Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — R.W. Baird Conference 2016
35 slides from Armstrong World Industries's conference presentation, Nov 7, 2016
Slide 1: Brian MacNeal, CFO – R.W. Baird Conference Presentation
ARMSTRONG WORLD INDUSTRIES Brian MacNeal, CFO – R.W. Baird Conference Presentation November 8, 2016 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: The New AWI Investment Thesis
The New 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 Financial Overview & Value Creation Model 1 Standout Leader 2 3 4 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth Lever
Slide 5: Leadership Position in Attractive Ceilings Industry
Leadership Position 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, contr
Slide 6: Standout Global Leader in Attractive Ceilings Industry
Standout Global Leader in Attractive Ceilings Industry 1 Standout Leader 2 3 4 Total: $1,226 (1) Stand-out leadership and profitability in highly attractive North American market Significant scale and upside potential in international business Broadest Go-to-Market Coverage Total: $296 (2) #1 in Nor
Slide 7: Longstanding Partnership: WAVE – AWI / Worthington JV
Longstanding Partnership: WAVE – AWI / Worthington JV Critical to AWI’s Value Creation 23 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 8: 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 Pure-play ceiling solutions company with no competition for capital or management attention Intense focus on expanding already high
Slide 9: The New AWI Investment Thesis
The New AWI Investment Thesis 1 Standout Leader 2 3 4 Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Financial Overview & Value Creation Model 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth Lever
Slide 10: Superior EBITDA Growth and Stability through the Cycle
Superior EBITDA Growth and Stability through the Cycle 2 Robust Cash Flow 3 4 1 Historical Indexed EBITDA (2000 = 100) Contractionary Volume Environment Source: Factset. Note: AWI represented on a divisional adjusted basis Peer index includes AOS, AYI, ALLE, APOG, FBHS, JHX, TILE, MAS, MHK, MLM, OC,
Slide 11: Robust and Expanding Profitability and Cash Flow
Robust and Expanding Profitability and Cash Flow Note: Dollars in millions Includes $46 million of corporate expenses; held constant in historical years for illustrative purposes Source: Company filings, FactSet and Wall Street Research as of 3/1/2016; Note: AWI represented on standalone adjusted ba
Slide 12: The New AWI Investment Thesis
The New AWI Investment Thesis 1 Standout Leader 2 3 4 Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Financial Overview & Value Creation Model 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth Lever
Slide 13: Attractive Multi-Faceted Growth Opportunities
Attractive Multi-Faceted Growth Opportunities 3 Attractive Growth 4 1 2 Market Recovery Leverage commercial market recovery Expand Average Unit Value Continue to leverage innovation to enhance margins Large Addressable Market Sell into more spaces Sell more into every space Pursue M&A to enhance cap
Slide 14: Expectations of Recovery in Market Demand
Expectations of Recovery in Market Demand Market Recovery 3 Attractive Growth 4 1 2 2006 – 2018 Dodge Starts and Large Renovations ($ billions)(1) Source: Dodge Data & Analytics Note: Data is for North America market only Includes education, healthcare, office and retail Accelerated growth projected
Slide 15: Where & How We Will Grow
Where & How We Will Grow Selling into More Spaces Selling More in Every Space Acoustical Tile + Grid $3B Market 44% Est. Share Acoustical Tile + Grid Architectural Specialties Metal, Wood, etc. $7B Market < 20% Est. Share Components Axiom, DGS, etc… Acoustical Tile + Grid COMPONENTS 1 2 Enlarged Mar
Slide 16: 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 17: Actively Driving Core Portfolio to Higher Value Products
Actively Driving Core Portfolio to Higher Value Products Industry Shaping Innovation Accelerating Growth and Margins Cortega $ Ultima $$ Optima $$$ $$$$ Clouds Migration to High End Products AUV Expansion 3 Attractive Growth 4 1 2 Expansive Product Offering High End Products More Lucrative 1.0x 2.5x
Slide 18: Proven, Consistent Ability to Expand Margins
Proven, Consistent Ability to Expand Margins Continuous Price/Mix and Productivity Driving Margins Note: Data is for North America only. AUV change over time is for mineral fiber only Excludes contribution from WAVE JV, includes impact of pro forma standalone corporate expense of $20 million Increas
Slide 19: 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 G
Slide 20: The New AWI Investment Thesis
The New AWI Investment Thesis 1 Standout Leader 2 3 4 Standout Global Leader in Attractive Ceilings Industry 1 Best-in-Class, Stable Cash Flow Through the Cycle Attractive, Multi-Faceted Growth Opportunities Financial Overview & Value Creation Model 2 3 4 Best-in-Class Cash Flow 1 3 4 2 Growth Lever
Slide 21: Our Value Creation Model – Medium to Long Term View
Our Value Creation Model – Medium to Long Term View Includes pro forma standalone corporate expense of $42 million; excludes pension costs, separation costs and other extraordinary expenses Excludes pension costs, separation costs and other extraordinary expenses; utilizes normalized effective tax r
Slide 22: 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 23: Capital Expenditures
Capital Expenditures North America Pivoting investments to drive innovation, growth and productivity in most profitable geography Investing ~$20 million annually above normalized $80 million global run rate over the next three years to strengthen capabilities and add capacity for high end products I
Slide 24: 2016 Guidance
2016 Guidance $2.20 – $2.30 27% – 33% YoY Growth $1.73 Adjusted EBITDA(2) Adjusted EPS(3) Free Cash Flow Revenue(1) 2% – 4% North America volume growth (3%) – (1%) lower International volume 1% – 3% average unit value increase $42 million of standalone corporate costs 1% – 2% cost savings over infla
Slide 25: 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 Intense focus on expanding returns on invested capital Management incentive plan aligned to absolute total shareholder returns an
Slide 26: Our Why
Our Why
Slide 27: Appendix
Appendix Management Biographies Reconciliation of Non-GAAP Financial Measures Executive Compensation 2016 Results
Slide 28: Executive Compensation
Executive Compensation Fixed Compensation (~38% of target annual comp) Vehicle Additional Details Base salary Provides reasonable and market competitive fixed pay reflective of an executive’s role; responsibility and individual performance Generally set a Peer Group and / or market median; currently
Slide 29: 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 opportunity for achieving financial results Target opportunity generally set Peer Group and / or Market median; targeted at 50 – 100%
Slide 30: 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 28 years of experience in sales, marketing and global business
Slide 31: 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 32: 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 15%, driven by shift to high end products AUV gains and productivity improvements drove ~$60 million increase in North America EBITDA Intern
Slide 33: EBITDA Bridges – Q3 and YTD 2016 Results vs. Prior Year
EBITDA Bridges – Q3 and YTD 2016 Results vs. Prior Year Q3 2016 vs. PY YTD 2016 vs. PY $4 ($3) $1 $2 ($3) ($1) Environmental Reserves: ($2) $97 Environmental Reserves: ($2) ($3) $2 $249 $7 $- $8 $2 $-
Slide 34: Q3 & YTD 2016 vs. PY - Adjusted EBITDA to Reported Net Income
Q3 & YTD 2016 vs. PY - Adjusted EBITDA to Reported Net Income Q3 YTD 2016 2015 V 2016 2015 V EBITDA– Adjusted $97 $97 ($0) $249 $232 $17 Depreciation and Amortization ($20) ($21) $1 ($60) ($59) ($1) Operating Income – Adjusted $77 $76 $1 $189 $173 $16 Non-cash Impact of U.S. Pension $3 $4 ($1) $9 $1
Slide 35: Reconciliation of FY2015 Adj. EBITDA to Reported Operating Income
Reconciliation of FY2015 Adj. EBITDA to Reported Operating Income 2015 Armstrong Building Products Segment Adjusted EBITDA (1) $338 Standalone corporate costs, excluding depreciation and amortization (42) Pro Forma Standalone Adjusted EBITDA $296 Depreciation and amortization (2) (78) Pro Forma Oper
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