Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Q3 2021 Earnings Presentation
57 slides from Armstrong World Industries's earnings presentation, Oct 26, 2021
Slide 1: Armstrong World Industries Investor Presentation
October 2021 Armstrong World Industries Investor Presentation
Slide 2: Safe Harbor Statement
Safe Harbor Statement 2 Our disclosures in this presentation, including without limitation, those relating to future financial results market conditions and guidance, the impacts of COVID-19 on our business, and in our other public documents and comments contain forward-looking statements within the
Slide 3: Basis of Presentation Explanation
Basis of Presentation Explanation 3 When reporting our financial results within this presentation, we make several adjustments. Management uses these non-GAAP measures in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. As re
Slide 4: Armstrong – Our Why
Armstrong – Our Why 4 Making a positive in the spaces where we… It matters to us, and it matters to our customers
Slide 5: One of the Most Unique Companies in Building Products
One of the Most Unique Companies in Building Products 5 Founded in 1860…One of the most adaptive companies in building products Undisputed category leader for more than 50 years Unmatched scale in an industry where it matters One of the strongest & most trusted brands in the industry Stron
Slide 6: Ceiling Category Is Unique Within Building Products
Ceiling Category Is Unique Within Building Products 6 Consolidated structure Large installed base with stable repair & remodel demand Asubstitutes highly specified high-value product with limited Ceilings are an integral part of creating healthy spaces Customers demonstrate brand loyalty,
Slide 7: Ceilings Leader with Stable Demand Drivers and Diversified Sectors
Ceilings Leader with Stable Demand Drivers and Diversified Sectors 7 Revenue Mix * By Project By Sector Transportion, 15% Office, 30% New Residential, 5% Retail, 15% Repair & Remodel Office Education, 20% 30% Healthcare, 15% • Sales are weighted towards repair & remodel (R&R) activity Retail Educati
Slide 8: Setting Our Sights on a Larger Opportunity
Setting Our Sights on a Larger Opportunity 8 AWI ~25% Specialty Walls Tile >$5B Grid Specialty AWI ~50% Ceilings Components Grid $1.5B Tile Driving growth in broader ceiling & wall solutions space Source: Internal company estimates of North American opportunities and positions; estimated AWI positio
Slide 9: Our Business Segments & Joint Venture
Our Business Segments & Joint Venture 9 Mineral Fiber (MF) Architectural Specialties (AS) WAVE JV Driving AUV Expand Into Adjacencies Unmatched value Increased In the last 4 years, High margin AUV by 2x revenue business >50 Since 2010 % Since 2016 44 % Founded in 1992 Overview Overview Overview • In
Slide 10: Clear Strategy Driving Value Creation
Clear Strategy Driving Value Creation 10 Strategic Overview Mineral Fiber Architectural Digital Disciplined Capital Revitalization Specialties Growth Transformation Allocation Healthy Spaces to drive Continued integration of 10-3-1 path from Consistent capex renovation “renaissance” acquisit
Slide 11: ESG Strategy
ESG Strategy 11 Our Approach Three Pillars guide our sustainability program, each with specific goals and targets. We have established cross- functional Teams within our company to help us achieve our objectives. Our Sustainability Strategy Thriving People and Healthy Planet Healthy and Circular Com
Slide 12: Nine Sustainability Goals
Nine Sustainability Goals 12 Thriving People Healthy and Healthy Planet and Communities Circular Products We aim to cultivate a culture that leads We aim to reduce our greenhouse We aim to create products & solutions to safe, healthy and fulfilled gas emissions and increase our from healthy, sustain
Slide 13: Our Winning Formula
Our Winning Formula 13 Unique Position Our Winning Formula Broadest Attractive Industry Product Portfolio Operational Total Specification Leading Position Excellence Customer Leadership Experience Best-in- Strongest Brand Class Channels Winning through key elements of differentiation
Slide 14: Revitalize the Mineral Fiber Category
14 Revitalize the Mineral Fiber Category
Slide 15: Industry Trends… What the Market Is Looking for
Industry Trends… What the Market Is Looking for 15 What the market seeks…. What AWI delivers… Acoustical comfort and privacy in Ideal combination of sound Acoustical Comfort every environment absorption & blocking Product Products without “chemicals of Innovative solutions free of Transparency conce
Slide 16: Revitalizing Mineral Fiber Category
Revitalizing Mineral Fiber Category 16 Innovation Platforms Total Sustain Accoustics Healthy Spaces DESIGN Digital Flex Healthy Spaces a catalyst for sizable renovation opportunity Suite of products to contain, clean, and protect spaces Digital solutions to address frictions and drive volume
Slide 17: Where We Are Going…Revitalizing Mineral Fiber
Where We Are Going…Revitalizing Mineral Fiber 17 Total Acoustics & Sustain DesignFlex New Solutions • Total Acoustics & Sustain • DesignFlex Ceilings Systems • Digital Journey • “AcoustiBuilt” Seamless Mineral Fiber • Healthy Spaces – 24/7 Defend • Class A office standard • Custom design w/ standard
Slide 18: Healthy Spaces – Ceilings Critical to Indoor Environmental Quality
Healthy Spaces – Ceilings Critical to Indoor Environmental Quality 18 Air … just as Healthy Spaces Ecosystem Light … affects our important as mood, our energy, outdoor air quality. our cognition, even We have gained a how well we sleep whole new at night. The best appreciation for balance and rhythm
Slide 19: Ceilings Matter in Creating Healthy Spaces
Ceilings Matter in Creating Healthy Spaces 19 Healthy Space Solution Objective: Inhibit airflow through the ceiling plane resulting in pathogen containment from room to room • Contain: ceilings can help prevent pathogens from spreading room to room Pathogen Flow High • Clean: ceilings can direct mor
Slide 20: Healthy Products Expanding Into All Verticals
Healthy Products Expanding Into All Verticals 20 CleanAssure™ Portfolio Cleanable and disinfectable ceiling, wall and suspension systems based on CDC- recommendations, with foggable, sprayable, and wipeable options Health Zone AirAssure™ High performance ceilings with sealed edges that inhibit airfl
Slide 21: Converting Market Knowledge Into Value Creation
Converting Market Knowledge Into Value Creation 21 New Product Vitality Index Mineral Fiber AUV* 50% $1.20 40% $1.00 $0.80 30% $0.60 20% $0.40 10% $0.20 0% $0.00 2010 2015 2020 2010 2015 2020 Note: New product sales as % of total sales Note: AUV growth 50/50 split between price & mix Differentiated
Slide 22: Accelerate Architectural Specialties
22 Accelerate Architectural Specialties
Slide 23: Growing through Share Gains and Acquisitions
Growing through Share Gains and Acquisitions 23 Architectural Specialties $300 Net Sales 2016 - 2020 • Double digit organic growth (excl. Base Acquisitions* 2020 acquisitions) 20% • Leveraging new designs & CAGR $200 technologies across AWI’s scale and distribution • Manufacturing synergies driven b
Slide 24: Expanding AS Capabilities with the Right Acquisitions
Expanding AS Capabilities with the Right Acquisitions 24 2017 2018 2019 2020 Plasterform Turf Design Tectum Glass reinforced ACGI Custom felt ceilings High impact wood gypsum…ultra Custom wood and walls fiber ceilings, walls expressive ceilings and walls & roofdeck $25M Revenue $10M Revenue $35M Rev
Slide 25: Accelerate Digital Transformation
25 Accelerate Digital Transformation
Slide 26: Digitalization to Support Growth and Productivity
Digitalization to Support Growth and Productivity 26 ~ 1 ~ 3 Industry Disruption Level of Impact ~ 10 Optimization Opportunities Step Change Outcomes • kanopi • ProjectWorks A continuous & collaborative approach across all levels throughout the company to develop, test, and realize our digital ambit
Slide 27: kanopi - A New Digital Platform to Accelerate Renovation
kanopi - A New Digital Platform to Accelerate Renovation 27 To inspire & enable healthy spaces via ceiling remodel and renovation Facility Managers & Small Business Owners in light Target Users commercial spaces Numerous frictions impact our customers along R&R purchase journey from Awareness to Ins
Slide 28: Cash Flow & Capital Allocation
28 Cash Flow & Capital Allocation
Slide 29: Consistent Ability To Grow AUV & Expand Margins
Consistent Ability To Grow AUV & Expand Margins 29 Increases in Average Unit Value (AUV) Over Time ... 250 Indexed AUV (2006 = 100) 225 200 175 CAGR 5% 150 125 100 75 50 2006 2008 2010 2012 2014 2016 2018 2020 Indexed Average Unit Value …Yielding Significant Adjusted EBITDA Margin Expansion $500 35%
Slide 30: Stability Through the Cycle
Stability Through the Cycle 30 450 Historical Indexed Adj. Cash Conversion (2006 = 100) 400 350 300 250 200 150 100 50 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (1) AWI Cash Conversion Index Peer Cash Conversion Index Americas cash conversion never fell below 2006
Slide 31: 2021 Guidance – October Update
2021 Guidance – October Update ⁽¹⁾ 31 Updated from prior guide 2020 Actual Prior Guidance Current Guidance MF AUV 9%-11%, positive like-for-like pricing & mix Growth Initiatives, primarily kanopi & Healthy Revenue $937 $1,085 – $1,105 $1,095 – $1,105 Spaces, drive MF volume up 1% - 2% 16% – 18%
Slide 32: Value Creation Model
Value Creation Model 32 0% – 2% Mineral Fiber volume growth Revenue 5% – 10% annual growth 3% – 6% AUV increase >15% Architectural Specialties volume 1-3 Acquisitions add 100 – 300 bps ~60% incremental margin in mineral fiber Adjusted >10% annual growth Continue to price over inflation E
Slide 33: Strongest Position & Margins of Any Public Building Products Business
Strongest Position & Margins of Any Public Building Products Business 33 High 40.0% North American EBITDA Margin (Residential) (Residential) 30.0% (Roofing) 20.0% (Insulation) 10.0% 0.0% 5.0% 15.0% 25.0% 35.0% 45.0% 55.0% Low High North American Share Position A unique position versus the best busin
Slide 34: Unique Cash Flow Generation Capabilities
Unique Cash Flow Generation Capabilities 34 40x 35x 30x EV / 2020 EBITDA 25x 20x 15x 10x 5x 0% 5% 10% 15% 20% 25% 2020 FCF Margin 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
Slide 35: Appendix
Appendix 35 Capital Structure & Liquidity Reconciliations to GAAP Other
Slide 36: Capital Structure & Liquidity
Capital Structure & Liquidity 36 Liquidity $439 million Capital Structure 9/30/2021 500 Amount Rate Maturity Cash 94 400 Revolver ($500M) 155 L+150 Sept-24 Term Loan A 475 L+150 Sept-24 Total Debt 627 300 Net Debt 533 345 Net Leverage* 1.5x 200 • Retirement income plan (RIP) fully funded as of year-
Slide 37: Market Drivers
Market Drivers 37 Sector Indicators 10 Year Avg General GDP (Real-Blue Chip) 2.2% General Measure of CEO Confidence 54 General Kastle Back to Work (Index) 95% Activity Architecture Billings Index (ABI) 50 Activity Dodge First Bidding series 2.8% Activity Dodge Starts -- New unlagged 0.0% Activity Do
Slide 38: Non-Residential Activity Timeline (New and Major Reno)
Non-Residential Activity Timeline (New and Major Reno) 38 GC Bidding Bids Design Bids accepted AWI Architect selected AWI budget #s Shipments Subcontractor bidding ABI 24 18 30 Months 21 0 Starts External Indicators Design Development Start Plans and Specs 60 days to break-ground Extended nature of
Slide 39: Performance Through the Downturn (2008-2011)
Performance Through the Downturn (2008-2011) 39 AWI Ceilings Sales and Adjusted Margin Change 30% Gross Margin • Volume declined 20% in 2009 EBITDA Margin 20% • AUV increased every year • Price exceeded inflation every year 10% • Manufacturing footprint restructured 0% • SG&A was right-sized • Capit
Slide 40: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation 40 For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 V 2021 2020 V Earnings (Loss) from continuing operations, $51 $54 ($3) $143 ($119) $262 Reported Add: Income tax expense (benefit), as reported 17 15 1 48 (51) 99 Earnings (Lo
Slide 41: Adjusted Diluted Earnings Per Share Reconciliation
Adjusted Diluted Earnings Per Share Reconciliation 41 For the Three Months Ended September 30, For the Nine Months Ended September 30, Per Per Per Per 2021 Diluted 2020 Diluted V 2021 Diluted 2020 Diluted V Share Share Share Share Earnings from continuing operations before income taxes, $51 $1.06 $5
Slide 42: Adjusted Free Cash Flow Reconciliation
Adjusted Free Cash(1) Flow Reconciliation 42 For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 V 2021 2020 V Reported net cash provided by operating activities $56 $70 ($14) $138 $148 ($10) Reported net cash provided by (used for) investing activities 1 (63)
Slide 43: Segment Reported Operating Income (Loss) to Adjusted EBITDA
Segment Reported Operating Income (Loss) to Adjusted EBITDA 43 ARCHITECTURAL MINERAL FIBER UNALLOCATED CORPORATE SPECIALTIES For the Three Months Ended September 30, 2021 2020 V 2021 2020 V 2021 2020 V Net Sales $215 $187 $27 $78 $59 $19 - - - Operating Income (Loss) – As Reported $69 $58 $10 $5 $9
Slide 44: Adjusted Net Sales Reconciliation
Adjusted Net Sales Reconciliation 44 For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 V 2021 2020 V Reported Net Sales $292 $246 $46 $824 $698 $126 Deferred revenue adjustment (1) - - - 1 - 1 Adjusted Net Sales $292 $246 $46 $825 $698 $127 (1) Represents the
Slide 45: 2021 Adjusted EBITDA Guidance Reconciliation
2021 Adjusted EBITDA Guidance Reconciliation 45 For the Year Ending December 31, 2021 Low to High Net Income $189 to $194 Add: Interest expense 23 23 (Less): RIP credit (1) (4) (4) Add: Income tax expense 62 63 Operating Income $270 to $277 Add: RIP expense (2) 4 4 Add: Depreciation 63 63 Add: Amort
Slide 46: 2021 Adjusted EPS Guidance Reconciliation
2021 Adjusted EPS Guidance Reconciliation 46 For the Year Ending December 31, 2021 Per Per Low Diluted to High Diluted Share (1) Share (1) Net income $189 $3.94 to $194 $4.04 Add: Interest expense 23 23 (Less): RIP credit (2) (4) (4) Add: Income tax expense 62 63 Operating income $270 to $277 Add: R
Slide 47: 2021 Adjusted Free Cash Flow Guidance Reconciliation
2021 Adjusted Free Cash Flow Guidance Reconciliation 47 For the Year Ending December 31, 2021 Low to High Net cash provided by operating activities $203 to $213 Add: Return of investment from joint venture 75 80 Adjusted net cash provided by operating activities $278 to $293 Less: Capital expenditur
Slide 48: Where We Were… Key Facts
Where We Were… 48 Key Facts Products: Fissured Ceilings AUV: $.40 SF (MF AUV) Sales: $500M Fissured Ceilings Armstrong before the 2000s
Slide 49: Where We Are Today…
Where We Are Today… 49 Key Facts Products: Fissured Ceilings, Smooth White Acoustical Tile, Wood, Metal… AUV: $1.10 SF (MF AUV) Sales: $1 Billion Mineral Fiber Ceilings Wood Ceilings & Walls Smooth White Acoustical Tile (SWAT) Metal Ceilings & Walls Tectum Ceilings & Walls Expanding the portfolio to
Slide 50: Ultima Health Zone
Ultima Health Zone 50 Project Profile: Penn Presbyterian Type of Space: Hospital Location: Philadelphia, PA Features: Total Acoustics & Sustain MF Ceilings (Scrubbable/Washable) Ultima Average Unit Value 3X fissured mineral fiber ceilings
Slide 51: WOODWORKS Grille Ceilings
WOODWORKS Grille Ceilings 51 Project Profile: Salk Middle School Type of Space: School Location: Spokane, WA Features: Design & Acoustical Wood Ceilings WOODWORKS Average Unit Value 15X mineral fiber ceilings
Slide 52: METALWORKS Torsion Spring
METALWORKS Torsion Spring 52 Project Profile: Academy Tower Type of Space: Office Lobby Location: Los Angeles, CA Features: Custom Design Metal Ceilings Our products are now being specified in statement spaces
Slide 53: Tectum Walls & Ceilings
Tectum Walls & Ceilings 53 Project Profile: Boys & Girls Club Type of Space: Gymnasium Location: Lancaster, PA Features: Durability & Acoustics with Tectum Walls & Ceilings More spaces in the same building
Slide 54: Total Acoustics & Sustain
Total Acoustics & Sustain 54 Project Profile: BrandStar Offices Type of Space: Office Location: Deerfield Beach, FL Features: Great acoustics with no “chemicals of concern” Total Acoustics & Sustain market penetration continues to grow
Slide 55: DESIGNFlex
DESIGNFlex 55 Project Profile: Armstrong Avenue Type of Space: Statement Spaces Location: Lancaster, PA Features: Custom design with standard product lead time DESIGNFlex adds a never before seen look to mineral fiber ceilings
Slide 56: Exposed Structure Portfolio
Exposed Structure Portfolio 56 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 to enter new spaces
Slide 57: “AcoustiBuilt” - Seamless Mineral Fiber
“AcoustiBuilt” - Seamless Mineral Fiber 57 Project Profile: University (confidential) Type of Space: Auditorium Location: United States Features: Drywall look with acoustics Seamless mineral fiber gains share from drywall ceilings
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