Interface, Inc. (TILE) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q4 2014 Interface Inc. Earnings Conference Call. My name is Meena and I’ll be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions]. I would now like to turn the conference over to Mr. David Foshee. Please go ahead sir.

Thank you, operator. Good morning and welcome to Interface’s conference call regarding fourth quarter 2014 results. Joining us from the company are Dan Hendrix, Chairman and Chief Executive Officer and Patrick Lynch, Senior Vice President and Chief Financial Officer. Dan will review the highlights from the quarter, as well as Interface’s business outlook. Patrick will then review the company’s key performance metrics and financial results. We will then open the call for Q&A. A copy of the earnings release can be downloaded off the Investor Relations section of Interface’s website. An archived version of this conference call will also be available through that website. Before we begin formal remarks please note that during today’s conference call, management’s comments regarding Interface’s business, which are not historical information, are forward-looking statements. Forward-looking statements 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 economic conditions in the commercial interior’s industry as well as the risks and uncertainties discussed under the heading Risk Factors in Item 1A of the company’s annual report on Form 10-K for the fiscal year ended December 29, 2013, which has been filed with the Securities and Exchange Commission. We direct all listeners to that document. Any such forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. The company assumes no responsibility to update or revise forward-looking statements made during this call and cautions listeners not to place undue reliance on any such forward-looking statements. Management’s remarks during this call refer to certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is contained in the company’s earnings release and Form 8-K filed with the SEC yesterday. These documents can be found on the Investor Relations portion of the company’s website, www.interfaceglobal.com. Lastly, please note that this call is being recorded and broadcasted for Interface. It contains copyrighted material and may not be re-recorded or re-broadcasted without Interface’s express permission. Your participation on the call confirms your consent of the company’s taping and broadcasting of it. Now, I’d like to turn the call over to Dan Hendrix. Please go ahead, sir.

Thank you, David. Good morning, everyone. To say that we were pleased with our performance in the fourth quarter would be an understatement. It was a very strong finish to the year, with the best results we had in any quarter since before the economic downturn in late 2008. When you consider where we were four months ago, the results are even more gratifying. On a sequential basis we improved substantially across all financial metrics, making for a speedy and robust recovery from the third quarter. I would like to thank all of our associates for their focus, hard work as we closed out the year on a high note. Starting with the top line, we had a very healthy sales numbers of $272 million, with growth in each of our primary geographic regions. The only area of concern was a negative currency impact in Europe which of course, is outside of our control, but it turned 6% sales growth in local currency and 2% decline as reported in U.S. dollars. I will talk about - more about currency headwinds in a little bit. The U.S. and Australia, which are two of our largest geographic markets were particularly strong, as the commercial market recovery continued to take shape and we gained share in each market. We are also encouraged that markets across Asia made a quick recovery from the third quarter to the fourth. Gross margin turned upward from the third quarter to the fourth, as increased demand led to more manufacturing throughput and better fixed overhead absorption. And our initiatives to improve manufacturing efficiencies began to take hold. We are still short of our level achieved a year ago, but we are moving in the right direction. If there is one thing I am most proud of about the quarter it’s our control over SG&A expenses. After our restructuring and other cost cutting measures earlier in the year SG&A was at 23.8% of sales which is the lowest level since 2008. In absolute dollars it was $65 million which puts us on track to achieve our goal of $250 million for 2015, while still funding our significant growth opportunities. I'd also like to point out that our floor business top line was even - but on year-over-year basis but it substantially trimmed its operating loss in the fourth quarter both on a sequential basis and year-over-year. A result of our restructuring and cost cutting floor’s fourth quarter loss was down to $500,000 compared to $1.8 million in third quarter and $800,000 a year ago. On a consolidated basis all of these factors translated in to an operating margin of 10% which is a substantial improvement over where we had been earlier in the year. Order growth during the fourth quarter was at 3% year-over-year with solid advances in the Americas and Asia Pacific being somewhat offset by decline in Europe. Without the currency translation impacts our orders were up 6% for the quarter with Europe being essentially even. While this is still lighter than I expected we have seen a sharp increase in the orders in the first month and half of 2015 which largely alleviates my concern. Year-to-date 2015 orders are approximately 24%, with increases coming across all three primary regions, including the bounce-back in Europe. When you take out the currency impact; the increase is closer to 30%. However this is not a direct apples-to-apples comparison to the prior year because our January had an extra week this year. Nevertheless the strong order momentum is a positive trend that gives us a lot of optimism about 2015. I'm also fairly comfortable with our SG&A level as we began the year. So our primary focus would be on reducing our cost of sales and thus expanding gross margin. The increased demand level should give us some manufacturing volume support. In addition, we've got a number of initiatives underway to improve efficiencies and help us better manage the increasing complexity of our product offering which is an important competitive advantage for us. We're also seeing some relief on raw materials as a result of lower oil and energy input cost. However we will face a significant currency headwind in 2015 as a result our forecast declines of the euro, Australian dollar, Canadian dollar, essentially negating our expected raw material cost savings. We also have an improved capital structure with our debt refinance at a substantial lower rate, which will cut our interest expense for the year. From a market standpoint we're very well-positioned. Our new product development has been outstanding. We have an excellent seasoned sales force. We've given them the tools they need to win business and grow market share. In addition, we've delivered by wide margin when it comes to sustainability as evidenced by our recent recognition in the trade publication Floor Focus and Contract Magazine. The Floor Focus surveyed the top designers in the United States we were once again named the Number One Green Leader. We're also ranked Number One Sustainable [ph] Culture in Contract Magazine in their Annual Brand Report. We're also very excited to have on board, Jay Gould under Executive Vice President and Chief Operating Officer. Jay came to us from American Standard Brands where he was the CEO of the 138 year old kitchen and bath fixtures company. Before that Jay had several senior executive role positions at well recognized international companies such as Newell Rubbermaid, Campbell Soup Company, The Coca-Cola Company and General Metals. Jay has hit the ground running and I’m confident that he is going to accomplish great things at Interface. In summary, I can say the business hasn’t felt this good in a long time and I’m excited about our prospects for both sales and earnings growth this year. And with that I will turn it over to Patrick.

Thank you and good morning everyone. I will now take a few minutes to walk through the financial highlights for the first quarter - sorry for the fourth quarter. Sales for the fourth quarter were up 8.1% to $272.1 million compared to $251.7 million for the fourth quarter of 2013. Sales saw a sequential increase of nearly $20 million as compared to the third quarter of 2014 and on a consolidated basis due to the currency headwinds that Dan mentioned previously we saw an approximate $7 million negative impact on sales for the fourth quarter as compared with the same period in 2013. We saw a gross margin increase on a sequential basis to 33.6% in the fourth quarter of 2014 versus 33.1% for the third quarter of 2014. We still trail last year’s fourth quarter gross margin of 36.5%. In the Americas sales experience a nearly 12% increase compared to the fourth quarter of 2013 with the corporate office market leading the way with a double digit increase. Our non-office segments also contributed nicely during the quarter, with hospitality doubling up last year’s fourth quarter sales, retail and government also growing strongly. In Europe, we saw the impact of the significant decline in the euro and sales were down 2% in U.S. dollars compared with the fourth quarter of 2013. In local currency however we experienced an increase of nearly 7%. The increase in local currency was almost entirely within our corporate office segment which comprises the bulk of the region sales. Despite the currency headwind we feel good about the resiliency of the European business and are happy with our performance given the continued macroeconomic concerns in the region. Asia-Pacific had a very strong quarter with sales increases across the entire region. In Asia we experienced double digit growth in Southeast Asia and India, as well as smaller but still solid sales growth in China. China turned a small profit for the quarter as well. Despite a significant currency headwind in Australia, sales grew more than 10% in U.S. dollars and nearly 20% in local currency. As Dan mentioned, the order churn in the region is explosive and 2015 shows no sign of slowing down. The increases in the region were largely due to the strength in the corporate office market, which was up 34% for the fourth quarter year-over-year. This growth was offset by smaller declines in education and healthcare market segments. To follow-up on Dan’s earlier comments on SG&A, we feel really good about where the fourth quarter came in. SG&A as a percentage of sales was 23.8% down nearly 300 basis points from 26.6% in the fourth quarter last year and on a sequential basis the decline is over 150 basis points versus third quarter 2014. These declines show our continued effort at measured managed investments and early impact of significant restructuring actions we took in the third quarter of 2014. Due to the factors discussed above, operating income in the fourth quarter of 2014 was $26.7 million or 9.8% of sales. And this compares with the fourth quarter of 2013 adjusted operating income of $25 million or 10% of sales, when the $7 million gain on the settlement related to our insurance claim in Australia is excluded. Including the gain, our operating income in the 2013 fourth quarter was $32 million or 12.7% of sales. During the quarter we got a small taste of the benefits of our new debt restructure as interest expense declined to $4.3 million versus $5.4 million in the fourth quarter of 2013. We expect continued interest savings going forward as the fourth quarter of 2014 only included one month of savings due to the timing of the refinancing. Depreciation and amortization was $9.5 million in the fourth quarter of 2014 compared with $8.8 million in the fourth quarter of 2013. CapEx for the fourth quarter of 2014 was $6.7 million compared with $43.9 million in the comparable period last year. The last year amount is unusually high due to the purchase of our new carpet manufacturing facility in Minto, Australia. Quickly to the balance sheet, we exited the quarter with $54.9 million in cash compared with $72.8 million at the end of 2013 and $68.5 million at the end of the third quarter 2014. Inventories were $142.2 million at the end of the fourth quarter compared with $149.6 million at the end of ‘13 and down sharply from $162 million at the end of the third quarter of 2014. Our average DSOs in the quarter were 49.2 days compared with 48.8 in year ago period and inventory turns were up in the fourth quarter at 4.8 times compared with 4.1 times last year. That concludes my remarks and with that I'll open the call up for questions. Operator?

Thank you, sir. [Operator Instructions]. Thank you. We have quite a few questions on the platform and your first question comes from the line of Kathryn Thompson from Thompson Research Group. Please proceed.

Hi, thanks for taking my questions today. My first question is on SG&A. How much of the $14 million cost cutting initiatives announced in conjunction with your Q3 preannouncement was able to be realized or achieved in Q4? And what can we expect on a go forward basis in terms of SG&A in 2015?

Yeah, we probably saw about little bit over $3 million of that flow through in Q4 related to the restructuring initiatives that got completed in August, September, October timeframe. And going into 2015 we're still on track and focused to deliver the $250 million in SG&A level for the full year.

And the bulk of these were really in personnel changes made in higher SG&A markets like Europe? Is that how…

That's right. They were across the board, but the bulk of them were focused in Europe.

Okay. Then turning to gross margins, to what degree were gross margins still impacted by supply chain inefficiencies in the U.S. in the quarter in addition to your continuing to ramp-up of Australian operations?

Well we did continue to see yarn disruption issues in Q4 versus Q3. The improvement from our yarn supply, it got better. Still a long way from perfect so we still had some drag related to that, hard to quantify exactly what that was in the quarter. And as it relates to Australia that facility has been up and running and performing well since Q2, Q3 timeframe. So much of a drag relating to Australia at all in Q4 margins.

Are the yarn supply disruptions largely behind you and what other than yarn [ph] itself can affect? Are there any other issues that we should think about when modeling gross margin as we go to the early 2015?

No, I would think for modeling purposes the FX headwinds are being offset by raw material declines. I think we are going continue to battle these yarn disruption issues in the near-term, getting better the first three weeks and February was the best that we have seen with on time delivery of over 80% versus kind of mid-70’s earlier or on average in Q4. So getting better but I think we will still battle a little bit here early part of 2015 but those are the near term issues that we are facing.

And then finally raw material you indicated that the positive impact would be largely offset by FX. To what degree do your recycle materials experience the same type of fluctuation in cost as its tie to petrol. In other words are you not seeing as much of a swing with recycle materials versus the other materials that are very clearly tied to energy prices?

I would say that from a recycling related to our yarn out of aquifer that’s it’s somewhat link to the oil as well. They have to be competitive with the market. So they actually go with the market rates on the yarn related to the aquifer recycled content. What’s recycling in our backing it’s not tied to it. It actually is tied to the recycling cost bringing it back in recycling. But that’s not a significant cost to us. So we’re going to get the benefit of raw material price reductions.

Okay, great. Thank you very much.

Thank you.

Thank you.

Thank you, sir. Your next question comes from the line of John Borstein [ph] from Longbow Research. Please go ahead.

Hi good morning Dan, Patrick and David. Congrats on a good quarter here. Just to follow-up a question on gross margin and how you are thinking about gross margins for 2015. Dan, I think you had mentioned in the press release getting back to gross margins in 2015 back to last year’s levels. Were you referring to the 2013 gross margin rate of 35.5?

That’s right, yes.

And what are some of the puts and takes whether it would lean or it absence of the Australia startup cost that gives you confidence you can get back to that level?

Those are the exactly the two things that we really focused on is the continuation of the lean manufacturing initiatives across our U.S. platform. We won’t have the replication of the startup of Australia in Q1 and even a little bit in to Q2 here in 2015. So having those two things and then not having the start-up should be - should help as well as seeing some relief on the raw material side and the order momentum that we are seeing here early part, seven weeks in to the year is only going to allow us to continue to have decent production levels at least through the first-half of the year where the fixed manufacturing absorption should be - continue to be positive in the first-half of the year. So that should help as well.

Great and just a follow up on that. The commodities issue. First can you talk where exactly you are seeing the saving, I assume it’s the year but if there are any material where you are seeing the saving and when it started to appear and if price are still declining?

Yeah, it’s across the Board. It’s really across all categories of raw material. We have seen bits and pieces of it. The negotiations were underway late Q4, probably just really started to materialize now, probably start to see any benefit related to this, late Q3, maybe early part of Q4, when it flows through. It’s early stages and we think it’s just the kind of the beginning of potentially even maybe further price reductions throughout the balance of the year.

And what - can you quantify the amount of FX impact that you think you will see this year that should be offset by lower raw material cost?

As we sit here right today and assuming the currency rates stay where they are today it would look like about a $50 million topline headwind if you take into consideration the translation of the euro to Canadian dollar and the Australian dollar. And that translates to about a $5ish million translation headwind from an operating income perspective. That’s the first part of it. There is some transactional exposure that we have as well from a currency perspective for raw materials that we buy from Australia in U.S. dollars and source that into Australia. And that’s a couple of million dollars on top of that. So we are looking out at least immediate $6 million to $7 million headwind at the operating income level from a currency perspective. And that’s about right now where we stand in terms of raw material savings that we’ve negotiated and anticipate seeing based on volume levels and purchase levels and so forth for the balance of 2015.

Great, thank you for that. And then just last on pricing to the consumer, you know how sticky is that, if you do see the price decline in the raw material, is there any issue with respect to having to give up that pricing and pass along to the customer. Thanks.

On this historically no, we have able to kind of raise prices even in challenging environments and it’s certainly not our intention to lower prices across the board. And in fact have gone out with select price increases in certain markets already in 2015.

Great, thanks for the color. Good luck on the rest of the year.

Thank you.

Thank you. Your next question comes from the line of Mike Wood from Macquarie Securities Group. Please go ahead.

Hi, guys, this is actually Ryan Hunter. Mike’s little under the weather right now. You guys did a great job listing your operating margins. But can you give us some bridge to 290 basis point year-over-year decline in their gross margins and was this mainly because of the continuing yarn production issues?

No. I mean, last year we didn’t have the new Australia manufacturing facility in Q4 of 2013. So little bit of drag in ‘14 with the new facility. And then also the drag in Q4 ‘14 versus last year related to production levels across our European business was less and that had a headwind in Q4, ‘14 on our gross margin as well. So those two things really kind of are the big deltas between this year's gross margin versus last year.

Okay. Can you give us the gross margin in the Americas region for the quarter?

It was 33 - yeah, 33.5% in the quarter.

Okay, great. And then in terms of the SG&A rate to get to the $250 million goal, should we expect sequential dollar declines throughout the rest of the year - throughout 2015?

In absolute terms, I think we are right about where we're going to be at $62.5 million or so in absolute terms, more plus for the balance of the year.

Okay, great. Thank you.

Thank you, sir. Your next question comes from the line of Stephen Kim from Barclays. Please proceed.

Thanks very much. Good results guys. Congratulations on that. I guess, my first question relates to the SG&A. Again you reiterated the $215 million. I was just wondering if you could give us some handle on what kind of demand environment that would be in the context of maybe like some sense of like what sales you're envisioning when you're talking about that number?

Yeah.

And also as a fact - also let me just add that we generally can perceive that about half of your SG&A is variable versus fixed and if you can just confirm that?

That's right. Yeah, it's about half-half fixed variable. Yeah and I think anticipating going in 2015 those levels were on kind of a low to mid-single-digits top line environment. That's what we kind of had modeled.

Got it. That's great. And then you mentioned in your remarks about focusing on gross margins and efficiencies, you talked about reducing the number of skews. Can you be a little more specific, give us a little more color around what kind of skew reduction you're talking about, where we might see that, just a little more color there that would be helpful.

Yeah, it’s just mostly in the United States, Steven we have a pretty broad product range within the United States and we're looking at how to rationalize some of the SKUs and minimize the SKUs that we have. So we don't create all that complexity in the plan or at least reduce that complexity in the plan.

Kind of order of magnitude, what kind of reduction are we talking about?

I think it’s little early right now to try to quantify if we are going from 75,000 SKUs to 70,000 or 65,000. Right now I think we're really just trying to get our arms around it and I don't think we're prepared to provide any hard metrics right now, as we sit maybe in a few months we'll be able to have a little more clarity on what those hard numbers look like.

Okay, great. And then you - with respect to the orders that we saw month-by-month, I think in October, November up mid-singles and then December they were kind of down and then they’ve been very strong in January. Can you just give us a little bit of color, do you think that is there anything you can identify that would sort of explain maybe the volatility there particularly the big dip in December and the make up in January that you’d want to call out besides just the extra day?

Well, I would say that if you go by market, if you look at United States market it started improving in August. And it was strong throughout the whole back half of the third quarter and the fourth quarter. And that trend is continued in the U.S. business. We had a great tough comparison in Europe last year. We had our best order level in the fourth quarter last year in Europe and then you have the currency headwind. And I guess Asia-Pacific is the one that was pretty choppy during the fourth quarter. But everything is - we’ve got in January we woke up and the order business typically falls off in January and it continued at pretty strong rate and the extra week did help but it’s - the business is that strong as well.

That’s great.

And it’s everywhere, it’s Europe, it’s Asia, and it’s America.

Well, that’s encouraging. I guess my last question relates to something that sort of came up in our meeting with David Oakey down about the month or so ago. He was talking about sort of changing that he was - a change that he was seeing in terms of the corporate office market particularly with looking at soft surfaces sort of coming back more in vogue in certain verticals that historically had been more focused entirely on hard surfaces. And I was curious if you’ve seen in this pick up in office that you’ve talked about, maybe some customers that you heretofore hadn’t done as much business, I am thinking in the tech sector particularly. If there’s been any sort of extension of some of those ideas that David Oakey was talking about in some of these early pick up that we’ve seen?

I would say that we haven’t seen that yet. I mean the hard surface of the commercial market is not that significant, and I don’t think it’s impacting the orders today. What Dave is referring to is that, the acoustics are becoming a bigger issue within the office space. And the tech guys are the ones that use the polished concrete more than anybody else. So I think they are trying to with acoustics and trying to balance the hard and soft before covering around acoustics.

Yeah. Great, so we have that to look forward to. Thanks very much guys. Appreciate it.

Thank you. Your next question comes from the line of Keith Hughes from SunTrust. Please go ahead.

Thank you. It appears you talked about SG&A in the 250 range and the low to mid-single digit growth, if we are actually going into a strong cycle, it could be above that. Is there any kind of guidance you can give us as a percentage of sales, what would it look like in a stronger scenario? Any help there would be appreciated.

Yeah, I mean I think we are going to continue to try to drive it, sub 24 range as a percentage, that’s - we would like to keep it in the 62-65 in absolute dollar terms as well, it really would be largely dictated by the strength in the top line, if we do in fact continue to see the mid to high double-digit kind of growth trajectory. But that’s certainly going to be the challenge to manage for the balance of the year in a strengthening environment for sure.

Same question on our gross margin, the 35.5 is most recent peak we have seen. I guess we did about 36 if we go back to ’10 which was a good year. Is there any - beside currency which if we exclude it is there other things that would cause you not be able to get back to those right sales levels?

Right sales level and we have the throughput, we should get back to those levels, Keith. We are making a lot of progress in our U.S. facility. And actually we are making a lot of progress in balancing these specific facilities.

Good Patrick can you tell us on operating margin where the three regions stood for all of 2014.

On a full year basis?

Full year basis, yeah.

They were all right at, Americas was over double digit. Europe was just under 9% for the full year. And Asia-pacific was in a similar range for the full year as well.

All right. Thank you.

Thank you.

Thank you. Your next question comes from the line of Glenn Wortman from Sidoti & Co. Please go ahead.

Yeah, good morning, guys. On a percentage basis, what does your geographic exposure shake out in 2014? And then within the Americas piece, how much of that is outside the country - outside the U.S., I am sorry.

Are you talking about currency?

No, 50% of the business is U.S. 8% of that is outside in Canada and Latin America. Europe runs around 27%, 28% and Asia-Pacific is the rest.

Okay. Thank you for that. And then can you just talk about your performances in some of your new markets in 2014 specifically residential and hospitality, and then your outlook for those sectors in 2015 and longer term?

As far as the hospitality business, we’re actually having a lot of success in hospitality particularly in the United States. I think Patrick’s got the number. It’s growing nicely. It’s a really good business that we created.

Hospitality for the full year was up over 30% on a worldwide basis and up over 50% for the full year in Americas in particular.

I think that has a lot of headroom to grow. The FLOR business, we’re running flattish in that business. We've got new management there. We've got a lot more insight into it, trying to drive the web part of that business through the catalog and through digital marketing. One of the things I’m really excited about is Jay who comes from the consumer side of that business and he has a lot of ideas how to get that back to profitability. Our goal this year is to make it - have a great business in FLOR, and growing cap at 10%.

Okay. All right. Thanks for taking my questions.

Thank you.

Thank you, sir. Your next question comes from the line of Matt McCall from BB&T Capital Markets. Please go ahead.

Thank you. Good morning, guys.

Good morning.

So, maybe talk a little bit about the order pattern you're seeing. I know, Dan, you said you're seeing strength kind of quarter to-date across the board. But specifically in the office space, what are the order patterns looking like real globally? And then what’s the pipeline telling you about the next 30, 60, 90 days.

Well, we don’t have quite visibility into the - on the order pattern by segment in the first seven weeks. I mean, we can kind of get a sense from where Q4 was in terms of the strength of the corporate office market. Corporate office market in terms of shipments was up low double-digit kind of range from the office market, but the shipment pattern or the order pattern in the first seven weeks we don't have visibility yet into those segments until they actually ship. But it's been strong across all the geographies. I can't remember what was the second part of the question?

Well, just a pipeline, you kind of answered Patrick but what about - did you give orders for corporate office in Q4?

Well, we didn’t give orders, we gave shipments, but shipments in Q4 office in North America was 10%.

And you - so you don't have an order number?

No, I don't - we don't do orders by segment.

Okay. What about - how much of that business for the strength that you're seeing is tied to new buildings, are you seeing an increase there that you can really point to or is it just broader free modeling activity that's improving?

Yeah, I think it’s little bit of both. I think we're seeing a little bit of new office construction. I think we're anticipating that to build through ‘15 and ‘16. But still I would say 88% to 90% of our business is still renovation.

Okay. On the SKU reduction efforts, my understanding is that some of complexity that's kind of risen has been tied to some of these new products that may be were little more complex to manufacture and caused a little bit of pressure on the gross margin. How are you going to balance the skew reduction efforts with the fact that a lot of this - the issues have come with some of these new and more successful products.

Well, I'd say that the SKU reduction is that we’ve had a policy that we will make any product that we may if we have if it’s sustaining the yarn system. And what that does it creates a lot of complexity for short order runs and that’s what we’re trying to reduce is the short order runs. The complexity of tapestry it’s harder to make and run and when you have the attachment to it when you run four color ways it runs slower. But the SKU reduction really is around the fact we have a policy we will make anything that’s that we’ve made and we’re going to take out a lot of that in our portfolio. But we’re still going to design in FLOR and have - that’s one of our biggest strength is you can design your floor and we will have various a lot of SKUs on the floor. We’re not going away from that.

Okay, okay. And then finally, Patrick can you remind us of the total gross profit impact from the yarn disruptions and from Australia and if you have it by quarter or if you just have it by the full year what was the impact in 2014 from those two items?

You know, I’d have to go back and look at from memory it’s a couple million bucks in both instances. Q1 Australia start-up was probably two plus $3 million bracketed and then in Q3 the disruptions related to the yarn was probably in the similar order of magnitude couple million dollar headwind related to that as well. So probably in aggregate $3 million to $4 plus million in 2014 that those two things impacted us.

And Matt, it’s hard to quantify how many orders you missed because you couldn’t deliver in five weeks, that’s part of the pain that we went through but now a 80% delivery on time from our yarn supplier, I think we’re way ahead where we were last year.

Okay. And let me think Dan, sneak more in, the FLOR business I think you said you lost 500,000 what’s the outlook for this year and maybe if you can provide any color around success by store versus catalog versus web?

Yeah, I mean in the quarter in particular FLOR was flat in aggregate and that was pretty consistent across most of the categories. Really the focus there in the near-term has been around profitability and cost reduction and that certainly was demonstrated in Q4 with a pretty significant sequential profitability improvement as well as on a smaller scale but on a year-over-year basis we’ve taken a tremendous amount of cost out of that business. And I think we are trending towards breakeven-ish business certainly in 2015. And that’s on a high single, low double-digit kind of top line number going from 45 million in annualized sales to right around $50 million in total in annualized sales in 2015 in that business.

So, breakeven in 2015 and what as the loss in 2014?

It was about three - sorry almost, that was $4.5 million, almost $5 million for the full year.

Okay, all right, thank you guys.

Thank you.

Thank you. Your next question comes from the line of John Baugh from Stifel. Please go ahead.

Good morning and congratulations on the strength. It’s nice to see. I wanted to follow-up just great detail on the FX influence on EBIT, is there a way Patrick to give some color on the gross margin impact versus the SG&A impact?

In the quarter, John.

No, I am really looking out into the ‘15 comments you made about the FX headwinds being $6 million to $7 million I think of - or $5 million I guess related to that and $2 million of transactional.

Yeah, on translation, I guess you can just do the math. Accordingly, it’s taking out assuming 9% or 10% EBIT business and back into the SG&A and gross margin impacts on total $50 million topline impact translate at 35% and the SG&A at 24% - those numbers aren’t on top of my head. Bit I would say it would work out for you.

And then the $3 million.

$3 million is gross profit, John.

On the transactional impact, on the negative purchase price variance, raw material purchases from Australia.

Yeah. Thank you. Dan maybe could you comment on Australia. You know, maybe walk us back a little bit and review the history again with fire and what business did, what customers did? You brought in product from China. You have now got the plant, I guess, what I am really driving at is, you know, where do you think you are in the share gain or what's new or better about the new plant, because I have no feel for how that local markets doing and how you are doing relative to that. Thank you.

Yeah, I would say that we - that business peaked around $110 million. And we bottomed out around A$83 million in that business post-fire. I think we are building that back. We are growing at 20% plus. I think our share went from probably 45% to 40% and I would say we back to 45% share today based on the performance of over the last three quarters. And looking at the start of the year we probably are taking share now. Most of our competitors really just create the import model, like we have their importing from the United States, we are importing from Europe. And so we didn’t really have anybody making a huge competitive move, we got rehearsed pretty much to the same thing they were doing, which was great for us. So now we have a three week lead time business that’s pretty much make-to-order, very customized business. The plant is now state-of-the-art; I mean it’s pretty much a greenfield site so you’ve got the most efficient plant within all of Interface in the Australian plant. And I just like where we are positioned in Australia. And carpet tile is gaining share of [indiscernible] in Australia. It’s moving into all the segments. Australia looks a lot like the U.S. where the half of the business is office and the other half is non-office.

So if you to guess Dan, what carpet tile industry would do in Australia 2015 versus 2014. It’s going to grow, grow 5%, 10%, what kind of industry performance do you see there?

Yeah, I would say that looking at the macro environment in Australia, it’s modest it partly looks a lot like the U.S. I mean, I think the biggest thing that we have to do is take share gains in the non-office part of the market. So I would say the market might grow 5% to 10%.

Okay, great. And then if I can ask sort of same kind of color on Europe, you are growing in local currency, it sounds like orders they were okay. How are you achieving that, what market specifically are you still gaining in Germany? What in the general sense is the market doing there and what are you doing to try to at least keep share of that growth there? Thank you.

Yeah. I would say that the U.K. is continuing to be a strong market for us and strong market for everybody. I mean London has a lot of new construction going on. And I think that will probably continue through ‘15 and probably into ‘16. The Southern Europe business has now stabilized and is starting to turn up for us, which is very welcome. It was down significantly, probably 30% and it’s now turning back up. And we're having a lot of success in Germany. Germany is one of the big bright spots. I think we were up 30% in Germany and we're continuing grow that market. And I look for Germany to be one of our biggest markets actually.

Great. Thanks for that color and good luck.

Thank you.

Thank you sir. You have no questions at this time. [Operator Instructions].

Well, thank you for listening, and we'll talk to you next quarter.