Where Intelligence Meets Infrastructure

Transcription

1 Where Intelligence Meets Infrastructure Earnings Conference Call For The First Quarter Ended December 31, 2018 February 5, 2019 These slides are not intended to be a stand-alone presentation, but are for use in conjunction with the earnings call

2 NON-GAAP Financial Measures In an effort to provide investors with additional information regarding the Company s results as determined under GAAP, the Company also provides non-gaap information that management believes is useful to investors. These non-gaap measures have limitations as analytical tools, and securities analysts, investors and other interested parties should not consider any of these non-gaap measures in isolation or as a substitute for analysis of the Company s results as reported under GAAP. These non-gaap measures may not be comparable to similarly titled measures used by other companies. The Company presents adjusted net income, adjusted net income per diluted share, adjusted operating income, adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin as performance measures because management uses these measures in evaluating the Company s underlying performance on a consistent basis across periods and in making decisions about operational strategies. Management also believes these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of the Company s recurring performance. The Company presents net debt and net debt leverage as performance measures because management uses them in evaluating its capital management, and the investment community commonly uses them as measures of indebtedness. The Company presents free cash flow because management believes it is commonly used by the investment community to measure the Company s ability to create liquidity. The calculations of these non-gaap measures and reconciliations to GAAP results are included as an attachment to this presentation and have been posted online at 2

3 Forward-Looking Statements This press release contains certain statements that may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of All statements that address activities, events or developments that we intend, expect, plan, project, believe or anticipate will or may occur in the future are forward-looking statements, including statements regarding our go-to-market strategies, operational excellence, acceleration of new product development, continued growth in our end markets, net sales growth, organic adjusted operating income and adjusted EBITDA growth, capital allocation and growth strategies and future warranty charges. Forward-looking statements are based on certain assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions and expected future developments. Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including regional, national or global political, economic, market and competitive conditions, cyclical and changing demand in core markets such as municipal spending, residential and non-residential construction, and natural gas distribution, manufacturing and product performance, expectations regarding higher volumes, continued execution of our cost productivity initiatives and improved pricing, warranty exposures (including the adequacy of our warranty reserves), our ability to successfully resolve the issues associated with the Walter Tax Liability, changing regulatory, trade and tariff conditions, the failure to realize any of the anticipated benefits of our acquisition of Krausz within the time period currently expected, the risk that the integration of Krausz s operations into our own will be more costly, difficult or time consuming than expected, and other factors that are described in the section entitled RISK FACTORS in Item 1A of our most recently filed Annual Report on Form 10-K. Undue reliance should not be placed on any forward-looking statements. We do not have any intent to update forward-looking statements, except as required by law. 3

4 First Quarter Highlights 8.1% organic net sales growth driven by higher shipment volumes and pricing 22.4% increase in adjusted operating income with 20.4% adjusted EBITDA growth driven by sales growth and improved manufacturing performance Both Infrastructure and Technologies reported growth in net sales and improved operating performance Recorded a $37.4 million accrual based on a proposed IRS calculation of the liability related to the ongoing dispute regarding Walter Energy tax returns ( Walter Energy Accrual ) Completed acquisition of Krausz Industries a manufacturer of pipe couplings, grips and clamps, which will be included in the Company s operating results beginning January 1, 2019 After a solid start to the year, we are increasing our expectations for 2019 to reflect the impact of the Krausz acquisition Announced additional price increases for many products effective in February in order to help offset anticipated inflation in

5 Consolidated GAAP Results Net sales increased 8.1%, or $14.5 million, to $192.8 million driven by higher volumes at both Infrastructure and Technologies, as well as higher pricing at Infrastructure Gross profit increased 8.5% to $60.1 million yielding a gross profit margin of 31.2% with higher pricing, increased shipment volumes and improved manufacturing performance partially offset by higher material and freight costs and the impact of tariffs SG&A expenses of $41.0 million increased compared to 2018 primarily due to higher volume-related personnel expenses. SG&A as a percent of net sales decreased to 21.3% from 22.3% in prior year Operating income was $15.9 million compared to $20.7 million in 2018 Net loss per diluted share of $0.13 includes the $37.4 million Walter Energy Accrual and $3.2 million of other charges First Quarter Net sales $ $ Gross profit $ 60.1 $ 55.4 Gross margin 31.2% 31.1% SG&A $ 41.0 $ 39.8 SG&A % of net sales 21.3% 22.3% Operating income $ 15.9 $ 20.7 Net income (loss) per diluted share $ (0.13) $ 0.34 $ in millions except per share amounts 5

6 Consolidated Non-GAAP Results Adjusted operating income increased 22.4%, or $3.5 million, to $19.1 million compared with $15.6 million Both segments contributed to the improvement in operating performance which was primarily due to higher volumes and pricing, and better manufacturing performance, which were partially offset by higher costs associated with inflation Adjusted EBITDA increased 20.4% to $31.3 million compared with $26.0 million in 2018 LTM Adjusted EBITDA increased to $185.3 million, or 19.9% of net sales Adjusted net income per diluted share increased to $0.07 compared with $0.06 last year First Quarter Adj. operating income $ 19.1 $ 15.6 Adj. operating margin 9.9% 8.7% Adj. net income per share $ 0.07 $ 0.06 Adj. EBITDA $ 31.3 $ 26.0 Adj. EBITDA margin 16.2% 14.6% $ in millions except per share amounts 1Q19 results exclude the Walter Energy Accrual of $37.4 million, strategic reorganization and other charges of $3.2 million, and tax benefits of $8.3 million 1Q18 results exclude a gain of $9.0 million, strategic reorganization and other charges of $3.9 million, and $42.6 million tax benefit from remeasuring deferred income tax balances 6

7 Infrastructure Results Net sales grew 7.4% to $172.0 million for the quarter compared with $160.1 million last year Increase driven by higher shipment volumes and higher pricing Adjusted operating income of $30.9 million increased 10.0%, or $2.8 million, in the quarter Adjusted operating income increase primarily due to shipment volume growth, higher pricing and improved manufacturing performance, partially offset by higher costs associated with inflation and SG&A Adjusted EBITDA increased 10.5% to $41.0 million, yielding an adjusted EBITDA margin of 23.8 percent for this segment First Quarter Net sales $ $ Adj. operating income $ 30.9 $ 28.1 Adj. operating margin 18.0% 17.6% Adj. EBITDA $ 41.0 $ 37.1 Adj. EBITDA margin 23.8% 23.2% $ in millions 7

8 Technologies Results Net sales increased 14.3% to $20.8 million in the quarter as compared with $18.2 million last year Primarily driven by higher volumes at Mueller Systems Adjusted operating loss improved $0.9 million Primarily due to improved manufacturing performance and higher volumes, partially offset by higher costs associated with inflation Adjusted operating loss for the quarter was $3.7 million compared to $4.6 million last year Adjusted EBITDA improved $1.5 million to ($1.7) million in the quarter First Quarter Net sales $ 20.8 $ 18.2 Adj. operating loss $ (3.7) $ (4.6) Adj. operating margin (17.8)% (25.3)% Adj. EBITDA $ (1.7) $ (3.2) Adj. EBITDA margin (8.2)% (17.6)% $ in millions 1Q18 results exclude $0.1 million of other charges 8

9 Free Cash Flow $ in millions $15.0 $10.0 $5.0 $0.0 ($5.0) ($10.0) ($15.0) ($20.0) $9.9 $0.5 ($15.9) ($6.4) ($6.0) ($5.9) Q1FY19 Q1FY18 Cash flow from operating activities improved $9.4 million to $9.9 million compared to the prior year Invested $15.9 million in capital expenditures in first quarter as compared with $6.4 million in 2018 to upgrade equipment and manufacturing capabilities Free cash flow of ($6.0) million in the quarter similar to the prior year quarter Capital expenditures Cash flow from operating activities Free cash flow 9

10 Net Debt $ in millions $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $445.6 $445.0 $198.8 $347.1 $246.8 $97.9 Total debt of $445.6 million and cash and cash equivalents of $198.8 million, after Krausz acquisition Net debt leverage was 1.3x at December 31, 2018 $94 million of excess availability under the ABL at December 31, 2018 $ in millions 12/31/2018 ABL Revolver (LIBOR basis points) $ % Senior Notes* $0 12/31/2018 9/30/2018 Net Debt Cash Total Debt Other 2.0 Total Debt $ * 5.5% Senior Notes net of $6.4 million of deferred debt issuance costs 10

11 First Quarter Comments and 2019 Full Year Outlook

12 Krausz Industries Krausz is a leader in pipe repair couplings, grips and clamps with a suite of products that can address virtually any water and wastewater pipe connection or repair scenario Broad Portfolio of Products HYMAX Coupling Two-bolt wide-range non-restraint coupling HYMAX Grip HYMAX Versa Two-bolt wide-range restraint coupling Wide-range wrap-around non-restraint coupling HYMAX Clamp Two-bolt wide-range clamp Key End-Uses of Pipe Connection and Repair Products CONNECT pipes of different size and type RESTRAIN the pipe and reinforce the integrity of the pipe connection REPAIR any type of hole, leak or crack Cut off pipe section that requires replacement Connect new pipe section to old pipe section using coupling 12

13 2019 Full Year Outlook Full year 2019 expectations reflect the current business environment and include the impact from the acquisition of Krausz Industries Ltd., which will commence January 1, 2019 Growth in all end markets with municipal spending growth in the low to mid-single digit range, residential construction growth in the low-single digit range and natural gas distribution growth in the mid-single digit range Consolidated net sales growth between 8 and 10 percent, including the benefit from the acquisition of Krausz Industries Adjusted EBITDA growth between 14 and 17 percent (from $180.0 million of adjusted EBITDA in 2018) with no change in our expectations for full year organic adjusted operating income growth Depreciation and amortization between $51 million and $54 million, which excludes amortization related to the acquisition of Krausz Corporate SG&A expenses between $35 million and $37 million Net interest expense between $22 million and $23 million, reflecting lower interest income as a result of funding the Krausz acquisition with cash on hand, and an adjusted annual effective income tax rate between 25 and 27 percent Capital expenditures between $58 million and $62 million, and we are considering some projects which would increase our expected expenditures for

14 Q&A

15 Supplemental Data

16 Segment Results and Reconciliation of GAAP to Non-GAAP Performance Measures (UNAUDITED) Quarter ended December 31, 2018 Infrastructure Technologies Corporate Consolidated (dollars in millions, except per share amounts) Net sales $ $ 20.8 $ $ Gross profit $ 56.8 $ 3.3 $ $ 60.1 Selling, general and administrative expenses Strategic reorganization and other charges Operating income (loss) (1) $ 30.9 $ (3.7) $ (11.3) $ 15.9 Operating margin 18.0% (17.8)% 8.2% Capital expenditures $ 14.8 $ 1.1 $ $ 15.9 Reconciliation of non-gaap performance measures to GAAP performance measures: Net loss $ (21.0) Walter Energy accrual 37.4 Strategic reorganization and other charges 3.2 Transition tax benefit (0.6) Discrete tax benefit of Walter Energy accrual (7.7) Income tax benefit of adjusting items 0.3 Adjusted net income $ 11.6 Weighted average diluted shares outstanding Adjusted net income per diluted share $ 0.07 (1) We do not allocate interest or income taxes to our segments. 16

17 Segment Results and Reconciliation of GAAP to Non-GAAP Performance Measures (UNAUDITED) Quarter ended December 31, 2018 Infrastructure Technologies Corporate Consolidated (dollars in millions, except per share amounts) Net loss $ (21.0) Income tax expense (benefit) (1) (5.9) Interest expense, net (1) 5.5 Walter Energy accrual 37.4 Pension costs other than service (0.1) Operating income (loss) $ 30.9 $ (3.7) $ (11.3) 15.9 Strategic reorganization and other charges Adjusted operating income (loss) 30.9 (3.7) (8.1) 19.1 Pension costs other than service Depreciation and amortization Adjusted EBITDA $ 41.0 $ (1.7) $ (8.0) $ 31.3 Adjusted operating margin 18.0% (17.8)% 9.9% Adjusted EBITDA margin 23.8% (8.2)% 16.2% Adjusted EBITDA $ 41.0 $ (1.7) $ (8.0) $ 31.3 Three prior quarters adjusted EBITDA (0.9) (25.6) Trailing twelve months adjusted EBITDA $ $ (2.6) $ (33.6) $ Reconciliation of net debt to total debt (end of period): Current portion of long-term debt $ 0.8 Long-term debt Total debt Less cash and cash equivalents Net debt $ Net debt leverage (net debt divided by trailing twelve months adjusted EBITDA) 1.3x Reconciliation of free cash flow to net cash provided by operating activities: Net cash provided by operating activities $ 9.9 Less capital expenditures (15.9) Free cash flow $ (6.0) (1) We do not allocate interest or income taxes to our segments. 17

18 Segment Results and Reconciliation of GAAP to Non-GAAP Performance Measures (UNAUDITED) Quarter ended December 31, 2017 Infrastructure Technologies Corporate Consolidated (dollars in millions, except per share amounts) Net sales $ $ 18.2 $ $ Gross profit $ 52.5 $ 2.9 $ $ 55.4 Selling, general and administrative expenses Gain on sale of idle property (9.0) (9.0) Strategic reorganization and other charges Operating income (loss) (1) $ 28.1 $ (4.7) $ (2.7) $ 20.7 Operating margin 17.6% (25.8)% 11.6% Capital expenditures $ 4.8 $ 1.5 $ 0.1 $ 6.4 Reconciliation of non-gaap performance measures to GAAP performance measures: Net income $ 55.1 Income tax benefit from remeasuring deferred income tax balances (42.6) Gain on sale of idle property (9.0) Strategic reorganization and other charges 3.9 Income tax benefit of adjusting items 1.4 Adjusted net income $ 8.8 Weighted average diluted shares outstanding Adjusted net income per diluted share $ 0.06 (1) We do not allocate interest or income taxes to our segments. 18

19 Segment Results and Reconciliation of GAAP to Non-GAAP Performance Measures (UNAUDITED) Quarter ended December 31, 2017 Infrastructure Technologies Corporate Consolidated (dollars in millions, except per share amounts) Net income $ 55.1 Income tax expense (1) (39.8) Interest expense, net (1) 5.2 Pension costs other than service 0.2 Operating income (loss) $ 28.1 $ (4.7) $ (2.7) 20.7 Gain on sale of idle property (9.0) (9.0) Strategic reorganization and other charges Adjusted operating income (loss) 28.1 (4.6) (7.9) 15.6 Pension costs other than service (0.1) (0.1) (0.2) Depreciation and amortization Adjusted EBITDA $ 37.1 $ (3.2) $ (7.9) $ 26.0 Adjusted operating margin 17.6% (25.3)% 8.7% Adjusted EBITDA margin 23.2% (17.6)% 14.6% Adjusted EBITDA $ 37.1 $ (3.2) $ (7.9) $ 26.0 Three prior quarters adjusted EBITDA (3.6) (26.3) Trailing twelve months adjusted EBITDA $ $ (6.8) $ (34.2) $ Reconciliation of net debt to total debt (end of period): Current portion of long-term debt $ 5.6 Long-term debt Total debt Less cash and cash equivalents Net debt $ Net debt leverage (net debt divided by trailing twelve months adjusted EBITDA) 0.8x Reconciliation of free cash flow to net cash used in operating activities: Net cash used in operating activities $ 0.5 Less capital expenditures (6.4) Free cash flow $ (5.9) (1) We do not allocate interest or income taxes to our segments. 19