ARMSTRONG FLOORING, INC.

Transcription

1 ARMSTRONG FLOORING, INC. SECOND QUARTER 2017 RESULTS EARNINGS CALL August 7, 2017

2 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 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 of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements, by their nature, address matters that are uncertain and involve risks because they relate to events and depend on circumstances that may or may not occur in the future. As a result, our actual results may differ materially from our expected results and from those expressed in our forward looking statements. A more detailed discussion of the risks and uncertainties that could cause our actual results to differ materially from those projected, anticipated or implied is included our reports filed with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements beyond what is required under applicable securities law. The information in this presentation is only effective as of the date given, August 7, 2017, and is subject to change. Any distribution of this presentation after August 7, 2017 is not intended and will not be construed as updating or confirming such information. Armstrong Flooring, Inc. competes globally in many diverse markets. References to "market" or "share" data are simply estimations based on a combination of internal and external sources and assumptions. They are intended only to assist discussion of the relative performance of product segments and categories for marketing and related purposes. No conclusion has been reached or should be reached regarding a "product market," a "geographic market" or market share, as such terms may be used or defined for any economic, legal or other purpose. In addition, we will be referring to non-gaap financial measures within the meaning of SEC Regulation G. Management uses non-gaap measures, including Adjusted EBITDA and Free Cash Flow, in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. We remove the impact of certain discrete expenses and income. The non-cash expense impact of the U.S. pension and depreciation and amortization is also excluded. Results for periods prior to April 1, 2016 include costs allocated to AFI from its former parent, Armstrong World Industries. These results have been adjusted by adding the difference between these costs and the estimated stand-alone costs. A reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with GAAP can be found in the appendix section of this presentation. 2

3 KEY HIGHLIGHTS Q (Dollars in Millions) Q Q Y/Y Net Sales $297 $324 (8.1%) Adjusted EBITDA (22.9%) % of Sales 8.4% 10.1% (170 bps) Free Cash Flow (11) Double-digit LVT sales growth continued Addressing sustained challenges in legacy categories Organizational re-alignment complete Completed acquisition of Mannington s VCT business Repurchased $9M of shares during Q

4 PREVIOUSLY ANNOUNCED ACTIONS Announced realignment of the goto-market structure in March 2017 Combines residential and commercial go-to-market structures and related organizations Provides enhanced support and responsiveness to distributors, retailers, and contractors Aligns cost structure with the current environment Completed in H Expect annualized pre-tax benefit of $6 to $7 million to Adjusted EBITDA 4

5 VCT ACQUISITION Vinyl Composition Tile ( VCT ) a significant category within the hard surface flooring industry, especially in commercial end markets Completed purchase of Mannington Mills VCT business in June 2017 Will leverage Armstrong Flooring s existing manufacturing and selling infrastructure Purchase price of $36 million funded with cash and availability on existing ABL facility Pro forma TTM sales impact of $20 million (1) as of March 31, 2017 No expected impact to Adjusted EBITDA in 2017 Expected to be accretive to Adjusted EBITDA in (1) Estimated net sales retained from the acquisition of the assets for Mannington Mills VCT business had the acquisition occurred at the beginning of the trailing twelve month period ended March 31, 2017.

6 MANUFACTURING UPDATE Existing Wood Plant Jackson, TN Wood Plant Closure Vicksburg, MS Wood Plant Network 6 Announced planned closure of two wood plants in Q Aligns plant network to market demand Made possible through significant productivity benefits during past several years Expect cash expenditures of $3 to $5 million in 2017 Expect annual pre-tax benefit of $8 to $10 million to Adjusted EBITDA

7 AFI Q RESULTS Net Sales ($M) $297 $324 $110 $129 $188 $ Key Highlights Resilient segment sales impacted by continued market pressure and lower volume in traditional resilient products; partially offset by double-digit LVT sales growth Wood segment sales down primarily in retail channel Solid volumes impacted by channel pressure Engineered volumes lower at entry-level prices Resilient Wood Resilient Wood Total 2016 Adjusted EBITDA $23M $10M $33M Volume (4) (7) (11) Price (3) (1) (4) Mix/Other ---- (3) (3) Mfg & Input Costs SG&A Unfavorable fall through to EBITDA from lower sales Improvement in manufacturing costs driven by favorable comparison to high LVT operations ramp up in Q Strong productivity gains across plant network Lower SG&A spending 2017 Adjusted EBITDA $24M $1M $25M 7

8 FREE CASH FLOW AND LIQUIDITY (Dollars in Millions) Q Q H Operating Cash Flow ($33) $43 $10 Net Capex (13) (10) (23) Free Cash Flow (46) 33 (13) 8 Free Cash Flow & Liquidity Normal seasonal operating cash flow for Q1 and Q H free cash flow impacted by timing of spend for Q capex commitments $14M of shares repurchased during H Increased borrowings to finance Mannington VCT acquisition Anticipate another year of positive free cash flow in 2017 Ample liquidity to invest in growth and execute $50 million share repurchase program

9 2017 FULL YEAR OUTLOOK ADJ. EBITDA 2017 $60 to $70 million GROSS CAPITAL EXPENDITURES Approximately $45 million Insert picture 9

10 MEDIUM-TERM FINANCIAL GOALS REVENUE FLOW THROUGH 20-30% Incr. EBITDA Margins EBITDA MARGIN 10% 10

11 BUILDING VALUE THROUGH 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 11

12 12 APPENDIX

13 RECONCILIATIONS TO GAAP $ million Adj EBITDA Thee months ended June 30, Total Resilient Wood Total Resilient Wood Net Income $5.4 $7.0 Net gain from discontinued operations --- Interest Expense Other (Income) & Expense Taxes Operating Income (Loss) (2.6) Depreciation and amortization Reorganization expense and multilayered wood flooring duties (0.2) U.S. pension expense Adjustment for corporate expense Adjusted EBITDA $25.1 $23.7 $ 1.4 $32.6 $23.0 $9.6 Free Cash Flow Three months ended June 30, Six months ended June 30, 2017 Operating Cash Flow Purchases of property, plant, and equipment (10.1) (10.1) (22.8) Sale of assets Free Cash Flow $33.2 $44.2 ($12.8) 13 Note: Figures may not foot due to rounding.