nora's Q3 2025: Contradictions Emerge on Market Share Gains, Sales Outperformance, and CapEx Strategy

Date of Call: None provided

Financials Results

• Revenue: $364.5M, up 5.9% as reported and up 4.2% currency-neutral vs Q3 2024
• EPS: $0.61 adjusted EPS, up 27% vs $0.48 in Q3 2024
• Gross Margin: 39.5% adjusted gross profit margin, up 208 basis points vs Q3 2024

Guidance:

• Full-year net sales now expected to be $1.375B to $1.390B
• Adjusted gross profit margin expected of 38.5% of net sales
• Adjusted FD&A expenses expected to be ~$362M; adjusted interest and other expenses ~$25M
• Adjusted effective tax rate expected to be 26%
• Capital expenditures expected to be ~$45M; fully diluted share count ~59.1M

Business Commentary:

• Revenue Growth and Market Outperformance:
• Interface reported currency-neutral net sales growth of 4% in Q3 2025, exceeding expectations.

• Growth was driven by strong execution, continued share gains, and broad-based performance across all regions and product categories.

• Healthcare Segment Performance:

• Global healthcare billings were up 29%, driven by double-digit gains in the Americas and EAAA regions.

• The strong growth was attributed to expanded product portfolio offerings and successful integration of One Interface selling teams.

• Profitability and Margin Expansion:

• Adjusted gross profit margin expanded by 208 basis points, driven by favorable mix and manufacturing efficiencies.

• This was achieved through continued process improvements, reduced waste, and effective pricing strategies.

• Investment in Automation and Innovation:

• Interface is investing in automation and productivity enhancements, with plans to extend robotic systems to Europe and Australia.
• These investments are aimed at driving long-term growth, improving efficiency, and supporting increased demand for nora rubber products.

Sentiment Analysis:

Overall Tone: Positive

• Management: "another strong quarter, exceeding our expectations"; currency-neutral net sales +4% and consolidated orders +2.4% YOY; adjusted EPS $0.61 up 27% YOY; raised full‑year guidance and cited margin expansion driven by mix and manufacturing efficiencies.

Q&A:

• Question from Brian Biros (Thompson Research Group): What drove sales outperformance vs guidance (which segment surprised), plans for nora rubber investments (capacity vs automation), and outlook for margins after hitting near‑term 38.5% ambition?
  Response: Healthcare drove the sales beat (healthcare billings +29%); company will increase nora investments in capacity, productivity and innovation (CapEx may be ~+$10M in 2026) and aims to hit the 38.5% adjusted gross profit margin while balancing share growth.

• Question from Alex Paris (Barrington Research): How did monthly momentum look across July–October, how much did education decline this quarter, what were the drivers of gross margin expansion and the unusual 4.8% tax rate this quarter, and is intangible amortization fully run off?
  Response: Momentum was steady into October; education was down ~2.5% (timing-related); margin expansion was roughly half manufacturing efficiencies and half price/mix; the 4.8% tax rate included a $10.4M non-cash pickup from remeasuring German deferred taxes due to enacted tax changes (adjusted tax guidance remains 26%); intangible amortization has ended.

• Question from David MacGregor (Longbow Research): What are the drivers and cadence for further margin upside (mix, productivity, volume), expected benefit of exporting U.S. automation to Europe/Australia, incremental margins by product/mix, status of global product category management and cross‑category sales, and how will additional CapEx and buybacks be prioritized?
  Response: Management's priority is executing productivity, mix and volume leverage to reach the current 38.5% ambition; U.S. automation benefits (less waste, higher throughput) will be extended to smaller European/Australian operations for incremental margin gains; additional CapEx is largely for nora plus other automation/innovation, and buybacks are opportunistic after investing for growth.

Contradiction Point 1

Market Share Gains and Expectations

It involves differing perspectives on the sustainability and expectation of market share gains, which are crucial for understanding the company's competitive position and growth prospects.

What are the macro impacts of global trade turmoil and tariff talks on business conditions in Australia and Asia? Are there concerns about partnering with U.S. companies? - Brian Biros (Thompson Research Group, LLC)

2025Q3: We're proud of the market share gains, particularly in carpet tile in the U.S., where we trended 10 points better than the market. - Laurel Hurd(CEO)

Your U.S. business is more stable than Europe's. What's your outlook for European operations? What challenges could arise there? - Jason Seidman (Crédit Suisse)

2025Q2: We're not seeing any macro impacts on our business in Australia or Asia. Our brand is well-positioned, and we have local teams and manufacturing, which supports our growth. - Laurel Hurd(CEO)

Contradiction Point 2

Automation Benefits Timeline

It pertains to the timeline for realizing benefits from automation, which is critical for understanding operational efficiency and cost management.

Regarding the investments in Nora Rubber, can you provide additional commentary on whether they will focus on expanding capacity or increasing automation at the facility? - Brian Biros (Thompson Research Group, LLC)

2025Q3: We're fully up and running in the Americas now, learning and optimizing. The benefits will start to show in Europe and Australia next year as we roll out the automation. - Laurel Hurd(CEO)

What is the timeline for automation benefits in Europe and Australia? - David Sutherland MacGregor (Longbow Research LLC)

2025Q2: We're fully up and running in the Americas now, learning and optimizing. The benefits will start to show in Europe and Australia next year as we roll out the automation. - Laurel Hurd(CEO)

Contradiction Point 3

Sales Performance and Revenue Guidance

It highlights differing expectations and performance in sales and revenue growth, which are crucial for investor expectations and strategic planning.

What factors drove the second quarter sales outperformance compared to guidance and last quarter's education momentum? - Brian Biros (Thompson Research Group)

2025Q3: It is healthcare. We noted healthcare was up 29% for the quarter, which is above our expectations. - Laurel Hurd(CEO)

What drove the revenue guidance increase from $1.315 billion to $1.34 billion—was it FX factors or improved confidence in Q1/Q2 visibility? Could you comment on guidance based on current performance strength? - Brian Biros (Thompson Research Group)

2025Q1: We brought up the lower end of the range and that really has to do with how we landed Q1 and our outlook for Q2. - Laurel Hurd(CEO)

Contradiction Point 4

Impact of Tariffs on Financials

It involves the anticipated impact of tariffs on financials, which can significantly affect revenue and cost management.

Last quarter, you mentioned July had strong, broad-based order growth. How did August and September perform? Also, how did October go in the fourth quarter? - Alex Paris (Barrington Research)

2025Q3: We’re seeing a few market headwinds. So first, obviously, we continue to monitor and manage the macroeconomic environment. - Laurel Hurd(CEO)

How did the gross margin and SG&A performance in Q1 exceed guidance, and how did the One Interface strategy contribute to this? - Brian Biros (Thompson Research Group)

2025Q1: We continue to see momentum as we move into second quarter. The orders continue to be strong, our backlog continues to be up and great momentum in the business as we’re moving through Q2. - Laurel Hurd(CEO)

Contradiction Point 5

Capital Expenditure (CapEx) and Investment Strategy

It involves changes in the company's CapEx strategy, which impacts its financial planning and future growth expectations.

Can you provide additional commentary on potential investments at Nora Rubber, such as expanding capacity or increasing automation at the Nora facility? - Brian Biros (Thompson Research Group, LLC)

2025Q3: We’ve been making investments all along in nora rubber, and we will continue to amplify that as our sales growth continues to exceed expectations. - Laurel Hurd(CEO)

What is the breakdown of the $45M capital expenditures in 2025 and is this the peak spending in this cycle? - David MacGregor (Longbow Research)

2024Q4: We spend between 2.5% to 3% of revenue on CapEx, and we only invest if it has a great return. This is our forecast for now, but the future depends on new opportunities. - Bruce Hausman(CFO)