Goodman Global, Inc. JPMorgan Small / Mid Cap Conference November 14, 2006

Transcription

1 Goodman Global, Inc. JPMorgan Small / Mid Cap Conference November 14, 2006

2 1 Company overview

3 Goodman Goodman is a leading HVAC manufacturer $1.8 billion in annual sales A growing position in a growing market A strong product portfolio The value leader with a low cost structure A broad and growing distribution base Strong earnings growth potential Substantial and consistent cash flow 2

4 Top six manufacturers account for approximately 90% of market volume Goodman market share growth 2005 residential HVAC products market position Goodman/ Amana Source: Goodman estimate Source: Goodman estimate Goodman has seen substantial share growth 3

5 Sales driven primarily by replacement US Residential HVAC Market HVAC Residential Equipment Demand New Construction % 70% Replacement Replacement Growth Rate New Construction Growth Rate e New Construction Replacement Source: Goodman estimates Source: US Census Bureau, ARI, Goodman estimates Replacement cycle, not housing starts, driving residential HVAC demand 4

6 Extensive platform of residential HVAC products Split-system A/C, heat pumps New Outdoor unit primarily for comfort cooling and heating (heat pump) of single or multifamily residences Air handlers, coils New Indoor unit for comfort cooling and heating (heat pump) of single or multi-family residences Gas furnaces New Indoor unit primarily for comfort heating of single or multi-family residences Light Commercial In Redesign Outdoor unit primarily for comfort cooling of smaller commercial structures Package units New Combines both comfort cooling and heating in one selfcontained unit Package Terminal Air Conditioner New PTACs primarily used in hotels, apartments, schools and hospitals. All major products re-engineered in last 3 years 5

7 Focused brand strategy for HVAC equipment 87% of 2005 HVAC product sales 1 Value priced brand Brand positioning Goodman Why pay more? High quality at a low price Brand personality Smart, frugal, solid, honest, aggressive, direct 13% of 2005 HVAC product sales 1 Premium brand Brand conscious target market Brand positioning Amana as the great American brand that outlasts the rest More features and product options Brand personality Pioneering, trustworthy, dependable, craftsman-like, sensible Goodman has maintained brand differentiation to serve both the value and premium sectors 1 Data as of YE 2005; does not include sale of QuietFlex, PTAC and other ancillary products 6

8 7 Goodman/Amana brand positioning

9 Our low cost-to-market advantage Engineering Production Develop low-cost, installer friendly designs Every process contributes SG&A Standardize components for volume leverage Build quality into the products Reverse engineer to lower cost designs Global sourcing of lowest cost parts and materials Low factory overhead Flexible manufacturing Low SG&A, as a percent of sales (10.7% in 2005) Cost conscious approach to spending Distribution Central Distribution Cost competitive layered distribution Mark-up rebate COD cost structure 8

10 Fragmented two-tier distribution system Limited price transparency provides ability to maintain attractive margins and pass through cost inflation Households Contractors Manufacturers Distributors Manufacturer owned distribution & others Top 6 90% market share Independent distribution 9

11 Growing distribution network Company-operated distribution (~60% of sales) locations 50% increase from 2003 Continuity in large markets Florida, Texas, California, Arizona, Nevada, and Washington/Baltimore Direct customer contact Information flow management Channel for conducting market tests Independent distribution (~40% of sales) 1 Over 600 stocking locations Added 49 new stocking locations in 2006 Broad distribution of full product line Provides cost-effective access to markets Operate with low cost structure and competitive price strategy Average relationship with top ten distributors is over 17 years Over 700 points of sale largest in the industry 1 Includes direct sales force channel 10

12 Broad nationwide reach Independent distributor locations Company operated locations Well-positioned access to all major market areas 11

13 12 Business strategy

14 Goodman s business strategy Capitalize on growth opportunities from 13-SEER Expand and strengthen distribution network Realize benefits of recent openings Further increase coverage density Expand relationships with national builders Maintain low-cost and value leadership Pursue other growth opportunities Indoor air quality Wireless PTAC Light commercial International expansion 13

15 Industry completing 13 SEER transition Two-year transitional period with incremental benefits to revenues and earnings in each year 13-SEER products are priced well above 10-SEER products, and have higher margins 2005 pre-build / pre-buy causes some noise in year-to-year sales trends Anticipated 2005 to 2007 industry mix evolution 13+SEER ~ 80% 10/12 SEER 100% 12% e 2007e Source: ARI, Goodman estimates Goodman expected to have better-than-average benefits 14

16 Goodman 13-SEER transition In 2005, approximately 88% of air conditioners and heat pumps sold were from sub 13-SEER units Product redesigned to continue to offer attractive value proposition to contractors Manufacturing process redesigned to maintain low-cost advantage Houston Logistics Center expanded to handle larger units and provide for growth Expect to generate significant sales growth and margin improvement Positioned to grow revenues and earnings from transition to 13-SEER 15

17 Continued expansion of company-operated distribution Standardized company-operated distribution One Look One Feel Common customer view Standardized operations, training Consistent and repeatable, front to back Net new location openings YE 2003 October 2006: 46 new locations Total network: 138 locations New-location performance expectations Contribute to: Market share growth Revenue increases Operating income improvements New locations opened in 2004, 2005 and 2006 have not yet reached maturity 16

18 Growing independent distributor base Strong and growing channel to market Approximately 140 distributors with over 600 locations Have added 49 new stocking locations in 2006 Distributor support programs Focused on Goodman s value position Encourage expansion and growth Key Independent Distributors G.W. Berkheimer East Coast Metal Ferguson Geary Pacific Hinkle Metals Jackson Supply Johnstone Supply Lute Supply McCall s Superior Equipment 17

19 Growing the dealer/contractor base Goodman dealer/contractor recruitment program Focused on key dealer/contractor satisfaction metrics Key Satisfaction Criteria Product Quality Availability Distributor relationship Price Product: comprehensive product portfolio, easy to install Quality: reliable performance backed by excellent warranty Availability: industry s broadest distribution network supported with superior logistics Distributor relationship: multiple points of access to choose from Price: value priced for profitable sales Over 1,700 contractor visits in ,486 visits YTD 2006 Positioned to increase dealer/contractor satisfaction & profitability 18

20 Report card Among the best Overall Customer Satisfaction 1 Goodman received the highest rating for overall customer satisfaction in first ever J.D. Power HVAC subcontractor satisfaction survey 1 Goodman delivers best value 1 J.D. Power and Associates and McGraw-Hill Construction, 2006 HVAC Subcontractor Satisfaction Study 19

21 Expand relationships with national builders Large new home builders focusing product acquisition on fewer numbers of suppliers Goodman offers strong value to new home builder market Broad product line choices Competitive warranties Extensive service and support New builder programs Expanding our base in residential new construction sales Account for approximately 30% of net sales Broad geographic distribution 20

22 Low cost, value leader through efficient manufacturing Strong emphasis on lean manufacturing practices Flexible assembly process allows quick response to product demand Efficient demand flow process minimizes raw materials and in process inventories Components standardized across brands and platforms Strong quality control systems Global sourcing of raw materials and components A leading low cost manufacturer 21

23 Very efficient logistics capability Recently completed expansion From 400,000 ft², to 700,000 ft² Includes 144 dock doors and 380-slot trailer yard Productivity Shipped 19% more units per employee in 2005 than in 2004 Shipped 9% more pieces per truck load with fewer miles run Inventory management Track in-stock, fill rates, order cycle time, forecast accuracy, sales, inventory, and inventory turns by customer and SKU Continued, steady improvement in each area Customer service is the core focus 22

24 Growth opportunities - PTAC Totally wireless solution to energy management Customers may reduce energy usage by up to 35% In-room energy savings Property-level energy management Multi-property load management Provides diagnostic information for preventive maintenance Simple and inexpensive installation Can retrofit over 1 million PTAC units already installed Providing Goodman value with technology 23

25 24 Financial review

26 2006 Outlook 2006 YTD 2006 Outlook Strong performance in 1 st nine months Grew profitably Net sales increased 20% Adjusted operating income increased 24% Adjusted net income increased 51% Leveraged production costs and SG&A expenses Adjusted gross margin % increased 20 bp Adjusted SG&A expense % declined 20 bp Sales per employee increased 18% New home construction expected to soften further Recent price adjustment Sets position for 2007 Adjusted EBITDA: $225 - $230 million Adjusted Earnings per share: 1 $ $1.07 $1.07 -$1.11 pro forma adjusted 2 Have completed 13-SEER transition 1 Excludes IPO-related expenses 25 2 Assumes IPO completed on January 1, 2006

27 Consistent revenue stream and strong free cash flow Net sales Adjusted EBITDA 1 Cumulative unlevered free cash flow 1,2 ($ million) ($ million) ($ million) CAGR = 11% $1,565 CAGR = 10% $194 $1,318 $1,193 $164 $1,136 $153 $145 $363 $400 $586 $ Adjusted to exclude one-time transaction related charges and expenses, other non-recurring product related and incentive charges and expenses, and other non-recurring items. See Appendix: Non-GAAP Reconciliations for more information. 2 EBITDA,-/+ working capital,- capital expenditures 26

28 Operating leverage Net sales Adjusted gross profit Adjusted SG&A % sales 1 % sales 1 ($ million) $1,318 $1,565 $1,169 $1, % 23.1% 22.8% 23.0% 11.5% 10.7% 10.3% 10.1% M'05 9M' M'05 9M' M'05 9M'06 1 Adjusted to exclude expenses related to IPO and acquisition by Apollo, and Apollo management fees. See Appendix: Non-GAAP Reconciliations for more information. Operating leverage and productivity continue to improve 27

29 2007 Outlook Uncertainty Extent of residential new construction slowdown Momentum All 13+SEER product mix 2Q 06 and 4Q 06 price increases All new-generation product designs Improved factory efficiencies Expect lower commodity costs Expanding distributor and dealer networks A year with potential for above-trend growth in revenues, earnings and cash flow 28

30 Lower 2007 Commodities Costs Anticipate lower commodity costs in 2007 Hedge objective is to reduce volatility and maintain competitive position in commodity costs Commodity Hedge Program 100% Quarterly Requirements: Copper and Aluminum 4Q 06 Initial Position _ 1Q 07 Hedge Layer 2Q 07 Hedge Layer 3Q 07 Hedge Layer 4Q 07 Hedge Layer 0% 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 Approximately half of 2007 aluminum requirements hedged at costs below GGL 2006 average cost Position in copper expected to be taken before year-end. Current spot and futures prices are below 4Q 06 GGL cost commitments 29

31 Long-term performance objectives High single digit sales growth Share growth through new products and distribution gains 13 SEER transition growth opportunities Margin expansion Product mix Global procurement initiatives Productivity SG&A leverage Strong free cash flow Modest capital expenditures Long-term tax shield benefits Working capital management Accelerated deleveraging EPS growth in the high teens 30

32 Conclusions Attractive industry structure Strong market position Consistent revenue stream driven primarily by non-cyclical replacement demand Strong, extensive and growing distribution network A low-cost, value leader with attractive double-digit EBIT margins Significant opportunities for revenue and earnings growth Substantial and sustained free cash flow 31

33 32 Questions & Answers

34 Forward looking statements This presentation contains forward-looking statements. The words believe, expect, anticipate, intend, estimate and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Forward-looking statements also include statements about the following subjects: changes in weather patterns and seasonal fluctuations; changes to the 13 SEER federally mandated minimum efficiency standard; the maturation of our new company-operated distribution centers; increased competition and technological changes and advances; significant increases in the cost of raw materials and components; our relations with our independent distributors; and damage or injury caused by our products. Although forward-looking statements reflect management s good faith beliefs, they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the impact of general economic conditions in the regions in which we do business; general industry conditions, including competition and product, raw material and energy prices; changes in exchange rates and currency values; capital expenditure requirements; access to capital markets and the risks and uncertainties described under Risk factors in our recent SEC filings. 33

35 Appendix: Non-GAAP Reconciliations Reconciliation of Net Income to EBITDA, Adjusted EBITDA and Unlevered Free Cash Flow Net income (loss) $65.8 $87.4 $47.7 $24.9 Add: Interest Expense Provisions for (benefit from) income taxes (5.0) 15.8 Depreciation and amortization expense EBITDA $134.5 $130.0 $74.0 $152.6 Add: Inventory valuation step-up One-time transaction-related charges and expenses 68.0 Strategic repositioning Non-recurring items Monitoring fee 2.0 Adjusted EBITDA $145.4 $152.9 $164.3 $194.2 EBITDA, adjusted for transaction-related items $134.5 $130.0 $146.4 $192.2 Add: Change in working capital (81.7) 22.7 Capital expenditures (12.7) (16.8) (27.8) (28.8) Unlevered free cash flow $199.2 $163.8 $36.9 $186.1 Cumulative unlevered free cash flow $199.2 $363.0 $399.9 $586.0 Non-GAAP Financial Measures In addition to financial results that are determined in accordance with GAAP, Goodman has also presented EBITDA, Adjusted EBITDA and Unlevered Free Cash Flow. Goodman uses EBITDA and Unlevered Free Cash Flow, along with other measures, to evaluate its performance relative to its peers. In addition, EBITDA and Unlevered Free Cash Flow are measures commonly used in the financial community, and Goodman presents these to enhance the understanding of its operating performance and to provide investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Also, the Company s credit agreement and bond indentures have certain covenants that use ratios utilizing a measure called Adjusted EBITDA that include supplementary adjustments to EBITDA to derive Adjusted EBITDA. 34

36 Appendix: Non-GAAP Reconciliations Adjustments to Reported Consolidated Statements of Operations ($million, except per share amounts) Reported Adjustments Adjusted Reported Adjustments Adjusted Sales, net $1,317.6 $1,317.6 $1,565.4 $1,565.4 Cost of goods sold 1, , ,243.4 (39.6) 1 1,203.8 Gross income (5.6) Selling, general & administrative expenses (68.8) (2.0) Depreciation & amortization expense Operating income Interest expense, net Other expense (income), net (1.4) (0.7) Income before income taxes Provision for income taxes (5.0) 15.8 Net income $47.7 $24.9 Less: Preferred dividends Net income available to common shareholders $47.2 $2.4 Inventory amortization from step-up in basis at Apollo Acquisition $4.4; non-recurring product-related expense accrual reversal $ Apollo Acquisition-related expenses $ Inventory amortization from step-up in basis at Apollo Acquisition Apollo management fee 35

37 Appendix: Non-GAAP Reconciliations Adjustments to Reported Consolidated Statements of Operations Nine Months Ended September 30, 2005 Nine Months Ended September 30, 2006 ($million, except per share amounts) Reported Adjustments Adjusted Reported Adjustments Adjusted Sales, net $1,168.7 $1,168.7 $1,402.4 $1,402.4 Cost of goods sold (37.6) , ,080.1 Gross income Selling, general & administrative expenses (1.5) (16.7) Depreciation & amortization expense Operating income Interest expense, net (3.8) Other income, net (0.4) - (0.4) (0.4) - (0.4) Income before income taxes Provision for income taxes Net income $19.8 $24.0 $43.8 $53.0 $13.1 $66.0 Less: Preferred dividends Net income available to common shareholders $3.2 $24.0 $27.2 $46.3 $13.1 $59.4 Net income per share, diluted $0.07 $0.57 $0.73 $0.93 Pro-forma adjusted net income per share, diluted $0.64 $0.94 Avg. outstanding common shares, diluted (000) 47,918 47,918 63,637 63,637 Pro-forma avg. outstanding common shares, diluted (000) 68,836 70,609 Inventory amortization $39.6 from step-up in basis at Apollo Acquisition; derivative gain $2.0 Apollo management fee Apollo management fee $0.6; IPO-related expenses $16.1 IPO-related expenses 36