Interface, Inc. today announced results for the third quarter ended September 30, 2018.

"We continued to see strong top line momentum in the third quarter, delivering year-over-year net sales growth of 24% and organic growth of 9%. On the bottom line, GAAP EPS, which included nora acquisition purchase accounting items and transaction related expenses, was down 56%, but excluding those items, we delivered an impressive adjusted EPS growth of 28% year-over-year. This momentum was fueled by our core carpet tile business, an accelerating LVT business, and the completion of our acquisition of nora systems," said Jay Gould, CEO of Interface. "And while gross margins were down slightly, we remain confident in achieving our 2018 objectives, and that our value creation strategy is working."

Interface officially completed the acquisition of nora systems on August 7, 2018. Third quarter results include $20 million of nora purchase accounting amortization that impacted gross profit, $1 million of nora transaction expenses on the SG&A line, and $1.4 million of transaction expenses recorded in the other expense line.

Third Quarter 2018 Financial Summary

Sales: Third quarter GAAP net sales were $318 million, up 24% versus $257 million in the prior year period. Organic sales were up 9% year-over-year. Carpet tile and LVT contributed relatively equally to third quarter's growth. Nora sales increased revenue approximately $41 million in the quarter.

Operating Income: Third quarter GAAP operating income was $16 million compared with $31 million in the prior year period. Third quarter adjusted operating income was $37 million, or 12% of sales, compared to $31 million, or 12% of sales, in the prior year period.

Gross margin was 31.4% in the third quarter, which included $20 million of nora purchase accounting amortization. Adjusted gross margin was 37.8%, a decrease of 50 basis points over the prior year period. The gross margin decrease was driven by delayed implementation of productivity initiatives to meet higher demand and a sales mix that was more heavily weighted toward the InterfaceServices business.

Third quarter SG&A expenses were $84 million, or 26% of sales, which was flat as a percent of sales with the third quarter of 2017. SG&A expenses in the third quarter of 2018 included $1 million of nora transaction costs.

Net Income and EPS: GAAP net income during the third quarter of 2018 was $8 million, or $0.14 per diluted share, compared to third quarter 2017 net income of $19 million, or $0.32 per diluted share. Adjusted third quarter net income was $24 million, or $0.41 per diluted share, which represents a 28% increase in adjusted EPS year over year.

Adjusted EBITDA: In the third quarter of 2018, adjusted EBITDA was $51 million, or 16% of sales, up 24% compared to $41 million in the prior year period.

Year to Date 2018 Financial Results

Sales: For the first nine months of 2018, net sales were $843 million, up 15% compared with $730 million in the first three quarters of last year. Organic sales grew 9% versus the prior year period with solid growth in both carpet tile and LVT.

Operating Income: The Company reported year-to-date operating income of $72 million, or 9% of sales, compared to $81 million, or 11% of sales, for the same period in 2017. Adjusted operating income was $97 million, or 11% of sales, in the first nine months of 2018, versus $88 million, or 12% of sales, in the same period of 2017.

Net Income and EPS: The Company reported net income of $44 million, or $0.74 per share, year-to-date in 2018, compared with $49 million, or $0.78 per share, for the same period in 2017. Adjusted net income was $65 million for the first nine months of 2018 versus $54 million in the same period of 2017. Adjusted EPS was $1.08 per share for the first nine months, up 26% versus $0.86 per share for the same period in 2017.

Adjusted EBITDA: Year-to-date adjusted EBITDA was $132 million, or 16% of sales, compared to $112 million in the prior year period.

Fiscal Year 2018 Outlook

Looking at the full year of 2018, Interface is targeting to achieve:

Organic sales growth of 5 – 7%
Total net sales growth, including nora, of approximately 20%
Gross profit margin of 38.5 – 39%
SG&A expenses of 27 – 27.5% as a percentage of net sales

The full year effective tax rate is anticipated to be 25.5% - 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.