Earnings Call Transcript - TILE Q1 2022

Operator, Operator

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interface, Inc. First Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

Christine Needles, Corporate Communications

Good morning, and welcome to Interface's conference call regarding first quarter 2022 results, hosted by Dan Hendrix, Chairman; and Bruce Hausmann, Vice President and CFO. In addition, I'm pleased to welcome Interface's new Chief Executive Officer, Laurel Hurd, who will provide some opening remarks on today's call. 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 associated with the ongoing COVID-19 pandemic and those 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 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'd like to turn the call over to Laurel Hurd, CEO.

Laurel Hurd, CEO

Thank you, Christine, and good morning, everyone. I'm thrilled to be here at Interface, and for the opportunity to speak with you today. My first day with the company was April 18, after our strong first quarter results were in and as we entered into Q2 with strong momentum. And now I'm joining a great company with an amazing reputation, a strong team and a fantastic future. I'm eager to lead the company through our next phase of growth, while continuing to advance our purpose and our sustainability journey. I want to thank Dan for his stewardship of the company for the past 39 years and especially for navigating the past two years to deliver solid financial performance during an incredibly challenging macro environment. Before I hand the call over to Dan and Bruce for the quarterly results, let me share a little bit about what brought me here and my background. I was drawn to Interface because of its reputation and leadership in design, sustainability and innovation. As I started to work closely with the leadership team and have met many Interface colleagues across our Americas and EAAA business in my first three weeks, I can see that we have the right fundamentals in place and we're primed to accelerate our success as we reach the other side of this global pandemic. I come to Interface with 30 years of experience in sales, product innovation, brand development and general management. I spent the past 22 years at Newell Brands, most recently leading both their writing and baby business units. I was responsible for a $3 billion P&L, a portfolio of iconic brands including Sharpie, Elmer's and Graco and a complex global supply chain. My success over the years has come from developing a strong culture and amazing teams, having clarity of strategy and excellence in execution with a focus on results and winning as a team. As part of my onboarding schedule, I've already met many of you. And for those of you who have not met, I look forward to connecting with you as well. I also look forward to working closely with you as we continue to drive Interface forward and reach our full potential. With that, I'll now turn it over to Dan and Bruce to discuss first quarter results. Dan?

Dan Hendrix, Chairman

Thank you, Laurel. I am so glad you're here. And good morning, everyone. Let me jump right into our results. We delivered strong first quarter 2022 results with sales up 14% and a broad-based growth across products and segments. We also had a strong adjusted gross profit margin, down only 55 basis points versus Q1 of last year. Despite ongoing supply chain challenges, high input cost inflation and COVID-related disruptions, I am so grateful for the hard work and dedication of our entire team, because of our team's strong execution paired with pricing and productivity gains, we mitigated over 1,000 basis points of input cost inflation headwinds that we experienced in the quarter. Our topline growth continues to be strong and our backlog continues to grow. As we close out the quarter, our backlog was up 16% since the beginning of the year and 29% year-over-year. Orders were also strong in the quarter. Orders in the Americas were up 11% year-over-year and, in EAAA they were up 26% on a currency neutral basis. This gives us further confidence that the commercial office market is recovering and that we're positioned for growth as we come out of the global pandemic. The investments we made in our selling organization and product innovation are bearing fruit. We're growing in our key market segments and we're taking share. Healthcare is up 23%, Corporate office is up 21%, education is up 19%, and multifamily residential is up 12%. And we're seeing strong demand for our carbon-neutral and carbon-negative products, which set us apart from the competition. More and more, our customers are focused on the carbon footprint of their projects. They look to us to provide high design, high quality products with the lowest carbon footprint on the market. We're the only manufacturer that offers carbon-negative carpet tiles when measured cradle-to-gate without relying on offsets. As a result, many global customers, including multiple Fortune 100 customers, have turned to Interface to help them achieve their own carbon reduction goals. They also choose us because they know our environmental declarations are made with integrity. Interface is one of a few building product manufacturers and currently the only global flooring company to have our 2030 greenhouse gas reduction targets validated by the Science Based Target initiatives. We also continue to innovate on the product side. This quarter we launched our new collection in the rigid core LVT categories to provide a maximum durability option with easy maintenance and installation. We also launched the first collection of carbon-negative area rugs through Floor, again measured cradle-to-gate. This is our first carbon-negative product offering in the residential side of our business. And we introduced a healthcare collection of carpet tile, LVT and vinyl sheet called Desert Scapes, which aims to connect healthcare facilities with the natural world through an integrated cohesive design. Now let's turn to the middle of the P&L, we made great progress in improving efficiencies throughout the business, our focused hiring efforts have improved production and productivity in our US manufacturing so we can meet the increasing demand that we're seeing in our order book. As a result of these efforts, production in the US has returned to near pre-COVID levels. As you think about the rest of the year, input cost inflation will continue to be a challenge. We expect to continue to mitigate inflation with additional productivity and pricing initiatives. While our gross profit margin was down year-over-year in Q1, we are very proud it was only down 55 basis points on an adjusted basis. It remains a top priority for us to return to our target gross profit levels once raw material and freight costs stabilize. In the meantime, we're making every effort to mitigate the impacts of this inflationary environment. Overall, Q1 was a very strong quarter and one that we are very proud of. I want to thank the entire Interface team for their continued commitment to provide the best products in the industry with the most environmentally friendly attributes. I also want to thank our customers for their continued support and the trust they put in us each day to deliver great solutions with revolutionary technology. With that, I'll turn over to Bruce to go through the financials. Bruce?

Bruce Hausmann, Vice President and CFO

Thank you, Dan, and good morning, everyone. First quarter net sales increased 13.7% to $288 million. Organic sales, which excludes the impact of currency translation, was 16.8%. Sales in the Americas were up 23.3%, driven by the recovering commercial market and our continued progress in taking share. In EAAA, sales were up 4.1% and currency-neutral sales were up 10.4%. Orders were up in both regions, including an 11.4% increase in the Americas and a 26.3% currency-neutral increase in EAAA, compared to the first quarter of last year. First quarter gross profit margin was 37.1%, down 84 basis points versus the prior year period. And as Dan mentioned, the adjusted gross profit margin was 37.9%, a decrease of only 55 basis points from the prior year period, despite over 1,000 basis points of input cost inflation that we incurred in the quarter. For the past two years we have been focused on building earnings power by making structural changes to our SG&A. Total SG&A expense was $78.5 million or 27.3% of net sales, which was down from $79.3 million or 31.3% of net sales in the prior year period. Adjusted SG&A expense for the first quarter was $78.6 million or 27.3% of net sales compared to $77.5 million or 30.6% of net sales in the same period last year. First quarter 2022 operating income was $27.4 million, up 62% compared to $16.9 million in the prior year period. Adjusted operating income was $30.6 million, up 54% versus adjusted operating income of $19.9 million in the first quarter last year. Fully diluted earnings per share was $0.22, up 83% versus $0.12 in the first quarter last year, and adjusted earnings per share was $0.28 per diluted share, up 65% versus $0.17 in Q1 of last year. First quarter's adjusted EBITDA increased 36% to $42.9 million in the first quarter of 2022. Please refer to our press release for reconciliations of our GAAP to non-GAAP numbers. Turning to our balance sheet and cash flows. The company used $17.7 million of cash from operations in the first quarter of 2022 as we return to a more customary seasonality in our business, where our operations typically use cash in the first half of the year and generate cash in the back half of the year. Liquidity at the end of the quarter was $359 million, comprised of $76 million of cash and $283 million of borrowing availability. Inventory was $319 million, up 20% since the beginning of the year as we increased raw materials, work in progress and finished goods to accommodate increased demand. Our balance sheet remains strong, net debt or total debt minus cash on hand was $445.7 million at the end of the first quarter, and the last 12 months of adjusted EBITDA was $180.9 million and our net leverage ratio was 2.5 times calculated as net debt divided by adjusted EBITDA. We continue to have confidence in our strong balance sheet and our capital structure. Depreciation and amortization totaled $10.7 million in the first quarter of 2022 versus $11.9 million in the prior year period. Capital expenditures were $4.8 million in the first quarter of 2022 compared to $5.2 million in the first quarter last year. Now turning to our outlook, we continue to grapple with our high inflationary environment, significant levels of disruption in the global supply chain, periodic COVID-related shutdowns, particularly in Asia, and macroeconomic uncertainty. As the company monitors the situation, it is anticipating the following: for the second quarter of 2022 net sales of $350 million to $360 million; adjusted gross profit margin of approximately 33% to 34%; adjusted SG&A expenses of approximately $85 million; adjusted interest and other expenses of approximately $8 million; and adjusted effective tax rate of approximately 29% and fully diluted weighted average share count at the end of the second quarter of approximately 59.4 million shares. And for the full year of 2022, we anticipate year-over-year net sales growth of approximately 10% to 12%, adjusted gross profit margin of approximately 35% to 36%, adjusted SG&A expenses that are approximately 25% to 26% of net sales, adjusted interest and other expenses of approximately $31 million and adjusted effective tax rate of approximately 27% and capital expenditures of approximately $30 million. We expect to continue to proactively mitigate the significant inflationary environment we're in with price increases and productivity initiatives. We will also continue to assess and activate opportunities to leverage our SG&A dollars globally. Our strategy is working and we are winning in the marketplace. We thank you for your continued support as we leverage our brand, continue to optimize our cost structure and continue taking share.

Dan Hendrix, Chairman

Thank you, Bruce, and thank you everyone for participating in our first quarter 2022 results. Interface has seen strong and consistent growth in orders and sales as discussed during today's call. And we look forward to continuing momentum we're seeing in our results and in the marketplace. We expect great things for Laurel as our new CEO and I'm staying on as Chairman; I'm excited to see where she takes our great company next. With that, I will open it up for questions.

Operator, Operator

Your first question comes from Keith Hughes from Truist. Please go ahead.

Keith Hughes, Analyst

Thank you. A couple of questions on the results. Could you give us a feel in the quarter for what was price and what did units contribute to the growth?

Bruce Hausmann, Vice President and CFO

Hi, Keith. This is Bruce. Good morning. As we mentioned, we had about 1,000 basis points of inflation that we incurred in the quarter and we offset that similarly with price and productivity. There are some pockets of higher pricing around the globe and there are some pockets of higher productivity, but we're pulling both levers and again great results to offset this inflation. So it's a very similar outcome around pricing productivity. And our units were obviously up as you can see by the volume that we had.

Keith Hughes, Analyst

So of the 17% excluding currency round numbers, I mean, we're looking at six, seven points of unit growth. Is that kind of roughly right?

Bruce Hausmann, Vice President and CFO

That sounds about right. Yeah.

Keith Hughes, Analyst

Okay. Now, the orders in Europe well above sales trends, even excluding currency, which is, quite honestly, a little surprising given what's going on in Europe. So if you could provide some commentary there? And then also orders in the United States, which were a little low in sales growth. What do you see the trend in the Americas?

Bruce Hausmann, Vice President and CFO

The business continues to accelerate, and our orders have remained strong as we progressed through the second quarter. In Europe, we have faced some challenges due to currency fluctuations, with around a 600 basis point impact from foreign exchange translation in the first quarter, and we expect a similar situation in the second quarter. However, our orders are robust, our backlog is increasing, and despite the difficult circumstances in Europe, our business remains strong. In the United States, we have also observed no signs of weakening; our orders continue to be very strong, and we have significant momentum as we enter the second quarter. We are optimistic about a successful second quarter and a strong year based on the encouraging numbers we are seeing in the business.

Dan Hendrix, Chairman

Hi, Keith. This is Dan. I think one thing that's really happening is the office market is really starting to come back for us, particularly in the United States.

Keith Hughes, Analyst

I understand that you're not alone, and that sounds great. For my final question, I see why the gross margin will be impacted in the second quarter due to raw material inflation. As you approach the second half of 2022, do you anticipate being even on costs, or will there still be some margin pressure extending into the third quarter as you try to adapt?

Bruce Hausmann, Vice President and CFO

Keith, this is Bruce. As we think back a couple of quarters ago when the Fed was talking about temporary inflation, we had hoped that we would see by now some give on that and we are starting to see some relief. Unfortunately, we have not seen that yet. The freight costs are still up, the raw materials costs are still up, and that inflationary momentum continued through Q1. So it will take some time for all that to flush through to the P&L. If you think about the timing of buying raw materials to building inventory to actually having that inventory released into the P&L. Our current hope is that towards the latter part of the back half of the year is that we'll start seeing some relief on that, but meanwhile, we're not sitting back, we are absolutely pulling hard on two big levers to offset that. One is pricing and one is productivity, because we know that we need to make sure that we protect our margins as we move through the year.

Dan Hendrix, Chairman

Keith, I would think of it this way. I actually believe unless we see a lot more stuff happening out there in the marketplace related to input costs, the second quarter should be our bottoming out and then you should start seeing improvement in the second half of the year.

Keith Hughes, Analyst

Okay. Excellent job on SG&A. That's all from me. Thank you.

Dan Hendrix, Chairman

Thank you, Keith.

Operator, Operator

Your next question comes from the line of Samuel Darkatsh from Raymond James. Your line is open.

Samuel Darkatsh, Analyst

Good morning, Dan, Bruce, Laurel. How are you?

Dan Hendrix, Chairman

Hey, Samuel, how are you?

Samuel Darkatsh, Analyst

Dan, I wanted to express how wonderful it has been working with you all these years. I've learned a great deal from you and enjoyed every moment. Best of luck with your next chapter. Laurel, congratulations on your new position. I have two questions for you, and I realize it may be unfair since you've just started. However, I'd like to get your initial thoughts on two key strategic areas moving forward for the organization. First, how does the European carpet tile business fit into the overall portfolio? Secondly, do you think Interface should bring its LVT supply in-house to produce it themselves or continue with the third-party sourcing model? I understand you are new, but any insights on the advantages and disadvantages of each option would be helpful at a high level.

Laurel Hurd, CEO

Sure. In week three, I want to share my initial impressions after visiting Europe last week. I was really impressed with the team there, and as Bruce mentioned, there is strong momentum. I feel encouraged by what I see, although it's still early and there's much more to learn. Regarding LVT, I don't have a definitive answer yet, but I'm very impressed with the business the team has built and the success and momentum we're experiencing. I believe there is still more to understand about bringing that sourcing model in-house.

Samuel Darkatsh, Analyst

Got you. And obviously, we'll be looking forward to your answers after a deeper dive. The second question, Dan, Bruce. Free cash flow conversion this year, expectations, I think originally or at least a few months ago you're kind of estimating around $80 million or $90 million or so free cash flow. After the first quarter, both seasonality and what you're seeing out of inventories and costs. What's a good place to think about free cash flow for the year?

Bruce Hausmann, Vice President and CFO

Sam, this is Bruce. We are not changing our expectations about that figure. We still anticipate a strong cash flow year. In Q1, as you're aware, we typically use cash for bonuses, taxes, and insurance. Therefore, we are very confident that the business will have a strong cash flow year, as we discussed earlier.

Samuel Darkatsh, Analyst

At what point, if I may ask another question, do you think the capital structure will reach a level where you would feel comfortable using that cash flow to invest in the stock itself?

Dan Hendrix, Chairman

Yeah. This is Dan. I would say that that's always on the table. When we look at that balance sheet, that 2.5 turns, one to two and we'll take it under consideration in every Board meeting, should we be buying back stock.

Samuel Darkatsh, Analyst

Very helpful. And again, Dan, best wishes in your next chapter.

Dan Hendrix, Chairman

We actually grew up together in this business.

Samuel Darkatsh, Analyst

We both have multiple scars on our backs to show for it. That's right.

Operator, Operator

Your next question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.

Kathryn Thompson, Analyst

Hi, good morning. Thank you for taking my questions. I wanted to circle back up just on the end-market segments, multifamily, healthcare, education, and office. First, focusing in on office. Hearing some themes in this earnings season, not only for you, but some others for an improvement office. Once again, remind us what the numbers are in terms of the outlook for office entrance, which you're seeing that orders, but also a little bit more color in terms of what trends you're seeing in that office segment specifically. Thanks.

Bruce Hausmann, Vice President and CFO

Hi, Kathryn, I'll attempt to answer your question and then let Dan provide additional insights. We are experiencing continued growth in the office market, which increased by 21% this quarter, and we haven't seen a decline in orders. Numerous companies are either reevaluating their spaces to adapt to a post-COVID environment or are looking to enhance their spaces to attract employees back with a fresh look. Additionally, with the usual turnover associated with leases, we are observing a surge in refresh leasing activity. There is significant activity and transformation occurring in the corporate office sector, encompassing a variety of approaches. This is certainly beneficial for our business.

Dan Hendrix, Chairman

Yeah, Kathryn, I think we see that globally; that's not just the US, that’s globally, actually.

Bruce Hausmann, Vice President and CFO

Our renovation work is not doing office work. We're not observing much new construction. It continues to be primarily renovation and repair work happening around the world.

Kathryn Thompson, Analyst

Okay. And you also noted that multifamily was up 12%.

Dan Hendrix, Chairman

Yes, that's correct. Again, another strong segment for us.

Kathryn Thompson, Analyst

And maybe give more color in terms of sequential trends you're seeing there? And your thoughts on the outlook for the full year for the multi-segment?

Bruce Hausmann, Vice President and CFO

Well, Kathryn, this is a very small part of our business, to be honest with you. We are focusing on the common areas but not on the larger segments. It's just growing for us. Our outlook will likely increase with the market by 12%.

Dan Hendrix, Chairman

Kathryn, I would think of that space for us as growing double-digits this year, just with all the activity that's out there.

Kathryn Thompson, Analyst

Okay. And then finally on healthcare and education. Any additional color you can give on the segments and market segments?

Bruce Hausmann, Vice President and CFO

I'll address that, Kathryn, and then I'll hand it over to Dan. There is significant momentum in education, largely due to substantial government spending aimed at education-related repair and renovation, much of which has yet to be released, and many projects haven't started yet. We expect a continued double-digit growth rate in education, which we believe has a long-term outlook because of the extensive repair and renovation needs and the government funding allocated for this purpose. In healthcare, we are also benefiting from broader market trends, particularly in the US, which continues to be a strong area for us. Our position is further strengthened by the Nora acquisition, known for its focus on healthcare, leading to increased revenue traction in this sector. Additionally, we are capitalizing on revenue synergies in carpet and luxury vinyl tile, as we already have established relationships and are involved in various projects within those markets.

Kathryn Thompson, Analyst

Okay. So I think it's fair to say operational trends from quarter four versus last year?

Dan Hendrix, Chairman

Could you repeat that?

Kathryn Thompson, Analyst

Okay. One additional question I wanted to follow up on is just, there are unintended consequences from the conflict with Ukraine and Russia. How is that impacting your business in kind of obvious or less obvious ways?

Bruce Hausmann, Vice President and CFO

I'll take a stab at that Dan and then have you weigh in. So, as we mentioned, our Russia business is around $8 million in revenue annually and around $2 million of profit annually. We are about $1 billion in assets there. So clearly that business is at risk with the war there. The good news is that it's immaterial relative to the total company, but our hearts and minds and prayers go out to the people and what they're going through in that conflict. The supply chain disruption in Europe around this is real. And so, and I think we've baked that into our guide based on everything that we know today. Clearly, it's an evolving situation that moves every single day and every single week, but we know there is an energy crisis going on in Europe where energy is up, particularly natural gas and which affects us and affects our business. And so that's something that we baked into our thought process around GP for the rest of the year. We're watching it really, really closely and I'll go back to what I mentioned earlier, to the extent that we are incurring inflationary pressure as a result of that, we are not going to sit still, we are going to make sure we are leaning forward to offset those costs with higher pricing and productivity.

Kathryn Thompson, Analyst

Okay, great. Thank you for taking my questions today. Best of luck Dan. Great working with you Dan. I'm sure we'll keep up.

Dan Hendrix, Chairman

Thank you.

Operator, Operator

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

David MacGregor, Analyst

Yes, good morning everyone. And Dan, maybe I can just add my sentiments to those expressed by Sam. So nicely earlier, Dan it’s been proud working with you. And Laurel, good luck. I wanted to just start off, it's really been great, Dan, thank you for everything. I want to start off with just asking about the commercial LVT business and just supply channels availability. You mentioned in passing in your press release that you gained share; was that in the carpet tile business or does that extend to the LVT supply chain? I'll provide you with maybe a little bit of a share gain advantage here versus some of the product that’s more coming out of China. Just if you could talk about that LVT flow right now and any advantage you feel you may be achieving.

Bruce Hausmann, Vice President and CFO

I'll address this and then pass it to Dan for further details. The LVT business is performing very well, experiencing double-digit growth. Our data indicates that we are capturing market share and are among the top three LVT providers in the commercial sector. It's impressive to note that we built this business from zero just a few years ago, and we are very satisfied with the progress made, especially regarding our product differentiation and the effectiveness of our sales team in promoting our LVT, which contains the highest recycled content compared to others in the market. Our design enhancements also contribute to this differentiation. The LVT segment is thriving, and we plan to keep the momentum going. Our suppliers have been reliable in terms of production, although there have been occasional issues with freight and shipping. To address this, we have increased our working capital investment to ensure that we have the necessary products available for our customers, allowing us to manage lead times effectively. Regarding carpets, we also believe we are gaining market share there and are experiencing strong momentum in that area as well.

David MacGregor, Analyst

Remind me on the commercial LVT that's coming out of Korea, Isn't it?

Bruce Hausmann, Vice President and CFO

Correct. Yes, that's where our manufacturing is, in Korea.

David MacGregor, Analyst

Okay. And so I guess just getting back to my original question, is that providing with the shared advantage? I think there is some kind of a competitive advantage in terms of just having a better flow of product or is it significantly different.

Dan Hendrix, Chairman

Yeah, David, I think the supply line from Korea is a lot better than from China as well, but you don't have some of the import. So it's a competitive advantage that we're in Korea versus China, that's for sure.

David MacGregor, Analyst

My second question is about the overall commercial markets. I'm recalling that some competitors have historically used their residential business to support their commercial operations. You mentioned that this practice negatively impacts you since you don't operate in the residential sector. Are you currently observing any evidence of this trend, and did it influence the price-cost dynamics reported in the first quarter?

Dan Hendrix, Chairman

I don't think so, David. I don't think they played the residential offer as commercial that way. I think that have taken this street business is better to say. So I think that's it from the crisis standpoint; we every like those low sometimes, but it's pretty fair out there from that standpoint.

David MacGregor, Analyst

Okay. Last question from –

Dan Hendrix, Chairman

We've observed similar situations in the past, but currently, that's not the case, which is reassuring. My final question pertains to Keith's earlier comments regarding SG&A. The execution there has been outstanding. Could you provide more specifics on the components of the SG&A number and identify where you're achieving improvements? While we recognize some inflation affecting your cost structure, it's clear you're also achieving gains. Can you elaborate on that?

Bruce Hausmann, Vice President and CFO

I'm sorry, David, this is Bruce. I would say it started with the tone and direction from the top, which has filtered down to our Regional Presidents and our commercial area leaders. There is a very strong focus on SG&A, ensuring that every dollar invested there yields a return. It's not just one or two areas; it's in every corner of the business. We have pushed this initiative globally, emphasizing the need for our organizations to optimize every dollar and adopt zero-based budgeting for SG&A. Every dollar spent in this area should either reduce costs or provide a return to the business. It involves over 50 different initiatives contributing to our progress, and we are not finished yet. We will continue to scrutinize all our SG&A dollars because we know how important this is. We're proud of the progress we've made and will keep our focus on it.

Dan Hendrix, Chairman

Yeah, David. Listen, I would say that we did some structural things around India, around Latin America, closing the Thailand facility. So we took out probably 20% of our head counts that are structural today. Particularly related to the SG&A area, we didn't cut any salespeople in that process. I'm very proud of that part of it.

David MacGregor, Analyst

Yeah, good to hear. And is there any risk that is just kind of the world normalizes here that there are expenses that return back into the P&L, maybe you're benefiting right now from some deferred expenses or you guys feel you're in a steady state?

Dan Hendrix, Chairman

As you see our sales increase, you have variable comp; you realize that part of the equation. We love the fact that is variable for sure. And you're going to see some T&E as we go through our customers. Those are the two areas.

Bruce Hausmann, Vice President and CFO

Yeah, I would say the third area, David. And this is a good thing and it’s sample expense goes up. So some of those are variable costs, but again, there is a strong emphasis and I want to publicly thank the team across the globe, because I'm sure they're all listening to this. Thank you, thank you, thank you to the team for your leadership around scrutinizing every dollar of T&E. Again, it starts with tone and tenor at the top, and it is absolutely being driven by our President and being driven by our commercial leaders to have a strong focus on SG&A leveraging that line.

David MacGregor, Analyst

If I can squeeze one more in, just maybe talk about the market acceptance on the carbon negative and the progress you're making there? And maybe if you could differentiate between the spec channel versus the dealer channel in that response. Thank you.

Bruce Hausmann, Vice President and CFO

Dan, you want to take that one or you want me to take that one?

Dan Hendrix, Chairman

I think it's going up, David, and the spec market is not really showing up in the dealer market from the carbon-negative to the carbon-neutral products, but the reception has been tremendous related to the regular products. And we see calculated with a good response; I'll share some data on that. The take-up of that calculator is really, really very nice. We're actually loving what's going on with making carbon one number at a spec is carbon footprint. So it's moving in the right way for us; we're going to win in the marketplace with carbon negative for sure.

Bruce Hausmann, Vice President and CFO

David, I'd like to build on Dan's comments regarding the back office. This is certainly a key differentiator for us. What I appreciate about Interface and this company is that our customers can see through the misleading claims prevalent in the industry. As Dan noted in our prepared remarks, we are the only global flooring company having our greenhouse gas reduction targets validated by the Science Based Targets initiative. Therefore, when we share our numbers, we do so with integrity and action. Our customers, with a little research, can recognize this and see past the greenwashing happening elsewhere in the industry, which provides us with a strong position and clear differentiation.

David MacGregor, Analyst

Thanks very much, everyone, and congrats on all the progress.

Bruce Hausmann, Vice President and CFO

Thank you.

Operator, Operator

And there are no further questions at this time. Mr. Dan Hendrix, I turn the call back over to you for some final closing remarks.

Dan Hendrix, Chairman

Yeah. Well, thank you all for listening to this call. I can't wait to hear Laurel and Bruce’s call next quarter. Thank you. Have a great day.

Operator, Operator

And this concludes today's conference call. Thank you for your participation; you may now disconnect.