THIRD QUARTER FISCAL YEAR 2018 FINANCIAL RESULTS. February 1, 2018

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Transcription:

THIRD QUARTER FISCAL YEAR 2018 FINANCIAL RESULTS February 1, 2018

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 January 31, 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

STRATEGIC UPDATE Consolidated Rexnord Net sales growth increases to +9% year over year, core sales (1) growth to +6% Recent specification wins demonstrate innovation pipeline and competitive value-add Process & Motion Control Core sales growth increases to +6%, margins expand year over year by 190 bps Pending Centa Power Transmission acquisition to add ~ $100 million annual revenue Water Management Core sales growth accelerates to +7%, margins expand year over year by 100 bps Innovative new product introductions contributing to growth Cash Flow & Balance Sheet Net debt leverage ratio (1) declines to 2.8x 4Q free cash flow (1) expected to enable acquisition without increase in leverage ratio (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 January 31, 2018. 3

SPECIFICATION WINS Chase Center San Francisco Top 5 US Forest Products Producer Sundara Handwashing System IIoT Smart V-Class Gear Drive Top 5 Global Packaged Food Producer Top 5 US Meat Products Producer Compound Balanced Baking Belt CamEDGE MORE Spiral Conveyor 4

CENTA POWER TRANSMISSION Global flexible couplings leader with strong technology portfolio, ~ $100 million of annual revenue Significantly expands Rexnord couplings range into high-output engine-powered applications Key applications: gas compression, fluid control, distributed EPG, hydraulic machinery, marine power Large installed base with high like-for-like replacement, >50% of revenue from MRO applications Acquisition expected to close in 4QFY18, purchase price approximately 118 million Primary Applications = Flexible Coupling Compressed Air / Gas, Fluid Control Machinery Motion Control Distributed Electrical Power Generation Marine Power & Propulsion 5

FINANCIAL UPDATE Third Quarter Fiscal Year 2018 Adjusted EBITDA (1) of $95 million increased 20% year over year Net sales increased 9% year over year World Dryer acquisition increased sales by 1% Foreign currency translation increased sales by 2% Core sales (1) increased 6% year over year Earnings Per Share of $0.67 Adjusted EPS (1) of $0.37, including $0.05 from lower-than-projected tax rate Fiscal Year 2018 Outlook Core sales growth in mid-single-digit percentage range (2) Adjusted EBITDA in $381 - $387 million range (2) Free cash flow (2) to exceed net income (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 January 31, 2018. (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. 6

3Q FY18 SUMMARY 3Q FY18 3Q FY17 Change Adjusted Net Sales (1,2) $492 $449 9% Growth from: Core 6% Acquisitions 1% Translation 2% Adjusted EBITDA (1) $95 $79 20% % of Sales 19.3% 17.6% 170 bps Core growth accelerated to 6% year over year Adjusted EBITDA margin increased 170 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 January 31, 2018. (2) Net Sales in 3Q FY17 is adjusted for the RHF product line exit in FY17. 7

PROCESS & MOTION CONTROL 3Q FY18 3Q FY17 Change Net Sales $293 $270 8% Growth from: Core 6% Acquisitions -- Translation 2% Adjusted EBITDA (1) $66 $56 18% % of Sales 22.5% 20.6% 190 bps End-Market Outlook Assumed in Guidance Industrial Distribution US & Canada Europe Rest of World Food & Beverage: Global Commercial Aerospace: Global Process Industries: Global Core growth was 6% year over year Adjusted EBITDA margin increased by 190 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 January 31, 2018. 8

WATER MANAGEMENT 3Q FY18 3Q FY17 Change Adjusted Net Sales (1,2) $200 $179 12% Growth from: Core 7% Acquisitions 3% Translation 2% Adjusted EBITDA (1) $37 $32 18% % of Sales 18.6% 17.6% 100 bps End-Market Outlook Assumed in Guidance (unchanged) Nonresidential Construction: US & Canada Residential Construction: US & Canada Water & Wastewater Infrastructure Europe China Middle East Rest of World Core growth was 7% year over year Adjusted EBITDA margin increased by 100 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 January 31, 2018. (2) Net Sales in 3Q FY17 is adjusted for the RHF product line exit in FY17. 9

CASH FLOW & BALANCE SHEET Net Debt Leverage Ratio (1) Free Cash Flow ($ millions) (2) 4.0x 250 3.5x 3.7x 3.7x 3.8x 200 150 3.0x 3.1x 100 50 139 197 167 141 78 97 2.9x 2.8x 0 2.5x Mar-14 Mar-15 Mar-16 Mar-17 30-Sep-17 31-Dec-17 (50) FY14 FY15 FY16 FY17 9 Mos FY17 9 Mos FY18 2,500 Total Debt ($ millions) (3) 1,000 Total Liquidity ($ millions) (4) Cash & Equivalents Available Borrowing Capacity 2,000 800 1,500 1,000 500 1,944 1,912 1,893 1,595 1,588 1,295 600 400 200 336 341 339 370 344 346 346 485 490 531 348 235 0 Mar-14 Mar-15 Mar-16 Mar-17 30-Sep-17 31-Dec-17 0 Mar-14 Mar-15 Mar-16 Mar-17 30-Sep-17 31-Dec-17 (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 January 31, 2018. (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. 10

APPENDIX

FISCAL YEAR 2018 OUTLOOK Core sales % growth (1) Adjusted EBITDA (1) Free Cash Flow (1) + Mid Single Digit $381 - $387 million > Net Income Depreciation & Amortization (2) ~ $ 88 million Interest Expense (LIBOR 1.5%) ~ $ 77 million Effective Tax Rate (3) ~ 30% Capital Expenditures ~ 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 January 31, 2018. (2) Excludes an estimated $1 million of accelerated depreciation related to supply chain optimization and footprint repositioning initiatives. (3) As applied to calculation of Adjusted Net Income. 12

3Q 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 $ 3.8 $ (1.0) $ 2.8 Amortization of Intangible Assets 8.6 (2.4) 6.2 Purchase Accounting FV Adjustment 0.9 (0.3) 0.6 Loss on Debt Extinguishment 11.9 (4.2) 7.7 Other, net (1) 1.0 (0.2) 0.8 Nonrecurring US Tax Reform Adjustment - (54.8) (54.8) Dividends on Preferrred Stock 5.8 5.8 Totals $ 32.0 $ (62.9) $ (30.9) (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 January 31, 2018. 13

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) < $ 20.99 19.18 $ 20.99 19.18 21 19.17 22 18.30 23 17.50 24 16.77 25 16.10 25.19 15.98 > $ 25.19 15.98 Mandatory Convertible Preferred Details Offering Size ($millions) $ 402.5 Dividend Rate 5.75% Annual Dividend ($millions) $ 23.1 Mandatory Conversion Date 11/15/2019 14

CALCULATING 3Q FY18 DILUTED ADJUSTED EPS Third Quarter Ended ($ millions, except per-share amounts) December 31, 2017 Base Methodology Adjusted Net Income $ 39.1 Weighted-Average Number of Shares: Diluted (thousands) 105,930 Earnings Per Share: Diluted (Base Method) $ 0.37 If-Converted Methodology Adjusted Net Income $ 39.1 Add Back Dividends 5.8 Adjusted Net Income Attributable to Rexnord Common Shareholders $ 44.9 Weighted-Average Number of Shares: Diluted (thousands) 105,930 Add Adjustment for Conversion of Preferred Stock into Common Stock (thousands) 16,087 Adjusted Weighted-Average Shares: Diluted (thousands) 122,017 Earnings Per Share: Diluted (If-Converted Method) $ 0.37 15

RECONCILIATION OF ADJUSTED EBITDA (S millions) Third Quarter Ended Adjusted EBITDA December 31, 2017 December 31, 2016 Net income attributable to Rexnord common shareholders $ 75.8 $ 1.7 Dividends on preferred stock 5.8 1.5 Income tax benefit (50.0) (1.8) Loss on debt extinguishment 11.9 7.8 Other expense, net (1) 1.0 0.7 Interest expense, net 18.7 22.9 Income from operations $ 63.2 $ 32.8 Adjustments Depreciation and amortization $ 21.7 $ 25.8 Restructuring and other similar charges 3.8 11.7 Acquisition-related fair value adjustment 0.9 - Stock-based compensation expense 5.1 3.8 Impact of RHF product line exit (2) - 4.8 Last-in first-out inventory adjustments 0.2 (0.1) Other, net (1) - 0.4 Subtotal of adjustments 31.7 46.4 Adjusted EBITDA $ 94.9 $ 79.2 (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-Q for the quarter ended December 31, 2017 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 operating loss (excluding restructuring and other similar charges) is not included in Adjusted EBITDA in accordance with our credit agreement. 16

RECONCILIATION OF ADJUSTED NET INCOME (S millions) Third Quarter Ended Adjusted Net Income and Earnings Per Share December 31, 2017 December 31, 2016 Net income attributable to Rexnord common shareholders $ 75.8 $ 1.7 Supply chain optimization and footprint repositioning initiatives (1) - 3.8 Impact of RHF product line exit (2) - 4.8 Restructuring and other similar charges 3.8 11.7 Acquisition-related fair value adjustment 0.9 - Amortization of intangible assets 8.6 8.6 Loss on Debt Extinguishment 11.9 7.8 Other, net (3) 1.0 1.1 Dividends on Preferred Stock 5.8 - Nonrecurring US Tax Reform adjustment (54.8) - Tax effect on above items (8.1) (13.6) Adjusted net income $ 44.9 $ 25.9 GAAP diluted net income per share attributable to Rexnord common shareholders $ 0.67 $ 0.02 Adjusted earnings per share - diluted $ 0.37 $ 0.25 GAAP diluted weighted-average shares 122,017 104,558 Diluted weighted-average shares for Adjusted EPS calculation 122,017 104,558 (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-Q for the quarter ended December 31, 2017 for further information. 17