Interface, Inc. (TILE) Q1 2022 Earnings Report, Transcript and Summary

00:03 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. [Operator Instructions] Thank you. 00:33 Christine Needles, Corporate Communications, you may begin your conference.

00:44 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. 01:03 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. 01:49 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 re-broadcasted 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. 02:23 Now, I'd like to turn the call over to Laurel Hurd, CEO.

02:28 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. 03:07 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 prime to accelerate our success as we reach the other side of this global pandemic. 03:37 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 the focus on results and winning as a team. 04:11 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. 04:24 With that, I'll now turn it over to Dan and Bruce to discuss first quarter results. Dan?

04:29 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. 05:15 Our topline growth continues to be strong and our backlog continue 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. 05:49 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. 06:26 We're the only manufacturer that offers carbon negative carpet tiles when measured cradle-to-gate without relying on an 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. 07:01 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 health care collection of carpet tile, LVT and vinyl sheet called Desert Scapes, which aims to connect health care facilities with the natural world through an integrated cohesive design. 07:42 Now let's turn to the middle of the P&L, we made great progress in improving efficiencies through 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 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 mitigating 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 adjusted basis. It remains a top priority for us to return to our target gross profit levels once raw material and freight costs stabilize. 08:31 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. 09:03 With that, I'll turn over to Bruce to go through the financials. Bruce?

09:07 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%. 09:38 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, 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. 10:15 For the past two years we are 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 a 30.6% of net sales in the same period last year. 10:49 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. 11:39 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. 12:19 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. 12:44 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. 13:02 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. 13:55 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. 14:42 We thank you for your continued support as we leverage our brand, continue to optimize our cost structure and continue taking share. 14:50 And with that, I'd like to turn the call back to Dan for concluding remarks.

14:54 Thank you, Bruce, and thank you everyone for participating in our first quarter 2020 results. Interface have 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. 15:21 With that, I will open it up for questions. Operator?

15:24 [Operator Instructions] Your first question comes from the line of Keith Hughes from Truist. Your line is open.

15:39 Thank you. Couple of questions on the results. Could you give us a feel in the quarter what were -- what was price and what did units contribute to the growth?

15:51 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 with productivity. There are some pockets of higher pricing around the globe and there is 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.

16:29 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?

16:37 That sounds around, right. Yeah.

16:40 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 -- were bit low sales growth. What do you see the trend -- Americas.

16:59 Well, it's interesting. You know, the business just continues to accelerate and by the way the orders have continued to be strong as we've move through Q2. In Europe specifically, we've had a haircut from currency. For example, if you look at the revenue line, we had about a 600 basis point haircut from FX translation in Q1. It will be similar in Q2. But as you mentioned, the orders are very strong, our backlog continues to build and despite all the stuff going on in Europe, our business is very strong. 17:36 Similarly in the US, we have seen -- we haven't seen anything letting up, we continue to have very strong orders and a lot of strong momentum as we move through Q2 so far and as we're entering into Q2. So we are very bullish on a strong Q2 and on a strong year and about the numbers that we're seeing in the business.

17:59 Hi, Keith. – 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.

18:08 Okay. So I think you're not alone, but that sounds great. Final question on the – I understand why the gross margin is going to be with the second quarter with raw material inflation. As you head into second half of ’22 do you think you will be even on cost or is there still going to be some margin drag that goes into the third quarter, as you normally [indiscernible] today on it, but as you try to --

18:33 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 had see -- that we would see by now some give on that and we are start seeing 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 release into the P&L. We are -- 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.

19:36 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 improving in the second half of the year.

19:51 Okay. Excellent job on SG&A. That's all from me. Thank you.

19:55 Thank you, Keith.

19:57 Your next question comes from the line of Samuel Darkatsh from Raymond James. Your line is open.

20:04 Good morning, Dan, Bruce, Laurel. How are you?

20:08 Hey, Samuel, how are you?

20:11 Dan, I wanted to again say how terrific it's been working with you all these years. I've learned an awful lot from you. I've enjoyed every minute and best of -- best of luck and wishes with your next chapter. And Laurel, obviously, congratulations on being named to the post. Two questions if I could. And Laurel, this is probably -- this is patently unfair given you've only been on board for a few weeks. But I wanted to get at least an initial sense of your thoughts as to two significant strategic areas going forward for the organization. The first would be how or whether the European carpet tile business fits into the overall portfolio? 21:01 And then secondly, whether you believe Interface should bring its LVT supply in house and self-produce or retain the third-party sourcing model? I mean, again, I know you're early on, but at least pluses and minuses of each alternative would be helpful at a high level.

21:21 Sure. So week three -- I'll give you an early view, which is just that, I was over in Europe last week and was really impressed with the team there. And as Bruce said, there is strong momentum. So I'm encouraged by what I see. So early days feels like, I like what I see there, but obviously, a lot more to learn. With respect to LVT, I don't know the answer to that yet. I know I'm really impressed with the business that the team has built and the success and the momentum that we're seeing. So from a sourcing model of bringing that in-house, I think there is more to learn on that.

21:55 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 guesstimating 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 the good place to think about free cash flow for the year.

22:33 Sam, this Bruce. We're not coming off that number. Our cash flow -- we're still anticipating a strong cash flow year. So what you're seeing in Q1 and as you're very conversant with is that, in Q1 we typically use cash because we pay bonuses, taxes and insurance. And so we are very confident that the business is going to have a strong cash flow year as previously discussed -- as previously described.

23:03 And at what point -- if I can sneak in another one in. I apologize, you're at 2.5 turns leverage now, at what point does the capital structure get where you would feel comfortable deploying that cash flow towards the stock itself.

23:21 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.

23:34 Very helpful. And again, Dan, best wishes in your next chapter.

23:40 We actually grew up together in this business. [Multiple Speakers]

23:46 We both have multiple scars on our backs to show for it. That's right.

23:54 Your next question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.

24:02 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 earning 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.

24:40 Hi, Kathryn, I'll take a stab at answering your question and maybe pass it over to Dan for some more color. We are continuing to see acceleration in the office market. It was up 21% this quarter and we aren't seeing the orders stop, we're seeing a lot of different companies that are either looking at their space and they're saying we need to redo this space to make it -- to accommodate it for a post COVID environment, where they as saying they want to spruce up their space to get their employees to come back and see something new and fresh. Also with a lot of the customary turnover that happens around leases. We're seeing refresh leasing space, and so there is just a tremendous amount of activity and change going on in corporate office and it's every permutation that you can think of. And of course, all that is great for our business.

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

25:47 Our renovation -- renovation work is not doing office work.

25:50 Yeah. Correct. We're not seeing a lot of new construction. Sorry to interrupt you, Dan. It's a lot of -- it continues to be a lot of R&R work around the world.

25:59 Okay. And you also noted that multifamily was up 12%.

26:05 Yes, correct. That's correct. Again, another strong -- another strong segment for us.

26:12 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 multi segment?

26:24 Well, Kathryn this is small -- it’s a very small part of our business, to be honest with you. We get the common areas we're not getting the areas that are the big areas. It’s just growing for us. Our outlook probably will grow with the market 12%.

26:42 Kathryn, I would think of that space for us is growing double-digits this year. Just with all the activity that's out there.

26:50 Okay. And then finally on healthcare and education. Any additional color you can give on the segments and market segments.

26:58 I'll take a stab at it, Kathryn, and I'll pass it over to Dan. For education, there is just so much tremendous momentum behind education and part of that is that there been huge amounts of government spending has been allocated toward doing education related R&R work and a lot of that hasn't even been released yet, and a lot of those projects haven't even started yet. So we see continued double-digit growth rate in education and we see that is having a very, very long tail. Just given the fact that there is so much R&R work to do, and there is so much government money that has been allocated in that direction. 27:36 Healthcare, of course, we're benefiting from macro trend that as you're well aware of, particularly in the US and again another strong vertical for us. Where we're extremely well positioned, I think if I go back to the Nora acquisition, you might remember they were -- Nora is very strong in healthcare, and so we're seeing a lot of traction around Nora revenue in healthcare. And then, revenue synergies where we're getting other business -- we're getting, while Nora is in there. We're getting business for around carpet and LVT, because we already have those relationships and we already are in there doing a lot of the other -- the other work that we would have gotten through in the business.

28:21 Okay. So I think it's fair to say [Technical Difficulty] operational trends from quarter four versus last year?

28:32 Could you repeat that [Multiple Speakers]

28:43 Okay. One additional question I wanted to follow up on is just, there is unintended consequences from the conflict with Ukraine and Russia. How is that impacting your business and kind of obvious or less obvious ways?

29:00 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 that conflict. 29:31 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. 30:07 And so, 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.

30:27 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.

30:35 Thank you.

30:37 Your next question comes from the line of David MacGregor from Longbow Research. Your line is open.

30:45 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 providing 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.

31:31 So I'll take a stab at it and then I'll hand it over to Dan for some more color around it. I got to tell you the LVT business continues to remain very strong, growing double-digits. All of our data says that we are absolutely taking share and are leading our top three provider of LVT in the commercial space. When we think about it, David, that we grew that business from zero only a few years ago. We're just so pleased with the progress that we've made there and the differentiation of our product and the ability of our selling organization to sell the differentiator around our LVT having the greatest recycled material of any LVT out there, as well as the other product differentiation that we bring in. 32:16 We've also done some great design around LVT that also differentiates our products. So that business is doing really well and we're going to continue putting the pedal down. We have not had -- our suppliers has been great around producing it, there have been some fits and starts around freight and shipping from time to time, but what we've done to offset that as we've invested a little more working capital to make sure that we've got the products that we need when our customers need it, so that we can manage lead times effectively. 32:50 And you mentioned carpet, I would also say that we believe that we're -- all of our data says we're taking share in carpet. We have a lot of momentum around carpet. And that business is doing quite well as well.

33:01 Remind me on the commercial LVT that's coming out of Korea, Isn’t it?

33:05 Correct. Yeah, that's where our manufacturing -- correct, it’s Korea.

33:09 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.

33:20 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 were in Korea versus China, that's for sure.

33:34 Okay. Second question was just, I guess, with respect to the commercial markets overall, and I'm just thinking back over the years, where you've seen some of your competitors subsidizing their commercial business with the residential business, of course, that when you said that that's occurring that works against you and you don't have a residential business, are you seeing any signs of that right now and did that come into play in terms of the price cost reported in the second quarter -- in the first quarter, excuse me.

34:01 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 stand point, we every like those low sometimes, but it's pretty fair out there from that standpoint.

34:21 Okay. Last question from –

34:23 I don't see, I'm trying to buy [Multiple Speakers]

34:27 Yeah, I mean, we've seen that in the past, but it's not happening right now, which is good to hear. And then -- right, okay. And then last question for me is just, back to Keith's point about the SG&A. It's really been a tremendous execution. Can you go into a little more detail around just exactly -- unbundle that SG&A number for us, just tell us where you're making the games, obviously you're seeing some inflation across the cost structure there, but obviously making gains as well. Could you detail that for is.

35:00 Keith, this is -- I'm sorry. I mean -- sorry, David. This is Bruce. I would say it started with the tone and tenor from the top. And then that has filtered down to our Regional Presidents and our commercial area leaders that it's a very, very strong focus on SG&A that we need to be making sure that every dollar that's invested there has a return. And so I wish I could say it's one or two areas, it really isn't. It's in every single corner of the business and we have really pushed this out across the globe that we need to have the organizations focused on optimizing every dollar and we need to have the organization focused on zero based budgeting around SG&A and making sure that every dollar that we're spending in that area is a dollar that's going to either reduce costs or bringing a return to the business. 35:55 It really probably is 50 plus different things that comprises the strides that we've made there, and we're not done yet. We're going to continue as an organization to scrutinize all of our SG&A dollars, because we know that's important. And so, we're really proud of the progress we've made and we're going to continue to keep the focus on it.

36:15 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.

36:38 Yeah, good to hear. And is there any risk that is just kind of the world normalizes here that there is 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.

36:53 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.

37:07 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.

37:42 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 spec channel versus the dealer channel in that response. Thank you.

37:55 Dan, you want to take that one or you want me to take that one.

38:01 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 is been tremendous related to the regular products. And we see calculated with [indiscernible] 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, it's -- we're going to win in the marketplace with carbon negative for sure.

38:39 David, if I could just -- regarding back office, if I could just piggyback off of Dan’s comments. We are -- it is definitely a differentiator for us and one thing that I love about Interface and about this great company is that, our customers can see right through the green washing noise that's going on out there at times. We -- as Dan mentioned in our prepared remarks, we're one of the -- we are the only global foreign company that is having our green gas reduction targets validated by the Science Based Targets initiative. So when we put numbers out there, we stand by them with integrity and with action. And our customers with just a little bit of research can see that and they can see through the green washing that's going on in the rest of the industry, which gives us a strong foothold and strong differentiation.

39:32 Thanks very much, everyone, and congrats on all the progress.

39:37 Thank you.

39:38 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.

39:45 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.

39:53 And this concludes today's conference call. Thank you for your participation, you may now disconnect.