afi -- 1q16 slides
TRANSCRIPT
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ARMSTRONGFLOORING, INC.First Quarter 2016 Results
May 9, 2016
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SAFE HARBOR STATEMENTDisclosures in this release and in our other public documents and comments contain forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Those statements provide our future expectations or
forecasts and can be identified by our use of words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “outlook,” “target,” “predict,” “may,” “will,” “would,” “could,” “should,” “seek,” and other words or phrases ofsimilar meaning in connection with any discussion of future operating or financial performance. Forward-lookingstatements, by their nature, address matters that are uncertain and involve risks because they relate to events and dependon circumstances that may or may not occur in the future. As a result, our actual results may differ materially from ourexpected results and from those expressed in our forward looking statements. A more detailed discussion of the risks anduncertainties that could cause our actual results to differ materially from those projected, anticipated or implied is includedour reports filed with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the datethey are made. We undertake no obligation to update any forward-looking statements beyond what is required underapplicable securities law. The information in this presentation is only effective as of the date given, May 9, 2016, and issubject to change. Any distribution of this presentation after May 9, 2016 is not intended and will not be construed asupdating or confirming such information.
In addition, we will be referring to “non-GAAP financial measures” within the meaning of SEC Regulation G. A reconciliationof the differences between these measures with the most directly comparable financial measures calculated in accordancewith GAAP can be found in the appendix section of this presentation.
Armstrong Flooring, Inc. competes globally in many diverse markets. References to "market " or "share " data are simplyestimations based on a combination of internal and external sources and assumptions. They are intended only to assistdiscussion of the relative performance of product segments and categories for marketing and related purposes. Noconclusion has been reached or should be reached regarding a " product market ," a "geographic market " or “marketshare ,” as such terms may be used or defined for any economic, legal or other purpose.
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• When reporting our financial results within this presentation,
we make several adjustments. Management uses non-GAAP
measures in managing the business and believes the
adjustments provide meaningful comparisons of operating
performance between periods. Reconciliations to the
nearest equivalent GAAP measures are presented on the
following pages.
• We report in comparable dollars to remove the effects of
currency translation on the P&L. The budgeted exchange
rate for 2016 is used for all currency translations in 2016
and prior years.
• We remove the impact of certain discrete expenses and
income. Examples include plant closures, restructuring
actions, separation costs and other large unusual items.
The non-cash expense impact of the U.S. pension is also
excluded.
Item Adjustments
Comparable
Dollars
Other
Adjustments
Net Sales Yes No
Gross Profit Yes Yes
SG&A Expense Yes Yes
Operating Income Yes Yes
Cash Flow No No
EBITDA Yes Yes
BASIS OF PRESENTATION EXPLANATION
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Overview and Highlights
Operating and Financial Results
Balance Sheet and Cash Flow
Outlook
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KEY HIGHLIGHTS – FIRST QUARTER 2016(Dollars in Millions) 2016 2015 Variance
Adjusted Net Sales
(1)
$285 $257 11%
Adjusted Operating (Loss) Income
(2) ($2) ($7) nm
% of Sales (1%) (3%) 200 bps
Adjusted EBITDA
(3) 10 3 >100%
% of Sales 3% 1% 235 bps
(1) As reported Net Sales $284M in 2016 and $259M in 2015
(2) As reported Operating (Loss) Income ($5M) in 2016 and ($3M) in 2015
(3) See slide 11 for a reconciliation of Adjusted EBITDA to the nearest GAAP measure
• Unit volume growth of 12% driven by Americas Resilient +6% and Wood +23%
• Adjusted EBITDA improvement due to volume increase, partially offset by expenses for luxury vinyl tile (LVT) plant ramp up
• LVT plant operating, but at lower than expected throughput
• Completed spin off from Armstrong World Industries on April 1
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BUILDING VALUE: UNIQUE OPPORTUNITY Leading hard surfaces flooring company
Most recognized brands Expansive product portfolio
Renewed focus on innovation
Differentiated go-to-market system
Operational, financial and organizational transformation
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Initiatives Starting to Show Results
Product
Go-to-Market
Completed
Capital
Investments
People
TRANSFORMATION UNDERWAY
Focus on product innovation
Manage under-performing SKUs
Improvements in price and mix
Distributor and retailer support
Merchandising investments
Consumer purchase journey
New LVT plant
Expanded Asia capacity
Increased Engineered Wood capacity
New leadership team
Customer-focused organization
Incentive plans tied to shareholder returns
Q4 2015
TOTAL UNIT
VOLUME+4%
ADJUSTED EBITDA+10%
ENGINEERED
WOOD VOLUME+20%
LVT VOLUME+34%
FOCUS AREAS Q1 2016
+12%
+32%
+42%
>100
Note: Q4 2015 and Q1 2016 comparisons versus the same quarter in the prior year
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• Net sales increased 11% on a constant currency basis
• Volume increased 12% driven by Wood
• Price reduced sales by 3% reflecting pricing actions toremain competitive in a deflationary environment
• Mix was positive due to strong growth in LVT
• Fall through on incremental volume offset by pricepressure in LVT, Wood
• Benefit of lower input costs and productivity in Woodpartially offset by LVT plant ramp up expenses
• Increase in SG&A reflects continued spending to supportgo-to-market initiatives
AFI FIRST QUARTER RESULTS
Key Highlights
Q1 2015 Adjusted EBITDA 3M
Volume 12Price (7)
Mix/Other (1)
Mfg & Input Costs 4
SG&A (1)
Q1 2016 Adjusted EBITDA 10M
$164 $157
$121$103
2016 2015
Reported Net Sales ( M)
Resilient Wood
284
259
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• Net sales increased 6% on a constant currency basis
• Volume increased 5%; growth in the Americas of 6%driven by LVT and VCT
• Price reduced sales by 1%; mix was positive due tostrong growth in LVT
• Fall through on incremental volume partially offset byprice pressure in LVT
• Mix positive due to strong growth in LVT
• Benefit of lower input costs more than offset by LVT plantramp up expenses, including product qualifications
Key Highlights
Q1 2015 Adjusted EBITDA 4M
Volume 4
Price (2)
Mix/Other 1
Mfg & Input Costs (3)
SG&A 1
Q1 2016 Adjusted EBITDA 4M
164
157
2016 2015
Reported Net Sales ( M)
Resilient
RESILIENT SEGMENT
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• Net sales increased 18% on a constant currency basis
• Volume increased 23% (including load in of majoraccounts) driven by growth in engineered wood of 32%
• Price reduced sales by 4% reflecting continuedreductions to be competitive in the market
• Volume increase driven by strong demand and fullengineered wood capability at Somerset, KY facility
• Lumber costs lower than previous year, but sequentiallyhigher through the quarter
• SG&A higher to support go to market activities
Key Highlights
Q1 2015 Adjusted EBITDA ( 2M)
Volume 8
Price (5)
Mix/Other (2)
Mfg & Input Costs 8
SG&A (2)
Q1 2016 Adjusted EBITDA 5M
$121
$103
2016 2015
Reported Net Sales ( M)
Wood
WOOD SEGMENT
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(Dollars in Millions)2016 2015
EBITDA
– Adjusted $10 $3
Depreciation and Amortization (11) (9)
Operating (Loss) Income – Adjusted ($2) ($7)
Cost Reduction (Expense)/Income and Multilayered Wood Flooring Duties (0) 1
US Pension Expense (2) (3)
Adjustment for Corporate Expense(1)
(1) 4
Foreign Exchange Rate Comparability 0 1
Operating (Loss) Income
– As Reported ($5) ($3)
Interest/Other (Expense) (0) 0
Tax (Expense) 0 (1)
Net (Loss) Earnings from Continuing Operations ($4) ($4)
Net Earnings from Discontinued Operations, net of tax 2 43
Net (Loss) Earnings ($3) $39
(1) 2015 reflects $9M of pro forma, standalone corporate costs net of the adjustments of allocated AWI corporateexpenses for carve out accounting
Rows and columns may not sum due to rounding
RECONCILIATION OF ADJUSTED EBITDA
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(Dollars in Millions) March 31,2016
December 31,
2015
Cash & Cash Equivalents -- --
Accounts & Notes Receivable $100 $72
Inventory $240 $243
Property, Plant & Equipment, Net $433 $434
Other Assets $109 $114
Total Assets 882 863
Accounts Payable, AccruedExpenses & Deferred Income Tax
$145 $161
Debt -- $10
Other Liabilities $74 $74
AWI Equity $663 $618
Total Liabilities and AWI Equity 882 863
•
Expect net pension liability of $33M ($383Mprojected pension obligation and fair value ofapproximately $350M of pension assets)
• On April 1, entered into five year, $225Mcredit facility
• Draw of $100M against facility; $50Mdividend payment to AWI (remaining balancenet of fees available for operating liquidity)
• Leverage of 1x net debt to EBITDA
• First quarter operating cash flow a draw of$29M compared to draw of $35M in prior
year quarter; net cash used for investingactivities ($8M) and ($11M) in the firstquarter of 2016 and 2015, respectively
BALANCE SHEET AND CASH FLOW
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2016 OUTLOOK
Negative PositiveFREE CASH FLOW(2)
2015 2016
(1) Based on 2016 budgeted exchange rates; see appendix for reconciliation(2) Free cash flow is defined as net cash from operating activities less net cash from investing activities
ADJ. NET SALES $1,200 - $1,250 million$1,183 million(1) 1% - 6% growth
$61million(1)
$65 - $80 million ADJ. EBITDA 7% - 31% growth
$50 - $60 millionCAPITAL EXPENDITURES $62 million
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BUILDING VALUE: UNIQUE OPPORTUNITY Leading hard surfaces flooring company
Most recognized brands
Expansive product portfolio
Renewed focus on innovation
Differentiated go-to-market system
Operational, financial and organizational transformation
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Appendix
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NET SALES RECONCILIATION
($ millions)
Net Sales - AFI 2015 - Q1 2015 - Q2 2015 - Q3 2015 - Q4 2015 2016 - Q1
Adjusted Net Sales at 2016 budgeted FX rates 257 324 322 280 1,183 285
2016 comparability FX adjustment 2 3 1 - 6 (1)
Net Sales - As Reported(1)
259$ 327$ 323$ 280$ 1,189$ 284$
Net Sales - Resilient 2015 - Q1 2015 - Q2 2015 - Q3 2015 - Q4 2015 2016 - Q1
Adjusted Net Sales at 2016 budgeted FX rates 155 198 191 165 709 164 2016 comparability FX adjustment 2 2 1 (1) 4 (1)
Net Sales - As Reported(1)
157$ 200$ 192$ 164$ 713$ 164$
Net Sales - Wood 2015 - Q1 2015 - Q2 2015 - Q3 2015 - Q4 2015 2016 - Q1
Adjusted Net Sales at 2016 budgeted FX rates 102 126 130 116 474 121
2016 comparability FX adjustment 1 - - - 1 (0)
Net Sales - As Reported (1) 103$ 127$ 130$ 116$ 475$ 121$
(1) Reflects net sales on carve-out basis consistent with Form 10 for 2015; 2016 sales as reported in the 10-Q for the period ending March 31, 2016
Note: rows and columns may not sum due to rounding
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EBITDA RECONCILIATION – AFI($ millions)
Total Company Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 2016 - Q1
Standalone Adjusted EBITDA at 2016 budgeted FX rates 3$ 28$ 24$ 6$ 61$ 10$
Depreciation and amortization (9) (9) (10) (10) (38) (11)
Cost reduction (expense)/income and multilayered wood flooring duties 1 (4) - (1) (4) -
U.S. non-cash pension (3) (2) (4) (4) (12) (2)
Adjustment for standalone corporate expenses 9 10 10 11 40 na
Carve-out adjustments of AWI corporate expenses, excluding non-cash U.S. pension (5) (9) (9) (8) (32) (1)
Comparability FX adjustment 1 1 1 1 3 -
AFI Operating Income (Loss) - As Reported (3)$ 15$ 12$ (5)$ 18$ (5)$
Resilient Segment Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 2016 - Q1
Standalone Adjusted EBITDA at 2016 budgeted FX rates 4$ 22$ 16$ (2)$ 40$ 4$
Depreciation and amortization (6) (6) (7) (7) (26) (8) Cost reduction (expense)/income and multilayered wood flooring duties 1 - (1) - - -
U.S. non-cash pension (3) (2) (3) (3) (10) (2)
Adjustment for standalone corporate expenses 6 7 7 7 27 na
Carve-out adjustments of AWI corporate expenses, excluding non-cash U.S. pension (3) (7) (6) (4) (21) -
Comparability FX adjustment 1 1 (1) - 1 1
Resilient Segment Operating Income (Loss) - As Reported -$ 15$ 5$ (9)$ 11$ (5)$
Wood Segment Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 2016 - Q1
Standalone Adjusted EBITDA at 2016 budgeted FX rates (2)$ 6$ 11$ 7$ 21$ 5$
Depreciation and amortization (3) (3) (3) (3) (12) (3)
Cost reduction (expense)/income and multilayered wood flooring duties - (4) - - (4) -
U.S. non-cash pension - - (1) - (1) -
Adjustment for standalone corporate expenses 3 3 3 4 13 na
Carve-out adjustments of AWI corporate expenses, excluding non-cash U.S. pension (2) (3) (3) (4) (12) -
Comparability FX adjustment - 1 - - 2 -
Wood Segment Operating Income (Loss) - As Reported (4)$ -$ 7$ 4$ 7$ 1$
Note: rows and columns may not sum due to rounding