Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (October 2017)
49 slides from Armstrong World Industries's investor presentation, Oct 30, 2017
Slide 1: Armstrong World Industries Investor Presentation
ARMSTRONG WORLD INDUSTRIES INVESTOR PRESENTATION October 30, 2017 Exhibit 99.3
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: Uniquely Positioned to Drive Value
#1 position in all major markets Unmatched profitability and cash flow Strongest brand with experienced and talented organization Standout Leader Uniquely Positioned to Drive Value Unmatched Strengths Our Winning Formula 1 Standout Leader 2 3 4 Total Customer Experience Broadest Product Portfolio Sp
Slide 8: Growth Vectors: Expanding Target Market
Growth Vectors … Expanding Target Market 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
Slide 9: Leadership Focused on Value Creation
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 returns and free
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: 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 5x the contractor relationships of the #2 player ~150 AWI sales representatives complemented by ~900 distributor representative
Slide 13: Longstanding Partnership: WAVE JV
Longstanding Partnership: WAVE – AWI / Worthington JV Critical to AWI’s Value Creation and paid ~$340 Million in Dividends to AWI from 2012 to 2016 25 year global partnership with Worthington Industries that successfully combines the expertise of both companies Seamless customer relationship – custo
Slide 14: WAVE Financial Performance
WAVE Financial Performance EBITDA Margin Note: Dollars in millions and at actual exchange rates 2 Robust Cash Flow 3 4 1 CAGR 9% High Quality Business that Contributes almost 23% of AWI’s Adjusted EBITDA.
Slide 15: Best-in-Class Across Building Products Industry
Best-in-Class Across Building Products Industry Note: Dollars in millions; Adjusted Cash Conversion (Adjusted EBITDA – Capex) 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
Slide 16: Stability through the Cycle
Historical Indexed Adj. Cash Conversion (2006 = 100) Americas Stability through the Cycle 2 Robust Cash Flow 3 4 1 Source: Factset. Note: AWI represented on a divisional adjusted basis Peer index includes ALLE, AOS, APOG, AYI, CBPX, DOOR, OC, PGEM, SSD, TILE and USG. Represents median growth in Adju
Slide 17: Robust and Expanding Profitability
Robust and Expanding Profitability Americas Adjusted EBITDA (1) Note: Dollars in millions; Adjusted Cash Conversion (Adjusted EBITDA – Capex) (1) Excludes pension expense 2 Robust Cash Flow 3 4 1 Strong Track Record of EBITDA Growth
Slide 18: 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 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: Industry Leading Innovation Driving Sustainable Products
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: 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. FY 2016 annual sales of $25M and EBITDA of $4M Provides opportunity to significantly expand sales by leveraging our specification streng
Slide 28: 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 29: Historical Financial Performance Drivers
Historical Financial Performance Drivers While volume has been modestly down given the absence of a market recovery, average unit value in the Americas increased by 17%, driven by shift to high end products AUV gains and productivity improvements drove ~$95 million increase in Americas adjusted EBIT
Slide 30: Our Value Creation Model
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 31: 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 32: 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 33: 2017 Guidance
2017 Guidance $2.80 – $2.90 21% – 25% YoY Growth $2.32 Adjusted EBITDA(2) Adjusted EPS(3) Adjusted Free Cash Flow(4) Adjusted Revenue(1) $1,230 $317 $1,305 – $1,340 6% – 9% YoY Growth $365 – $375 15% – 18% YoY Growth $140 – $155 20% – 32% YoY Growth $117 Note: Dollars in millions except per share va
Slide 34: Quarterly Cadence of Adjusted EBITDA
Cadence of earnings in 2016 was atypical – Strong 1H, 160 bps higher than the 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 % of the Year by Quarter Adj. EBITDA % of Year Adj. EBITDA Margin
Slide 35: 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 36: Appendix
Appendix Reconciliation of Non-GAAP Financial Measures Executive Compensation Management Biographies
Slide 37: 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 38: Executive Compensation: Performance-Based
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 39: 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 40: Most Recognized Brand and Specification Leader
Most Recognized Brand and Specification Leader 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 research Note: Data is for Nort
Slide 41: September 30, 2017 Balance Sheet
September 30, 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 fully funded on a PBO basis No cash contributions in over 20 years Summary
Slide 42: Adjusted Net Sales & Adjusted EBITDA Reconciliation
Q3 & YTD Sept Adjusted Net Sales & Adjusted EBITDA Reconciliation Adjusted Net Sales Adjusted EBITDA Reported results include $10.7 million of interest expense recorded in the first quarter of 2016 related to the settlement of interest rate swaps incurred in connection with the Company’s refinancing
Slide 43: Adjusted Diluted EPS Reconciliation
Q3 & YTD Sept Adjusted Diluted Earnings Per Share Reconciliation U.S. pension (credit) expense represents the actuarial net periodic benefit cost expected to be 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
Slide 44: Adjusted Free Cash Flow Reconciliation
Q3 & YTD Sept Adjusted Free Cash Flow Reconciliation Adjusted free cash flow is defined as cash from operations and dividends received from the WAVE joint venture, less expenditures for property and equipment, and is adjusted to remove the impact of cash used or proceeds received for acquisitions an
Slide 45: Segment Operating Income to Adjusted EBITDA
Q3 & YTD Sept Segment Reported Operating Income (Loss) to Adjusted EBITDA Q3 2017 vs. PY YTD 2017 vs. PY U.S. pension expense represents the actuarial net periodic benefit cost expected to be recorded as a component of operating income. For all periods presented, we were not required and did not mak
Slide 46: 2017 Guidance Net Sales & EBITDA Reconciliation
2017 Guidance Adjusted Net Sales & EBITDA Reconciliation Adjusted Net Sales Adjusted EBITDA U.S. pension (credit) represents the actuarial net periodic benefit cost expected to be recorded as a component of operating income. For all periods presented, we were not required and did not make cash contr
Slide 47: 2017 Guidance Adjusted EPS & Free Cash Flow Reconciliation
2017 Guidance Adjusted EPS & Free Cash Flow Reconciliation Adjusted Diluted Earnings Per Share Adjusted Free Cash Flow Based on ~54 million diluted shares outstanding U.S. pension (credit) represents the actuarial net periodic benefit cost expected to be recorded as a component of operating income.
Slide 48: Consolidated Company Key Metrics - Third Quarter 2017
Consolidated Company Key Metrics - Third Quarter 2017 As reported Net Sales: $352 million in 2017 and $335 million in 2016 As reported Operating Income: $69 million in 2017 and $71 million in 2016 As reported EPS: $0.81 in 2017 and $0.99 in 2016 Excludes $1 million of Unallocated Corporate expenses
Slide 49: Adj. EBITDA and Adj. Free Cash Flow Bridges
Adj. EBITDA and Adj. Free Cash Flow Bridges – Q3 2017 vs. PY $3 $5 $0 ($5) $5 Adjusted EBITDA – Q3 2017 vs. PY Adjusted Free Cash Flow – Q3 2017 vs. PY $0 ($2) $5 ($4) $4 $3 $5 $0
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