Michael Grebe, Interline's President and Chief Executive Officer, commented, "Interline posted record results in the third quarter. Our core business remained strong, fueled by average organic daily sales growth of 8.9 percent. AmSan, which we acquired in July, also had strong performance in the quarter. We are very pleased with our early integration efforts with AmSan, and sales and earnings are above our original expectations."
Third Quarter 2006 Performance
Sales for the quarter ended September 29, 2006 were $314.2 million, a 39.1% increase over sales of $225.8 million in the comparable 2005 period. Average organic daily sales growth for the third quarter was 8.9%.
"Our revenue growth in the third quarter was driven by a combination of our acquisition of AmSan as well as strong organic growth in our facilities maintenance market - which grew at 11.5% - one of the highest quarterly growth rates in several years", said William Sanford, Chief Operating Officer. "Our professional contractor business grew 8.4 percent in the third quarter in addition to the 19.2 percent we grew in the third quarter of 2005."
Gross profit increased $33.9 million to $120.1 million for the third quarter of 2006, up from $86.2 million in the comparable period of 2005. As a percentage of net sales, gross profit remained consistent with the comparable 2005 period at 38.2%. Excluding the AmSan acquisition, gross profit improved 20 basis points to 38.4% compared to 38.2% in the comparable 2005 period.
SG&A expenses for the third quarter of 2006 were $84.6 million compared to $58.9 million for the third quarter of 2005. As a percentage of net sales, SG&A expenses were 26.9% compared to 26.1% in the comparable 2005 period. SG&A expenses in the third quarter of 2006 included $1.1 million in share- based compensation expense, which is $0.9 million more than in the prior year quarter.
"We invested approximately $2 million during the quarter in organic growth initiatives, including the expansion of our field sales and telesales forces, as well as national accounts and supply chain management programs" said Mr. Grebe. "These are proven growth initiatives for Interline Brands, and we are able to adjust investment levels based on changing market conditions."
Operating income was $31.6 million, or 10.1% of sales, for the third quarter of 2006 compared to $22.9 million, or 10.2% of sales, for the third quarter of 2005, a 37.9% increase. Excluding $0.9 million in secondary offering costs, adjusted operating income for the third quarter of 2005 was 10.6% of sales.
YTD 2006 Performance
Sales for the nine months ended September 29, 2006 were $774.3 million, a 23.7% increase over sales of $626.0 million in the comparable 2005 period. The first nine months of 2006 included one less shipping day than the prior year period. Average daily sales for the first nine months of 2006 increased 24.3%. Average organic daily sales growth for the nine months was 10.4%.
Operating income was $74.9 million, or 9.7% of sales, for the nine months ended September 29, 2006 compared to $61.1 million, or 9.8% of sales, for the nine months ended September 30, 2005, a 22.6% increase. Excluding $2.0 million of incremental share-based compensation, operating income for the nine months ended September 29, 2006 was 9.9% of sales, and increased 25.9% over the comparable prior year period.
Adjusted pro forma earnings per diluted share was $0.99 for the nine months ended September 29, 2006, an increase of approximately 18% over adjusted pro forma earnings per diluted share of $0.84 in the same period last year. Including a charge of $0.39 per share related to the early extinguishment of debt, GAAP earnings per diluted share was $0.60 for the nine months ended September 29, 2006 compared to GAAP earnings per diluted share of $0.61 for the nine months ended September 30, 2005.
Business Outlook
Mr. Grebe stated, "So far, 2006 has been a very successful year for Interline with record results in every quarter. We are very pleased with the performance of the business, the execution on our recent refinancing, our acquisition of AmSan, and AmSan's performance during its first quarter with Interline. Despite the fact that our fourth quarter last year was a strong quarter for organic revenue growth, and will make for a challenging comparison, we remain optimistic about the remainder of the year."
Mr. Grebe continued, "We are increasing our earnings guidance for the full year to account for our better than expected third quarter performance. Adjusted pro forma earnings per share for fiscal year 2006 are expected to be $1.32 - $1.34. Our projections for the fourth quarter remain unchanged with expected earnings per diluted share for the fourth quarter between $0.33 - $0.35."
This estimate of adjusted pro forma earnings per share for fiscal year 2006 excludes a $20.7 million loss on early extinguishment of debt, or $0.39 per share, which was incurred in June 2006 when the Company refinanced its 11-1/2% senior subordinated notes and its senior bank credit facility.
Adjusted pro forma net income per diluted share was $1.12 for fiscal year 2005 and $0.28 for the fourth quarter of 2005.
GAAP net income per diluted share is projected to be $0.93 - $0.95 for fiscal year 2006 compared to GAAP net income per diluted share of $0.89 for fiscal 2005. GAAP net income per diluted share for the fourth quarter of 2005 was $0.28.
Conference Call
Interline Brands will host a conference call on November 3, 2006 at 9 a.m. Eastern Time. Interested parties may listen to the call toll free by dialing 1-800-427-0638 or 1-706-634-1170. A digital recording will be available for replay two hours after the completion of the conference call by calling 1-800-642-1687 or 1-706-645-9291 and referencing Conference I.D. Number 6526213. This recording will expire on November 17, 2006.
About Interline
Interline Brands, Inc. is a leading national distributor and direct marketer with headquarters in Jacksonville, Florida. Interline provides maintenance, repair and operations (MRO) products to approximately 200,000 professional contractors, facilities maintenance professionals, and specialty distributors across North America and Central America.
Non-GAAP Financial Information
This press release contains financial information determined by methods other than in accordance with GAAP. Interline's management uses non-GAAP measures in its analysis of the Company's performance. There were certain events which affected the period-over-period comparability of the Company's financial statements as presented in conformity with generally accepted accounting principles. These events include equity offering and refinancing related activities such as losses associated with the early extinguishment of debt, expenses associated with securities offerings, and the timing effect of paying off debt with proceeds from the Company's IPO in the first quarter of 2005. In order to present a meaningful comparison, the accompanying table below shows the estimated effect on the Company's net income of recording the IPO transactions as if they had occurred at the beginning of the first quarter of 2005, the exclusion of losses associated with the early extinguishment of debt, and the exclusion of expenses associated with securities offerings. Management believes that the presentation of financial measures excluding the impact of these items provide useful supplemental information in evaluating the financial results of the business. These disclosures should not be viewed as a substitute for operating income or net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Investors are encouraged to review the reconciliation of these and other non-GAAP financial measures to the comparable GAAP results available in the accompanying table.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The statements contained in this release which are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, forward-looking statements. The Company has tried, whenever possible, to identify these forward-looking statements using words such as "projects," "anticipates," "believes," "estimates," "expects," "plans," "intends," and similar expressions. Similarly, statements herein that describe the Company's business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. The risks and uncertainties involving forward-looking statements include, for example, the failure to realize expected benefits from the American Sanitary acquisition, material facilities systems disruptions and shutdowns, the failure to locate, acquire and integrate acquisition candidates, commodity price risk, foreign currency exchange risk, interest rate risk, the dependence on key employees and other risks described in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2005, the Company's most recent Quarterly Report filed on Form 10-Q, and the Company's Registration Statement on Form S-3 filed May 24, 2006. These statements reflect the Company's current beliefs and are based upon information currently available to it. Be advised that developments subsequent to this release are likely to cause these statements to become outdated with the passage of time. The Company does not currently intend, however, to update the information provided today prior to its next earnings release.
CONTACT: Tom Tossavainen PHONE: 904-421-1441 INTERLINE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 29, 2006 AND DECEMBER 30, 2005 (in thousands, except share and per share data) September 29, December 30, 2006 2005 ASSETS Current Assets: Cash and cash equivalents $3,905 $2,958 Accounts receivable - trade (net of allowance for doubtful accounts of $9,666 and $8,150) 166,005 113,271 Accounts receivable - other 14,697 12,163 Inventory 208,745 165,282 Prepaid expenses and other current assets 5,895 5,498 Deferred income taxes 18,304 13,945 Total current assets 417,551 313,117 Property and equipment, net 31,441 29,865 Goodwill 311,938 249,574 Other intangible assets, net 145,276 104,244 Other assets 9,872 8,969 Total assets $916,078 $705,769 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $89,373 $69,182 Accrued expenses and other current liabilities 35,433 21,574 Accrued merger expenses 3,789 5,408 Accrued interest 7,714 2,152 Income taxes payable 4,510 1,780 Revolver - 3,000 Current portion of long-term debt 2,432 1,400 Capital lease - current 460 452 Total current liabilities 143,711 104,948 Long-Term Liabilities: Deferred income taxes 33,935 34,646 Long-term debt, net of current portion 429,231 280,675 Capital lease - long term 629 958 Other liabilities 399 - Total liabilities 607,905 421,227 Commitments and contingencies Senior preferred stock, $0.01 par value, 20,000,000 shares authorized, no shares outstanding as of September 29, 2006 and December 30, 2005 - - Stockholders' equity: Common stock; $0.01 par value, 100,000,000 authorized; 32,290,146 issued and 32,265,994 outstanding as of September 29, 2006 and 32,220,669 issued and outstanding as of December 30, 2005 323 322 Additional paid-in capital 560,429 558,183 Accumulated deficit (253,242) (273,037) Accumulated other comprehensive income 1,161 992 Deferred compensation - (1,918) Treasury stock, at cost, 24,152 shares as of September 29, 2006 (498) - Total stockholders' equity 308,173 284,542 Total liabilities and stockholders' equity $916,078 $705,769 INTERLINE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THREE AND NINE MONTHS ENDED SEPTEMBER 29, 2006 AND SEPTEMBER 30, 2005 (in thousands, except share and per share data) Three Months Ended Nine Months Ended September September September September 29, 2006 30, 2005 29, 2006 30, 2005 Net sales $314,182 $225,811 $774,265 $625,968 Cost of sales 194,099 139,648 478,978 387,064 Gross profit 120,083 86,163 295,287 238,904 Operating Expenses: Selling, general and administrative expenses 84,578 58,938 209,559 167,194 Depreciation and amortization 3,866 3,361 10,820 9,699 Secondary offering costs - 923 - 923 Total operating expense 88,444 63,222 220,379 177,816 Operating income 31,639 22,941 74,908 61,088 Loss on extinguishment of debt - - (20,700) (10,340) Interest expense (8,806) (6,694) (22,740) (18,709) Interest income 177 45 411 171 Other income 262 188 517 474 Income before income taxes 23,272 16,480 32,396 32,684 Income tax provision 9,053 6,762 12,601 13,008 Net income $14,219 $9,718 $19,795 $19,676 Earnings Per Share: Basic $0.44 $0.30 $0.62 $0.62 Diluted $0.43 $0.30 $0.60 $0.61 Weighted-Average Shares Outstanding: Basic 32,159,251 32,061,828 32,124,106 31,979,374 Diluted 32,762,492 32,521,809 32,720,724 32,399,670 INTERLINE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 29, 2006 AND SEPTEMBER 30, 2005 (in thousands) Nine Months Ended September 29, September 30, 2006 2005 Cash Flows from Operating Activities: Net income $19,795 $19,676 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,820 9,699 Amortization of debt issuance costs 1,154 1,192 Amortization of discount on 8-1/8% senior subordinated notes 33 - Write-off of debt issuance costs 7,037 2,290 Tender and redemption premiums on 11-1/2% senior subordinated notes 13,663 8,050 Share-based compensation 2,739 718 Deferred income taxes (4,105) (2,160) Provision for doubtful accounts 2,454 2,017 Loss on disposal of property and equipment 80 53 Income tax effect from exercise of stock options - 215 Changes in assets and liabilities, net of business acquired: Accounts receivable - trade (27,129) (25,899) Accounts receivable - other (1,261) 4,974 Inventory (25,907) (3,782) Prepaid expenses and other current assets 409 (428) Other assets (724) (354) Accounts payable 3,240 11,598 Accrued expenses and other current liabilities 3,368 3,066 Accrued merger expenses (169) (307) Accrued interest 5,469 2,885 Income taxes payable 2,612 (2,670) Other liabilities 8 - Net cash provided by operating activities 13,586 30,833 Cash Flows from Investing Activities: Purchase of property and equipment, net (5,303) (5,899) Purchase of businesses, net of cash acquired (131,282) (71,195) Net cash used in investing activities (136,585) (77,094) Cash Flows from Financing Activities: (Decrease) Increase in revolver, net (3,000) 5,000 Repayment of term debt (149,381) (850) Repayment of 11-1/2% senior subordinated notes (130,000) (70,000) Payment of tender and redemption premiums on 11-1/2% senior subordinated notes (13,663) (8,050) Proceeds from issuance of 8-1/8% senior subordinated notes, net of discount 198,566 - Proceeds from issuance of term debt 230,000 50,000 Payment of debt issuance costs (9,804) (836) Proceeds from stock options exercised 945 1,693 Excess tax benefits from share-based compensation 453 - Payments on capital lease obligations (339) (126) Initial public offering costs - (616) Proceeds from exercise of underwriters over-allotment options - 2,333 Net cash provided by (used in) financing activities 123,777 (21,452) Effect of exchange rate changes on cash and cash equivalents 169 145 Net increase (decrease) in cash and cash equivalents 947 (67,568) Cash and cash equivalents at beginning of period 2,958 69,178 Cash and cash equivalents at end of period $3,905 $1,610 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $16,648 $13,124 Income taxes, net of refunds $14,107 $17,633 Schedule of Non-Cash Investing and Financing Activities: Treasury stock acquired with accrued expenses and other current liabilities $498 $- Adjustments to liabilities assumed and goodwill on businesses acquired $977 $9,473 INTERLINE BRANDS, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP INFORMATION THREE AND NINE MONTHS ENDED SEPTEMBER 29, 2006 AND SEPTEMBER 30, 2005 (In thousands, except share and per share data) Three Months Ended September 29, September 30, 2006 2005 Income before income taxes (GAAP) $23,272 $16,480 Add back the following item: Loss on early extinguishment of debt - - Adjust interest expense associated with the use of IPO proceeds to redeem a portion of previously outstanding 11-1/2% senior subordinated notes - - Additional expense for secondary offering - 923 Adjusted pro forma income before income taxes 23,272 17,403 Provision for income taxes 9,053 6,787 Adjusted pro forma net income $14,219 $10,616 Adjusted pro forma earnings per share - basic $0.44 $0.33 Adjusted pro forma earnings per share - diluted $0.43 $0.33 Shares outstanding - basic 32,159,251 32,061,828 Shares outstanding - diluted 32,762,492 32,521,809 Fiscal Nine Months Ended Year Ended September 29, September 30, December 30, 2006 2005 2005 Income before income taxes (GAAP) $32,396 $32,684 $47,134 Add back the following item: Loss on early extinguishment of debt 20,700 10,340 10,340 Adjust interest expense associated with the use of IPO proceeds to redeem a portion of previously outstanding 11-1/2% senior subordinated notes - 456 456 Additional expense for secondary offering - 923 932 Adjusted pro forma income before income taxes 53,096 44,403 58,862 Provision for income taxes 20,654 17,317 22,529 Adjusted pro forma net income $32,442 $27,086 $36,333 Adjusted pro forma earnings per share - basic $1.01 $0.85 $1.14 Adjusted pro forma earnings per share - diluted $0.99 $0.84 $1.12 Shares outstanding - basic 32,124,106 31,979,374 32,004,007 Shares outstanding - diluted 32,720,724 32,399,670 32,443,772 Daily Sales Calculations Three Months Ended Nine Months Ended Sept. 29, Sept. 30, % Sept. 29, Sept. 30, % 2006 2005 Variance 2006 2005 Variance Net Sales $314,182 $225,811 39.1% $774,265 $625,968 23.7% Less Acquisitions: AmSan (68,263) - (68,263) - Copperfield - - (18,615) - Organic Sales $245,919 $225,811 8.9% $687,387 $625,968 9.8% Daily Sales: Ship Days 63 63 191 192 Average Daily Sales $4,987 $3,584 39.1% $4,054 $3,260 24.3% Average Daily Organic Sales $3,903 $3,584 8.9% $3,599 $3,260 10.4% Average daily sales are defined as sales for a period of time divided by the number of shipping days in that period of time. Average organic daily sales are defined as sales for a period of time divided by the number of shipping days in that period of time excluding any sales from acquisitions made subsequent to the beginning of the prior year period. Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2006 2005 2006 2005 Adjusted EBITDA: Net income (GAAP) $14,219 $9,718 $19,795 $19,676 Interest expense 8,806 6,694 22,740 18,709 Interest income (177) (45) (411) (171) Loss on early extinguishment of debt - - 20,700 10,340 Additional expense for secondary offering - 923 - 923 Income tax provision 9,053 6,762 12,601 13,008 Depreciation and amortization 3,866 3,361 10,820 9,699 Adjusted EBITDA $35,767 $27,413 $86,245 $72,184
Adjusted EBITDA is presented herein because we believe it to be relevant and useful information to our investors because it is used by our management to evaluate the operating performance of our business and compare our operating performance with that of our competitors. Management also uses Adjusted EBITDA for planning purposes, including the preparation of annual operating budgets, to determine appropriate levels of operating and capital investments. Adjusted EBITDA excludes certain items, including loss on extinguishment of debt and additional expense for secondary offering, which we believe are not indicative of our core operating results. We therefore utilize Adjusted EBITDA as a useful alternative to net income as an indicator of our operating performance. However, Adjusted EBITDA is not a measure of financial performance under GAAP and Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as net income. While we believe that some of the items excluded from Adjusted EBITDA are not indicative of our core operating results, these items do impact our income statement, and management therefore utilizes Adjusted EBITDA as an operating performance measure in conjunction with GAAP measures such as net income and gross margin.
Interline Brands, Inc.
CONTACT: Tom Tossavainen of Interline Brands, Inc., +1-904-421-1441
