Christine Needles - Interface, Inc. Jay D. Gould - Interface, Inc. Bruce Hausmann - Interface, Inc..

Mason Marion - Instinet LLC Keith Hughes - SunTrust Robinson Humphrey, Inc. Kathryn Ingram Thompson - Thompson Research Group LLC Matt McCall - Seaport Global Securities LLC David S. MacGregor - Longbow Research LLC John Allen Baugh - Stifel, Nicolaus & Co., Inc..

Good morning. My name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2018 Interface Earnings Conference Call. Thank you. Christine Needles, Corporate Communications, you may begin your conference..

Thank you very much, Casey. Good morning, and welcome to Interface's conference call regarding third quarter 2018 results hosted by Jay Gould, President and CEO; and Bruce Hausmann, Vice President and CFO.

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 statement, 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 Quarterly Report on Form 10-Q for the fiscal year ended July 1, 2018, and Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which have been filed with the Securities and Exchange Commission.

We direct all listeners to those documents. The company assumes no responsibility to update or revise forward-looking statements made during this call and cautions listeners not 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. Lastly, this call is being recorded and broadcasted for Interface.

It contains copyrighted material and may not be rerecorded or rebroadcasted without Interface's expressed permission. Your participation on the call confirms your consent to the company's taping and broadcasting of it. Now, I'd like to turn the call over to Jay Gould, CEO..

Good morning. Thank you for joining our third quarter results call. I'm pleased to share our results with you today. In the third quarter, we delivered another solid quarter with strong adjusted EPS growth, driven by continued share gains in carpet tile and strong momentum in our LVT products.

Also, our recently acquired nora systems business positively impact our results across the P&L. As reported during the quarter, we completed our acquisition of nora systems, a global leader in commercial performance flooring and worldwide share leader in the rubber flooring category.

I'm really delighted with the progress the team is making to integrate nora into our business.

Importantly, we've already seen several examples of cross-selling and up-selling, among the Interface and nora sales teams, as we work on more formally bringing the two companies together, carefully developing our combined organization structure, as well as the right processes and technology to fuel our business.

The goal is, of course, to continue to better serve our customers, enabling us to offer a wider range of options that meet our customers' requirements in different commercial applications. Our expanded product portfolio help generate strong Q3 top line growth. We delivered net sales of $318 million, which is up 24% versus last year.

Organic sales were up 9%, with carpet tile and LVT contributing about equally to that growth. After the August 7 closing, nora contributed $41 million of net sales for the quarter. The 9% organic sales growth was in line with our expectations for the quarter.

Of particular note, we delivered 12% revenue growth in the Americas, where we saw solid market share gains in carpet tile and continued momentum in our LVT products. In the Americas, our InterfaceServices business had a very strong quarter, but that mix shift dampened margins somewhat.

Despite some weaknesses in the United Kingdom, our European business delivered 3% revenue growth in local currency. And our Asia-Pacific business showed a slight decline, 2%, as reported in U.S. dollars, because we had currency headwinds in Australia and in China.

Although, organic orders were down slightly this quarter, 1%, our Q3 orders coupled with our backlog and an impressive project pipeline, we expect to deliver 2% to 3% top line organic growth for the fourth quarter. Including nora, we expect to deliver Q4 net sales growth of approximately 30%.

Overall, I'm confident that our value-creation strategy is allowing us to win in the marketplace. Our new product vitality is strong at 35%, demonstrating we have successfully planned our product development efforts in line with customer requirements across both carpet tile and LVT.

In the third quarter, we expanded our 2018 global collection launches into several key markets across Europe and Asia. And we continue to receive positive feedback from our customers across office and non-office segments. Our new LVT designs are making an impact, enabling us to outpace our growth expectations for that product line.

In summary, Q3 was a very solid quarter, in line with our expectations and consistent with our full-year targets that were increased when we acquired nora. Now, I'd like to turn the call over to Bruce for a review of the quarter's financial details. So, Bruce, please go ahead..

Thanks, Jay, and good morning, everyone. With the nora acquisition completed on August 7, this is the first quarter we're reporting our combined results. We have incorporated nora into our metrics as of the date of the acquisition.

And as a reminder, organic sales, organic sales growth and organic order growth numbers include core carpet tile and LVT and exclude nora, as well as the impact of foreign currency fluctuations, and the impact in Q1 of last year when we fully exited floor specialty retail.

In addition, adjusted operating income, adjusted net income and adjusted EPS exclude nora acquisition transaction-related expenses and restructuring and asset impairment charges.

And adjusted EBITDA is calculated as GAAP net income, excluding interest expense, taxes on income, depreciation and amortization, restructuring and asset impairment charges incurred in Q1 of 2017, stock compensation amortization, and nora transaction-related expenses, such as purchase price accounting amortization, transaction and transaction-related other expenses.

Now, all of these items can be found in the GAAP to non-GAAP reconciliation tables of our Q3 earnings press release. And I would refer you to that.

In addition, as you'll see in the reconciliation tables of our press release, the third quarter results include $20 million of nora purchase accounting adjustments that impacted gross profit, $1 million of nora transaction and integration-related expenses recorded on the SG&A line, and $1.4 million of transaction expenses recorded on the other expense line.

And again, I would refer you to the GAAP to non-GAAP reconciliation tables in our press release, which have all this laid out. Now, let's take a look at our third quarter 2018 results. Third quarter GAAP net sales were $318 million, up 24% over the prior year period and organic sales were up 9% year-over-year.

And breaking our revenue into more detail, carpet tile and LVT contributed relatively equally to growth in Q3. nora sales increased revenue by approximately $41 million, and net sales in the Americas grew 12% compared to Q3 of last year. EMEA also had a good quarter with net sales growing 3% year-over-year in local currency or 2% in U.S. dollars.

In Asia-Pacific, net sales were down 2% compared to last year, as the region was challenged by a weaker Australian dollar and also the Chinese renminbi.

Taking a look at global market segmentation, we also continued to see momentum, broad-based momentum, with growth across core office and non-office segments, including retail, healthcare and hospitality. Q3's gross margin was 31.4%, which, again, included $20 million of nora purchase accounting amortization.

Adjusted gross margin was 37.8%, a 50 basis point decrease over the prior year period. And we'll note that production was up 19% in the U.S. in the third quarter to meet increased order rates. And we chose to delay some productivity initiatives to get product out the door and to make certain we could beat customer demands.

Raw material costs continued to be in line with our expectations, as we continue to benefit from the planning we did around inflation, combined with contractual arrangements we have in place with key suppliers, and of course, the benefits that we're able to realize by sourcing recycled materials. SG&A expenses were $84 million.

Adjusted SG&A, which excludes $1 million of nora transaction costs, was 26.1% of net sales, which was consistent with Q3 of last year. And third quarter operating income was $16 million compared with $31 million in the prior-year period. Adjusted operating income was $37 million or 12% of net sales compared to $31 million in the prior-year period.

And Q3's GAAP net income was $8 million or $0.14 per diluted share compared to $19 million or $0.32 per diluted share in Q3 of last year. Adjusted net income was $24 million or $0.41 per diluted share, which represents 28% increase in adjusted EPS year-over-year.

Adjusted EBITDA in Q3 was $51 million or 16% of sales, up 24% compared to $41 million in Q3 of last year. Moving over to the balance sheet and cash flow statement, we ended Q3 with $107 million of cash on hand, $649 million of debt, and strong liquidity, as we had $264 million available under our revolving credit facility.

Interest expense was $5 million in the third quarter compared with $2 million in Q3 of last year. And of course, this increase was due to the debt that we took on to do the nora acquisition. Q3 depreciation and amortization was $10 million compared with $8 million in Q3 of last year.

We also had $20 million of amortization related to acquired intangible assets from the nora acquisition. Q3's capital expenditures were $12.5 million compared to $7.5 million in Q3 of last year. And now, I'd like to turn the call back to Jay to provide an update on our fiscal year 2018 outlook..

Thank you, Bruce. So far, 2018 has unfolded as we anticipated, with strong results in Q2 and Q3 with somewhat softer results in Q1 and anticipated in Q4. Year-to-date, we've delivered 9% top line organic growth and adjusted EPS growth of 26%.

Although Q3 organic orders were down 1%, our backlog in our project pipeline support our expected Q4 organic revenue growth of 2% to 3%. Including nora, we anticipate total revenue growth of approximately 30% in the fourth quarter. So, now, let's look at the full-year 2018 and how we're targeting our year to end.

So, we expect organic sales growth of 5% to 7%; total net sales growth, including nora, of approximately 20%; adjusted gross profit – and this is an update to the press release. I failed to use the word adjusted in the press release.

So, adjusted gross profit margin of 38.5% to 39%, which includes nora; and adjusted SG&A expenses of 27% to 27.5%, and that's a percent of net sales. This also include the nora numbers since August 7. The full year effective tax rate is anticipated to be 25.5% to 26.5%.

Full-year company interest and other expenses are projected to be $17 million to $19 million, which includes interest expense related to funding the nora acquisition. Capital expenditures for the full year are forecasted to be $45 million to $50 million.

In summary, I'm confident that 2018 will be a very solid year with meaningful progress on our strategic agenda; our sales force transformation; innovation that drives incremental growth; investments in our global supply chain that enhance productivity; and continued progress in our industry-leading sustainability programs; and lastly, upgrading our talent and our capabilities for future growth.

And so, with that, I'll open the call for questions. Casey, could you do that please..

Yes. Thank you. As a reminder and your first question comes from Michael Wood with Nomura Instinet. Please go ahead. Your line is open..

Hi. This is Mason Marion on for Mike. So, organic order growth of down 1% was substantially lower than the last several quarters.

Can you talk through what caused this? Was it due to the roll off from the large home center load-in that you had been benefiting from?.

We saw a slowdown in orders in September, Mason, but they're back being positive in October. And one of the reasons we're trying to play down the order growth in the previous quarter and we're providing the next quarter revenue outlook, we've been doing that all year because, frankly, we think it's much more meaningful.

We know that we have a very robust project pipeline, which is why we're pretty confident in forecasting actual growth in the fourth quarter. Now, obviously, our fourth quarter growth is lower than what we've experienced year-to-date.

It's plus 2% to 3% as opposed to plus 9%, and that's because we have a very strong fourth quarter in last year's numbers..

Okay, understood.

On LVT, any change in gross profitability there? As these tariffs are implemented, are you seeing any pressure from your suppliers? As we'd imagine other industry participants are trying to shift their supply chains out of China into Korea?.

Well, as you know, we are we are sourcing out of Korea. We're very pleased with our manufacturer. And frankly, we're capturing some fixed cost leverage as our volume continues to grow. So, our pricing's gone down slightly, and our pricing out in the market is held. So, our margins continue to be strong..

Okay. Great..

Your next question comes from Keith Hughes with SunTrust. Please go ahead. Your line is open..

Thank you. Looking at the guidance for the year, it's interpolating – it looks like we're going to be in high – pushing 40% in gross margin in the fourth quarter.

Is that a number that we'll see roughly throughout 2019 with the acquisition and/or is it going to be a lot of seasonal variation to that?.

We're going to give 2019 outlook, on our next call, but we're going to expect a 50-plus basis point improvement in our gross margins for next year. So, we'll be in that 39% to 39.5% range..

Yeah, I just had a courtesy reminder, Keith, this is Bruce, that the nora GP is accretive to our – to, what'd call, sort of called the legacy Interface business. So, it's a combined results. We'll have some nice – as Jay mentioned, there will be some accretion there.

And on our next call, when we announce our year-end results, we're going to provide some guidance around the building blocks for 2019 to help everyone understand where we're headed..

Okay.

And as you look at organic growth for the fourth quarter, and based on your previous comments, how will the breakout there be between the LVT and carpet for fourth quarter?.

It's about 50/50, about half and half, Keith..

Is that showing your LVT business – is it slowing down, or is it still just robust growth?.

It's robust. And you might recall, we've publicly announced that our target is to do $50 million of LVT revenue this year, and we're well on track to that number..

All right. Thank you..

Your next question is from Kathryn Thompson with Thompson Research. Please go ahead. Your line is open..

Hi. Thank you for taking my questions today. Just, first, in terms of what's in your backlog and your orders. And really, I want to focus on the types of projects driving demand today and how this has changed over the past 12 to 18 months.

And really kind of the spirit of the question is just to better understand the pace and the breadth of orders, given your prepared commentary about seeing good growth in office and non-office..

Yeah. That's a great question, Kathryn. We're actually seeing smaller orders. One of the things – our revenue was up 9% in the quarter, but orders were up closer to 15%. And I think that's a reflection of just a lot of remodeling activity that's happening across all the segments.

And we saw strong growth in office, but also really strong growth in the non-office segments..

And what type of – when you say, non-office, maybe help us understand, even if it's anecdotal, the type of projects you're seeing in non-office..

Well, hospitality is way up this year. That's a great example. And that segment is using a combination of LVT and carpet tile in the rooms and in the public spaces. Healthcare has also been very productive this year. Retail has been very productive this year..

Okay, excellent. Thank you. Wanted to just revisit your thoughts on inflation. You had expected about $10 million in 2018. Looks like you're on track for that. How are you thinking about inflation going forward? Theoretically, it should be less of a headwind, even if you do have somewhat of an impact, just because you have some momentum.

But in saying how you frame the inflation conversation going forward would be helpful. Thank you..

Well, as you know, we believe that we've built a preferred business model by our use of recycled materials, which protects us from some of the inflationary pressures on virgin materials. So, we're not experiencing the same input cost pressures that you see from some of the other carpet companies, in particular.

We're taking the same approach as we bring nora into the portfolio by protecting our margins with longer-term contracts that allow us to align our ability to price in the market with our visibility on our cost structure..

Lastly, I would just add, Jay and Kathryn. As you know, Kathryn, when we lay out our plan, we plan for inflation. And so, we bake that in. We baked that in this year, which is why I think we are certainly seeing inflation, but it's completely in line with our expectations.

And we navigate through that, we set the plan up that way at the beginning of the year, and then we execute on that plan. And we're sharpening our pencils now around 2019. We'll provide some guidance around our inflation expectations for 2019 on our next call.

And we'll have the same framework for next year, where we lay it out and then we execute on a good plan to make sure we mitigate against inflationary pressures..

Okay, great. And final question really is around nora. How is integration? How do we think about seasonality? And then, just any update on D&A and CapEx for nora? Thank you..

The first question was on inflation. That was....

Well, just how's the integration going and how to think about seasonality....

Yeah..

...which is – there's not a lot of seasonality to their business..

Yeah..

Okay.

The CapEx numbers that we gave you for this year included the nora CapEx. It's very similar to our business. And I think we mentioned this when we announced the deal that their CapEx is roughly 3%, 3.5%-ish of revenue. That's their maintenance CapEx.

And that would only change if we were going to make a major investment, which there are no plans right now to do that. But that's why our CapEx is higher on the Interface side, is we're continuing to make that investment in our manufacturing facilities as part of yielding productivity initiatives on our P&L.

So, for the year, as we talked about CapEx of $45 million to $50 million, that's the all-in number with nora and with Interface..

Okay.

Any color on D&A?.

Yeah, D&A, the run rate for D&A for nora is about $3 million, $3.5 million a quarter. And so, as you do your model, you could just sort of add that onto the Interface run rate.

And Interface's run rate will go up, of course, but as you know, a lot of these assets they're adding are fairly long-lived assets, because there are things like buildings and machinery. So, it's not short-lived stuff that we're adding to the depreciation base..

Excellent. Thank you so much..

Yeah..

Your next question is from Matt McCall with Seaport Global Securities. Please go ahead. Your line is open..

Thank you. Good morning, everybody..

Good morning..

So, Jay, or maybe Bruce, I can't remember who brought it up, but the labor issues, you talked about the demand. And you referenced in the release, you had some elevated labor costs, you delayed some productivity initiatives. And then I think you mentioned some higher levels of production.

Can you put some numbers behind that? What the impact was on Q3 gross margin? And what's the assumption for those items and others in the Q4 outlook?.

Yeah. Matt, gross profit as reported was down 50 basis points from a year ago. However, it was really down 150 basis points from my expectation. Two thirds of that was driven by delayed productivity in the plants, and a third of that from the mix shift as a result of InterfaceServices growing.

But I do want to put this gross margin performance – because I'm pretty critical of myself in how we achieved the quarter. But I would say, for the full year, we're going to deliver 38.5% to 39%, which is up 450 basis points to 500 basis points from when we started this journey.

When I went public in the summer of 2015 with new financial metrics for the company, we said, we'd get to 40% by 2020. We've delivered, let's say, at the low end 450 basis points improvement in our gross margins. We are on track to hit that 40% by 2020. And so, I do want to put this quarter in perspective of the journey that we've been on.

And so, as we look to the fourth quarter, I think we'll get back to those ranges that we were expecting, so I anticipate having a very solid quarter in gross margin in the fourth quarter..

So, thanks, Jay. So, it's like 100 basis points in the quarter.

So, how does that – remind me of the expected cadence of the productivity initiatives and the work you're doing in South Georgia? What's the update on the savings, totals and the timing of those savings totals?.

So, last year, we captured $10 million of savings. Just to frame this up, we expected to get $30 million over three years. Last year, we got $10 million of that. This year, we'll get somewhere between $5 million and $7 million, so I expected to get $10 million, probably only get $5 million to $7 million.

And then, we'll update you next year, but I think we'll get at least the $10 million that we planned for next year. The question is can we make that $13 million, but I don't know. So, that's the range $10 million to $13 million for next year..

Okay. And then just to clarify, you said, I think to Keith's question, 39% to 39.5% gross margin kind of that initial look at next year.

Is that all in, that's with nora, that's core Interface? Just want to make sure I'm thinking about it the right way?.

Well, look, again, we'll give you that number. We're in our next year planning process right now. But we will give you a number that's all in. Yeah, in the future, I'm just going to report the company's gross margin..

And Matt, this is Bruce. We're going through our AOP process, right now. We're sharpening our pencils on all of the plans for next year. So, we're buttoning all these numbers down.

And again, when we release our year-end results, we're going to make certain to provide the building blocks for 2019, so everybody has full visibility into what our expectations are for next year..

Okay. And maybe a hit on price/cost a little bit.

It doesn't sound like you've been surprised by any inflation pressures, but was there a price/cost impact in either direction in Q3? What are you thinking about for Q4 and beyond?.

In the United States, we did announce kind of a monolithic price increase, effective October 1. There was a 4% price increase across the board. That won't really impact our P&L for 2018, but we do expect the benefits to hit in 2019..

So, was there any price/cost drag or benefit in Q3? And is there anything assumed in the Q4 outlook?.

No. I mean the only price cost drag was actually the mix shift with InterfaceServices, but there was no issue with pricing or input cost in the third quarter, yeah..

And just as a courtesy reminder, Matt, the InterfaceServices mix shift was something that we had talked about last quarter. And then we had anticipated coming, which is why we had mentioned that.

Actually, as we are coming out of the gate from the beginning of the year, by Q2 and Q3 is it? I don't know if you remember, when we started the year, we said it's going to be lumpy, and it's going to be choppy. And really it played out exactly as we thought it would.

And to Jay's earlier point with organic sales growth of 5% to 7% and total growth of 20% for the year, it's going to be a fantastic 2018 on the top line..

Got it. Got it. Thank you, Bruce.

One last question, understand you have the view for 2019 later, but just want to try and understand the framework of SG&A, and what's your leverage opportunity is now, inclusive of nora over the long term?.

Well, as you know, nora increased our SG&A as a percent of sales. So, this fourth quarter, 27% and 27.5% is the starting point for next year's building blocks. Obviously, our objective has always been to decrease it by 30 basis points to 50 basis points a year.

And so, as we go into our planning process, that'll be our mindset but I got to get through the process before I can give you a range for next year..

Yeah, I was more thinking longer term, just trying to better understand the fixed variable, but that's helpful. Thank you, guys..

Thank you, Matt..

Your next question comes from David MacGregor with Longbow Research. Please go ahead. Your line is open..

Hey. Good morning, everyone..

Hey, David..

The gross margins – the 50 basis points of pressure from InterfaceServices, as you had indicated, fourth quarter, that business lightens up.

How much of that 50 basis points comes back in the fourth quarter just by virtue of mix and that being less predominant within the mix?.

All of it..

Okay.

The full 50 basis points?.

Yes..

And you walked through Troup County and you walked through kind of the update on the sort of the expectations around this year and next year.

When you're running into these kind of productivity delays because business is so good and things get pushed out, are there incremental costs associated with these push-outs that are also kind of included in these margin numbers?.

Well, I'll tell you the two sides of it. It's one reason why you see our capital spendings come down for the year as we're not getting the capital spend that we wanted to. So, there's a cash flow benefit from that. I mean, with the productivity delay, there's no like real incremental cost associated with that.

Trying to think through all the projects, I think the answer's no, David..

Okay. That was the question. And then, you talked in passing about the slower September, and then you saw things pick up again here in October.

Can you just go back and dig in a little bit deeper around September and just maybe elaborate a little further around what you saw? And I guess, kind of tough question, but do you think you lost share there and the category maybe outpaced you, or was this kind of broader than that?.

Definitely not to the latter question. I mean, I think we picked up at least 100 basis points of margin in the quarter in the U.S..

Of share, yeah..

Of share..

Yeah..

Oh, that's in margin..

Yeah..

Market share, sorry. I think we picked up at least 100 basis points of market share in the U.S. From talking to other people in the building products industry, I think there was a general slowdown in September.

I honestly don't have a good driver of it because our project pipeline is really robust, which is why we're projecting growth in the fourth quarter even though we're overlapping a really strong fourth quarter of last year. So, I just think it was an anomaly, David..

David, that's right. This is Bruce. I mean, it's just sort of been choppy. Some people charged it up till the timing of Holidays, which we think is just noise. It's just been choppy and it's just timing. If you kind of just step – one month doesn't make a trend. If you sort of step back, the momentum continues..

Yeah.

Are you seeing order push-outs or people just pushing stuff further out into the tail?.

Well, we heard that, but then October's really strong. And I have to tell you, if you look at our 30-60-90 outlook, which we run through our S&OP process, things are strong in the market. The Architectural Billing Index (sic) [Architectural Billings Index] is still above 50. I think it's at 52, so it's still strong..

Yeah. Then, last question for me, just on nora. We talked in the past about win rates and how, first of all, getting into LVT should help your win rate. And now, you're adding one more product in the salesman's bag and that should help your win rate as well.

Can you just talk about kind of early indications that you're getting in terms your opportunity to accelerate growth with nora, now that they're in the Interface portfolio?.

Well, the biggest opportunity is actually for us to sell more carpet tile and LVT in the healthcare segment and education where nora is really strong. So, I think they're going to help us open the door to sell more of our core products..

And I would just say, David, we're already seeing some fruits of some nice cross-sharing of leads and some nice team selling that's happening, which is when you think about it, such early days. We only closed the transaction on August 7, and to see that activity happening this early is really encouraging..

Great. Thanks very much, gentlemen..

Thanks..

Thank you David..

Your next question is from John Baugh with Stifel. Please go ahead. Your line is open..

Thank you, and I apologize, I hopped on late. But I wanted to ask a sort of a high-level question about flooring types in demand, what you're seeing in the U.S. Obviously, you jumped into LVT, and that's growing very rapidly.

And I realize the answer is very different from, say, healthcare, education to office, but simple question is what is kind of going on? We know LVT is growing. Is the carpet tile opportunity look similar to you today than it did? You're going to obviously have nora's products as well.

Just curious, if there's a high level shift away from or towards carpet tile, in your view?.

I think the carpet tile category is under some pressure, John. I mean, you can look at the CRI reported numbers and see the productions down year-over-year. I think that pressure is coming from polished concrete, which I've talked about in the past and LVT. I think LVT is a trend, not a fad; and I think polished concrete is a fad, not a trend.

We're trying to deal with that with our introductions of LVT that look like polished concrete. And we're seeing good pick-up on those types of products. So, I think that's that the dynamic at play. We still believe that carpet tile will continue to gain share of the flooring business over time because of the properties that it provides..

Is there continued opportunity for carpet tile to take from broadloom, or is that trend kind of played out?.

Well, I think you have to look at it by segment to answer that question. In the U.S., we're about 75% penetrated in the office segment. So, that penetration, maybe it's got a little bit more legs to it, but not significant.

But if you look at other categories, like hospitality, that vertical continues to purchase about $1.2 billion of broadloom carpets, so we think that's a great opportunity for additional penetration. I also think that education segment has great opportunities for additional penetration. And then, you can look globally.

I'm saying, we have markets like Germany, which still sell a lot of broadloom to the office segment. And that's why our German business has grown at double digits for the last five years. So, no, I still think there's market share opportunities for carpet tile, against broadloom, and against other flooring categories..

Yeah, and that was going to be my next question. It's difficult to answer, because there are so many different markets around the world, and they have different trends.

But whether maybe collectively the international market had a little more growth of carpet tile versus broadloom, and it sounds like that's possibly the case, obviously markets like the UK are very penetrated and mature, but in total, would you say the international opportunity still is maybe for a little more share penetration of tile versus broadloom?.

Yeah versus broadloom, but also versus other hard-surface categories. I mean, hard surface still dominates the commercial flooring market. So, yeah, we still think there's massive opportunity to penetrate against things like ceramic..

Yeah. Okay. Thank you. Good luck..

Thanks, John..

Thanks, John..

Appreciate your support..

And there are no further questions at this time. I will turn the call back over to Jay Gould for closing remarks..

Thank you. Thanks again for everyone for participating in this call. We're very excited about the productivity of our strategy in the marketplace. We think 2018 will be a very solid year for us as we make progress on our strategic agenda. And I look forward to updating you on our progress next quarter. Thanks, again..

And ladies and gentlemen, this concludes today's conference call. You may now disconnect..