Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (February 2018)
41 slides from Armstrong World Industries's investor presentation, Feb 26, 2018
Slide 1: Armstrong World Industries Investor Presentation
ARMSTRONG WORLD INDUSTRIES INVESTOR PRESENTATION February 26, 2018 Exhibit 99.3
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
All figures throughout the presentation are in $ millions 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 the business and believes the adjustmen
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: Uniquely Positioned to Drive Value
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: $317 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 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 $7M 2 Robust Cash Flow 3 4 1 CAGR 9% High quality business that contributes 24% of AWI’s Adjusted EBITDA Steel inflation > price Additional pricing implemented 2/1/18
Slide 15: Stability through the Cycle
Historical Indexed Adj. Cash Conversion (2006 = 100) Stability through the Cycle 2 Robust Cash Flow 3 4 1 Source: Factset. Peer index includes ALLE, AOS, APOG, AYI, CBPX, DOOR, OC, PGEM, SSD, TILE and USG. Represents median growth in Adjusted Cash Conversion (Adjusted EBITDA – Capex) of peers applie
Slide 16: Robust and Expanding Profitability
Robust and Expanding Profitability Adjusted EBITDA 2 Robust Cash Flow 3 4 1 Strong Track Record of EBITDA Growth
Slide 17: Attractive Multi-Faceted Growth Opportunities
Attractive Multi-Faceted Growth Opportunities 3 Attractive Growth 4 1 2 Market Recovery Leverage commercial market recovery Expand Average Unit Value Continue to leverage innovation to enhance margins Enlarged Addressable Market Sell into more spaces Sell more into every space Pursue M&A to enhance
Slide 18: Both Mineral Fiber and Specialties Remain Attractive
Both Mineral Fiber and Specialties Remain Attractive Source: Internal study of ceiling attitude and usage for office buildings Mineral Fiber maintaining large share of overall ceilings market Drywall declining as non-traditional ceiling styles and exposed structures expand “Exposed Structure" expand
Slide 19: Expectations of Recovery in Market Demand
Expectations of Recovery in Market Demand Market Recovery 3 Attractive Growth 4 1 2 2006 – 2020E Dodge Starts and Large Renovations ($ 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 20: 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 21: 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 22: 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, Fiberglass US, and Canada commercial channels Increases in Average Unit Value Over Time ... …Yielding Significant Adjusted Gross Margin Expan
Slide 23: 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 On large projects, increases bid success rate from 75% to 90% a
Slide 24: 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 25: Tectum Acquisition
Tectum Acquisition Tectum is a manufacturer of high-impact wood fiber acoustical panels and roof deck for the commercial and institutional construction industries. FY 2017 sales of $26M and EBITDA of $4M Provides opportunity to significantly expand sales by leveraging our specification strength, bes
Slide 26: 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 27: 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 million in 2019
Slide 28: 2018 Guidance
2018 Guidance $3.53 – $3.75 17% – 24% YoY Growth $3.02 Adjusted EBITDA Adjusted EPS(1) Adjusted Free Cash Flow(2) Revenue $894 $317 $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 $3.87 - $4.06. Cash f
Slide 29: 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 30: Appendix
Appendix Management Biographies Appendix Items Reconciliations to GAAP
Slide 31: 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 32: December 31, 2017 Balance Sheet
December 31, 2017 Balance Sheet New $1.02 billion credit facility including $823 million of term loans maturing in 2021 and 2023 and undrawn revolver of $200 million $35 million of tax-exempt bonds BB/B1 Rating U.S. pension fully funded on a PBO basis No cash contributions in over 20 years Summary B
Slide 33: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation Reported results include $10.7 million of interest expense recorded in the first quarter of 2016 related to the settlement of interest rate swaps incurred in connection with the Company’s refinancing of its credit facility. Includes $4 million of Unallocated Corporate
Slide 34: Adjusted Diluted Earnings Per Share Reconciliation
Adjusted Diluted Earnings Per Share Reconciliation Adjusted results exclude $10.7 million of interest expense recorded in 2016 related to the settlement of interest rate swaps incurred in connection with the Company’s refinancing of its credit facility. Based on ~54 million diluted shares outstandin
Slide 35: 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 36: Segment Reported Operating Income to Adjusted EBITDA
Segment Reported Operating Income (Loss) to Adjusted EBITDA Q4 2017 vs. PY YTD 2017 vs. PY MINERAL FIBER ARCHITECTURAL SPECIALTIES UNALLOCATED CORPORATE rounding factor 2016 V 2017 2016 V 2017 2016 V 2017 2016 V Operating Income (Loss) – As Reported 40.4 41.7 -1.3000000000000043 7.1 4.09999999999999
Slide 37: 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 38: 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 ~53 million of diluted shares outstanding. For the Year Ending December 31, 201
Slide 39: Consolidated Company Key Metrics - Fourth Quarter 2017
Consolidated Company Key Metrics - Fourth Quarter 2017 As reported Operating Income: $52 million in 2017 and $40 million in 2016 As reported EPS: $1.92 in 2017 and $0.33 in 2016 2017 2016 Variance Net Sales $214.36022199999999 $196.40147899999999 9.1438939724074061E-2 Adj. EBITDA $65 64 $59.4 9.4276
Slide 40: Adjusted EBITDA Bridge – Fourth Quarter 2017 vs. PY
Adjusted EBITDA Bridge – Fourth Quarter 2017 vs. PY $6 $1 ($2) $2 ($6) ($1) $6 Adjusted EBITDA up 9%
Slide 41: Adjusted Free Cash Flow Bridge – Fourth Quarter 2017 vs. PY
Adjusted Free Cash Flow Bridge – Fourth Quarter 2017 vs. PY $3 Adjusted Free Cash Flow up 16%
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