Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Deutsche Bank Global Industrials and Materials Summit 2018
42 slides from Armstrong World Industries's conference presentation, Jun 6, 2018
Slide 1: Armstrong World Industries Investor Presentation
ARMSTRONG WORLD INDUSTRIES INVESTOR PRESENTATION Deutsche Bank Global Industrials and Materials Summit Chicago, IL June 6, 2018 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 Explanation
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: 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 METALWORKS AXIOM PERIMETERS WOODWORKS SOUNDSCAPES ULTIMA CREATE! INVISACOUSTICS OPTIMA CALLA TOTAL ACOUSTICS ULTIMA HEALTH ZONE Mineral Fi
Slide 5: The AWI Investment Thesis
The AWI Investment Thesis Standout 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 Levers 1 2 4
Slide 6: Leader in Attractive Americas Ceilings Industry
Leader in Attractive Americas Ceilings Industry Leading Position in Highest Margin Industry Consolidated industry structure Large installed base with stable repair & remodel demand Established product specifications Multi-faceted sales process involving architects, designers, distributors, contracto
Slide 7: Standout Leader: Our Winning Formula
Leading position in all segments Attractive industry 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 Po
Slide 8: Expanding Our View of the Market
Components Tile >50% Share(2) 25% Share Specialty walls Specialty ceilings AS North Americas Market(1) Expanding Our View of the Market Driving Share Gains in Broader Solution Space COMPONENTS EXPOSED STRUCTURE WALLS ACOUSTICAL TILE AND GRID ARCHITECTURAL SPECIALTIES Excludes Latin America and the C
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 Leader in Attractive Ceilings Industry
Standout Leader in Attractive Ceilings Industry 1 Standout Leader 2 3 4 Total: $894 Total: $319 2017 Adjusted Revenue 2017 Adjusted EBITDA
Slide 11: Ceilings Leader with Diversified End-Markets
Ceilings Leader with Diversified End-Markets Commercial Total: $894 1 Standout Leader 2 3 4 2017 Adjusted Revenue Mix(1) By End-Market By Project (1) Source AWI internal estimates Office 30% Transportation/Other 15% Education 20% Retail 20% Healthcare 10% Residential 5%
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 – AWI / Worthington JV
Longstanding Partnership: WAVE – AWI / Worthington JV Critical to AWI’s Value Creation quarterly earnings paid to parents, Adds >900 bps to AWI’s Mineral Fiber adjusted EBITDA margin. 25 year partnership with Worthington Industries that successfully combines the expertise of both companies Seamless
Slide 14: WAVE Financial Performance
WAVE Financial Performance EBITDA Margin(1) (1) All years restated for 2017 WAVE support costs of $7M 2 Robust Cash Flow 3 4 1 CAGR 9% High quality business that contributes 24% of AWI’s Adjusted EBITDA Steel inflation > price Three price increases announced through May 2018
Slide 15: Stability through the Cycle
Historical Indexed Adj. Cash Conversion (2006 = 100) Stability through the Cycle 2 Robust Cash Flow 3 4 1 Source: Factset Peer index includes NYSE:ALLE, NYSE:AOS, NYSE:APOG, NYSE:AYI, NYSE:CBPX, NYSE:DOOR, NYSE:OC, NYSE:PGEM, NYSE:SSD, NASDAQ:TILE and NYSE:USG. Represents median growth in Adjusted C
Slide 16: Robust and Expanding Profitability
Robust and Expanding Profitability Adjusted EBITDA 2 Robust Cash Flow 3 4 1 Strong Track Record of EBITDA Growth
Slide 17: Attractive Multi-Faceted Growth Opportunities
Attractive Multi-Faceted Growth Opportunities 3 Attractive Growth 4 1 2 Market Recovery Leverage commercial market recovery Expand Average Unit Value Innovation drives a richer sales mix Quality, service and brand enable price over inflation Enlarged Addressable Market Sell into more spaces Sell mor
Slide 18: Expectations of Recovery in Market Demand
Expectations of Recovery in Market Demand Market Recovery 3 Attractive Growth 4 1 2 2006 – 2020E Dodge Starts and Large Renovations ($ billions) (1) Source: Dodge Data & Analytics Includes education, healthcare, office and retail Accelerated growth projected $69 $65 $71 $111 $105 $91 +9% $99 +9% $10
Slide 19: Mixing Up our Core to Drive AUV Acceleration
Huge opportunity with 38 bsft of installed base in the United States Armstrong product portfolio is uniquely positioned for replacement business The 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 Acceleration
Slide 20: Sustain: Creating Better Environments For Everyone
Innovation leadership that meets key industry sustainability standards Industry's first collection of high performance ceiling systems that are simple and transparent Includes Mineral Fiber, Architectural Specialties, and Component Solutions First in the industry to have a platform that is completel
Slide 21: Proven, Consistent Ability to Expand Margins
Proven, Consistent Ability to Expand Margins Continuous Price/Mix and Productivity Driving Margin Expansion Note: AUV data is for US commercial mineral fiber, US Fiberglass, and Canada commercial channels Increases in Average Unit Value (AUV) Over Time ... …Yielding Significant Adjusted Gross Margin
Slide 22: Architectural Specialties is a Growth Engine
Architectural Specialties is a Growth Engine Large Growth Opportunity Through Share Gains, M&A and Walls Broadest portfolio of on-trend, specialty ceiling solutions Leverage existing go-to-market system and advantages to drive expansion Large projects increases bid success rate and pulls core produc
Slide 23: You Inspire Solutions Center
You Inspire Solutions Center – Making Designs a Reality Recent Investments in Design Capabilities Driving >20% Growth in Custom Project Work Helps our customers with unique, one of a kind solutions for statement spaces Generate truly incremental sales and has a pull through effect on the core produc
Slide 24: M&A: Tectum & Plasterform
M&A: Tectum & Plasterform Tectum manufactures high-impact wood fiber acoustical panels and roof deck for commercial and institutional construction industries FY 2017 sales of $26 and EBITDA of $4 YTD 2018 sales up 14% and EBITDA up 50% 4 Levers for Value 1 2 3 M&A Plasterform manufactures ultra-expr
Slide 25: 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 26: Capital Expenditures
Capital Expenditures 4 Levers for Value 1 2 3 Winding down a multi-year portfolio improvement initiative Return to long-term 1X depreciation spending of $65 in 2019
Slide 27: 2018 Guidance
2018 Guidance $3.60 – $3.82 19% – 27% YoY Growth $3.02 Adjusted EBITDA Adjusted EPS(1) Adjusted Free Cash Flow(2) Revenue $894 $319(3) $935– $955 5% – 7% YoY Growth $345 – $360 >10% YoY Growth $175 – $190 20% – 30% YoY Growth $147 As reported expected earnings per share in 2018 of $3.94 - $4.13. 201
Slide 28: 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 long-term incentive plan aligned to absolute total shareholder
Slide 29: Appendix
Appendix Management Biographies Appendix Items Reconciliations to GAAP
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 30 years of experience in sales, marketing and global business
Slide 31: March 31, 2018 Balance Sheet
March 31, 2018 Balance Sheet $1,020 credit facility including $815 of term loans maturing in 2021 and 2023 and undrawn revolver of $200 $35 of tax-exempt bonds BB/B1 Rating U.S. pension fully funded on a PBO basis No cash contributions in over 20 years Summary Balance Sheet Capital Structure Highlig
Slide 32: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation CONSOLIDATED For the Three MonthsEnded March 31, qtr YTD 2018 2017 V 2016 V Earnings from continuing operations, Reported 41.2 35.500000000000014 5.6999999999999886 99 122 rounding Add: Tax expense 8.1999999999999993 21.8 -13.600000000000001 51 -50 Earnings before tax,
Slide 33: Adjusted Diluted Earnings Per Share Reconciliation
Adjusted Diluted Earnings Per Share Reconciliation Based on ~53 million diluted shares outstanding for the three months ended March 31, 2018 and ~54 million diluted shares outstanding for the three months ended March 31, 2017. CONSOLIDATED For the Three MonthsEnded March 31, 2018 Per DilutedShare(1)
Slide 34: 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 35: Segment Reported Operating Income to Adjusted EBITDA
Segment Reported Operating Income (Loss) to Adjusted EBITDA Q1 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 43.7 55.5 -11.799999999999997 8.3000000000000007 4.8 3.50000000000
Slide 36: Net Sales & EBITDA – Guidance Reconciliation
Net Sales & EBITDA – Guidance Reconciliation Net Sales Adjusted EBITDA For the Year Ending December 31, 2018 Low to High Reported Net Sales $935 to $955 For the Year Ending December 31, 2018 Low to High Net income $205 to $215 Add: Interest expense 35 35 Add: Income tax expense 65 70 Operating incom
Slide 37: 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 2018 is calculated based on an adjusted effective tax rate of 25% and based on ~52 million of diluted shares outstanding. For the Year Ending December 31, 201
Slide 38: ASU Restatement Impact on 2017 Income Statement (1/2)
ASU Restatement Impact on 2017 Income Statement (1/2) Drives increase in 2017 adjusted EBITDA from $317M to $319M 2017 Benefit Plan Expenses (Income) as Originally Reported in 2017 Q1 Q2 Q3 Q4 FY Mineral Fiber Segment (included in adjusted EBITDA) Benefit Plan COGS $-0.1 $-0.1 $-0.1 $-0.1 $-0.3 Bene
Slide 39: ASU Restatement Impact on 2017 Income Statement (2/2)
ASU Restatement Impact on 2017 Income Statement (2/2) 2017 Benefit Plan Expenses (Income) Adjusted and Reported in 2018 Q1 Q2 Q3 Q4 FY Mineral Fiber Segment (included in adjusted EBITDA) Benefit Plan COGS $0.1 $0.1 $0.1 $0.1 $0.4 Benefit Plan SG&A $0 $0 $0 $0 $0.1 Total Mineral Fiber Benefit Plan Ex
Slide 40: Consolidated Company Key Metrics - First Quarter 2018
Consolidated Company Key Metrics - First Quarter 2018 As reported Operating Income: $50 in 2018 and $57 in 2017 As reported EPS: $0.76 in 2018 and $0.65 in 2017 2018 2017 Variance Net Sales $227.3 $219.8 3.4121929026387665E-2 Adj. EBITDA $78.849778999999998 64 $75.223873999999995 4.8201519108149071E
Slide 41: Adjusted EBITDA Bridge – First Quarter 2018 vs. PY
Adjusted EBITDA Bridge – First Quarter 2018 vs. PY ($2) $5 ($4) $3 $2 ($2) Adjusted EBITDA up 5% $2 (1) (1) Other includes discontinued operation costs recognized in the Americas and international cost allocation adjustments.
Slide 42: Adjusted Free Cash Flow Bridge – First Quarter 2018 vs. PY
Adjusted Free Cash Flow Bridge – First Quarter 2018 vs. PY $6 Adjusted Free Cash Flow includes the receipt of cash (net of $26) from insurance settlements reached in the second half of 2017
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