Interface, Inc. (TILE) Q1 2015 Earnings Report, Transcript and Summary

Good day to all ladies and gentlemen. And welcome to the First Quarter 2015 Interface Inc. Earnings Conference Call. My name is Lisa, and I'll be your coordinator for today. Today's conference is being recorded. At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question-and-answer session. I would now like to turn the conference over to Mr. David Foshee, Vice President, for opening remarks. Please proceed, sir. Thank you. David B. Foshee - Vice President, Senior Counsel & Assistant Secretary: Thank you, operator. Good morning and welcome to Interface's conference call regarding first quarter 2015 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 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 An archived version of this conference call will also be available through that website.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 interiors 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 28, 2014, 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 to the company's taping and broadcasting of it. Now, I'd like to turn the call over to Dan Hendrix. Please go ahead, sir. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you, David. Good morning, everyone. We're really excited about the start to the year, with improvements in almost all financial metrics across the board. Our sales growth was fueled mostly by the American division, particularly within the U.S., with contributions coming from non-office segments as well as corporate office market. Europe also saw strong sales growth in local currency, mostly within the corporate office segment in the U.K., Ireland, Germany and Western Europe. But as expected, it faced a substantial currency headwind during the quarter. Asia Pacific had good growth as well, with exceptional results in Australia and China in local currencies. Currency was the only substantial negative at the top line. We faced headwinds in varying degrees across our three primary operating regions. And Europe sales were negatively impacted by $14 million due to decline in the euro versus the dollar, flipping the region from a gain of 12% in local currency to a decline of 8% as reported in U.S. dollars. Sales in the Asia Pacific and America regions were, each, negatively impact by about $2.5 million, due to declines in the Australian dollar, the Canadian dollar and Brazilian real. Even with these currency headwinds, we improved our revenue by 8%, or 17% on a currency-neutral basis. Gross margin came in very solid, especially for the first quarter, which is typically a seasonally low period for us. We saw improvements in all three operating divisions, mostly due to better manufacturing throughput, improved efficiencies, dematerialization, and lower raw material costs. The LaGrange plant in particular was stellar, as we're seeing the benefits of a lot of hard work on our lean manufacturing and other efficiency initiatives that we implemented over the past couple of years. Also, our Australian plant has come a long way since its start-up in the first quarter last year, and still has headroom for improvement. SG&A expenses were held in check throughout the organization, down more than 150 basis points over the period, mostly due to our restructuring and cost-cutting initiatives in the second half of 2014. In absolute dollars, it came in a little higher than our targeted run rate, due to higher costs associated with incentive compensation and performance-based stock compensation cost, as well as a result of our improved performance. Also, we had higher sales commissions on our improved revenue base. Operating income substantially rose year-over-year, both in dollars, as a percentage of sales. We also realized the first full quarter of interest savings from our recent debt restructuring, which helped push earnings per share to 19% (sic) [$0.19] (5:32). Our outlook for the second quarter and balance of the year remain very positive. Orders in the first quarter were up 9%, or 17% on a currency-neutral basis, which points to continued growth. We're seeing a lot of strength in the U.S. corporate office segment, which is our bread and butter, as it continues to recover, in the recovery which began last August. For the first three weeks of April, our orders activity remained strong, with orders up nearly 10%, or 19% on a currency-neutral basis. Our gross profit margin should be sustainable at these higher sales levels. We remain focused on containing SG&A expenses during the growth cycle. Our biggest challenge will be the currency effects, which are largely outside of our control. We believe that the currency could have up to an $80 million negative impact on sales for the full year, and up to $10 million negative impact on operating income this year, assuming rates stay about where they are today. Most of the effects will be felt in Europe and, to a lesser degree, in Australia, Canada and South America. We do have a number of initiatives pursuing to offset the currency impacts. First and foremost, we're raising selling prices in select markets where currency is an issue. We're also looking to take some additional cost out of manufacturing processes. We also expect raw material savings due to lower commodity costs over the balance of the year. Overall, I feel really good about our prospects for the year, as the office markets continue to recover and we continue to see benefits of an improved manufacturing platform. With that, I'll turn it over to Patrick. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Thank you and good morning, everyone. I'll now take a few minutes to walk through the financial highlights for the first quarter. Sales in the first quarter were up 8.2% to $236.9 million, compared with $219 million in the first quarter of 2014. As discussed earlier, this comparison includes a currency drag of about $19 million. So on a currency-neutral basis, the number would have been 17% sales increase. As Dan has already discussed, we feel really good about our gross margin performance in the quarter, with strong year-over-year and sequential growth, to 36.1%. This is up 200 basis points compared with gross margin percent, 34.1%, in the first quarter of 2014. We're starting to see some of the impacts of lower raw material costs, but most of this improvement comes from improved absorption of fixed cost on higher production levels and our efficiency initiatives, less raw material usage and the impacts of our 2014 restructuring actions. In the Americas, sales surged up 17%, despite the currency impacts Dan mentioned earlier. This growth came across all market segments, with corporate office sales up 13% and non-office segments, in the aggregate, growing 20%. Within non-office segments, the biggest contributors were hospitality, government and education. The continued growth of these non-office markets is particularly encouraging, as it validates the investments we made in our Americas business over the past few years. In Europe, the impact of currency led to a decline of approximately 8% in U.S. dollars. In local currency, however, it was a 12% increase in the region, and was a very welcome sight. The corporate office segment led the charge in Europe, with an increase of 21% versus the first quarter of 2014. It was tempered somewhat by a decline of 14% in the non-office segments. As Dan mentioned, we have some trepidation over currency movements in region, but the underlying business is strong as it has been in several years. Asia Pacific turned in a very solid quarter with 13% sales growth. Within the region, we saw continued acceleration of the Australian business which, despite currency headwinds, grew a robust 17% for the quarter. On a currency-neutral basis, the sales increase in Australia was greater than 30%. China also showed a strong increase in sales for the quarter, while the rest of the region experienced a slight decline. The overall growth in the region was primarily in the corporate office market, as this comprises the bulk of the region's sales. We did, however, have a strong showing in the retail market segment for the quarter, doubling those in the first quarter of 2014. To mirror Dan's earlier comments on SG&A, we are pleased with the overall performance for the quarter and the decline, as a percentage of sales, to 27% versus 28.6% in the first quarter 2014. While our strong performance in the first quarter and projections for the balance of 2015 have led to higher incentive comps and performance-based stock compensation cost, we're seeing the impact of the 2014 restructuring actions, and despite higher sales versus the first quarter 2014, our selling and marketing expenses were lower in absolute dollars. Due to the factors mentioned above, operating income for the first quarter 2015 was $21.4 million or 9% of sales. This compares with 2014 operating income of $12 million or 5.5% of sales. Our new debt restructure contributed to the overall performance as well with the reduction of interest expense of $3.6 million versus the first quarter of 2014. We are able to put these savings to good use as we continued with our share repurchase program in the quarter buying back 250,000 shares at an average price of just over $19 a share. We also used our strong free cash flow to pay down $3 million of our revolver borrowings and we exited the quarter with $59 million in cash compared with $54.9 million at the end of 2014. It was an excellent cash flow result for us in the first quarter, which is typically a heavy use of cash period for us. Depreciation and amortization was $7.9 million in the first quarter 2015 compared with $6.6 million in the first quarter 2014. Capital expenditures were $4.6 million compared with $9.1 in the comparable period last year. Inventories were $158.7 million at the end of the first quarter compared with $142.2 million, end of last year, and $170.5 million at the end of the first quarter 2014. DSOs were 52.9 days compared with 53.2 days in the year-ago period and our inventory turns improved to 4 times compared with 3.6 times last year. With that, I'll open the call up for questions. Operator?

Certainly, thank you. And our first question is from the line of Stephen Kim of Barclays. Please proceed. Thank you.

Thanks very much, guys. Congratulations on a strong. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Thank you. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you.

Wanted to ask you regarding – can you talk – I mean, I imagine you're probably seeing some mix within each channel but then you're probably also seeing some, one channel versus another. When you're talking about mix, could you sort of parse that out for us and give us a sense for what you are seeing within each channel and with one channel relative to another in terms of the mix impact? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I don't know that we had a big movement in the mix impact. I mean – I think that we're selling at the high end as well as at the value end of that channel. And so I don't – I think we're holding our own on price, particularly with our high-design products at our tapestry, but I don't think that there was a significant mix change within this gross profit change.

Got it. That's good to know. And then in terms of pricing, you mentioned that you were looking to – that you had put through some price increases. Do you think there might be some opportunity to accelerate the price improvements? If you could sort of talk about the constraints you may be seeing on the pricing side, just to give us a sense for how significant that could be? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: We're trying to raise prices where we actually sell in local currency. We manufacture in either U.S. dollars or the RMB and so forth. And the impact of the Australian on the – from a price standpoint is we do by raw materials, particularly the yarn, in U.S. dollars. So we're having to raise prices to offset the impact of the negative translation of those raw materials. Also, had the same thing in Brazil and Canada, where we sell out of the U.S. plant. So that's where we're actually focused on raising prices to raise margins.

Got it. And then organic growth was quite strong. How do you think it did relative to the broader market? If you could just talk a little bit about market share trends? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, I would say that we have a pretty good sense of the carpet and rug, what happened in the first quarter and we took pretty good share out of the U.S. market compared to that data point. There is no question in Europe the market did not grow what we grew in Europe. I would say that market was up slightly but we don't really have the inputs for that market. And I know in Australia that we're taking significant share with the plant being up and running and our lead times being three weeks now.

Yeah. Well that I think was expected. The gains in U.S. and particularly Europe in light of the head count reductions I think is surprising. Is there anything in particular you would attribute that to? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I won't say the (15:23) UK market is improving. It's probably one of the hardest markets in the world today and I think that's going to continue. So if you looked at the Architectural Billings Index that's moved significantly up and we're actually having a lot of success outside of London in the UK market. We're also having success in Germany, converting that market from a broadloom market to carpet tile. So I think we're having a lot of success in markets where the markets are robust and markets where we're converting them broadloom to tile.

Okay, great. Well, congratulations guys. Thanks very much. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Thank you.

Thank you very much for your question. Our next question is from the line of Mike Wood of Macquarie. Please go ahead. Mike Wood - Macquarie Capital (USA), Inc.: Hi, congratulations, and thanks for taking my questions. First question on – just on gross margins, can you give us any color on whether or not you had more success in renegotiating your yarn prices to better reflect that benzene decline? And do you have a gross margin goal for the full year? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Yeah. I mean, we saw the benefit of some of the raw material renegotiations in the early part of the year, probably a little north of $3 million benefit in Q1. We have had some further success, since the February timeframe, in renegotiating that further. North of $12 million is the annualized benefit at this time that we have negotiated, and we continue to push even further there. And... Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, the gross margin target, it actually was 36% or 35.5%, and typically the first quarter is a pretty negative quarter for us. So I think the 36% is a good target for us, and we have an – potentially an upside to that. Mike Wood - Macquarie Capital (USA), Inc.: Great. And have all the inefficiencies gone away from that yarn supplier disruption that you were impacted by in fourth quarter and into 1Q? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I would say that the yarn supply has been improving. It's getting better every week. We had a little bit of inefficiencies in the first quarter, but I anticipate that in the second quarter, that we won't have any negative impacts from the yarn supplier. Mike Wood - Macquarie Capital (USA), Inc.: Great. On the SG&A side, just moving no to that, you were roughly a quarter of your full year goal in the quarter. Do you feel like there is upward pressure to spend, given the sales momentum, just any color on that? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I would say we're going to be very selective in where we spend, and I don't want to be talking out of both sides of my mouth, but we do believe the U.S. marketplace, that we could add sales people that would have a payback in that marketplace, and we do believe Germany is the place that we ought to be investing in. But we are going to be very judicious with making those investments, and make sure they have a payback. So, yeah, when you have this kind of sales growth, there is a tendency to try and want to invest where you think you can grow. But I don't think we have enough sales people in the United States. Mike Wood - Macquarie Capital (USA), Inc.: Thank you.

Thanks very much for your question. Our next question is from the line of Kathryn Thompson of Thompson Research Group. Please go ahead, thank you.

Hi, thanks for taking my questions today. The first on SG&A, it's really a two-part question. First, how much of the quarter's results, for SG&A in particular, were impacted by the negative FX headwinds? And then, of the cost-cutting initiatives that you announced in Q3 of last year, how much of those were realized in Q1? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Well, going back to Q3 last year, I believe it was a $14 million restructuring benefit that we anticipated in 2015. All of that was completed going into Q4 of 2014. So we realized those benefits both in Q4 and Q1. Order of magnitude of FX impact on SG&A in Q1, think about it, was probably $3 million or $4 million benefit – reduction of SG&A in Q1.

Okay, great. As far as gross margins, what were the primary drivers for improvement in the quarters, if you could think about it in broad buckets? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I would say that the two areas that really will jump out, one is that in the U.S. manufacturing, we've been really working on dematerializing and getting that a lot more efficient. And we had more throughput, but it was more about having a lot of success in some of the initiatives we have taken to lower the material cost in that plant. And we began to realize a lot of those in – actually some of them in the fourth quarter and then a lot of them in the first quarter. And I think the next impact would be the raw material that we had in reduction. But also the Australian plant is up and running and becoming a lot more efficient. So those are three of the things that really impacted the gross profit margin, that I think are all sustainable going forward.

Okay, great. And then, as the quarter came to a close, talked about the very good order momentum, could you give a little bit more color on regional and end markets that are driving the increase? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, I would say the U.S., it's pretty much across all the segments. I think you still have the same trend going on. It's a welcome rebound in the office market in the U.S. that we saw starting to happen in August and has continued. But then in the other non-office segments in the U.S., we're having a lot of success as well. In Europe, it was all driven pretty much by the office market and some of the key markets that we talked about Germany, UK and so forth and we also saw Southern Europe stabilize and actually turned up which is a welcome as well. And then you have Australia, which – and China really were pretty robust markets. Across the segments, hospitality continues to be a winner for us. I think education in U.S. is a winner for us. And in Europe, it's still pretty negatively impacted, because I think the government spending there is, is still pretty low on education.

Okay, great. Thank you for taking my questions today. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you.

Thanks for your questions. Our next question is from the line of Josh Borstein of Longbow Research. Please go ahead. Thank you.

Hi, good morning, everyone and congrats on a nice quarter. Just a question on SG&A, again you had talked in previous quarters about holding SG&A to $250 million in the year, but that was in an environment that will be flat to up 5% or so, what SG&A targets have you set either in dollar terms or as a percent of sales in the event you continue to see this outsized growth in the high single digits? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Well, I would say that we're trying to drive our SG&A below 25% as a percentage of sale, that's always been our target to get it closer to 24% than 25% and I would say that continues to be our target. But we really want to hold the line and take the benefits of some of these cost reductions that we did and be extremely selective in where we invest in growth opportunities.

Okay, great. Thanks for that. And could you give us an update on the progress or decisions you made with respect to the SKU rationalization efforts in the U.S.? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: That just continues on as we go through it. We will continue to look at the SKUs and do a rationalization, I think that will happen during the year, but we're having success in that as we go forward to try and simplify that product offering.

And your goal for FLOR is still breakeven profitability in growth of 10% for the full year? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: That's our goal.

Okay. And then just lastly on price, you mentioned you don't intend to give a pricing even in the face of lower raw materials that, that you may even put in a few price increases. What is it about this industry in particular that allows you to hang on to pricing even in the face of lower raw materials? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, I would say that our industry is – we don't have a distribution channel where you have to negotiate with the Home Depots and the Lowe's. Every project is negotiated and specified. So you've got 600 sales and marketing people around the world trying to get that product specified, so you have an opportunity to hold your pricing, if you've got the right products and the right relationships with customers and your sales people.

Okay. And $8 million for interest expense, is that a good run rate for the year? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Yes.

Great. Thank you, guys. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you.

Thanks very much for your question. Our next question is from the line of Keith Hughes of SunTrust. Please go ahead. Thank you.

Thanks. You mentioned the April orders to-date being up 19% excluding currency. I assume the extra week in the quarter doesn't play a role in that that would be an apples-to-apples comparison with prior year? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Correct. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Keith, this year we're going to get 55 weeks, yeah. Just kidding. Yes, that's only in the first quarter we have the extra week.

Okay. And as you look within the order book and specifically in the U.S., I know the non-office was up a little higher in this quarter than office. But as you look forward, do you think that relationship will continue or could the growth shift from one side to the other as the year goes along? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I think that we're going to have success in the non-office segment and just the real question I have is, how robust will the office rebound be. But I think our office, non-office segment we're doing very well in that part.

Okay. Final question on cash flow usage – sort of the commentary you bought back some shares in the quarter. What sort of your – just kind of view of free cash flow? Is there a certain target you are trying to hit? Is there a percentage going in different directions? What's management or the board's view there? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, the momentum in cash flow is pretty positive early start of the year. We haven't really guided towards any particular cash flow for the year. We'll continue to be selective in our opportunities to either de-lever or continue to share repurchase program in the back half of the year. But the momentum from the early part of the first quarter is pretty strong.

Are you at a debt level (25:59) you're comfortable with long-term? It looks like you are a little bit under 2 times on a net basis on (26:05) EBITDA. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Yeah, Keith. I'm sorry, I would say that we finally have the luxury having the right capital structure and I think we're going to have some positive cash flow coming into the company. And so we can really look at what -- how to deploy that cash either in dividends, either in stock buybacks or either in investments that we need to make. So it's a nice place to be.

Fantastic. Thanks. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you.

Thanks very much for your question. Our next question is from the line of John Baugh of Stifel. Please go ahead. Thank you. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Thank you. Good morning, Dan and Patrick, great start to the year. A couple of things, one, could you update us on where Australia is in terms of – I don't know, on annualized revenue run rate? How the plan is coming up in terms of efficiencies, what the margins (27:01) currently and where they'll be heading? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I would say that we're now running a pretty efficient operation and now we're making what I call continuous improvements to that. I think the operating income out of the Australian plant that business was around 9%, we'll wonder it. So I think there is an opportunity to continue to push the gross profit line as we have improvement both on the sales side by improving sales prices and by also improvement in manufacturing. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Thanks. And staying on Australia, I think you mentioned a 30% constant currency growth in the quarter. At what point do we kind of – I don't know get back the share we lost and we see that number to moderate or – can that last for a while, I have no sense for the commercial carpet market in Australia and how fast it may or may not be growing? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Yeah. The current trajectory of where the Australian business is finishing for the full year would put us right at about the level of pre-sale fire in 2012, so the balance of 2015 will get us back to effectively right before the fire, but that's still kind of below the prior peak of 2010 or 2011 which was about $120 million in total sales. So we still have some upside to get back to a prior peak level, but we'll be headed towards full year pre-fire levels by the end of the year. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Great. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Yeah. And there is one – John, there is one silver lining in this currency with Australia and that is the – there is a lot of imports that come into Australia and in fact, I think we are more cost competitive now with Australian dollar where it is, because a lot of people import from China or U.S. or so forth in that marketplace. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Okay. And then, on the extra week in the first quarter, how does that influence or how do we calculate what influence that had on numerous metrics, the SG&A, gross margin, maybe the order rate? I am a little confused on how all those fixed items might have been spread over the first quarter and what benefit that may have had? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Yeah. Our best estimate – I think you had it fairly right in your note, close to about a 7% impact on the top line and probably a $0.02 or so earnings per share impact in the quarter related to the extra week. It's tough to balance, because the first week is so poor and then the last week is so strong, of which week you kind of lop off, so you just kind of have to average the 14th week, which was about a 7% impact on sales, and a couple of pennies on earnings per share basis. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Okay. That's helpful. And then, on the order rate, you mentioned I think a 19% constant currency the first few weeks here of April, and then I forget the number precisely in the first quarter, but I assume the first quarter order rate had extra days in it. And it sounds, if that's the case, like you've actually increased the order rate. I just want to make sure I understand that. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: That's right. Yeah, the first quarter orders did include the extra week, and the first three weeks of the second quarter do not. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Great. And then my last question, who is leading product development, Dan, for the company, either in U.S. or Europe? Have there been any changes there to update us on? Thank you. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, David Oakey still is leading it. His contract goes through October 2017. I will tell you that we've actually gone out and also hired a designer as well, to complement David Oakey, but it's clearly in David's – Oakey Designs leading it. And we're now positioning us to develop product alongside David with this lead designer. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Great. Thanks for the color, and congratulations. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Thank you.

Thank you very much for your questions. Our next question is from the line of Matt McCall of BB&T Capital Markets. Please go ahead. Thank you. Matthew S. McCall - BB&T Capital Markets: Thanks. Good morning, guys. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Morning. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Hey, Matt. Matthew S. McCall - BB&T Capital Markets: So there was a question earlier about mix, and I recall that, I think in Q2 of last year, there was a elevated level of service business, I guess, on a percent of total sales basis. Is there an opportunity on a year-over-year basis to see benefit, or you expect that services revenue to be higher as a percent of the total in Q2 again this year? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I would say that the services business will probably not be higher than Q2; that was sort of the high watermark. So from the service business, we won't see the negative impact from a margin standpoint in the second quarter. Matthew S. McCall - BB&T Capital Markets: Okay, okay. And then Patrick, can you give some more color about gross margin by segment where it's still, and then as you talk about the opportunity for the rest of the year, what those numbers could look like? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Well, in every business unit by – all geographies performed very well in the first quarter. I think we're looking at sequential improvement for the balance of the year in the order of magnitude of 10 basis points to 15 basis points on a sequential basis going forward. Exiting the year in kind of the mid-36%, high-36% range is kind of internally what we are working towards. But in terms of color around individual geographies, the margin profile, our gross margin profile was excellent, in particular in the Americas, which is the area of focus for the set last two or three years, Matt we've been talking about, and finally starting to see a nice conversion. So efficiency performance, scheduling and planning, operations, raw material decreases, material usage variance is favorable through our dematerialization efforts. So all of that came together very nicely in Q1. And not having the start-up of the Australian facility, like we did in Q1 last year, certainly was a big benefit in not having to rebalance the manufacturing portfolio across Asia Pacific in Q1 again. So all of those factors contributed to a nice 36%-plus gross profit margin in Q1. Matthew S. McCall - BB&T Capital Markets: Okay, all right. Thank you. Dan, I think you said that target is for breakeven for FLOR this year. I didn't hear if you said what the profit or loss was this quarter, sorry if I missed it, if you did give that; or if you didn't, could you give that number? And then what was the total loss in 2014 in FLOR? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Yeah. FLOR effectively broke even in Q1. It was an increase or an improvement on a year-over-year basis of nearly $900,000, and we lost close to $5 million last year at the EBIT line in the FLOR business in 2014. Matthew S. McCall - BB&T Capital Markets: Okay. Okay, perfect. And then a follow-up question I have, when you talk about the non-office business, can you remind us of the breakdown in North America specifically as a percent of revenue when you think about office and in the three – sounds like there was the big non-office segment, how big are they? And as you look to the balance of the year, anything in government, education, hospitality that would make you think that growth rate's going to have to moderate as costs get tough or anything like that? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, I would say that we pretty much run 50-50 office to non-office with even focus on hospitality. So we think that obviously has some strength to it. Education, I do believe that the government is going to spend more money on education and we're going to see that as well. But to give you percentage breakdowns, I got all my competitors on this call, and I really don't want to give all that out on this call. Matthew S. McCall - BB&T Capital Markets: All right. No problem. Thank you, guys. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you.

Thank you very much for your question. Our next question is from the line of Josh Borstein of Longbow Research. Please go ahead. Thank you.

Hi. Just a follow-up for you to make sure I understood correctly. On raw materials, you anticipated $12 million savings and that should help offset a $10 million headwind from FX currency. Is that right? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: That's right.

Okay. And any opportunity to renegotiate prices as the year continues? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Sure. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: I mean those negotiations are ongoing every day all day long.

Okay. Great. And Dan, just another question for you and SG&A, and I don't mean to beat the dead horse here, but I heard you talk about cost cuts, but also heard you talk about some new hires or the potential for new hires. Just to get a sense, are you as committed to SG&A control as you were last quarter or has the growth that you've been seeing led you to change your strategy here a little bit? Daniel T. Hendrix - Chairman, President & Chief Executive Officer: No, I'm committed to it for sure. I mean I think we need to really hold SG&A and drive that down as percentage. But when you have a robust market, particularly the way we have in the U.S., I think we need to add salespeople because our salespeople can't get to all that business. And then I'll say once again, I think Germany is a huge opportunity for us because it's only 6% penetrated by carpet tile and its one of the largest broadloom commercial markets in the world. And so we need to make investments there to convert that market. But yes, we are very committed to SG&A control.

Great. Thank you. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Thank you. Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Thank you.

Thank you very much for your question. Our next question is from the line of Stephen Kim of Barclays. Please go ahead. Thank you. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Hey, guys. It's John with just a quick follow-up. The tax rate was a little lower than the 36% level that we generally model. Should we expect it to be in the low 30%s like the last two years again in 2015? Patrick C. Lynch - Senior Vice President & Chief Financial Officer: Yeah. I think we've been guiding to around 32% on a quarterly basis. John A. Baugh - Stifel, Nicolaus & Co., Inc.: Got it. Okay. Thanks.

Thank you, ladies and gentlemen, for all your questions. I would now like to hand back to Mr. Dan Hendrix for closing remarks. Over to you, sir. Thank you. Daniel T. Hendrix - Chairman, President & Chief Executive Officer: Well, thank you for listening to the call and we'll talk to you in the second quarter. Thank you.

Thank you all for joining, ladies and gentlemen. That now concludes today's conference call and you may now disconnect. Have a good day.