Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Deutsche Bank Global Industrials and Materials Summit 2017
52 slides from Armstrong World Industries's conference presentation, Jun 6, 2017
Slide 1: Armstrong World Industries Investor Presentation
ARMSTRONG WORLD INDUSTRIES INVESTOR PRESENTATION Deutsche Bank Global Industrials and Materials Summit June 8, 2017 Exhibit 99.1
Slide 2: Safe Harbor Statement
Safe Harbor Statement Our disclosures in this presentation, including without limitation, those relating to future financial results guidance, and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Those s
Slide 3: Basis of Presentation
When reporting our financial results within this presentation, we make several adjustments. Management uses the non-GAAP measures below in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. As reported results will be footnoted
Slide 4: Look Up! Broadest, Most Innovative Product Portfolio
Look Up! Providing Customers with the Broadest, Most Innovative Product Portfolio - Standard & Custom Solutions in Mineral Fiber, Metal, Wood, Canopies, and Trim
Slide 5: The AWI Investment Thesis
The AWI Investment Thesis Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Additional Levers to Create Shareholder Value 1 Standout Leader 2 3 4 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth Lever
Slide 6: Leader in Attractive Ceilings Industry
Leader in Attractive Ceilings Industry Strong Leader in Largest Global Profit Pool Consolidated industry structure Large installed base with stable repair & remodel demand Established product specifications Multi-faceted sales process involving architects, designers, distributors, contractors and en
Slide 7: Standout Leader: Uniquely Positioned to Drive Value
#1 position in all major markets Unmatched profitability and cash flow Broadest, most innovative product portfolio Specification leader among architects, designers and end-customers Best-in-class distribution Strongest brand with experienced and talented organization Standout Leader Uniquely Positio
Slide 8: Growth Vectors
Growth Vectors Selling into More Spaces Selling More in Every Space $3B Market 44% Est. Share Acoustical Tile + Grid Specialty Ceilings Metal, Wood, etc… $8B Market <20% Est. Share Components(1) Axiom, DGS, etc… Acoustical Tile + Grid COMPONENTS 1 2 (1) Component solutions benefit both AWI and WAVE
Slide 9: Experienced Leadership Focused on Value Creation
Experienced Leadership Focused on Value Creation Leadership Completely Aligned with Shareholders Greater transparency and management accountability to drive performance Intense focus on expanding already high returns on invested capital Management incentives based on absolute total shareholder retur
Slide 10: Standout Global Leader in Attractive Ceilings Industry
Standout Global Leader in Attractive Ceilings Industry 1 Standout Leader 2 3 4 Total: $1,249 (1) Standout leadership and profitability in highly attractive North American market Significant scale and upside potential in international business Broadest Go-to-Market Coverage Total: $319 #1 in North Am
Slide 11: Global Ceilings Leader with Diversified End-Markets
Global Ceilings Leader with Diversified End-Markets Commercial Total: $1,249 (1) 1 Standout Leader 2 3 4 2016 Adjusted Revenue Mix By End-Market By Product Note: Dollars in millions Includes ~$98 million of revenue from direct sales of WAVE products to customers in certain international markets. WAV
Slide 12: Most Recognized Brand and Specification Leader
Most Recognized Brand and Specification Leader 1 Standout Leader 2 3 4 Unaided Brand Awareness Specification Leadership with Standout Mind-Share in Adjacencies Avg. Spec Rate (2013-2015) – Metal Ceilings Avg. Spec Rate (2013-2015) – Wood Ceilings Source: Dodge and other independent 3rd party researc
Slide 13: Broadest Go-to-Market Coverage
Perfect Order Measure (2) Broadest Go-to-Market Coverage Exclusive, long-term distribution relationships across nearly all regions Strong brand recognition and loyalty Over 15% more distribution points than the #2 player Over 5x the contractor relationships of the #2 player ~150 AWI sales representa
Slide 14: Longstanding Partnership: WAVE JV
Longstanding Partnership: WAVE – AWI / Worthington JV Critical to AWI’s Value Creation 24 year global partnership with Worthington Industries that successfully combines the expertise of both companies Seamless customer relationship – customers buy an AWI ceiling solution complete with grid and other
Slide 15: Robust and Expanding Profitability and Cash Flow
Robust and Expanding Profitability and Cash Flow North America Adjusted EBITDA (1) North America Adjusted EBITDA less Capex (1) Note: Dollars in millions (1) Excludes pension expense 2 Robust Cash Flow 3 4 1 CAGR 12%
Slide 16: Best-in-Class Across Building Products Industry
Best-in-Class Across Building Products Industry Note: Dollars in millions Source: Company filings, FactSet and Wall Street Research as of 2/24/2017; Note: AWI represented on standalone adjusted basis Represents 2016E calendarized 2 Robust Cash Flow 3 4 1 2016 Adj. EBITDA Margins(1) (2) (2) (2) 2016
Slide 17: Attractive Multi-Faceted Growth Opportunities
Attractive Multi-Faceted Growth Opportunities 3 Attractive Growth 4 1 2 Market Recovery Leverage commercial market recovery Expand Average Unit Value Continue to leverage innovation to enhance margins Enlarged Addressable Market Sell into more spaces Sell more into every space Pursue M&A to enhance
Slide 18: Broader Market Recovery will Drive Substantial Profits
Broader Market Recovery will Drive Substantial Profits As Market Normalizes toward Long-Term Averages, each 1% of Annual Volume Growth is Worth ~$20 million of Adj. EBITDA by Year 3 Market Recovery Source: Dodge, U.S. ceilings volume data for education, healthcare, office, retail and transportation
Slide 19: Both Mineral Fiber and Specialties Remain Attractive
Both Mineral Fiber and Specialties Remain Attractive Source: Internal study of ceiling attitude and usage for office buildings Note: Data is for North America only Mineral Fiber maintaining large share of overall ceilings market Drywall declining as non-traditional ceiling styles and exposed structu
Slide 20: Expectations of Recovery in Market Demand
Expectations of Recovery in Market Demand Market Recovery 3 Attractive Growth 4 1 2 2006 – 2019 Dodge Starts and Large Renovations ($ billions) (1) Source: Dodge Data & Analytics Note: Data is for North America market only Includes education, healthcare, office and retail Accelerated growth projecte
Slide 21: Mixing Up our Core to Drive AUV Acceleration
Huge opportunity with 37 bsft of installed base in the Americas Armstrong product portfolio is uniquely positioned for replacement business The large installed base will continue to “mix up” for decades providing a tailwind to AUV as spaces are renovated “Mixing Up” our Core to Drive AUV Acceleratio
Slide 22: Innovation Driving Sustainable Products for Every Space
Innovation leadership that meets the industry’s most stringent sustainability standards Industry's first collection of high performance ceiling systems that are simple and transparent promoting healthier spaces Includes core Mineral Fiber, Architectural Specialties, and Component Solutions First in
Slide 23: Proven, Consistent Ability to Expand Margins
Proven, Consistent Ability to Expand Margins Continuous Price/Mix and Productivity Driving Margin Expansion Note: Data is for North America only. AUV change over time is for mineral fiber only Excludes contribution from WAVE JV and pension expense Increases in Average Unit Value Over Time ... …Yield
Slide 24: Case Study: Solutions Selling
Case Study: Solutions Selling Office Area = Total Revenue $1.3 million Conference Rooms = $250K Elevator Lobbies / Corridors = $250K Partners Healthcare, USA Additional Solutions (Axiom Trims, Perimeters, MetalWorks = $372K Additional Revenue of 31% 600,000 SF Building Ultima / Optima / Interlude Gr
Slide 25: Architectural Specialties is a Global Growth Engine
Architectural Specialties is a Global Growth Engine Large Growth Opportunity Through Organic Expansion and M&A Broadest portfolio of on-trend, specialty ceiling solutions in the world Global footprint to support global projects Leverage existing go-to-market system and advantages to drive expansion
Slide 26: You Inspire Solutions Center
You Inspire Solutions Center – Making Designs a Reality Recent Investments in Design Capabilities are driving 20+% Growth in Custom Project Work Generating Significantly Higher Margin Dollars Helps our customers with unique, one of a kind solutions for statement spaces Generate truly incremental sal
Slide 27: JFK Airport Lounge – Etihad Airways
JFK Airport Lounge – Etihad Airways Architect – Gensler, NY Custom anodized brass finish with triangular perforations and light diffusing layer Potential of 17 more locations across the world $357 per square foot vs. ~$1 per square foot overall average Driven by our design services capabilities with
Slide 28: Tectum Acquisition
Tectum Acquisition Tectum is a manufacturer of high-impact wood fiber acoustical panels and roof deck for the commercial and institutional construction industries with a history spanning over 65 years. Completed acquisition in January 2017 FY 2016 annual sales totaled approximately $25M Provides opp
Slide 29: Improved Performance Across Europe and Asia
Improved Performance Across Europe and Asia Investments and Initiatives Designed to Drive Future Profits Sales and profits have been challenged in EMEA and Asia/Pacific over the past several years Business impacted by market demand, political instability, FX and cost inefficiencies China and Russia
Slide 30: Historical Financial Performance Drivers
Historical Financial Performance Drivers While volume has been modestly down given absence of market recovery, average unit value in North America increased by 17%, driven by shift to high end products AUV gains and productivity improvements drove ~$95 million increase in North America adjusted EBIT
Slide 31: Our Value Creation Model – Medium to Long Term View
Our Value Creation Model – Medium to Long Term View Excludes pension costs Excludes pension costs; utilizes normalized effective tax rate of 39% Adj. Revenue Growth 5% – 7% annual growth Adj. EBITDA Growth and Margins(1) 10% – 12% annual growth 25% – 28% margin Adj. EPS Growth(2) 15% – 20% annual gr
Slide 32: Capital Allocation Strategy
Capital Allocation Strategy Balanced & Flexible Capital Allocation Remains a Priority Organic Growth Investment Acquisition Philosophy Shareholder Alignment Industry leading customer focused innovation drives new product development Expand our core product capabilities at the high end of our portfol
Slide 33: Capital Expenditures
Capital Expenditures North America Investing ~$20 million in 2017 and 2018 above normalized $80 million global run rate to strengthen capabilities and add capacity for high end products – the fastest growing part of the market Pivoting investments to drive innovation, growth and productivity in most
Slide 34: 2017 Guidance
2017 Guidance $2.60 – $2.70 12% – 16% YoY Growth $2.32 Adjusted EBITDA(2) Adjusted EPS(3) Adj. Free Cash Flow(4) Adjusted Revenue(1) $1,230 $317 $1,290 – $1,320 5% – 7% YoY Growth $350 – $360 10% – 14% YoY Growth $130 – $145 11% – 24% YoY Growth $117 Note: Dollars in millions except per share values
Slide 35: Cadence of Earnings by Quarter
Cadence of earnings in 2016 was atypical – Strong 1H, 160 bps higher than the 3 year average run rate Expect 2Q17 to be more consistent with 3 year average run rate Expect 2017 Adj. EBITDA % of year by Quarter to be More Consistent with 3 Year Average and Back Half Weighted Historical Adj. EBITDA %
Slide 36: Focused on Value Creation
Focused on Value Creation Standout market leader in attractive ceilings industry with unmatched profitability and cash flow Accelerating growth trajectory of the business Americas delivered constant currency sales growth of 4.3% in 2016 Strongest since 2011 Volume was the largest contributor up 2.5%
Slide 37: Appendix
Appendix 2016 Results Reconciliation of Non-GAAP Financial Measures Executive Compensation Management Biographies
Slide 38: Executive Compensation
Executive Compensation Our executive compensation programs are designed to attract, motivate and retain highly capable global leaders with the experience and skills to deliver against our strategy in a volatile and changing market environment and focus on the following key objectives: Align executiv
Slide 39: Executive Compensation: Performance-Based Compensation
Executive Compensation Performance-Based Compensation (~62% of total target annual comp) Vehicle Additional Details Annual Incentive Plan (AIP) Provides an incentive, performance-based opportunity for achieving financial results Target opportunity set at Peer Group or market median; targeted at 50 –
Slide 40: Management Biographies
Management Biographies Brian MacNeal Senior Vice President and Chief Financial Officer, Armstrong World Industries Victor “Vic” Grizzle is CEO and President of Armstrong World Industries Inc., in Lancaster, Pennsylvania. Mr. Grizzle has 29 years of experience in sales, marketing and global business
Slide 41: Investor Relations Contact Information
Investor Relations Contact Information Mrs. Olshan is Director Investor & Public Relations of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Mrs. Olshan joined Armstrong World Industries in November of 2008 as External Reporting Manager, moved into Investor Relations in December of 20
Slide 42: March 31, 2017 Balance Sheet
March 31, 2017 Balance Sheet New $1.05 billion credit facility including $850 million of term loans maturing in 2021 and 2023 and undrawn revolver of $200 million $35 million of tax-exempt bonds BB+/B1 Rating U.S. pension will be fully funded on a PBO basis No cash contributions in over 20 years Sum
Slide 43: Full Year and Q1 2016 Reconciliation; Revenue and EBITDA
Full Year and Q1 2016 GAAP to Non-GAAP Reconciliation; Revenue and EBITDA Adjusted Revenue Adjusted EBITDA Q1 2016 Full Year 2016 Net Sales - Reported $ 287 $ 1,235 Add: Foreign exchange impact 4 14 Adjusted Net Sales $ 291 $ 1,249 Q1 2016 Full Year 2016 Net income (loss) - Reported $ (7) $ 94 Add:
Slide 44: Full Year and Q1 2016 Reconciliation; EPS
Full Year and Q1 2016 GAAP to Non-GAAP Reconciliation; EPS Adjusted Diluted Earnings per Share Q1 2016 Full Year 2016 Total Per Diluted Share (2) Total Per Diluted Share (2) Earnings from continuing operations, as reported $ (7) $ (0.13) $ 94 $ 1.68 Add: Income taxes, as reported 12 50 Earnings from
Slide 45: Full Year 2016 Adjusted Free Cash Flow Reconciliation
Full Year 2016 Adjusted Free Cash Flow Reconciliation As Reported AFI Continuing Operations Cash from Operations $49 ($3) $52 Cash from Investing ($17) ($12) ($5) Subtotal $32 ($15) $47 Separation Costs - - $54 Subtotal - - $101 Interest Rate Swap Settlement - - $11 Subtotal - - $112 Environmental -
Slide 46: Q1 2016 Adjusted Free Cash Flow Reconciliation
Q1 2016 Adjusted Free Cash Flow Reconciliation (1) Amounts shown are using 2017 budgeted Fx rates Q1 2016 Net cash (used for) operating activities $ (65) Less: Net cash (used for) investing (10) Add: Separation payments 15 Add: Cash flows attributable to AFI 53 Adjusted Free Cash Flow $ (7) Adjusted
Slide 47: 2017 Guidance Reconciliation; Revenue and EBITDA
2017 Guidance GAAP to Non-GAAP Reconciliation; Revenue and EBITDA Adjusted Revenue Adjusted EBITDA Year Ended December 31, 2017 Low High Net income $ 155 to $ 165 Add: Interest expense 35 35 Less: Other non-operating (income) (3) (3) Add: Income tax expense 108 108 Operating income $ 295 to $ 305 Le
Slide 48: 2017 Guidance Reconciliation; EPS and FCF
2017 Guidance GAAP to Non-GAAP Reconciliation; EPS and FCF U.S. pension (credit) expense represents the actuarial net periodic benefit cost recorded as a component of operating income. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income P
Slide 49: Consolidated Company Key Metrics - First Quarter 2017
Consolidated Company Key Metrics - First Quarter 2017 As reported Net Sales: $315 million in 2017 and $287 million in 2016 As reported Operating Income: $63 million in 2017 and $22 million in 2016 As reported EPS: $0.56 in 2017 and ($0.13) in 2016 Includes $2 million of unallocated Corporate expense
Slide 50: Adj. EBITDA and Adj. Free Cash Flow Bridges – Q1 2017 vs. PY
Adj. EBITDA and Adj. Free Cash Flow Bridges – Q1 2017 vs. PY(1) $12 $5 ($4) ($5) ($4) Excludes payments related to the separation from AFI in the first quarter of 2016 and payments made for the acquisition of Tectum in the first quarter of 2017. Adjusted EBITDA – Q1 2017 vs. PY Adjusted Free Cash Fl
Slide 51: Q1 2017 Reconciliation; Revenue and EBITDA
Q1 2017 GAAP to Non-GAAP Reconciliation; Revenue and EBITDA Adjusted Revenue Adjusted EBITDA U.S. pension (credit) expense represents the actuarial net periodic benefit cost recorded as a component of operating income. For all periods presented, we were not required and did not make cash contributio
Slide 52: Q1 2017 Reconciliation; EPS and FCF
Q1 2017 GAAP to Non-GAAP Reconciliation; EPS and FCF Adjusted Diluted Earnings per Share U.S. pension (credit) expense represents the actuarial net periodic benefit cost recorded as a component of operating income. For all periods presented, we were not required and did not make cash contributions t
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