Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Day (November 2018)
69 slides from Armstrong World Industries's investor day presentation, Nov 7, 2018
Slide 1: Armstrong World Industries Investor Day 2018: What's Next
Armstrong World Industries Investor Day 2018 What’s Next November 7, 2018 Exhibit 99.1
Slide 2: Agenda
Agenda 8:30Introduction & Safe Harbor Tom Waters - VP, Corporate Finance 8:35What’s Next: Strategic InitiativesVic Grizzle - President & CEO 9:15Business Segment ReviewCharlie Chiappone - SVP, Ceiling & Wall Solutions 10:00Break 10:20Product InnovationNick Taraborelli - VP, Marketing 10:45Financial
Slide 3: 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 4: 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 5: Welcome: Vic Grizzle - President & CEO
Welcome: Vic Grizzle - President & CEO
Slide 6: The Armstrong Purpose
The Armstrong Purpose It matters to us, and it matters to our customers
Slide 7: 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 8: 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 9: 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 10: 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 11: Armstrong Management
Armstrong Management Experienced, committed and dedicated management team CEO Vic Grizzle SVP, Ceiling & Wall Solutions Charlie Chiappone CFO Brian MacNeal General Counsel & CCO Mark Hershey SVP, Human Resources Ellen Romano VP, Business Development Mateus Panosso
Slide 12: 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 13: 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 14: Since Separating from Flooring We've Been Remaking AWI
Delivering on what we said we would do … driving shareholder value Executing four strategic priorities to create shareholder value Investing in core mineral fiber to drive innovation, growth & productivity Addressing our volatile, low return international operations Expanding into close-in adjacenci
Slide 15: Results So Far
Results So Far Market cap increased $1 Billion since separation Equity Returns Since 1/1/2017 Peers: ALLE, AOS, APOG, AYI, CBPX, DOOR, FBHS, JHX, MAS, MHK, OC, SSD, TILE, TREX, USG
Slide 16: Commercial Construction Industry Trends
Skilled labor shortages High performance interior spaces Increasing desire for aesthetics & inspirational spaces Rise in exposed structure Dynamic environment creates opportunities for a well-positioned company like Armstrong Commercial Construction Industry Trends
Slide 17: Revitalize the Mineral Fiber Category
Revitalize the Mineral Fiber Category Completed $100M investment Significant new product innovation New targeted paths to market What’s Next…
Slide 18: Accelerate Architectural Specialties
Accelerate Architectural Specialties Best in class foundation of design capability Double digit organic growth Execute 1-3 acquisitions annually Revitalize the Mineral Fiber Category Completed $100M investment Significant new product innovation New targeted paths to market What’s Next…
Slide 19: Embark on a Digital Transformation
Embark on a Digital Transformation Shorten design-to-order time from weeks to hours Platform for productivity & scalability $27 million investment Accelerate Architectural Specialties Best in class foundation of design capability Double digit organic growth Execute 1-3 acquisitions annually Revitali
Slide 20: Cash Flow & Capital Allocation
Embark on a Digital Transformation Shorten design-to-order time from weeks to hours Platform for productivity & scalability $27 million investment Accelerate Architectural Specialties Best in class foundation of design capability Double digit organic growth Execute 1-3 acquisitions annually Revitali
Slide 21: 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 22: Business Segment Review: Charlie Chiappone
Business Segment Review: Charlie Chiappone - SVP, Ceiling & Wall Solutions
Slide 23: Sustaining the Change in Trajectory
Sustaining the Change in Trajectory Growth mindset to growth attitude Historical & Projected Revenue Growth Rates
Slide 24: Driving Share Gain Is a Value Creation Compounder
Driving share gain is a value creation compounder Acoustical (Tile & Grid) Architectural Specialties (Wood, Metal, Specialty Grid) Wall Solution (Specialty Walls & Finishes) STRONG STRONGEST $1.5B Market size $3.0B Market size $4.5B Market size Re-establishing Our Growth Boundaries in the Americas A
Slide 25: 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 26: Our Business Segments
Our Business Segments Mineral Fiber: Driving AUV Architectural Specialties: Expand Into Adjacencies % Increased AUV by 50 Since 2010 Increased revenue by 100 Since 2010 $ M Leveraging our core to accelerate growth in AS Note: MF = Mineral fiber, AS = Architectural Specialties Complementary Double di
Slide 27: Revitalizing Mineral Fiber Category
Revitalizing Mineral Fiber Category Driving AUV growth & volume $100M investment to drive Total Acoustics, Sustain and DESIGNFlex ü Total Accoustics Seamless Mineral Fiber DESIGN Flex Accelerate Renovation Sustain Spark Holy: Pleasantville, NJ St Christopher's: Philadelphia, PA Breaking mineral fibe
Slide 28: 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 29: Deal Integration
Deal Integration Connecting cultures Employee experience important asset Post Close Integration Key success measures Creating the operating rhythm Our M&A Model Aligned Pipeline Agile methodology Disciplined approach to decisions 95 % Retention Rate + Output Tectum Closed January 2017 Paid $31M 7x a
Slide 30: Key Enablers: WAVE JV and Digitalizing the Business
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 31: Product Innovation: Nick Taraborelli
Product Innovation: Nick Taraborelli – VP, Marketing
Slide 32: 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 33: 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 34: Opportunity: Change from Room to Building
Opportunity Change from Room to Building The goal is to have a solution in every space all of the time Sell More Into Every Space 1 Sell Into More Spaces Atlantic Packaging Charlotte, NC Every Space…MF Sustain higher AUV More Spaces…Lobby: Wood Ceilings Every Space…Metal Ceilings More Spaces…Manufac
Slide 35: 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 36: 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 37: 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 38: 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 39: 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 40: 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 41: Total Acoustics & Sustain
Total Acoustics & Sustain Total Acoustics & Sustain market penetration continues to grow j Sell More Into Every Space x Project Profile: BrandStar Offices Type of Space: Office Location: Deerfield Beach, FL Features: Great acoustics with no chemicals of concern
Slide 42: 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 43: 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 44: Seamless Mineral Fiber
Seamless Mineral Fiber 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 45: Walls: The Next Adjacency
Walls…The Next Adjacency Wall solutions get us into more space more of the time Solutions NEW Soundsoak fabrics wrapped Wood veneer over MDF Tectum wood fiber Plasterform glass reinforced gypsum Soundsoak WoodWorks Tectum Plasterform Pharmaceutical Research Institute Andover, MA College Football Hal
Slide 46: Expanding Our Opportunities: Exciting Future Ahead
Armstrong Before the 2000’s Expanding our opportunities Exciting Future Ahead for Armstrong Fissured Ceilings From … High Share To … single dimension product focus Share Gain Multi-faceted ceiling & wall solution provider AUV: $.40 SF AUV: $1.05 SF Armstrong $1.5B Market size Armstrong $4.5B Market
Slide 47: Financial Review & Value Creation: Brian MacNeal
Financial Review & Value Creation: Brian MacNeal - CFO
Slide 48: 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 49: 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 50: Proven Track Record
Proven Track Record Committed to doing what we said we would 24% CAGR ** *External sources, **$25M WAVE special dividend 10% CAGR Sale of International Sale of International
Slide 51: 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 $4.00 - $4.10. Cas
Slide 52: Results So Far
Results So Far Market cap increased over 40%, or $1 Billion 2016 2017 Mid-point 2018 Guidance CAGR Sales (Millions) $837 $894 $970 8% EBITDA (Millions) $295 $319 $353 9% Stock Price $42 $61 $67 27% Market Cap (Billions) $2.3 $3.2 $3.3 21% Enterprise Value (Billions) $3.0 $3.9 $3.8 13% EV/EBITDA Mult
Slide 53: 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 54: Capital Deployment - Dividend
Capital Deployment - Dividend Continued evolution of capital deployment Clean & strong balance sheet Plenty of dry-powder for growth opportunities Next phase in a more balanced capital allocation Predictable & more stable cash flow post the sale of International Future dividends expected to be consi
Slide 55: 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 56: Acquisition Lens for Targets and Program Profile
Lens for targets Ceilings & Walls Specified products Goes through our distribution Service improvement opportunity Program Profile 1-3 / year $50M in total acquisition spend Just under 1.5 x Sales Average 10x EBITDA purchase price Target 7x post synergies Three closed transactions: 6X pre-synergies,
Slide 57: Capital Structure & Liquidity
Capital Structure & Liquidity Strong balance sheet & liquidity position to support growth Capital Structure (9/30/2018) Amount ($M) Rate Maturity Cash $327 Revolver ($200M) L+200 Apr-21 Term Loan A 556 L+200 Apr-21 Term Loan B 243 L+275 Mar-23 Other 35 Total Debt 834 Net Debt 507 2018 EBITDA (mid po
Slide 58: Stability Through the Cycle
Historical Indexed Adj. Cash Conversion (2006 = 100) Stability Through the Cycle *Peer index includes NYSE:ALLE, NYSE:AOS, NYSE:APOG, NYSE:AYI, NYSE:CBPX, NYSE:DOOR, NYSE:OC, NYSE:SSD, NASDAQ:TILE and NYSE:USG. Represents median growth in Adjusted Cash Conversion (Adjusted EBITDA – Capex) of peers a
Slide 59: 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 (a)
Slide 60: Value Creation Model
Value Creation Model – Consistently Year After Year 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
Slide 61: Armstrong World Industries – Vic Grizzle, CEO
Armstrong World Industries – Vic Grizzle, CEO
Slide 62: What's Next - Wrap
What’s Next - Wrap 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
Slide 63: Q&A
Q&A ‘@mstrong WORLD INDUSTRIES —
Slide 64: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation CONSOLIDATED For the Three Months Ended September 30, For the Nine Months Ended September 30, qtr YTD 2018 2017 V 2018 2017 V Earnings from continuing operations, Reported 64.200000000000017 37.300000000000026 26.899999999999991 153 116.49999999999996 36.50000000000004
Slide 65: Adjusted Diluted Earnings Per Share Reconciliation
Adjusted Diluted Earnings Per Share Reconciliation Based on ~52 million diluted shares outstanding for the three months ended September 30, 2018, ~53 million diluted shares outstanding for the nine months ended September 30, 2018, and ~54 million diluted shares outstanding for the three and nine mon
Slide 66: 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 67: Segment Reported Operating Income (Loss) to Adjusted EBITDA
Segment Reported Operating Income (Loss) to Adjusted EBITDA Q3 2018 vs. PY YTD 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 71.8 73.099999999999994 -1.2999999999999972 11.3 7
Slide 68: 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 $208 to $213 Add: Interest expense 35 35 Add: Income tax expense 65 70 (Less): U.S. pe
Slide 69: 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. Excludes $35 million WAVE dividend r
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