JACKSONVILLE, Fla. (GLOBE NEWSWIRE) -- Interline Brands, Inc. ("Interline" or the "Company"), a leading distributor and direct marketer of broad-line maintenance, repair and operations ("MRO") products to the facilities maintenance end-market, reported sales and earnings for the fiscal quarter ended September 27, 2013.
Third Quarter 2013 Highlights:
- Sales increased 20.4% to $421.5 million
- Adjusted EBITDA totaled $41.3 million, or 9.8% of sales
- Net debt(2) as of quarter-end to last-twelve months Further Adjusted EBITDA ratio of 5.9x
- Total liquidity as of quarter-end of $155.3 million
Michael J. Grebe, Chairman and Chief Executive Officer commented, "Our strategic initiatives continued to gain momentum during the third quarter. Organic year-over-year revenues increased 3%, and Adjusted EBITDA totaled over $41 million, which was our highest quarterly Adjusted EBITDA in history. We are encouraged by the fact that growth accelerated across all of our facilities maintenance end-markets during the quarter, in spite of what continued to be an overall sluggish macroeconomic environment. Our performance during the quarter was aided by certain key investments in our sales team and capabilities, including under-penetrated market expansion and bundling our product suite to better fit the needs of our national account customers. We also benefited from improving trends in the housing market, which lead to additional repair, remodel and replacement activity among homeowners and property managers. We will continue to invest in our business and expect to build additional momentum as we close out the year."
Third Quarter 2013 Results
Sales for the quarter ended September 27, 2013 were $421.5 million, a 20.4% increase compared to sales of $350.3 million for the quarter ended September 28, 2012. On an organic sales basis, sales increased 3.0% for the quarter. Sales to our institutional facilities customers, comprising 50% of sales, increased 44.7% for the quarter, and 2.2% on an organic sales basis. Sales to our multi-family housing facilities customers, comprising 31% of sales, increased 4.8% for the quarter. Sales to our residential facilities customers, comprising 19% of sales, increased 2.3% for the quarter.
Gross profit increased $19.6 million, or 15.4%, to $147.0 million for the third quarter of 2013, compared to $127.4 million for the third quarter of 2012. As a percentage of sales, gross profit decreased 150 basis points to 34.9% compared to 36.4%. On an organic basis, gross margin increased 10 basis points to 36.5%.
Selling, general and administrative ("SG&A") expenses for the third quarter of 2013 increased $37.9 million, or 41.1%, to $130.1 million from $92.2 million for the third quarter of 2012. As a percentage of sales, SG&A expenses were 30.9% compared to 26.3%, an increase of 460 basis points. SG&A expenses for the quarter ended September 27, 2013 include a pre-tax charge totaling $20.9 million for litigation related costs (described below). On an organic basis and excluding distribution center consolidation and restructuring costs, acquisition costs, share-based compensation and litigation related costs, SG&A as a percentage of sales increased by 20 basis points year-over-year.
Third quarter 2013 Adjusted EBITDA of $41.3 million, or 9.8% of sales, increased 10.2% compared to $37.5 million, or 10.7% of sales, in the third quarter of 2012.
Kenneth D. Sweder, President and Chief Operating Officer commented, "Our execution improved in the third quarter. We delivered strong growth in national accounts as we gained market share and sold a broader bundle of products. We also generated improvements in our gross margin through merchandising efforts and the ongoing integration of our recent acquisitions, both of which continue to gain traction. In addition, the investments we've made in the business to support our long-term growth plans began to pay dividends this quarter. For example, we have hired over 80 associates to date in 2013 to support targeted geographic expansion and national account growth, cross-selling, merchandising and marketing opportunities, and expanded technology and supply chain capabilities. While early, we are encouraged by how these associates are beginning to ramp up and their initial contributions to our growth and success. We will continue to invest to exploit the many opportunities in front of us to improve our market position and accelerate our growth."
Including merger-related expenses as well as increased interest expense and depreciation and amortization expense associated with the previously disclosed acquisition of Interline and litigation related costs, net loss for the third quarter of 2013 was $7.2 million compared to $28.4 million for the third quarter of the comparable 2012 period.
Year-To-Date 2013 Results
Sales for the nine months ended September 27, 2013 were $1,208.0 million, a 21.0% increase compared to sales of $998.7 million for the nine months ended September 28, 2012. On an average organic daily sales basis, sales increased 2.8% for the nine months ended September 27, 2013. Sales to our institutional facilities customers, comprising 51% of sales, increased 47.6% for the nine months ended September 27, 2013, and 2.9% on an organic daily sales basis. Sales to our multi-family housing facilities customers, comprising 30% of sales, increased 3.1% for the nine months ended September 27, 2013, and 3.7% on an average daily sales basis. Sales to our residential facilities customers, comprising 19% of sales, increased by 1.4% for the nine months ended September 27, 2013, and 1.9% on an average daily sales basis.
Gross profit increased $53.0 million, or 14.6%, to $417.0 million for the nine months ended September 27, 2013, compared to $364.0 million for the nine months ended September 28, 2012. As a percentage of sales, gross profit decreased 200 basis points to 34.5% compared to 36.5% in the comparable 2012 period. On an organic basis, gross margin decreased 20 basis points to 36.3%.
SG&A expenses for the nine months ended September 27, 2013 increased $71.6 million, or 26.0%, to $347.3 million from $275.7 million for the nine months ended September 28, 2012. As a percentage of sales, SG&A expenses were 28.7% compared to 27.6%, an increase of 110 basis points. SG&A expenses for the nine months ended September 27, 2013 include a pre-tax charge totaling $20.9 million for litigation related costs (described below). On an organic basis and excluding distribution center consolidation and restructuring costs, acquisition costs, share-based compensation and litigation related costs, SG&A as a percentage of sales increased by 20 basis points year-over-year.
Adjusted EBITDA of $100.7 million, or 8.3% of sales for the nine months ended September 27, 2013, increased 6.5% compared to $94.5 million, or 9.5% of sales, for the nine months ended September 28, 2012.
Including merger-related expenses as well as increased interest expense and depreciation and amortization expense associated with the previously disclosed acquisition of Interline and litigation related costs, net loss for the nine months ended September 27, 2013 was $7.5 million compared to $11.9 million for the nine months ended September 28, 2012.
Operating Free Cash Flow and Leverage
Cash flow provided by operating activities for the nine months ended September 27, 2013 was $11.5 million compared to cash flow used in operating activities of $4.4 million for the nine months September 28, 2012. Operating Free Cash Flow generated for the nine months ended September 27, 2013 was $55.3 million compared to $47.8 million during the nine months ended September 28, 2012.
Michael Grebe commented, "We generated nearly $33 million of operating free cash flow during the quarter bringing our total to over $55 million for the year to date period. The combination of our strong liquidity position, solid capital structure and healthy cash flows provides us with a strong foundation from which to continue pursuing our strategic plan for long-term growth and value creation."
Merger
On September 7, 2012, Interline was acquired by affiliates of GS Capital Partners LP and P2 Capital Partners, LLC. The acquisition is referred to as the "Merger." As a result of the Merger, the Company applied the acquisition method of accounting and established a new basis of accounting on September 8, 2012. Periods presented prior to the Merger represent the operations of the predecessor company ("Predecessor") and periods presented after the Merger represent the operations of the successor company ("Successor"). The comparability of the financial statements of the Predecessor and Successor periods has been impacted by the application of acquisition accounting and changes in the Company's capital structure resulting from the Merger. See our Quarterly Report on Form 10-Q for a presentation of Predecessor and Successor financial statements.
Litigation Update
In May 2011, the Company was named as a defendant in the case of Craftwood Lumber Company v. Interline Brands, Inc. ("Craftwood Matter"), filed before the Nineteenth Judicial Circuit Court of Lake County, Illinois, and subsequently removed to the United States District Court for the Northern District of Illinois. The complaint alleges that the Company sent unsolicited fax advertisements to businesses nationwide in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 ("Junk Fax Act"). At the time of filing the initial complaint in state court, the plaintiff also filed a motion asking the Court to certify a class of plaintiffs comprised of businesses who allegedly received unsolicited fax advertisements from the Company during the four-year statute of limitations period. In its amended complaint filed in the United States District Court, the plaintiff seeks preliminary and permanent injunctive relief enjoining the Company from violating the Junk Fax Act, as well as statutory damages for each fax transmission found to be in violation of the Junk Fax Act. The Company continues to vigorously contest class action certification and liability; however, in light of the Company's assessment of potential legal risks associated with the Craftwood Matter, the Company has recorded a pre-tax charge of approximately $21 million in the third quarter of 2013. This estimated charge is included in selling, general and administrative expenses in the statements of operations. Net of tax benefits, the amount of the charge is approximately $13 million. Actual results may differ. For more information on this matter, please see the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 27, 2013.
For more information, visit the Company's website at www.interlinebrands.com.
