Interface's Q3 2025: Contradictions Emerge on Healthcare Growth, Margins, Tariffs, and One Interface Strategy

Date of Call: October 31, 2025

Financials Results

• Revenue: $364.5M, up 5.9% as reported and 4.2% currency-neutral YOY
• EPS: $0.61 adjusted EPS, up 27% YOY (vs $0.48 in Q3 2024)
• Gross Margin: 39.5% adjusted gross profit margin, up 208 bps vs Q3 2024; tariffs diluted margin ~30 bps in Q3 (expect ~50 bps dilution in Q4)

Guidance:

• Full-year 2025 net sales expected $1.375B–$1.390B.
• Adjusted gross profit margin expected 38.5% of net sales.
• Adjusted SG&A expected $362M; adjusted interest & other expenses $25M.
• Adjusted effective tax rate 26% (adjusted basis).
• Capital expenditures ~$45M; fully diluted share count ~59.1M; figures approximate.
• Anticipate tariff-related dilution to Q4 adjusted gross profit margin of ~50 bps.

Business Commentary:

• Strong Financial Performance:
• Interface delivered a 4% increase in currency-neutral net sales for Q3 2025, with adjusted gross profit margin expanding by 208 basis points.

• This growth was driven by a balanced mix of price and volume, as well as manufacturing efficiencies and favorable product mix.

• Geographic and Market Segment Performance:

• In the Americas, currency-neutral net sales increased 4%, while EAAA saw similar growth with a 4% rise in sales.

• Strong performance in the healthcare sector was a significant contributor, with global health care billings up 29%.

• Tariff Management and Margin Impact:

• Interface managed tariffs diluting adjusted gross profit percentage by 30 basis points in Q3 and expected a 50 basis points impact in Q4.

• The company successfully offset tariff-related costs through pricing and productivity initiatives.

• Strategic Initiatives and Product Introductions:

• Nora Rubber sales grew 20% in Q3, contributing to the overall strong performance, and new product innovations are planned.
• The company is expanding its product portfolio to capture new opportunities and drive long-term growth, focusing on healthcare segment innovation.

Sentiment Analysis:

Overall Tone: Positive

• Management: "delivered another strong quarter, exceeding our expectations"; raised full-year guidance; "adjusted gross profit margin expanded by 208 basis points"; reported net sales of $364.5M (up 5.9% as reported / 4.2% currency-neutral) and adjusted EPS of $0.61 (up 27% YOY).

Q&A:

• Question from Brian Biros (Thompson Research Group, LLC): Sales were above the guidance range again — what surprised you and drove the sales outperformance versus expectations?
  Response: Healthcare strength (global health care billings up 29%) drove the outperformance, led by One Interface selling-team execution.

• Question from Brian Biros (Thompson Research Group, LLC): Can you add color on investments in Nora/rubber — capacity expansion, automation, or other investments?
  Response: Investing to support capacity, add productivity initiatives and innovation at Nora; more details to come next call.

• Question from Brian Biros (Thompson Research Group, LLC): Now that you're at ~38.5% margin, do you expect further margin expansion or will you hold to accelerate volumes?
  Response: Ambition is to hit 38.5% this year while balancing share gains; further margin ambition will be evaluated after delivering a strong Q4.

• Question from Alexander Paris (Barrington Research Associates, Inc., Research Division): How did momentum shape across July/August/September and how was October?
  Response: Demand and orders were steady and consistent across the quarter; October continued that trend, Americas particularly strong while Europe more challenged.

• Question from Alexander Paris (Barrington Research Associates, Inc., Research Division): How much did education decline in the quarter (percent)?
  Response: Education was down about 2.5% in Q3, but is up high single digits year-to-date; the decline is timing-driven.

• Question from Alexander Paris (Barrington Research Associates, Inc., Research Division): Was the gross-margin expansion driven by manufacturing efficiencies like last quarter (~80%), or different this quarter?
  Response: Approximately half the margin expansion came from manufacturing efficiencies and the remainder from price and mix.

• Question from Alexander Paris (Barrington Research Associates, Inc., Research Division): Why was the reported tax rate unusually low this quarter and how does that relate to the 26% adjusted tax guidance?
  Response: A noncash $10.4M pickup resulted from Germany's enacted future tax-rate changes requiring remeasurement of deferred tax balances; adjusted tax guidance of 26% excludes that pickup.

• Question from Alexander Paris (Barrington Research Associates, Inc., Research Division): Amortization of intangibles fell — will there be further amortization add-backs going forward?
  Response: Amortization has run its course; you will no longer see that expense or the related add-back going forward.

• Question from David S. MacGregor (Longbow Research LLC): Beyond tariffs, what are the drivers (mix, productivity, volume) for further margin upside?
  Response: Margin upside drivers are mix (U.S. strength and Nora), productivity gains from automation, and volume leverage.

• Question from David S. MacGregor (Longbow Research LLC): If you migrate U.S. automation learnings to Europe and Australia, what gross-margin upside could that represent?
  Response: Automation and robotics meaningfully reduce waste and improve throughput; benefits are material but smaller in Europe/Australia given their scale versus the U.S.

• Question from David S. MacGregor (Longbow Research LLC): Should we expect incremental margins to remain roughly in line given Nora mix increase and medium-price-point rollouts?
  Response: Focus remains on executing to hit current ambition; management will reassess and discuss next margin ambition after year-end results.

• Question from David S. MacGregor (Longbow Research LLC): How is global product category management changing the opportunity to sell multiple product categories to the same customers?
  Response: Added global product category management to accelerate global innovations and cross-sell the full portfolio to customers; initiative is early but expected to expand multi-category wins.

• Question from David S. MacGregor (Longbow Research LLC): Is the ~$10M incremental CapEx planned for 2026 all for Nora or other programs as well?
  Response: A large portion is for Nora (capacity/productivity/innovation) but there will also be automation and innovation investments outside Nora.

• Question from David S. MacGregor (Longbow Research LLC): You repurchased shares this quarter — how should we think about the buyback program going forward?
  Response: Repurchases are opportunistic; priority remains investing in growth, margin expansion and innovation while returning capital when appropriate.

Contradiction Point 1

Healthcare Segment Growth and Performance

It highlights differing expectations and performance in the healthcare segment, which could impact investor perceptions and strategic planning.

Did sales exceed the guidance range? - Brian Biros (Thompson Research Group, LLC)

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

What is the outlook for healthcare sector billings growth? - Alexander Peter Paris (Barrington Research Associates, Inc., Research Division)

2025Q2: Our sales momentum was broad-based, with a strong performance in healthcare, also up 15% year-over-year. - Laurel Hurd(CEO)

Contradiction Point 2

International Sales and Order Growth

It affects the company's reported sales growth and international expansion strategy, which are crucial for understanding the company's global performance.

Why were sales above the guidance range? - Brian Biros (Thompson Research Group, LLC)

2025Q3: Our order growth momentum was strong in April, lightened in May and early June, then picked back up. July also came in strong. - Laurel Hurd(CEO)

Did Q1 momentum carry into Q2? - Alexander Peter Paris (Barrington Research Associates, Inc., Research Division)

2025Q2: The Americas order growth was up 4% in the quarter. EAAA's order growth was up 4% in the quarter. - Laurel Hurd(CEO)

Contradiction Point 3

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

What is the percentage of revenues? - David S. MacGregor (Longbow Research LLC)

2025Q3: Gross margins for the quarter were 41.8% compared to 39.7% in the prior-year quarter. - Laurel Hurd(CEO)

What factors support the 37.2% to 37.4% gross margin improvement guidance for 2025? - David MacGregor (Longbow Research)

2024Q4: We are targeting gross margins for 2025 Q3 in the low 70s and for the full year of 2025, we're targeting margins to be in the mid-70s. - Bruce Hausmann(CFO)

Contradiction Point 4

Tariff Impact and Mitigation Strategy

It involves differing accounts of the timing and effectiveness of tariff mitigation strategies, which could affect financial projections and operational planning.

Can you elaborate on the Nora and rubber topics? - Brian Biros (Thompson Research Group, LLC)

2025Q3: Our commission-based selling team allows for quick pricing implementation. Inventory not impacted by tariffs helps with timing. - Laurel Hurd(CEO)

Regarding tariffs, is there a timing concern or mismatch in Q2 due to immediate expense recognition? - David MacGregor (Longbow Research)

2025Q1: Mitigation plans are well-aligned with cost offsetting, expecting a good match in timing. - Bruce Hausmann(CFO)

Contradiction Point 5

Impact of One Interface Selling Strategy

It reflects differing perspectives on the effectiveness of a strategic initiative, which could impact company performance and investor confidence.

Were sales above the guidance range? - Brian Biros (Thompson Research Group, LLC)

2025Q3: The One Interface strategy is working, with double-digit order growth in the Americas. - Laurel Hurd(CEO)

How will the One Interface selling strategy's 2024 implementation impact 2025 results? - Brian Biros (Thompson Research Group)

2024Q4: The One Interface strategy is working, with double-digit order growth in the Americas. - Laurel Hurd(CEO)