FOURTH QUARTER FISCAL YEAR 2018 FINANCIAL RESULTS. May 15, 2018

Transcription

1 FOURTH QUARTER FISCAL YEAR 2018 FINANCIAL RESULTS May 15, 2018

2 CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT This presentation and discussion contains certain forward-looking statements that are subject to the Safe Harbor and Cautionary language contained in the press release we issued on May 14, 2018, as well as other factors that could cause actual results to differ materially from those discussed and that are disclosed in our filings with the Securities and Exchange Commission. Some comparisons will refer to certain non-gaap measures. Our earnings release and SEC filings contain additional information about these non-gaap measures, why we use them and why we believe they are helpful to investors, and contain reconciliations to GAAP data. 2

3 STRATEGIC UPDATE Consolidated Rexnord 4Q net sales growth increases to +14% year over year, core sales (1) growth to +7% FY18 Adjusted EBITDA (1) increases 13% year over year to $390 million Next stage of Supply Chain Optimization & Footprint Repositioning under way Process & Motion Control 4Q core sales growth sustained at +6% Centa Power Transmission integration on track, contributes 5% to PMC sales growth Water Management 4Q core sales growth increases to +8% Plan to divest non-strategic VAG operations from Water Management platform Cash Flow & Balance Sheet Net debt leverage ratio (1) declines to 2.7x FY18 free cash flow (1) increases to $188 million Note: All FY18 and 4QFY18 figures include VAG results. (1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14,

4 FOCUS WATER PLATFORM AROUND ZURN Zurn is a leader in the North American specification-grade plumbing products market Significant presence in later-cycle institutional nonresidential building construction Education, health care, transportation, public sectors FY18 core revenue growth of 4% exceeded estimated market growth FY18 Adjusted EBITDA margin expanded by more than 100 bps to 25% Product innovator with established new product pipeline 400ST n-pattern Backflow Series EZ1 Floor Drain System F1960 PEX Expansion System Sundara Handwashing System Anticipate reporting VAG as Discontinued Operations in 1QFY19 Acquired pre-ipo in FY12 under former private-equity ownership Engineered valves for water & wastewater infrastructure, industry, hydropower Potential proceeds can further reduce financial leverage 4

5 SCOFR 2.0 Second phase of Supply Chain Optimization & Footprint Repositioning initiatives Investing to reduce fixed costs, enhance productivity, and improve free cash flow $20-million total investment includes $11 of capital expenditures $15-million estimated total annual structural cost reductions SCOFR 2.0 projects to be completed in late FY19/early FY20 5

6 AEROSPACE CENTER OF EXCELLENCE Customer Value Creation Foster joint collaboration & innovation Eliminate inefficiencies in value chain Increase customer operating productivity Downer s Grove Site April 2018 Industry 4.0 Operating Model Closed-loop digital processes from quotation and order entry to engineering and manufacturing, inspection, and shipment Advanced manufacturing technologies Shareholder Value Creation Optimize new facility on existing site Increase asset utilization Reduce lead-times, working capital Deliver BIC customer satisfaction Assembly Cell Development Advanced Machine Tools Rexnord is a leading developer & manufacturer of aerospace bearing & seal products 6

7 ACQUISITION UPDATE PMC: Centa Power Transmission (February 2018) Flexible couplings leader, ~$100 million annual sales Expands addressable applications, served markets Majority of sales from MRO applications Commercial integration process well under way RBS identifying opportunities in internal processes Margins present substantial value-creation potential End Market Marine Power Generation Industrial Transportation source: Company estimates Share of Sales ~ 40% ~ 40% 15-20% <5% Key Applications Passenger Ships, Yachts, Workboats Gensets, Wind Turbines Compressor/Pump Packages, Mobile Equipment Rail WM: World Dryer (October 2017) Largest installed base in North American hand dryer market Approximately $20 million of annual sales Additive to addressable nonresidential building washroom content Commercial integration complete Significant reduction in product line complexity Margins enable re-investment in new product development 7

8 FINANCIAL UPDATE Fourth Quarter Fiscal Year 2018 (1) Adjusted EBITDA (2) of $111 million increased 13% year over year Net sales increased 14% year over year World Dryer, Centa acquisitions increased sales by 4% Foreign currency translation increased sales by 3% Core sales (2) increased 7% year over year Loss Per Share of ($0.65), including $111-million goodwill impairment charge (VAG) Adjusted EPS (2) of $0.42 Fiscal Year 2018 (1) Adjusted EBITDA of $390 million increased 13% year over year Net sales increased 8% year over year Core sales increased 5% year over year Earnings Per Share of $0.50, including the impairment charge Adjusted EPS of $1.39 (1) All results include VAG operations. (2) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14,

9 INITIATING FISCAL YEAR 2019 OUTLOOK Fiscal Year 2019 Outlook Outlook excludes VAG Core sales growth (1) in mid-single-digit percentage range (2) Adjusted EBITDA (1) in $420 - $440 million range (2) Free cash flow (1) to exceed net income (2) Anticipate reporting VAG results as Discontinued Operations beginning in 1QFY19 VAG generated revenue of $215 million in FY18 (1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, (2) Forward-looking information and a non-gaap measure. Although Rexnord can quantify certain elements, it is not able to quantify all variances from GAAP without unreasonable efforts because certain factors are unknown at this time and out of Rexnord s control. 9

10 FY19 OUTLOOK (1) ADJUSTED EBITDA (2) BRIDGE Bridge to midpoint of $420 - $440 million range 440 (6) % growth in Adjusted EBITDA at midpoint Assumes +MSD% core growth Assumes no acquisitions (3) (1) Excludes VAG (1) FY18 Adjusted EBITDA (2) Pension Accounting Change (3) VAG FY18 Base Adj EBITDA (2) Growth & RBS M&A FY19E Adj EBITDA (4) Midpoint (1) Anticipating VAG results to be reported as Discontinued Operations beginning in the 1Q FY19. (2) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, (3) The adoption of FASB ASU No (in fiscal year 2019) requires changes to be applied retrospectively, reducing fiscal year 2018 Adjusted EBITDA by $3 million. (4) Forward-looking information and a non-gaap measure. Although Rexnord can quantify certain elements, it is not able to quantify all variances from GAAP without unreasonable efforts because certain factors are unknown at this time and out of Rexnord s control. 10

11 4Q FY18 SUMMARY 4Q FY18 4Q FY17 Change Adjusted Net Sales (1,2) $575 $503 14% Growth from: Core 7% Acquisitions 4% Translation 3% Adjusted EBITDA (1) $111 $98 13% % of Sales 19.3% 19.5% (20 bps) (1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, (2) Net Sales in 4Q FY17 is adjusted for the RHF product line exit in FY17. All periods include VAG. 11

12 PROCESS & MOTION CONTROL 4Q FY18 4Q FY17 Change Net Sales $361 $314 15% Growth from: Core 6% Acquisitions 5% Translation 4% Adjusted EBITDA (1) $86 $70 22% % of Sales 23.8% 22.3% 150 bps End-Market Outlook Assumed in Guidance Industrial Distribution US & Canada Europe Rest of World Food & Beverage: Global Commercial Aerospace: Global Process Industries: Global Net sales growth was 15% year over year Core growth was 6% year over year Adjusted EBITDA margin increased by 150 bps (1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14,

13 End-Market Outlook Assumed in Guidance Industrial Distribution US & Canada Europe Rest of World Food & Beverage: Global Commercial Aerospace: Global Process Industries: Global WATER MANAGEMENT 4Q FY18 4Q FY17 Change Adjusted Net Sales (1,2) $215 $190 13% Growth from: Core 8% Acquisitions 2% Translation 3% End-Market Outlook Assumed in Guidance Nonresidential Construction: US & Canada Commercial & Industrial Institutional Residential Construction: US & Canada Adjusted EBITDA (1) $35 $34 2% % of Sales 16.3% 18.0% (170 bps) Net sales growth was 13% year over year Core growth was 8% year over year Adjusted EBITDA margin reflects mix, higher investment spending, MIC (1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, (2) Net Sales in 4Q FY17 is adjusted for the RHF product line exit in FY17. All periods include VAG results. Z899 Elevator/Threshold Drain System 13

14 CASH FLOW & BALANCE SHEET Net Debt Leverage Ratio (1) Free Cash Flow ($ millions) (2) 4.0x x 3.7x 3.7x 3.8x x 3.1x x 2.7x 0 2.5x Mar-14 Mar-15 Mar-16 Mar Dec Mar-18 (50) FY14 FY15 FY16 FY17 FY18 2,500 Total Debt ($ millions) (3) 1,000 Total Liquidity ($ millions) (4) Cash & Equivalents Available Borrowing Capacity 2, ,500 1, ,944 1,912 1,893 1,595 1,295 1,328 Mar-14 Mar-15 Mar-16 Mar Dec Mar (1) Net Debt Leverage is defined as the ratio of total debt less cash to pro forma LTM Adjusted EBITDA. (2) Free Cash Flow is defined as Cash from Operations less Capital Expenditures, and is a Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, All periods include VAG results. (3) Total Debt includes a New Market Tax Credit Receivable ($28), which is more than offset by an associated payable ($37) that is also included in Total Debt in all periods presented. (4) Liquidity is defined as cash and cash equivalents plus available borrowing capacity Mar-14 Mar-15 Mar-16 Mar Dec Mar-18 14

15 APPENDIX

16 FISCAL YEAR 2019 OUTLOOK Core sales % growth (1) Adjusted EBITDA (1) Free Cash Flow (1) + Mid Single Digit $420 - $440 million > Net Income Depreciation & Amortization (2) ~ $ 86 million Interest Expense (LIBOR 2%) ~ $ 73 million Effective Tax Rate (3) ~ 29% Capital Expenditures ~ 2.2% of sales (1) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14, (2) Excludes an estimated $4 million of accelerated depreciation related to supply chain optimization and footprint repositioning actions which is excluded from Adjusted Net Income. (3) As applied to calculation of Adjusted Net Income. 16

17 FY18 PRO FORMA SALES BY END MARKET PROCESS & MOTION CONTROL WATER MANAGEMENT Note: PMC data are pro forma for acquisition of Centa Power Transmission. Note: WM data are pro forma for acquisition of World Dryer, anticipated divestiture of VAG. 17

18 IF-CONVERTED INCREMENTAL SHARES Use If-Converted Method to calculate diluted EPS, Only If Dilutive 1) Do not deduct preferred dividend from net income 2) Add indicated incremental shares to diluted share count Average Common Stock Price Incremental Shares from Conversion (millions) < $ $ > $ Mandatory Convertible Preferred Details Offering Size ($millions) $ Dividend Rate 5.75% Annual Dividend ($millions) $ 23.1 Mandatory Conversion Date 11/15/

19 CALCULATING 4Q & FY18 DILUTED ADJUSTED EPS Fourth Fiscal Quarter Year Ended Ended ($ millions, except per-share amounts) March 31, 2018 March 31, 2018 Base Methodology Adjusted Net Income $ 45.9 $ Weighted-Average Number of Shares: Diluted (thousands) 106, ,999 Earnings Per Share: Diluted (Base Method) $ 0.43 $ 1.39 If-Converted Methodology Adjusted Net Income $ 45.9 $ Add Back Dividends Adjusted Net Income Attributable to Rexnord Common Stockholders $ 51.7 $ Weighted-Average Number of Shares: Diluted (thousands) 106, ,999 Add Adjustment for Conversion of Preferred Stock into Common Stock (thousands) 15,979 15,986 Adjusted Weighted-Average Shares: Diluted (thousands) 122, ,985 Earnings Per Share: Diluted (If-Converted Method) $ 0.42 $

20 4Q FY18 NON-GAAP ADJUSTMENTS AFTER TAX Income Impact on Adjustment Type ($ millions) Pretax Adjustment Tax Provision (2) Adjusted Net Income (3) Restructuring & Other Similar Charges $ 7.2 $ (2.4) $ 4.8 Non-controlling interest Amortization of Intangible Assets 8.8 (3.0) 5.8 Accelerated Depreciation 1.3 (0.5) 0.8 Purchase Accounting FV Adjustment 0.9 (0.3) 0.6 Actuarial gain on pension obligations (3.3) 1.1 (2.2) Other, net (1) 1.1 (0.7) 0.4 Nonrecurring US Tax Reform Adjustment - (7.8) (7.8) Goodwill impairment Dividends on Preferred Stock Total Adjustments $ $ (13.6) $ (1) Other, net includes the impact of foreign currency transactions and other miscellaneous expenses. (2) The tax rates used to calculate adjusted net income are based on a transaction-specific basis at the applicable jurisdictional rate. (3) Non-GAAP measure defined, reconciled, and discussed in the earnings release included in the Form 8-K filed with the Securities and Exchange Commission on May 14,

21 RECONCILIATION OF ADJUSTED EBITDA (S millions) Fourth Quarter Ended Fiscal Year Ended Adjusted EBITDA March 31, 2018 March 31, 2017 March 31, 2018 March 31, 2017 Net (loss) income attributable to Rexnord common stockholders $ (67.8) $ 21.6 $ 52.7 $ 66.8 Dividends on preferred stock Non-controlling interest income Income tax provision (benefit) (19.5) 7.9 Loss on debt extinguishment Other expense, net (1) Interest expense, net (Loss) Income from operations $ (37.1) $ 59.8 $ $ Adjustments Depreciation and amortization $ 24.4 $ 26.3 $ 89.7 $ Actuarial gain on pension obligations (3.3) (2.6) (3.3) (2.6) Restructuring and other similar charges Goodwill impairment Acquisition-related fair value adjustment Stock-based compensation expense Impact of RHF product line exit (2) Last-in first-out inventory adjustments 2.6 (2.1) 3.3 (2.3) Other, net (1) Subtotal of adjustments Adjusted EBITDA $ $ 98.0 $ $ (1) Includes the impact of foreign currency transactions, sale of long-lived assets, and other miscellaneous expenses. See "Management Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K for the year ended March 31, 2018 for further information. (2) During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform. The fiscal 2017 operating losses (excluding restructuring and other similar charges) is not included in Adjusted EBITDA in accordance with our credit agreement. 21

22 RECONCILIATION OF ADJUSTED NET INCOME (S millions) Fourth Quarter Ended Fiscal Year Ended Adjusted Net Income and Earnings Per Share March 31, 2018 March 31, 2017 March 31, 2018 March 31, 2017 Net (loss) income attributable to Rexnord common stockholders $ (67.8) $ 21.6 $ 52.7 $ 66.8 Supply chain optimization and footprint repositioning initiatives (1) Non-controlling interest income Actuarial gain on pension obligations (3.3) (2.6) (3.3) (2.6) Impact of RHF product line exit (2) Restructuring and other similar charges Acquisition-related fair value adjustment Amortization of intangible assets Loss on Debt Extinguishment Other, net (3) Dividends on Preferred Stock Goodwill impairment Nonrecurring U.S. Tax Reform adjustment (7.8) - (62.6) - Tax effect on above items (5.8) (9.3) (23.3) (39.3) Adjusted net income $ 51.7 $ 43.2 $ $ GAAP diluted net (loss) income per share attributable to Rexnord common stockholders $ (0.65) $ 0.21 $ 0.50 $ 0.64 Adjusted earnings per share - diluted $ 0.42 $ 0.35 $ 1.39 $ 1.32 GAAP diluted weighted-average shares 104, , , ,784 Diluted weighted-average shares for Adjusted EPS calculation 122, , , ,617 (1) Represents accelerated depreciation and other non-cash expenses associated with our strategic supply chain optimization and footprint repositioning initiatives. (2) During fiscal 2016, the Company announced its decision to exit the RHF flow control gate product line within its Water Management platform. To enhance comparability between historical periods, the pre-tax loss of the RHF product line exit has been excluded from our fiscal 2017 Adjusted earnings per share. (3) Other, net includes the impact of foreign currency transactions, sale of long-lived assets, and other miscellaneous expenses. See "Management Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K for the year ended March 31, 2018 for further information. 22