI dollars, tenant improvement dollars and incentives to their tenants, which really helps. Those dollars usually go to refresh carpet and paint. So that's good news for us. We feel pretty good about twenty twenty five office.

Speaker 5

Good to hear. And if I could squeeze one last one in, I guess you have a pretty solid balance sheet now, paid off a lot of debt, leverage I think at 1.1x. How are you thinking about just capital allocation priorities now given there's less debt to pay off than a year or two ago? Thank you.

Speaker 3

Great question, Brian. It wasn't that long ago that we were being pressed to bring down our debt and improve our leverage ratio. So, and we worked hard at that and we've met our commitments around that, which is fantastic. We're going to continue to invest in the business, given the resilient the very, very resilient balance sheet that we have now, the strong balance sheet that we have now, where we have some additional investments that we're going to make in our manufacturing facilities, which will make us more efficient and can continue to drive profit margin expansion. And this is a great space to be in.

Speaker 3

I'll just close by saying with all with how dynamic the market is right now, this is a great spot to be in to have such a strong balance sheet.

Speaker 5

Thanks. I'll pass it along.

Operator

Your next question comes from David MacGregor from Longbow Research. Your line is now open.

Speaker 4

Yes. Good morning, everyone, and thanks for taking my questions. Just while we're talking about capital, Bruce, the $45,000,000 guide for 2025 is up fairly substantially from 2024. I'm guessing most of this is manufacturing automation, but maybe you could just talk about that for a moment. And then I guess is this is it the peak for spending on automation or how should we think about investments in the manufacturing model beyond

Speaker 3

2025? Yes, great question, David. You probably noticed that we came in a little under what our guide was for last year. So there's a little bit of timing between the two years. So but the $45,000,000 that we're planning on spending in 2025 is a continuation of some of the machinery that we put in our manufacturing plants in The U.

Speaker 3

S. And we're also going to be putting some of that same machinery and some other automation machinery into some of our manufacturing outside of The U. S. All of this stuff has a great return. And I think that we're being trying to be really, really wise with only investing capital in proven technology that has proven returns, which is what is the underlying underpinning to this $45,000,000 in 2025.

Speaker 4

Right. And can you just address the question regarding is this peak spending in this capital cycle or do you envision that maybe moving higher as you begin to address non U. S?

Speaker 3

Well, for this is our initial time horizon. It really depends on I don't know how far you're sort of like pulling out your lens. But we as you know, we generally spend between 2.53% of revenue on CapEx, which I think this is in line with that. We would only make investments above that if they had a great return. For example, like the machinery that we're putting in now, it has a return of less than two years.

Speaker 3

And so I'm ready to tell you that this is the peak forever, because if we could find something that's given the return that yields the kind of returns that we're getting out of this machinery, we would do that again. I think you would want us to. But there's nothing in the foreseeable future that we're sort of saying, gosh, there's going to be a huge spike in CapEx to our knowledge. This is our best visibility on CapEx as we stand today.

Speaker 4

Okay. And Laurel, are the capital projects impacting shipments at all?

Speaker 2

No, they're not. I don't think they're impacting shipments at all. If anything, we're increasing our throughput, especially, for example, the investments that we're making in Nora in Germany, we're really increasing our throughput there to keep up with the demand in The U. S. So there's been no interruptions.

Speaker 2

If anything, it's helping us service our customers better.

Speaker 3

I was going to say, if anything, David, it's helped it's actually improving our throughput and improving our automation in our plants.

Speaker 4

Good to hear. I wanted to ask secondly about the gross margin guide, the 3.72 to 3.74 implies 50 bps to 70 bps of improvement year over year. I mean, you've got a lot of moving parts in this gross margin model. Obviously, you got pricecost, you got the nora mix, the LVT mix, the supply chain productivity with your new Chief Procurement Officer. I'm guessing there's other things in there as well that you'd highlight.

Speaker 4

Can you just give us a sense of what the puts and takes are behind that 50 to 70 basis point improvement?

Speaker 3

Yes, that's a good push. I'll just say, David, it's early days in the year. This is a super dynamic environment that we're operating in. We're incredibly pleased with the progress that we had around gross profit margin in 2024. We have plans to continue, obviously, as you mentioned, to expand gross margins in 2025.

Speaker 2

There's a

Speaker 3

lot of different pieces to it. It's all those things that you talked about and more. I'll just say that early days and this is our best estimate based on all the puts and takes that we see. But you have our commitment that we're going to continue driving gross profit margin expansion and obviously that's reflected in our guide.

Speaker 4

Right. I guess with Laurel's comments about nora, growth at nora, the expansion of the nora business has got to rank pretty highly within the mix of drivers behind that gross margin improvement.

Speaker 2

Yes. I think it's a great point. The more we sell of nora, especially in The U. S, the more it helps our mix and our teams are super focused on it and seeing some great success. And we're doing everything we can to invest to make sure we support that business and also be more efficient in our plant in Germany.

Speaker 2

So it will be a big contributor.

Speaker 4

Great. Got it. And then, I guess, great job in the SG and A management. I mean, just over a period of a few years, in fact, you've done a lot there, great discipline. I guess the question is, how much revenue growth capacity remains before you need to start making larger investments in SG and A?

Speaker 4

How much leverage opportunity remains at this point?

Speaker 2

It's something that we're watching really closely because we do have our pedal down on growth and with our incentive structure and our commission based selling organization, we have to make sure we do everything possible to fuel that growth. So it's a real balance and our approach in 2025 and beyond will continue to be super efficient on anything that doesn't touch the customer or touch innovation and then be really, really disciplined on everything else. And so we're continuing to look at those investments and what do we need to do to service the growth and how do we get more efficient everywhere outside of that?

Speaker 3

David, I'll just say thank you for noticing. I know a lot of One Interface team members listening to this call. And honestly, this has been a team effort. And this one interface strategy, it's another component of how the strategy is working really, really well. We have functional leaders that are SG and A management and SG and A leverage really seriously with zero based budgeting.

Speaker 3

And so thank you for noticing. And I can tell you there's just a ton of focus on what you just articulated internally and as part of a key component to driving the business and continuing to improve our margins.

Speaker 4

Got it. Last one for me, just a clarification. Your guiding interest expense kind of flat year over year, $24,000,000 in fact versus $23,200,000 you're up a little bit despite having paid down $110,000,000 debt. Is that just rate increases or is there something else going on there that we should be thinking about?

Speaker 3

We're getting more and more into just the fixed range. We used to as you know, a bigger component of our debt used to be more variable and now it's largely fixed. It's largely our bonds that are fixed rates now. And so it's more predictable and it's obviously it's lower than it's ever been. So that's just kind of how to mathematically pencil it out.

Speaker 4

Yes. Well, congratulations on all the progress operationally, balance sheet, everything. You guys are doing a great job. Thank you.

Speaker 2

Thank you. Thanks, David.

Operator

Your next question comes from Alex Paris from Barrington Research. Your line is now open.

Speaker 6

Thank you and thank you all for taking my questions. Congrats on the strong finish to the year.

Speaker 2

Thanks, Alex.

Speaker 4

Couple of questions. First of all,

Speaker 6

I'll follow-up on CapEx. So of the $45,000,000 projection for this year, up from roughly $34,000,000 last year, what which is generally, as you said, 2.5 to 3% of revenue, What proportion is maintenance CapEx? What proportion is growth CapEx? This year and then maybe in general?

Speaker 3

Good question. How about 10% of the 45%

Speaker 5

is investment CapEx in the machinery that we've been talking about

Speaker 3

and about 35% is Maintenance and safety and general updates.

Speaker 6

Okay, great. And then a question about return to office mandates. I'm thinking about the recent election. I'm thinking about Doge. I'm thinking about mandatory return to work for government employees.

Speaker 6

And I'm wondering what is your exposure to government? I know based on billings, I think it is 6% roughly. What's the character of the government business? Is it federal? Is it state?

Speaker 6

Is it local? Is it all of the above?

Speaker 2

So if we look at just our U. S. Government business, it's a small piece of the total. It's low single digits, maybe four ish, a little bit more than that percent. And that includes all government buildings.

Speaker 2

So what we put in that things like museums, research institutions, military locations, including then all government offices, whether they're, local or federal. So it's pretty small and pretty diverse. And it's something we're keeping an eye on. And as you said, there's a real mix happening there. There's the return to office mandates for the first time really since before COVID as well as staff reductions.

Speaker 2

So not yet sure what that will mean. We're keeping an eye on it, but it's a pretty small and really diverse piece of our business.

Speaker 6

Thank you. That color is helpful. And then going just back to some earlier comments, retail was up for the year. Was it up in the second half and fourth quarter? I know you had an easy comp, I guess, because you had a weak second half in retail in 2023.

Speaker 2

Yes, that's right. Retail was up in the back half. And again, it remains a small piece of our total business, based on some project deferrals in 2023 that flowed into 'twenty four. It was up in the back half primarily.

Speaker 3

And I'd just say, that is a testament to great customer relations. I don't know if you remember, Alex, but we always said we never lost that business. That business was just deferred. So we kept tight relationships with our customers in that area and we were able to retain that business. It was just the lumpiness of how it sort of rolled in.

Speaker 6

Got you. That's helpful. Last question, kind of like the return to office question. With the new administration, a lot of tariff talk is getting tossed around. Yesterday, I guess, they're going to implement Canada and Mexico.

Speaker 6

I don't think that's much of an exposure for you. But what is your exposure in each of the three main product categories, carpet tile, LVT and rubber?

Speaker 3

Yes, it's a great question. Obviously, we're watching it really closely. Based on what was proposed and paused, there's no material impact. But honestly, Alex, no one can really predict exactly where this will all land. We're going to continue to monitor it closely and we'll respond as needed and necessary depending on how all these tariffs and retaliatory tariffs land.

Speaker 6

So where are you sourcing your raw material for each of those three product categories?

Speaker 3

Yes. Well, let's break it down into pieces. There's a few things that help us. Like, for example, with carpet, we manufacture locally in The U. S.

Speaker 3

And in Europe and in China, for example, U. S. For U. S, Europe for Europe, China for China. So that's a helper.

Speaker 3

We do have some sourcing out of Mexico, but it's very limited. It's not big exposure and if needed we would rejigger our supply chain, but it's a very small number in terms of tariff exposure with Mexico. And we do not source from China. So that's very helpful for us as well. So I'm not trying to be evasive here.

Speaker 3

It's just it's such a dynamic environment or it that we're just watching it and we'll respond and we'll just like every other company will adapt as the tariff situation sort of unfolds and as there's more clarity.

Speaker 6

And just to kind of summarize, no impact so far, you're watching closely, but it does look like from the outside that the exposure is fairly limited and to the extent that there is exposure you can pivot quickly?

Speaker 3

I think that's fair. Try to

Speaker 5

pin me down. Go ahead.

Speaker 2

I was just going to add, we spoke to the carpet tile piece of it. We source our LVT from South Korea as we've shared in the past. And, we all of our nora rubber product is manufactured in Germany. So those are our three if you think about our three product categories, carpet is really local, South Korea for LVT, which we're confident we can price if we need to, and then nora we've got there's not a lot of rubber alternatives out there. We've got great pricing power there as well.

Speaker 2

So a lot to sort through, obviously, a lot of uncertainty, but we're not we're in pretty good shape, all things considered, but a lot to learn.

Speaker 6

It sounds that right. All right. So thank you very much. I appreciate it. That's all I have.

Speaker 2

Thanks, Alex.

Operator

Thank you. We are now ending the Q and A session. I'd now like to hand back over to Laurel for final remarks.

Speaker 2

Great. Well, I'd like to say thanks to everyone for listening to the call today and especially thanks to the entire Interface team for just a fantastic year. I appreciate it and we look forward to updating everyone on our progress as we go.

Operator

Thank you for attending today's call. You may now disconnect. Have a wonderful day.

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