Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — FY2020 Earnings Presentation
56 slides from Armstrong World Industries's earnings presentation, Feb 23, 2021
Slide 1: Armstrong World Industries Investor Presentation
Exhibit 99.3 February 23, 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: The Armstrong Purpose…more relevant than ever…Healthy Spaces
The Armstrong Purpose…more relevant than ever…Healthy Spaces 4 It matters to us, and it matters to our customers
Slide 5: Sustainability / ESG…Bringing our WHY to life
Sustainability / ESG…Bringing our WHY to life 5 Lead a transformation in the design and building of spaces fit for today and tomorrow
Slide 6: One of the Most Unique Companies in Building Products
One of the Most Unique Companies in Building Products 6 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 7: Ceiling Category Is Unique Within Building Products
Ceiling Category Is Unique Within Building Products 7 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 8: Ceilings Leader with Stable Demand Drivers and Diversified Sectors
Ceilings Leader with Stable Demand Drivers and Diversified Sectors 8 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 9: Setting Our Sights on a Larger Opportunity
Setting Our Sights on a Larger Opportunity 9 AWI ~25% Specialty Walls Tile >$4B 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 10: Our Winning Formula
Our Winning Formula 10 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 11: Our Business Segments & Joint Venture
Our Business Segments & Joint Venture 11 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 revenue business >50 Since 2010 % 2x Since 2016 44 % Founded in 1992 Overview Overview Overview • I
Slide 12: Strategic Priorities
Strategic Priorities 12 • Healthy Spaces to contain, clean, and protect Revitalize the Mineral Fiber Category • kanopi digital platform driving renovation • Product innovation to drive volume growth & mix • 8 acquisitions in 4 years…strong pipeline Accelerate Architectural Specialties • Double digit
Slide 13: Revitalize the Mineral Fiber Category
13 Revitalize the Mineral Fiber Category
Slide 14: Industry Trends… What the Market Is Looking for
Industry Trends… What the Market Is Looking for 14 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 15: Revitalizing Mineral Fiber Category: Innovation Platforms
Revitalizing Mineral Fiber Category 15 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 transformation underway to address frictions and
Slide 16: Where We Are Going…Revitalizing Mineral Fiber
Where We Are Going…Revitalizing Mineral Fiber 16 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 17: Ceilings Matter in Creating Healthy Spaces
Ceilings Matter in Creating Healthy Spaces 17 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 18: Latest Launch – 24/7 Defend
Latest Launch – 24/7 Defend 18 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 airflow through the cei
Slide 19: Converting Market Knowledge Into Value Creation
Converting Market Knowledge Into Value Creation 19 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 20: Accelerate Architectural Specialties
20 Accelerate Architectural Specialties
Slide 21: Growing through Share Gains and Acquisitions
Growing through Share Gains and Acquisitions 21 Architectural Specialties Net Sales 2016 - 2020 $300 • 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 22: Expanding AS Capabilities with the Right Acquisitions
Expanding AS Capabilities with the Right Acquisitions 22 2020 2019 2018 2017 Turf Design Custom felt ceilings and walls Plasterform ACGI $25M Revenue Glass reinforced Custom wood gypsum…ultra ceilings and walls expressive Tectum $10M Revenue $35M Revenue Moz High impact wood fiber ceilings, walls De
Slide 23: Accelerate Digital Transformation
23 Accelerate Digital Transformation
Slide 24: Digitalization to Support Growth and Productivity
Digitalization to Support Growth and Productivity 24 ~ 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 25: kanopi - A New Digital Platform to Accelerate Renovation
kanopi - A New Digital Platform to Accelerate Renovation 25 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 26: Cash Flow & Capital Allocation
26 Cash Flow & Capital Allocation
Slide 27: Consistent Ability To Grow AUV & Expand Margins
Consistent Ability To Grow AUV & Expand Margins 27 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 28: Stability Through the Cycle
Stability Through the Cycle 28 450 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 (1) AWI Cash Conversion Index Peer Cash Conversion Index Americas cash conversion never fell below 2006 level
Slide 29: Strategic Priorities…Financial Implications
Strategic Priorities…Financial Implications 29 • Continued manufacturing productivity Revitalize the Mineral Fiber Category • Digital Platforms to unlock repair and renovation demand • Healthy Spaces Solutions address post pandemic world • Leverage acquisition product and technology capabilities Acc
Slide 30: Value Creation Model
Value Creation Model 30 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 31: Well Positioned to Accelerate Growth Past 2021
Well Positioned to Accelerate Growth Past 2021 31 Net Sales Adjusted EBITDA 1,400 600 7% CAGR 12% CAGR 1,200 500 4% CAGR 4% CAGR 1,000 400 800 300 600 200 2016 2017 2018 2019 2020 2021 Future 2016 2017 2018 2019 2020 2021 Future Est Est Adjusted Free Cash Flow ROIC 300 30% 10% CAGR 10% CAGR 13% CAGR
Slide 32: 2021 Guidance
2021 Guidance 32 2020 Actual 2021 Guidance MF AUV 4%-6%, positive like-for-like pricing & mix $937 $1,030 - $1,060 Growth Initiatives, primarily kanopi & Healthy Revenue Spaces, drive MF volume up 0%-2% 10% – 13% YoY 2020 acquisitions benefit AS 25%-30% AUV and volume gains fall through $360
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 30.0% (Roofing) 20.0% (Insulation) 10.0% Low 0.0% 5.0% 15.0% 25.0% 35.0% 45.0% 55.0% High North American Share Position A unique position versus the best businesses in building products N
Slide 34: Unique Cash Flow Generation Capabilities
Unique Cash Flow Generation Capabilities 34 25x 20x TEV / 2019 EBITDA 15x 10x 5x 0% 5% 10% 15% 20% 25% 2019 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 previous p
Slide 35: Appendix
Appendix 35 Management Biographies Balance Sheet Data Reconciliations to GAAP Other
Slide 36: Management Biographies
Management Biographies 36 Victor Grizzle Chief Executive Officer and President, Armstrong World Industries Vic Grizzle is the chief executive officer and a member of the board of directors of Armstrong World Industries (AWI). He joined the company in January 2011. Vic brings 23 years of experience i
Slide 37: Capital Structure & Liquidity
Capital Structure & Liquidity 37 Liquidity $412 million Capital Structure 12/31/20 500 Amount Rate Maturity Cash 137 400 Revolver ($500M) 225 L+125 Sept-24 Term Loan A 494 L+125 Sept-24 Deferred Financing (4) 300 Total Debt 715 275 Net Debt 578 200 Net Leverage* 1.8x • Retirement income plan (RIP) f
Slide 38: Market Drivers
Market Drivers 38 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 39: Non-Residential Activity Timeline (New and Major Reno)
Non-Residential Activity Timeline (New and Major Reno) 39 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 40: Performance Through the Downturn (2008-2011)
Performance Through the Downturn (2008-2011) 40 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 • Capital spending w
Slide 41: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation 41 For the Three Months For the Twelve Months Ended December 31, Ended December 31, 2020 2019 V 2020 2019 V Earnings (Loss) from continuing operations, Reported $35 $51 ($17) ($84) $242 ($326) Add: Income tax expense (benefit), as reported $8 $8 - ($43) $57 ($100) Earn
Slide 42: Adjusted Diluted Earnings Per Share Reconciliation
Adjusted Diluted Earnings Per Share Reconciliation 42 CONSOLIDATED For the Three Months Ended December 31, For the Twelve Months Ended December 31, Per Per Per Per 2020 Diluted 2019 Diluted V 2020 Diluted 2019 Diluted V Share Share Share Share Earnings (Loss) from continuing operations, As Reported
Slide 43: Adjusted Free Cash Flow Reconciliation
Adjusted Free Cash(1) Flow Reconciliation 43 For the Three Months Ended For the Year Ended December 31, December 31, 2020 2019 V 2020 2019 V Net cash provided by operating activities $70 $62 $8 $219 $183 $36 Net cash (used for) investing activities ($89) ($18) ($71) ($141) ($89) ($52) Add: Acquisiti
Slide 44: Segment Reported Operating Income (Loss) to Adjusted EBITDA
Segment Reported Operating Income (Loss) to Adjusted EBITDA 44 ARCHITECTURAL UNALLOCATED MINERAL FIBER SPECIALTIES CORPORATE For the Three Months Ended December 31, 2020 2019 V 2020 2019 V 2020 2019 V Operating Income (Loss) – As Reported $45 $59 ($14) $1 $6 ($5) ($2) ($3) $0 Add: RIP Cost (1) - - -
Slide 45: EBITDA – Guidance Reconciliation
EBITDA – Guidance Reconciliation 45 Adjusted EBITDA For the Year Ending December 31, 2021 Low to High Netincome $189 to $198 Add: Interest expense 25 25 (Less): RIP credit (1) (9) (9) Add: Income tax expense 60 63 Add: RIP expense (2) 6 6 Add: D&A 90 90 Adjusted EBITDA $360 to $372 (1) RIP credit re
Slide 46: Adjusted EPS & Free Cash Flow – Guidance Reconciliation
Adjusted EPS & Free Cash Flow – Guidance Reconciliation 46 Adjusted Diluted Earnings Per Share For the Year Ending December 31, 2021 Per Diluted Per Diluted Low to High Share (1) Share (1) Net income $189 $3.93 to $198 $4.12 Add: Interest expense 25 25 (Less): RIP Credit (2) (9) (9) Add: Income tax
Slide 47: Where We Were…
Where We Were… 47 Key Facts Products: Fissured Ceilings AUV: $.40 SF (MF AUV) Sales: $500M Fissured Ceilings Armstrong before the 2000s
Slide 48: Where We Are Today…
Where We Are Today… 48 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 49: Ultima Health Zone
Ultima Health Zone 49 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 50: WOODWORKS Grille Ceilings
WOODWORKS Grille Ceilings 50 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 51: METALWORKS Torsion Spring
METALWORKS Torsion Spring 51 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 52: Tectum Walls & Ceilings
Tectum Walls & Ceilings 52 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 53: Total Acoustics & Sustain
Total Acoustics & Sustain 53 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 54: DESIGNFlex
DESIGNFlex 54 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 55: Exposed Structure Portfolio
Exposed Structure Portfolio 55 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 56: “AcoustiBuilt” - Seamless Mineral Fiber
“AcoustiBuilt” - Seamless Mineral Fiber 56 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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