Armstrong Flooring, Inc. · OTC:AFIIQ
Armstrong Flooring — Q4 2019 Earnings Presentation
35 slides from Armstrong Flooring's earnings presentation, Mar 3, 2020
Slide 1: Fourth Quarter Results and Strategic Business Review
Fourth Quarter Results and Strategic Business Review March 3, 2020
Slide 2: Safe Harbor Statement
SAFE HARBOR STATEMENT Disclosures in this release and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements provide our future expectations or forecasts and can be identified by our u
Slide 3: Today's Presenters and Agenda
TODAY’S PRESENTERS MICHEL VERMETTE PRESIDENT & CEO Appointed CEO in September 2019 20+ years experience in the flooring industry and business transformation Former President of Residential Carpet at Mohawk Industries Multiple Business Unit President roles at Mohawk, Ind. DOUG BINGHAM SVP, CFO Joined
Slide 4: Fourth Quarter and Full Year 2019 Results Review
Fourth Quarter and Full Year 2019 Results Review
Slide 5: AFI Q4 2019 Results
2018 Adjusted EBITDA $2M Volume (2) Price / Mix (2) Input Costs 1 Mfg Costs (2) SG&A (1) 2019 Adjusted EBITDA ($4M) AFI Q4 2019 RESULTS v KEY HIGHLIGHTS Share loss in some categories, especially in residential Commercial sales positive YOY in the quarter Unfavorable fall through from lower net sales
Slide 6: AFI Full Year 2019 Results
AFI FULL YEAR 2019 RESULTS 2018 Adjusted EBITDA $58M Volume (24) Price / Mix -- Input Costs (14) Mfg Costs 3 SG&A 3 2019 Adjusted EBITDA $24M KEY HIGHLIGHTS Challenging prior year comparison due to tariff-related pre-buy activity Share loss in some categories, especially in residential Unfavorable f
Slide 7: Free Cash Flow and Liquidity
FREE CASH FLOW AND LIQUIDITY Strong balance sheet to support growth strategy Replaced credit facility with ABL facility with more favorable terms to Armstrong Flooring (Dollars in Millions) Q1 2019 Q2 2019 Q3 2019 Q4 2019 YTD 2019 vs YTD 2018 Operating Cash Flow ($63) $29 $32 ($4) ($6) ($69) Capex (
Slide 8: Business Update: Multi-Year Strategic Roadmap
Business Update: Multi-Year Strategic Roadmap
Slide 9: Company Overview
COMPANY OVERVIEW Strong Resilient Fundamentals: Fastest growing flooring segment Brand: Well-known resilient flooring brand for over 100 years 2019 Net Sales of $626 million 2019 Adj. EBITDA of $24 million Manufacturing Footprint: 6 facilities in U.S., 1 in China, 1 in Australia Attractive Product a
Slide 10: New Operating Model
NEW OPERATING MODEL from to strong FLOORING
Slide 11: What We Want You to Take Away From Today
WHAT WE WANT YOU TO TAKE AWAY FROM TODAY Large addressable market opportunity in commercial and residential Well positioned in geographic markets and product categories Clear understanding of U.S. performance issues Focused strategy to transform and modernize business AFI will become more agile, fas
Slide 12: Resilient Expanding Into All Categories
RESILIENT EXPANDING INTO ALL CATEGORIES Commercial Market ($7B) Note: Addressable market is North America only. Source: Floor Covering News Residential Market ($13B) Armstrong Flooring Brand Diamond 10® Technology Non-PVC offering Innovation pipeline Global Service capabilities Superior product perf
Slide 13: What We Want You to Take Away From Today
WHAT WE WANT YOU TO TAKE AWAY FROM TODAY Large addressable market opportunity in commercial and residential Well positioned in geographic markets and product categories Clear understanding of U.S. performance issues Focused strategy to transform and modernize business AFI will become more agile, fas
Slide 14: Channels/Markets/Products Where We Operate
CHANNELS/MARKETS/PRODUCTS WHERE WE OPERATE Luxury Vinyl Tile & Planks Commercial Sheet Vinyl Composition Tile Custom Capability (Design/Shapes/Sizes/Service) Wall Base/Accessories Installation Solutions Focus on and build out organizational capability for the identified channels and verticals COMMER
Slide 15: Armstrong Flooring Brand
ARMSTRONG FLOORING BRAND Most recognized hard surface brand Significant opportunities exist to accelerate growth and reduce operating costs Best Flooring From Consumer Reports' Tests 101 Top Products: Flooring Best of Year Awards Winners Favorite Hard Surface Manufacturer Contractors
Slide 16: What We Want You to Take Away From Today
WHAT WE WANT YOU TO TAKE AWAY FROM TODAY Large addressable market opportunity in commercial and residential Well positioned in geographic markets and product categories Clear understanding of U.S. performance issues Focused strategy to transform and modernize business AFI will become more agile, fas
Slide 17: Core Business Areas of Underperformance
CORE BUSINESS AREAS OF UNDERPERFORMANCE Significant opportunities exist to accelerate growth and reduce operating costs Empowerment of distributors to manage brand and reduction of our direct sales force have impacted customer connectivity REGRESSION IN MULTIPLE CHANNELS Multiple product collections
Slide 18: What We Want You to Take Away From Today
WHAT WE WANT YOU TO TAKE AWAY FROM TODAY Large addressable market opportunity in commercial and residential Well positioned in geographic markets and product categories Clear understanding of U.S. performance issues Focused strategy to transform and modernize business AFI will become more agile, fas
Slide 19: Focused Strategy to Transform & Modernize
SIMPLIFY Portfolio & Organization 2 STRENGTHEN Capabilities 3 EXPAND Customer Reach 1 FOCUSED STRATEGY TO TRANSFORM & MODERNIZE
Slide 20: Expand Customer Reach
EXPAND EXPAND CUSTOMER REACH Add Direct Sales representation and augment the Supply Chain model to service Key Independent Retailers, Commercial National Accounts & Large Flooring Contractors Resource & Grow in the Builder & Multifamily Channel Increase focus and investment with Big Box Retail/Natio
Slide 21: Simplify & Enhance Portfolio
INVESTMENT SIMPLIFY SIMPLIFY & ENHANCE PORTFOLIO Commercial Sheet Residential Tile REFRESH OFFERING Commercial VCT Residential Sheet Commercial LVT Residential LVT INVEST IN OFFERING Coatings Personalization Non-PVC Recycling Acoustics AREAS OF INNOVATION DECREASE Commercial LVT 15% Residential LVT
Slide 22: Simplify
SIMPLIFY SIMPLIFY & ENHANCE PORTFOLIO Simplify pricing structure Streamline administrative processes and systems Transition multiple systems to one integrated platform Redeploy back office SG&A to fund Go-to Market Expansion Provide performance expectations to channel partners Digitize Customer inte
Slide 23: Strengthen Capabilities
TRANFORM & MODERNIZE CAPABILITIES STRENGTHEN Project Management Innovation & Product Development Processes Productivity Transformation Management Office Cross Functional Clear KPI’s Customer Portal One AFI Logistics and Distribution Stage Gate Design 3-Year Pipeline Sustainability Focus on Big Oppor
Slide 24: Product Innovation
PRODUCT INNOVATION STRENGTHEN Customer-focused Innovation
Slide 25: Management Aligned for Success
MANAGEMENT ALIGNED FOR SUCCESS Sales growth Gross profit improvement Adj. EBITDA targets Share price targets ANNUAL INCENTIVE LONG-TERM INCENTIVE
Slide 26: What We Want You to Take Away From Today
WHAT WE WANT YOU TO TAKE AWAY FROM TODAY Large addressable market opportunity in commercial and residential Well positioned in geographic markets and product categories Clear understanding of U.S. performance issues Focused strategy to transform and modernize business AFI will become more agile, fas
Slide 27: Revenue Drivers
REVENUE DRIVERS Leverage Strength in Commercial Verticals Penetrate Underrepresented Sectors Develop Market-Leading Product Portfolio
Slide 28: Gross Margin Improvements
GROSS MARGIN IMPROVEMENTS Enhance margin mix through incremental direct sales to larger customers Optimize manufacturing footprint Update pricing approach to reduce complexity Streamline product portfolio Develop enhanced logistics capability, including investment in new distribution facilities
Slide 29: SG&A Investments
SG&A INVESTMENTS Expand sales force capabilities to drive revenue opportunities Revitalize brand through enhanced marketing Leverage outside resources to modernize systems and processes Drive future operating efficiencies as business modernizes Reduce lease costs for corporate HQ Align incentive str
Slide 30: Working Capital and Capex
WORKING CAPITAL AND CAPEX SKU optimization drives reduction of inventory Increase just-in-time inventory investments for key products to support market requirements Additional receivables to support new and existing customer accounts Capital investment to fuel growth opportunities Monetize non-core
Slide 31: Financial Path Forward
FINANCIAL PATH FORWARD Reverse sales decline and grow topline Improve gross profit margin Investments and non-recurring 2019 benefits impact 2020 SG&A dollars and margin Adjusted EBITDA dollars and margin decline significantly on a percentage basis in 2020 and grow thereafter Expect free cash flow t
Slide 32: New Operating Model
NEW OPERATING MODEL from to of iS] FLOORING
Slide 33: What We Want You to Take Away From Today
WHAT WE WANT YOU TO TAKE AWAY FROM TODAY Large addressable market opportunity in commercial and residential Well positioned in geographic markets and product categories Clear understanding of U.S. performance issues Focused strategy to transform and modernize business AFI will become leaner, faster
Slide 34: Appendix
APPENDIX of iS] FLOORING
Slide 35: Reconciliations to GAAP
RECONCILIATIONS TO GAAP $ Million Adj EBITDA Three months 12 months 2019 2018 2019 2018 Total Total Total Total Net (Loss) Income ($25.1) ($171.0) ($58.5) ($163.0) Net income disc ops (2.8) 156.1 (10.4) 143.9 Interest expense 1.7 1.9 4.4 4.8 Other (income) & expense 0.6 0.7 1.8 2.9 Taxes 4.6 (4.3) 1