Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (February 2019)
49 slides from Armstrong World Industries's investor presentation, Feb 25, 2019
Slide 1: Armstrong World Industries Investor Presentation: What's Next
Armstrong World Industries Investor Presentation What’s Next February 25, 2019 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, dividends, share repurchases, acquisitions and capital deployment and in our other public documents and comments contain forward-looking statements within the meaning
Slide 3: Basis of Presentation
All dollar figures throughout the presentation are in $ millions (except for earnings per share) unless otherwise noted. Figures may not add due to rounding. When reporting our financial results within this presentation, we make several adjustments. Management uses the non-GAAP measures in managing
Slide 4: The Armstrong Purpose
The Armstrong Purpose It matters to us, and it matters to our customers
Slide 5: AWI - One of the Most Unique Companies in Building Products
Founded in 1860…One of the most adaptive companies in building products ü Undisputed category leader for more than 50 years ü One of the strongest & most trusted brands in the industry ü Strong strategic position…differentiating profitability & cash flow attributes ü AWI - One of the Most Unique Com
Slide 6: Ceiling Category Is Unique Within Building Products
Ceiling Category Is Unique Within Building Products AWI uniquely positioned in an attractive & stable category Consolidated structure ü Large installed base with stable repair & remodel demand ü A highly specified high-value product with limited substitutes ü Customers demonstrate brand loyalty, and
Slide 7: Ceilings Leader with Stable Demand Drivers and Diversified End-Markets
Ceilings Leader with Stable Demand Drivers and Diversified End-Markets 38 Billion sq. ft. installed base provides an annuity from R&R activity Revenue Mix* By End-Market By Project Office 30% Education 20% Retail 20% Sales are weighted towards repair & remodel activity New vs. R&R split and diversif
Slide 8: Setting Our Sights on a Larger Target Market
Setting Our Sights on a Larger Target Market *Estimate includes 50% of WAVE’s sales Components Tile >25% Share* Specialty walls Specialty ceilings Grid $1.5B Tile >$4B Grid >50% Share* Driving share gains in broader ceiling & wall solutions space
Slide 9: Our Winning Formula
Our Winning Formula Unique Position Our Winning Formula Attractive Industry Leading Position Strongest Brand Winning through key elements of differentiation Total Customer Experience Broadest Product Portfolio Specification Leadership Best-in-Class Channels Operational Excellence
Slide 10: Four pillars to building a stronger business
Four pillars to building a stronger business with an exciting future Revitalize the Mineral Fiber Category Accelerate Architectural Specialties Embark on a Digital Transformation Cash Flow & Capital Allocation Completed $100M investment Significant new product innovation New targeted paths to market
Slide 11: Sustaining the Change in Trajectory
Sustaining the Change in Trajectory Growth mindset to growth attitude Historical & Projected Revenue Growth Rates 3% 7% 9% 7-10%
Slide 12: Converting Market Knowledge Into Value Creation
Converting Market Knowledge Into Value Creation Mineral Fiber AUV New Product Vitality Index Note: New product sales last 5 years as % of total sales Differentiating innovation driving our results Note: AUV 50/50 split between price & mix 5% CAGR Note: AUV data is for US and Canada commercial channe
Slide 13: Our Business Segments
Our Business Segments Mineral Fiber (MF): Driving AUV Architectural Specialties (AS): Expand Into Adjacencies % Increased AUV by 50 Since 2010 Increased revenue by 100 Since 2010 $ M Leveraging our core to accelerate growth in Architectural Specialties Complementary Double digit organic growth segme
Slide 14: Revitalizing Mineral Fiber Category
Revitalizing Mineral Fiber Category Driving growth in AUV & volume $100M investment to drive Total Acoustics, Sustain and DESIGNFlex ü Total Accoustics Seamless Mineral Fiber DESIGN Flex Accelerate Renovation Sustain Breaking mineral fiber design paradigms ü Selling into new spaces…Seamless Mineral
Slide 15: Expand AS Market Reach with the Right Acquisitions
Expand AS Market Reach with the Right Acquisitions Adding unique capabilities to strengthen portfolio Tectum High impact wood fiber ceilings, walls, & roofdeck Plasterform Glass reinforced gypsum…ultra expressive category Steel Ceilings Inc. Architectural, radiant, security $10M in revenue $10M in r
Slide 16: Key Enablers
Key Enablers WAVE JV Digitalizing the business 45 % High margin business In 2018 Self- service quotes in AS 50 Since March + % Over $600M in dividends since 2010, over 140% ROIC Market leader in core, specialty grid & integrated solutions Conjoined tightly with AWI innovation Seamless integration wi
Slide 17: Category Trends: What the Market Is Looking for
Category Trends… What the Market Is Looking for Solutions address market needs Volume/open space feel Acoustical solutions that meet the design intent Higher end interior finishes with less design constraints Product Transparency Inspirational Flexible Design Exposed Structure Products without “chem
Slide 18: Where We Were
Where We Were… Armstrong before the 2000s Products: Fissured Ceilings AUV: $.40 SF (MF AUV) Sales: $500M Key Facts Fissured Ceilings
Slide 19: Where We Are Today
Where We Are Today… Expanding the portfolio to align with market trends Mineral Fiber Ceilings Tectum Ceilings & Walls Wood Ceilings & Walls Metal Ceilings & Walls Products: Fissured Ceilings, Smooth White Acoustical Tile, Wood, Metal… AUV: $1.05 SF (MF AUV) Sales: >$900M Key Facts Smooth White Acou
Slide 20: Ultima Smooth White Acoustical Tile
Ultima Smooth White Acoustical Tile Ultima Average Unit Value 3X fissured mineral fiber ceilings j Sell More Into Every Space Project Profile: Jazz Pharmaceuticals Type of Space: Office Location: Palo Alto, CA Features: Total Acoustics & Sustain MF Ceilings
Slide 21: WOODWORKS Grille Ceilings
WOODWORKS Grille Ceilings WOODWORKS Average Unit Value 15X mineral fiber ceilings j Sell More Into Every Space Project Profile: Salk Middle School Type of Space: School Location: Spokane, WA Features: Design & Acoustical Wood Ceilings
Slide 22: METALWORKS Torsion Spring
METALWORKS Torsion Spring Our products are now being specified in statement spaces j Sell into More Spaces Project Profile: Academy Tower Type of Space: Office Lobby Location: Los Angeles, CA Features: Custom Design Metal Ceilings
Slide 23: Tectum Walls & Ceilings
Tectum Walls & Ceilings More spaces in the same building j Sell into More Spaces Project Profile: Boys & Girls Club Type of Space: Gymnasium Location: Lancaster, PA Features: Durability & Acoustics with Tectum Walls & Ceilings
Slide 24: Where We Are Going: Revitalizing Mineral Fiber
Where We Are Going…Revitalizing Mineral Fiber Our new solutions get us into more space more of the time Total Acoustics & Sustain DesignFlex Ceilings Systems Exposed Structure Solutions Seamless Mineral Fiber New Solutions Custom design w/ standard lead time 4x-6x AUV vs 2x2 MF DesignFlex Exposed St
Slide 25: Total Acoustics & Sustain
Total Acoustics & Sustain Total Acoustics & Sustain market penetration continues to grow j Sell More Into Every Space Project Profile: BrandStar Offices Type of Space: Office Location: Deerfield Beach, FL Features: Great acoustics with no “chemicals of concern”
Slide 26: DESIGNFlex
DESIGNFlex DESIGNFlex adds a never before seen look to mineral fiber ceilings j Sell More Into Every Space Project Profile: Armstrong Avenue Type of Space: Statement Spaces Location: Lancaster, PA Features: Custom design with standard product lead time
Slide 27: Exposed Structure Portfolio
Exposed Structure Portfolio Our Exposed Structure portfolio allows us to enter new spaces j Sell into More Spaces Project Profile: Suburban Beer Type of Space: Exposed Structure Location: Malvern, PA Features: Acoustics & design for Exposed Structure spaces Our exposed structure portfolio allows us
Slide 28: Seamless Mineral Fiber – AcoustiBuilt
Seamless Mineral Fiber – “AcoustiBuilt” Seamless mineral fiber gains share from drywall ceilings j Sell into More Spaces Project Profile: Office (confidential) Type of Space: Office Reception Location: United States Features: Drywall look with acoustics
Slide 29: Walls…The Next Adjacency
Walls…The Next Adjacency Wall solutions get us into more space more of the time Solutions NEW Soundsoak Wood veneer over MDF Tectum wood fiber Plasterform glass reinforced gypsum Soundsoak WoodWorks Tectum Plasterform Pharmaceutical Research Institute Andover, MA College Football Hall of Fame Atlant
Slide 30: Financial Review & Value Creation Model
Financial Review & Value Creation Model Expanding AUV and Margins Cash Flow Generation Capital Deployment
Slide 31: Consistent Ability To Grow AUV & Expand Margins
Consistent Ability To Grow AUV & Expand Margins Continuous price/mix and productivity driving margin expansion Note: AUV data is for US and Canada commercial channels - mineral fiber only. EBITDA Margin data is for total AWI. Increases in Average Unit Value (AUV) Over Time ... …Yielding Significant
Slide 32: Performance Through the Downturn
Performance Through the Downturn Continuous price/mix and productivity driving margin expansion Resilience through bad economic conditions Volume declined 20% in 2009 AUV increased every year Price exceeded inflation every year Manufacturing footprint restructured SG&A was right-sized Capital spendi
Slide 33: Proven Track Record
Proven Track Record Committed to doing what we said we would 25% CAGR *External sources, **Excludes $25M WAVE special dividend 10% CAGR Sale of International Sale of International
Slide 34: What's Next…Financial Implications
What’s Next…Financial Implications Four pillars to building a stronger business with an exciting future Revitalize the Mineral Fiber Category Accelerate Architectural Specialties Embark on a Digital Transformation Cash Flow & Capital Allocation Continued manufacturing productivity >3% Added capabili
Slide 35: Highest Share & Margins of Any Public Building Products Business
Highest Share & Margins of Any Public Building Products Business A unique position versus the best businesses in building products Note: Market share figures are approximate and based on latest available data. Companies shown represent the following sectors (position within sector): Acuity – Lightin
Slide 36: Unique Cash Flow Generation Capabilities
Unique Cash Flow Generation Capabilities Valuation upside based on best-in-class free cash flow Note: Valuation multiples and FCF margins reflect parent company values, not the individual segments plotted on the previous page. *FCF margin defined as (EBITDA – capex) / sales *
Slide 37: Financials - Capital Deployment
Financials - Capital Deployment Proven commitment to responsible & balanced capital deployment Capital Deployment History Capital Allocation Priorities % of Adjusted Operating Cash Flow* Invest in high return projects 20% Invest in acquisitions 15% Share repurchases 30% Quarterly dividends 10% Servi
Slide 38: Acquisition Program and Profile
Lens for targets Ceilings & Walls Specified products Goes through our distribution Service improvement opportunity Program Profile 1-3 / year $50M in total acquisition spend Just under 1.5 x Sales Average 10x EBITDA purchase price Target 7x post synergies Three closed transactions: 6X pre-synergies,
Slide 39: Value Creation Model
Value Creation Model Significant value creation through free cash flow generation Revenue 5% – 10% annual growth Adjusted EBITDA and Margins >10% annual growth 36% – 40% margin Adjusted EPS 15% – 20% annual growth Adjusted Free Cash Flow 15% - 20% annual growth >50% of Adjusted EBITDA 0% – 2% Minera
Slide 40: 2019 Guidance
$4.30 – $4.60 18% – 26% YoY Growth $3.66 Adjusted EBITDA Adjusted EPS* Adjusted Free Cash Flow Revenue $975 $353 $1,040 - $1,075 7% – 10% YoY Growth $390 - $410 >10% Growth 0% - 2% Mineral Fiber volume >3% Average Unit Value (AUV) increase >15% Architectural Specialties volume 1-3 Acquisitions – add
Slide 41: Appendix
Appendix Management Biographies Balance Sheet Data Reconciliations to GAAP
Slide 42: Management Biographies
Management Biographies Brian MacNeal Senior Vice President and Chief Financial Officer, Armstrong World Industries Vic Grizzle is CEO of Armstrong World Industries. He joined the company in January 2011. Vic brings 23 years of experience in process improvement, sales, marketing and global business l
Slide 43: Capital Structure & Liquidity
Capital Structure & Liquidity Strong balance sheet & liquidity position to support growth Capital Structure (12/31/2018) Amount ($M) Rate Maturity Cash $336 Revolver ($200M) L+200 Apr-21 Term Loan A 551 L+200 Apr-21 Term Loan B 244 L+275 Mar-23 Other 35 Total Debt 830 Net Debt 494 2018 EBITDA 353 Le
Slide 44: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation CONSOLIDATED For the Three Months Ended December 31, For the Year Ended December 31, qtr YTD 2018 2017 V 2018 2017 V Earnings from continuing operations, Reported 36.599999999999994 104.10000000000001 -67.500000000000014 189.6 220.59999999999997 -30.999999999999972 rou
Slide 45: Adjusted Diluted Earnings Per Share Reconciliation
Adjusted Diluted Earnings Per Share Reconciliation Based on ~50 million diluted shares outstanding for the three months ended Dec 31, 2018, ~52 million diluted shares outstanding for the year ended Dec 31, 2018, and ~54 million diluted shares outstanding for the three months and year ended Dec 31, 2
Slide 46: Adjusted Free Cash Flow Reconciliation
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 and divestitures
Slide 47: Segment Reported Operating Income (Loss) to Adjusted EBITDA
Segment Reported Operating Income (Loss) to Adjusted EBITDA Q4 2018 vs. PY FY 2018 vs. PY MINERAL FIBER ARCHITECTURAL SPECIALTIES UNALLOCATED CORPORATE rounding factor 2016 V 2018 2017 V 2018 2017 V 2018 2017 V Operating Income (Loss) – As Reported 223.8 232 -8.1999999999999886 34.299999999999997 27
Slide 48: Net Sales & EBITDA – Guidance Reconciliation
Net Sales & EBITDA – Guidance Reconciliation Net Sales Adjusted EBITDA For the Year Ending December 31, 2019 Low to High Reported Net Sales $1,040 to $1,075 For the Year Ending December 31, 2019 Low to High Net income $226 to $241 Add: Interest expense 40 40 Add: Income tax expense 69 74 (Less): U.S
Slide 49: Adjusted EPS & Free Cash Flow – Guidance Reconciliation
Adjusted EPS & Free Cash Flow – Guidance Reconciliation Adjusted Diluted Earnings Per Share Adjusted Free Cash Flow Adjusted EPS guidance for 2019 is calculated based on an adjusted effective tax rate of 25% and based on ~49 million of diluted shares outstanding. Excludes $35 million WAVE dividend r
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