8-K
ARMSTRONG WORLD INDUSTRIES INC (AWI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 25, 2023
ARMSTRONG WORLD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| Pennsylvania | 1-2116 | 23-0366390 |
|---|---|---|
| (State or other jurisdiction<br><br>of incorporation or organization) | (Commission<br><br>File Number) | (IRS Employer<br><br>Identification No.) |
| 2500 Columbia Avenue P.O. Box 3001<br><br>Lancaster, Pennsylvania | 17603 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (717) 397-0611
NA
(Former name or former address if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.01 par value per share | AWI | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Section 2 - Financial Information
Item 2.02 Results of Operations and Financial Condition.
On April 25, 2023, Armstrong World Industries, Inc. (the "Company") issued a press release announcing its first quarter 2023 consolidated financial results. The full text of the press release is attached hereto as Exhibit 99.1.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished herewith and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Act”), or the Exchange Act, except as expressly set forth by specific reference in such filing.
Section 7 – Regulation FD
Item 7.01 Regulation FD Disclosure.
On April 25, 2023, the Company issued a press release announcing that it will report its first quarter 2023 consolidated financial results via a webcast and conference call on April 25, 2023 at 10:00 a.m. Eastern Time which can be accessed through the “Investors” section of the Company’s website, www.armstrongceilings.com. During this report, the Company will reference a slide presentation, a copy of which is attached hereto as Exhibit 99.2 and incorporated herein by reference.
The information in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2, is being furnished herewith and shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Act, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| No. 99.1 | Press Release of Armstrong World Industries, Inc. dated April 25, 2023 |
|---|---|
| No. 99.2 | Earnings Call Presentation First Quarter 2023 dated April 25, 2023 |
| No. 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ARMSTRONG WORLD INDUSTRIES, INC. | |
|---|---|
| By: | /s/ Austin K. So |
| Austin K. So | |
| Senior Vice President, General Counsel, Secretary and Chief Compliance Officer |
Date: April 25, 2023
EX-99
Exhibit 99.1
Armstrong World Industries Reports First-Quarter 2023 Results
First-Quarter 2023 Results
• Net sales up 10% versus the prior-year quarter
• Operating income up 11% and diluted net earnings per share up 11% versus the prior-year quarter
• Adjusted EBITDA up 9% and adjusted diluted net earnings per share up 10% versus the prior-year quarter
• Cash flow from operating and investing activities up 46% and adjusted free cash flow up 52% versus the prior-year quarter
LANCASTER, Pa., April 25, 2023 -- Armstrong World Industries, Inc. (NYSE:AWI), a leader in the design, innovation and manufacture of ceiling and wall solutions in the Americas, today reported first-quarter 2023 financial results, including year-over-year net sales growth of 10% driven by a 12% increase in Mineral Fiber segment sales and a 3% increase in Architectural Specialties segment sales.
“The results we delivered in the first quarter of 2023, highlighted by robust Mineral Fiber segment volume growth of 9% and Mineral Fiber adjusted EBITDA margin expansion, are an important first step on the path to delivering sales and earnings growth for the full year. We remain laser-focused on our strategic initiatives to drive sustainable growth while managing our costs in the current uncertain macroeconomic environment,” said Vic Grizzle, President and CEO of Armstrong World Industries. “Our strong market position, our commitment to operational excellence and innovation, and our best-in-class service model continue to enable us to create value in all parts of the economic cycle.”
First-Quarter Results
| (Dollar amounts in millions except per-share data) | For the Three Months Ended March 31, | ||||
|---|---|---|---|---|---|
| 2023 | 2022 | Change | |||
| Net sales | $ | 310.2 | $ | 282.6 | 9.8% |
| Operating income | $ | 70.2 | $ | 63.2 | 11.1% |
| Net earnings | $ | 47.3 | $ | 44.4 | 6.5% |
| Diluted net earnings per share | $ | 1.04 | $ | 0.94 | 10.6% |
| Additional Non-GAAP* Measures | |||||
| Adjusted EBITDA | $ | 96 | $ | 87 | 9.5% |
| Adjusted net earnings | $ | 51 | $ | 48 | 6.2% |
| Adjusted diluted net earnings per share | $ | 1.12 | $ | 1.02 | 9.8% |
* The Company uses non-GAAP adjusted measures in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods and are useful alternative measures of performance. Reconciliations of the most comparable generally accepted accounting principles in the United States ("GAAP") measure are found in the tables at the end of this press release. Excluding per share data, non-GAAP figures are rounded to the nearest million and corresponding percentages are rounded to the nearest decimal.
First-quarter 2023 consolidated net sales increased 9.8% from prior-year results, driven primarily by higher volumes of $21 million and favorable Average Unit Value ("AUV") of $6 million. Mineral Fiber net sales increased $25 million and Architectural Specialties net sales increased $2 million over the prior-year period.
First-quarter 2023 operating income increased 11.1% versus the prior-year period driven primarily by the benefit of higher volumes, favorable AUV performance and an increase in Worthington Armstrong Joint Venture ('WAVE") equity earnings. These benefits were partially offset by increases in manufacturing costs and selling expenses, as well as severance expenses related to cost savings initiatives in the current-year quarter.
First-Quarter Segment Results
Mineral Fiber
| (Dollar amounts in millions) | For the Three Months Ended March 31, | ||||
|---|---|---|---|---|---|
| 2023 | 2022 | Change | |||
| Net sales | $ | 228.4 | $ | 203.2 | 12.4% |
| Operating income | $ | 63.8 | $ | 57.6 | 10.8% |
| Adjusted EBITDA* | $ | 84 | $ | 74 | 12.9% |
First-quarter 2023 Mineral Fiber net sales increased 12.4% from prior-year results due to $19 million of higher sales volumes and $6 million of favorable AUV. The increase in volumes was primarily driven by a recovery of sales volumes compared to a weaker prior-year period due to inventory level reductions at certain customers, and partially due to current-year inventory level increases at home center customers. The improvement in AUV was driven by favorable like-for-like price, partially offset by unfavorable geographic mix.
First-quarter operating income increased 10.8% from prior-year results driven primarily by a $12 million benefit from higher sales volumes, a $5 million benefit from favorable AUV and a $3 million increase in WAVE equity earnings. These benefits were partially offset by an $8 million increase in manufacturing costs, primarily driven by raw material and energy inflation and inventory valuation impacts, partially offset by improved manufacturing productivity. Also partially offsetting the favorability was $3 million in severance costs related to cost savings initiatives in the current-year quarter and a $3 million increase in selling expenses, partially in support of digital growth initiatives.
Architectural Specialties
| (Dollar amounts in millions) | For the Three Months Ended March 31, | ||||
|---|---|---|---|---|---|
| 2023 | 2022 | Change | |||
| Net sales | $ | 81.8 | $ | 79.4 | 3.0% |
| Operating income | $ | 7.2 | $ | 6.5 | 10.8% |
| Adjusted EBITDA* | $ | 12 | $ | 13 | (10.0)% |
First-quarter 2023 net sales in Architectural Specialties increased 3.0% from prior-year results, driven by growth across most product categories, partially offset by lower metal product sales. Net sales growth was also negatively impacted by the timing of custom project sales.
The 10.8% increase in first-quarter Architectural Specialties operating income was driven primarily by a $2 million margin benefit from increased sales and favorable project mix and a $1 million reduction in acquisition-related expenses, partially offset by a $2 million increase in selling expenses.
Cash Flow and Share Repurchase Program
Cash flows from operating activities for the first three months of 2023 increased $10 million versus the prior-year quarter, while cash flows from investing activities decreased $2 million versus the prior-year quarter. The net $8 million, or 46%, increase in operating and investing cash flows was primarily due to favorable working capital changes, most notably in inventory, and an increase in dividends from WAVE, partially offset by an increase in purchases of property, plant and equipment.
During the first quarter of 2023, we repurchased 0.4 million shares of common stock for a total cost of $27 million, excluding the cost of commissions and taxes. As of March 31, 2023, there was $322 million remaining under the Board of Directors' current authorized share repurchase program.
**On July 29, 2016, our Board of Directors approved our share repurchase program pursuant to which we are authorized to repurchase up to $1,200 million of our outstanding common stock through December 31, 2023 (the “Program”). Repurchases under the Program may be made through open market, block and privately negotiated transactions, including Rule 10b5-1 plans, at such times and in such amounts as management deems appropriate, subject to market and business conditions, regulatory requirements and other factors. The Program does not obligate AWI to repurchase any particular amount of common stock and may be suspended or discontinued at any time without notice.
Maintaining 2023 Outlook
“While we are encouraged by our first-quarter results, including adjusted free cash flow growth versus prior year, we acknowledge the challenging macroeconomic environment and expect weaker market conditions ahead for the rest of the year,” said Chris Calzaretta, AWI CFO. “We are confident in the financial strength of our business and are maintaining our full-year 2023 outlook. We continue to be focused on executing our strategy, delivering manufacturing productivity, managing costs across the business and growing adjusted free cash flow. Our capital allocation strategy is unchanged, as we expect to continue to create long-term value for shareholders through reinvestment in our business, strategic partnerships and acquisitions, and returning excess cash to shareholders.”
| For the Year Ended December 31, 2023 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollar amounts in millions except per-share data) | 2022 Actual | Current Guidance | VPY Growth % | |||||||
| Net sales | $ | 1,233 | $ | 1,260 | to | $ | 1,310 | 2% | to | 6% |
| Adjusted EBITDA* | $ | 385 | $ | 395 | to | $ | 420 | 3% | to | 9% |
| Adjusted diluted net earnings per share* | $ | 4.74 | $ | 4.80 | to | $ | 5.05 | 1% | to | 7% |
| Adjusted free cash flow* | $ | 221 | $ | 230 | to | $ | 250 | 4% | to | 13% |
Earnings Webcast
Management will host a live webcast conference call at 10:00 a.m. ET today, to discuss first-quarter 2023 results. This event will be available on the Company's website. The call and accompanying slide presentation can be found on the investor relations section of the Company's website at www.armstrongworldindustries.com. The replay of this event will be available on the website for up to one year after the date of the call.
Uncertainties Affecting Forward-Looking Statements
Disclosures in this release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, those relating to future financial and operational results, expected savings from cost management initiatives, the performance of our WAVE joint venture, market and broader economic conditions and guidance. 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. This includes annual guidance. 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 in the “Risk Factors” and “Management’s Discussion and Analysis” sections of our reports on Form 10-K and 10-Q filed with the U.S. Securities and Exchange Commission (“SEC”), including the Form 10-Q for the three months ended March 31, 2023, that the Company expects to file today. 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.
About Armstrong and Additional Information
Armstrong World Industries, Inc. is a leader in the design, innovation and manufacture of innovative ceiling and wall system solutions in the Americas. With $1.2 billion in revenue in 2022, AWI has approximately 3,000 employees and a manufacturing network of 16 facilities, plus seven facilities dedicated to its WAVE joint venture.
More details on the Company’s performance can be found in its report on Form 10-Q for the quarter ended March 31, 2023, that the Company expects to file with the SEC today.
Contacts
Investors & Media: Theresa Womble, tlwomble@armstrongceilings.com or (717) 396-6354
Reported Financial Results
(amounts in millions, except per share data)
SELECT FINANCIAL RESULTS
Armstrong World Industries, Inc. and Subsidiaries
(Unaudited)
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net sales | $ | 310.2 | $ | 282.6 | ||
| Cost of goods sold | 198.1 | 180.4 | ||||
| Gross profit | 112.1 | 102.2 | ||||
| Selling, general and administrative expenses | 62.7 | 57.1 | ||||
| Loss related to change in fair value of contingent consideration | - | 0.1 | ||||
| Equity (earnings) from joint venture | (20.8 | ) | (18.2 | ) | ||
| Operating income | 70.2 | 63.2 | ||||
| Interest expense | 8.7 | 5.1 | ||||
| Other non-operating (income), net | (2.4 | ) | (1.3 | ) | ||
| Earnings before income taxes | 63.9 | 59.4 | ||||
| Income tax expense | 16.6 | 15.0 | ||||
| Net earnings | $ | 47.3 | $ | 44.4 | ||
| Diluted net earnings per share of common stock | $ | 1.04 | $ | 0.94 | ||
| Average number of diluted common shares outstanding | 45.5 | 47.2 |
SEGMENT RESULTS
Armstrong World Industries, Inc. and Subsidiaries
(Unaudited)
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net Sales | ||||||
| Mineral Fiber | $ | 228.4 | $ | 203.2 | ||
| Architectural Specialties | 81.8 | 79.4 | ||||
| Total net sales | $ | 310.2 | $ | 282.6 | ||
| For the Three Months Ended March 31, | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| 2023 | 2022 | |||||
| Segment operating income (loss) | ||||||
| Mineral Fiber | $ | 63.8 | $ | 57.6 | ||
| Architectural Specialties | 7.2 | 6.5 | ||||
| Unallocated Corporate | (0.8 | ) | (0.9 | ) | ||
| Total consolidated operating income | $ | 70.2 | $ | 63.2 |
SELECTED BALANCE SHEET INFORMATION
Armstrong World Industries, Inc. and Subsidiaries
| Unaudited | ||||
|---|---|---|---|---|
| March 31, 2023 | December 31, 2022 | |||
| Assets | ||||
| Current assets | $ | 362.0 | $ | 356.5 |
| Property, plant and equipment, net | 560.4 | 554.4 | ||
| Other noncurrent assets | 765.5 | 776.3 | ||
| Total assets | $ | 1,687.9 | $ | 1,687.2 |
| Liabilities and shareholders’ equity | ||||
| Current liabilities | $ | 166.3 | $ | 182.7 |
| Noncurrent liabilities | 976.8 | 969.5 | ||
| Equity | 544.8 | 535.0 | ||
| Total liabilities and shareholders’ equity | $ | 1,687.9 | $ | 1,687.2 |
SELECTED CASH FLOW INFORMATION
Armstrong World Industries, Inc. and Subsidiaries
(Unaudited)
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net earnings | $ | 47.3 | $ | 44.4 | ||
| Other adjustments to reconcile net earnings to net cash provided by operating activities | (1.4 | ) | 5.2 | |||
| Changes in operating assets and liabilities, net | (19.7 | ) | (32.9 | ) | ||
| Net cash provided by operating activities | 26.2 | 16.7 | ||||
| Net cash (used for) provided by investing activities | (1.5 | ) | 0.2 | |||
| Net cash (used for) financing activities | (34.7 | ) | (39.2 | ) | ||
| Effect of exchange rate changes on cash and cash equivalents | — | 0.3 | ||||
| Net (decrease) in cash and cash equivalents | (10.0 | ) | (22.0 | ) | ||
| Cash and cash equivalents at beginning of year | 106.0 | 98.1 | ||||
| Cash and cash equivalents at end of period | $ | 96.0 | $ | 76.1 |
Supplemental Reconciliations of GAAP to non-GAAP Results (unaudited)
(Amounts in millions, except per share data)
To supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company provides additional measures of performance adjusted to exclude the impact of certain discrete expenses and income including adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), adjusted diluted net earnings per share ("EPS") and adjusted free cash flow. Investors should not consider non-GAAP measures as a substitute for GAAP measures. The Company excludes certain acquisition related expenses (i.e. – changes in the fair value of contingent consideration, deferred compensation accruals, impact of adjustments related to the fair value of inventory) for recent acquisitions. The deferred compensation accruals are for cash and stock awards that are recorded over each award's respective vesting period, as such payments are subject to the sellers’ and employees’ continued employment with the Company. The Company excludes all acquisition-related intangible amortization from adjusted net earnings and in calculations of adjusted diluted EPS. Examples of other excluded items have included plant closures, restructuring charges and related costs, impairments, separation costs and other cost reduction initiatives, environmental site expenses and environmental insurance recoveries, endowment level charitable contributions, and certain other gains and losses. The Company also excludes income/expense from its U.S. Retirement Income Plan (“RIP”) in the non-GAAP results as it represents the actuarial net periodic benefit credit/cost recorded. For all periods presented, the Company was not required and did not make cash contributions to the RIP based on guidelines established by the Pension Benefit Guaranty Corporation, nor does the Company expect to make cash contributions to the plan in 2023. Adjusted free cash flow is defined as cash from operating and investing activities, adjusted to remove the impact of cash used or proceeds received for acquisitions and divestitures, environmental site expenses and environmental insurance recoveries. Management's adjusted free cash flow measure includes returns of investment from WAVE and cash proceeds received from the settlement of company-owned life insurance policies, which are presented within investing activities on our condensed consolidated statement of cash flows. The Company uses these adjusted performance measures in managing the business, including communications with its Board of Directors and employees, and believes that they provide users of this financial information with meaningful comparisons of operating performance between current results and results in prior periods. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance, as well as prospects for its future performance. The Company also uses adjusted EBITDA and adjusted free cash flow as factors in determining at-risk compensation for senior management. These non-GAAP measures may not be defined and calculated the same as similar measures used by other companies. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies. A reconciliation of these adjustments to the most directly comparable GAAP measures is included in this release and on the Company’s website. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures.
In the following charts, numbers may not sum due to rounding. Excluding adjusted diluted EPS, non-GAAP figures are rounded to the nearest million and corresponding percentages are rounded to the nearest percent based on unrounded figures.
Consolidated Results – Adjusted EBITDA
| For the Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Net earnings | $ | 47 | $ | 44 |
| Add: Income tax expense | 17 | 15 | ||
| Earnings before income taxes | $ | 64 | $ | 59 |
| Add: Interest/other income and expense, net | 6 | 4 | ||
| Operating income | $ | 70 | $ | 63 |
| Add: RIP expense (1) | 1 | 1 | ||
| Add: Acquisition-related impacts (2) | 1 | 2 | ||
| Add: Cost reduction initiatives | 3 | - | ||
| Adjusted operating income | $ | 75 | $ | 67 |
| Add: Depreciation and amortization | 21 | 21 | ||
| Adjusted EBITDA | $ | 96 | $ | 87 |
(1) RIP expense represents only the plan service cost that is recorded within Operating income. For all periods presented, we were not required to and did not make cash contributions to our RIP.
(2) Represents the impact of acquisition-related adjustments for changes in fair value of contingent consideration, deferred compensation and restricted stock expenses.
Mineral Fiber
| For the Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating income | $ | 64 | $ | 58 |
| Add: Cost reduction initiatives | 3 | - | ||
| Adjusted operating income | $ | 66 | $ | 58 |
| Add: Depreciation and amortization | 18 | 17 | ||
| Adjusted EBITDA | $ | 84 | $ | 74 |
Architectural Specialties
| For the Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating income | $ | 7 | $ | 7 |
| Add: Acquisition-related impacts (1) | 1 | 2 | ||
| Adjusted operating income | $ | 8 | $ | 9 |
| Add: Depreciation and amortization | 3 | 4 | ||
| Adjusted EBITDA | $ | 12 | $ | 13 |
(1) Represents the impact of acquisition-related adjustments for changes in fair value of contingent consideration, deferred compensation and restricted stock expenses.
Unallocated Corporate
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Operating (loss) | $ | (1 | ) | $ | (1 | ) |
| Add: RIP expense (1) | 1 | 1 | ||||
| Adjusted operating (loss) | $ | - | $ | - | ||
| Add: Depreciation and amortization | - | - | ||||
| Adjusted EBITDA | $ | - | $ | - |
(1) RIP expense represents only the plan service cost that is recorded within Operating income. For all periods presented, we were not required to and did not make cash contributions to our RIP.
Adjusted Free Cash Flow
| For the Three Months Ended March 31, | |||||
|---|---|---|---|---|---|
| 2023 | 2022 | ||||
| Net cash provided by operating activities | $ | 26 | $ | 17 | |
| Net cash (used for) provided by investing activities | (2 | ) | - | ||
| Net cash provided by operating and investing activities | $ | 25 | $ | 17 | |
| Add: Net environmental expenses | - | 1 | |||
| Add: Contingent consideration in excess of acquisition-date fair value (1) | 5 | 2 | |||
| Adjusted Free Cash Flow | $ | 30 | $ | 20 |
(1) Contingent compensation payments related to 2020 acquisitions recorded as a component of net cash provided by operating activities.
Adjusted Diluted Net Earnings Per Share (EPS)
| For the Three Months Ended March 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||||||
| Total | Per Diluted<br>Share | Total | Per Diluted<br>Share | |||||||
| Net earnings | $ | 47 | $ | 1.04 | $ | 44 | $ | 0.94 | ||
| Add: Income tax expense | 17 | 15 | ||||||||
| Earnings before income taxes | $ | 64 | $ | 59 | ||||||
| Add: Acquisition-related impacts (1) | 1 | 2 | ||||||||
| Add: Acquisition-related amortization (2) | 1 | 3 | ||||||||
| Add: Cost reduction initiatives | 3 | - | ||||||||
| Adjusted earnings before income taxes | $ | 69 | $ | 64 | ||||||
| (Less): Adjusted income tax expense (3) | (18 | ) | (16 | ) | ||||||
| Adjusted net earnings | $ | 51 | $ | 1.12 | $ | 48 | $ | 1.02 | ||
| Adjusted diluted EPS change versus prior year | 9.8% | |||||||||
| Diluted shares outstanding | 45.5 | 47.2 | ||||||||
| Effective tax rate | 26% | 25% |
(1) Represents the impact of acquisition-related adjustments for changes in fair value of contingent consideration, deferred compensation and restricted stock expenses.
(2) Represents the intangible amortization related to acquired entities, including customer relationships, developed technology, software, trademarks and brand names, non-compete agreements and other intangibles.
(3) Adjusted income tax expense is calculated using the effective tax rate multiplied by the adjusted earnings before income taxes.
Adjusted EBITDA Guidance
| For the Year Ending December 31, 2023 | |||||||
|---|---|---|---|---|---|---|---|
| Low | High | ||||||
| Net earnings | $ | 206 | to | $ | 217 | ||
| Add: Income tax expense | 68 | 73 | |||||
| Earnings before income taxes | $ | 274 | to | $ | 289 | ||
| Add: Interest expense | 35 | 37 | |||||
| Add: Other non-operating (income) | (7 | ) | (6 | ) | |||
| Operating income | $ | 302 | to | $ | 321 | ||
| Add: RIP expense (1) | 3 | 4 | |||||
| Add: Acquisition-related impacts (2) | 4 | 5 | |||||
| Add: Cost reduction initiatives | 3 | 3 | |||||
| Adjusted operating income | $ | 312 | to | $ | 332 | ||
| Add: Depreciation & Amortization | 83 | 88 | |||||
| Adjusted EBITDA | $ | 395 | to | $ | 420 |
(1) RIP expense represents only the plan service cost that is recorded within Operating Income. For all periods presented, we were not required and did not make cash contributions to our RIP.
(2) Represents the impact of acquisition-related adjustments for deferred compensation and restricted stock expenses.
Adjusted Diluted Net Earnings Per Share Guidance
| For the Year Ending December 31, 2023 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Low | Per Diluted<br>Share(1) | High | Per Diluted<br>Share(1) | ||||||||
| Net earnings | $ | 206 | $ | 4.57 | to | $ | 217 | $ | 4.81 | ||
| Add: Income tax expense | $ | 68 | $ | 73 | |||||||
| Earnings before income taxes | $ | 274 | to | $ | 289 | ||||||
| Add: RIP (credit) (2) | $ | (1 | ) | $ | (2 | ) | |||||
| Add: Acquisition-related amortization (3) | $ | 5 | $ | 6 | |||||||
| Add: Acquisition-related impacts (4) | $ | 4 | $ | 5 | |||||||
| Add: Cost reduction initiatives | $ | 3 | $ | 3 | |||||||
| Adjusted earnings before income taxes | $ | 285 | to | $ | 301 | ||||||
| (Less): Adjusted income tax expense (5) | (70 | ) | (74 | ) | |||||||
| Adjusted net earnings | $ | 215 | $ | 4.80 | to | $ | 227 | $ | 5.05 |
(1) Adjusted EPS guidance for 2023 is calculated based on ~45 million of diluted shares outstanding.
(2) RIP (credit) represents the entire actuarial net periodic pension (credit) recorded as a component of net earnings. We do not expect to make any cash contributions to our RIP.
(3) Represents the intangible amortization related to acquired entities, including customer relationships, developed technology, software, trademarks and brand names, non-compete agreements and other intangibles.
(4) Represents the impact of acquisition-related adjustments for deferred compensation and restricted stock expenses.
(5) Income tax expense is based on an adjusted effective tax rate of ~25%, multiplied by adjusted earnings before income taxes.
Adjusted Free Cash Flow Guidance
| For the Year Ending December 31, 2023 | |||||||
|---|---|---|---|---|---|---|---|
| Low | High | ||||||
| Net cash provided by operating activities | $ | 220 | to | $ | 240 | ||
| Add: Return of investment from joint venture | 85 | 95 | |||||
| Adjusted net cash provided by operating activities | $ | 305 | to | $ | 335 | ||
| Less: Capital expenditures | (75 | ) | (85 | ) | |||
| Adjusted Free Cash Flow | $ | 230 | to | $ | 250 |
1st Quarter 2023 Earnings Presentation April 25, 2023 Exhibit 99.2
Safe Harbor Statement Worthington Armstrong Joint Venture (“WAVE”). Disclosures in this presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, those relating to future financial and operational results, expected savings from cost management initiatives, the performance of our WAVE1 joint venture, market and broader economic conditions and guidance. 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. This includes annual guidance. 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 in the “Risk Factors” and “Management’s Discussion and Analysis” sections of our reports on Form 10-K and 10-Q filed with the U.S. Securities and Exchange Commission (“SEC”), including the Form 10-Q for the three months ended March 31, 2023, that the Company expects to file today. 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. In addition, we will be referring to non-Generally Accepted Accounting Principles (“GAAP”) financial measures within the meaning of SEC Regulation G. A reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with GAAP are included within this presentation and available on the Investor Relations page of our website at www.armstrongceilings.com. The guidance in this presentation is only effective as of the date given, April 25, 2023, and will not be updated or affirmed unless and until we publicly announce updated or affirmed guidance.
Basis of Presentation Explanation The deferred compensation accruals are for cash and stock awards that will be recorded over each awards’ respective vesting period, as such payments are subject to the sellers’ and employees’ continued employment with the Company. Results throughout this presentation are presented on a normalized basis. We remove the impact of certain discrete expenses and income in certain measures including adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), adjusted diluted net earnings per share (“EPS”) and adjusted free cash flow. The Company excludes certain acquisition related expenses (i.e. – changes in the fair value of contingent consideration, deferred compensation accruals1, impact of adjustments related to the fair value of inventory) for recent acquisitions. The Company excludes all acquisition-related amortization from adjusted net earnings and in calculations of adjusted diluted EPS. Examples of other excluded items have included plant closures, restructuring charges and related costs, impairments, separation costs and other cost reduction initiatives, environmental site expenses and related insurance recoveries, endowment level charitable contributions, and certain other gains and losses. The Company also excludes income/expense from its U.S. Retirement Income Plan (“RIP”) in the non-GAAP results as it represents the actuarial net periodic benefit credit/cost recorded. Our tax rate may be adjusted for certain discrete items which are identified in the footnotes. Investors should not consider non-GAAP measures as a substitute for GAAP measures. Excluding adjusted diluted EPS, non-GAAP figures are rounded to the nearest million and corresponding percentages are based on unrounded figures. Operating Segments: “MF”: Mineral Fiber, “AS”: Architectural Specialties, “UC”: Unallocated Corporate All dollar figures throughout the presentation are in $ millions, expect per share data, and all comparisons are versus prior year unless otherwise noted. Figures may not sum due to rounding.
GAAP and non-GAAP Financial Results AWI Consolidated Company Results Q1 2023 Q1 2022 Net Sales $310.2 $282.6 Net Earnings $47.3 $44.4 Operating Income $70.2 $63.2 Adj. EBITDA* $96 $87 Operating Income Margin (Operating Income % of Net Sales) 22.6% 22.4% Adj. EBITDA Margin* (Adj. EBITDA % of Net Sales) 30.9% 30.9% Diluted Net Earnings per Share $1.04 $0.94 Adj. Diluted Net Earnings per Share* $1.12 $1.02 Net Cash Provided by Operating & Investing Activities $24.7 $16.9 Adj. Free Cash Flow* $30 $20 Net Cash Provided by Operating & Investing Activities % of Net Sales 8.0% 6.0% Adj. Free Cash Flow Margin* (Adj. Free Cash Flow % of Net Sales) 9.6% 6.9% Segment Results Q1 2023 Q1 2022 MF AS UC MF AS UC Net Sales $228.4 $81.8 - $203.2 $79.4 - Operating Income (Loss) $63.8 $7.2 ($0.8) $57.6 $6.5 ($0.9) Adj. EBITDA* $84 $12 - $74 $13 - Operating Income Margin (Operating Income % of Net Sales) 27.9% 8.8% NM 28.3% 8.2% NM Adj. EBITDA Margin* (Adj. EBITDA % of Net Sales) 36.8% 14.3% NM 36.6% 16.3% NM *Non-GAAP measure. See appendix for reconciliation to nearest GAAP measure. “NM”: Not meaningful.
$310M (+10% VPY) Net Sales $96M (+9% VPY) Adj. EBITDA* $1.12 (+10% VPY) Adj. Diluted EPS* $30M (+52% VPY) Adj. Free Cash Flow* 1st Quarter 2023 Key Takeaways Solid Performance with Top & Bottom-Line Growth *Non-GAAP measure. See slide 4 and appendix for reconciliation to nearest GAAP measure. 1. Average Unit Value (“AUV”). Includes both like-for-like price and mix impacts. Net Sales up 10% Driven by 12% Mineral Fiber sales growth and 3% AS sales growth Mineral Fiber segment Adj. EBITDA* up 13% Driven by 9% volume growth, AUV1 improvement and positive WAVE contribution; EBITDA margin* expansion of 20 bps Architectural Specialties segment soft start to year Driven by project timing headwinds; Adj. EBITDA* declined 10% Maintaining full-year 2023 guidance
Mineral Fiber Q1 2023 Results Strong Volume Growth Partially Offset by Mix Headwinds *Non-GAAP measure. See slide 4 and appendix for reconciliation to nearest GAAP measure. Excludes the change in depreciation throughout the presentation. Includes raw material, energy and freight impacts in addition to inventory valuation impacts. Excludes the change in amortization throughout the presentation. Net Sales Growth VPY Q1 Mineral Fiber Key Highlights ● MF volume of 9% driven by weak prior-year comp and current-year home center inventory build ● Muted AUV growth driven by positive like-for-like price partially offset by mix headwind ● Adj. EBITDA margin* expansion of 20bps ● Strong manufacturing productivity and lower input cost inflation ● Inventory valuation headwind of ($6M) on input costs ● WAVE equity earnings rebounded from prior-year weakness Adj. EBITDA* Comparison VPY Q1 2022 Adjusted EBITDA* $74 AUV 5 Volume 12 Manufacturing1 3 Input Costs2 (10) SG&A3 (3) WAVE 3 2023 Adjusted EBITDA* $84 % Change 13% +12%
Architectural Specialties Q1 2023 Results Muted Topline Growth With Project Timing Headwinds Adj. EBITDA* Comparison VPY Q1 2022 Adjusted EBITDA* $13 Volume 2 Manufacturing1 (1) SG&A2 (2) 2023 Adjusted EBITDA* $12 % Change (10%) Q1 Architectural Specialties Key Highlights ● Modest topline growth vs. strong prior-year comp and unfavorable project timing ● Growth across most product categories ● High levels of transportation project bidding activity ● Order intake and 2023 backlog supportive for full year outlook ● Managing SG&A in line with growth expectations Net Sales Growth VPY +3% *Non-GAAP measure. See slide 4 and appendix for reconciliation to nearest GAAP measure. Excludes the change in depreciation throughout the presentation. Excludes the change in amortization throughout the presentation.
Q1 2023 Consolidated Company Key Metrics Volume and Favorable AUV More Than Offset Input Cost Headwinds Q1 2022 Q1 2023 Variance Net Sales $283 $310 10% Adj. EBITDA* $87 $96 9% Adj. EBITDA Margin* (Adj. EBITDA % of Net Sales) 30.9% 30.9% (10bps) Adj. Diluted Net Earnings Per Share* $1.02 $1.12 10% Adj. Free Cash Flow* $20 $30 52% *Non-GAAP measure. See slide 4 and appendix for reconciliation to nearest GAAP measure. Excludes the change in depreciation throughout the presentation. 2. Includes raw material, energy and freight impacts in addition to inventory valuation impacts. 3. Excludes the change in amortization throughout the presentation.. 1 2 3
Adjusted Free Cash Flow Funds Balanced Capital Allocation Strategy *Non-GAAP measure. See slide 4 and appendix for reconciliation to nearest GAAP measure. Includes cash earnings, working capital and other current assets and liabilities. Q1 Capital Deployment Q1 2023 Adj. Free Cash Flow* Grows 52% vs PY
Driving Growth in a Challenging Macroeconomic Environment Maintaining Full Year 2023 Guidance Commentary1 $1,260M to $1,310M 2% to 6% YoY Net Sales Growth $4.80 to $5.05 1% to 7% YoY Adjusted Diluted EPS* $395M to $420M 3% to 9% YoY Adjusted EBITDA* $230M to $250M 4% to 13% YoY Adjusted Free Cash Flow* Expect lower market demand, partially offset by initiatives, to result in mid-single digit MF volume decline Expect above average MF AUV growth with historical fall-through Managing investments and working capital to offset weaker macroeconomic conditions Expect positive WAVE equity earnings VPY, rebounding from 2022 results *Non-GAAP measure. See slide 4 and appendix for reconciliation to nearest GAAP measure. Additional assumptions available in the appendix of this presentation.
Appendix
Full Year 2023 Assumptions *Non-GAAP Measure. See slide 4 and appendix for reconciliation to nearest GAAP measure. **Assumes no contribution from future acquisitions. Segment Net Sales Adjusted EBITDA Margin* Mineral Fiber +1% to +5% growth YoY >37% Architectural Specialties** >6% growth YoY >18% Consolidated Company Metrics Full Year 2023 Capital expenditures $75M to $85M Depreciation and amortization $83M to $88M Interest expense $35M to $37M Book / cash tax rate ~25% / ~25% Shares outstanding ~45 million Return of investment from joint venture $85M to $95M
For the Three Months Ended March 31, 2023 2022 V Net earnings $47 $44 $3 Add: Income tax expense 17 15 2 Earnings before income taxes $64 $59 $5 Add: Interest/other income and expense, net 6 4 2 Operating income $70 $63 $7 Add: RIP expense1 1 1 - Add: Acquisition-related impacts2 1 2 (1) Add: Cost reduction initiatives 3 - 3 Adjusted operating income $75 $67 $8 Add: Depreciation and amortization 21 21 - Adjusted EBITDA $96 $87 $8 RIP expense represents only the plan service cost that is recorded within Operating income. For all periods presented, we were not required to and did not make cash contributions to our RIP. Represents the impact of acquisition-related adjustments for changes in fair value of contingent consideration, deferred compensation and restricted stock expenses. Represents the intangible amortization related to acquired entities, including customer relationships, developed technology, software, trademarks and brand names, non-compete agreements and other intangibles. Adjusted income tax expense is calculated using the effective tax rate multiplied by the adjusted earnings before income taxes. For the Three Months Ended March 31, 2023 2022 V Net earnings $47 $44 $3 Add: Income tax expense 17 15 2 Earnings before income taxes $64 $59 $5 Add: Acquisition-related impacts2 1 2 (1) Add: Acquisition-related amortization3 1 3 (2) Add: Cost reduction initiatives 3 - 3 Adjusted earnings before income taxes $69 $64 $5 (Less): Adjusted income tax expense4 (18) (16) (2) Adjusted net earnings $51 $48 $3 Diluted shares outstanding 45.5 47.2 Effective tax rate 26% 25% Diluted net earnings per share $1.04 $0.94 $0.10 Adjusted diluted net earnings per share $1.12 $1.02 $0.10 Q1 2023 Adjusted EBITDA Reconciliation Q1 2023 Adjusted Diluted EPS Reconciliation
RIP expense represents only the plan service cost related to the RIP that is recorded within Operating Income. For all periods presented, we were not required to and did not make cash contributions to our RIP. Represents the impact of acquisition-related adjustments for changes in fair value of contingent consideration, deferred compensation and restricted stock expenses. Contingent compensation payments related to 2020 acquisitions recorded as a component of net cash provided by operating activities. “NM”: Not meaningful. For the Three Months Ended March 31: 2023 2022 V Net cash provided by operating activities $26 $17 $10 Net cash (used for) provided by investing activities ($2) - ($2) Net cash provided by operating and investing activities $25 $17 $8 Add: Net environmental expenses - 1 (1) Add: Contingent consideration in excess of acquisition-date fair value3 5 2 3 Adjusted free cash flow $30 $20 $10 For the Three Months Ended March 31: MF AS UC UNALLOCATED CORPORATE 2023 2022 V 2023 2022 V 2023 2022 V Net sales $228 $203 $25 $82 $79 $2 - - - Operating income (loss) $64 $58 $6 $7 $7 $1 ($1) ($1) - Add: RIP expense1 - - - - - - 1 1 - Add: Acquisition-related impacts2 - - - 1 2 (1) - - - Add: Cost reduction initiatives 3 - 3 - - - - - - Adjusted operating income (loss) $66 $58 $9 $8 $9 - - - - Add: Depreciation and amortization 18 17 1 3 4 (1) - - - Adjusted EBITDA $84 $74 $10 $12 $13 ($1) - - - Operating income margin (Operating income % of net sales) 27.9% 28.3% 8.8% 8.2% NM NM Adjusted EBITDA margin (Adjusted EBITDA % of net sales) 36.8% 36.6% 14.3% 16.3% NM NM Q1 2023 Adjusted Free Cash Flow Reconciliation Q1 2023 Segment Operating Income (Loss) to Adj. EBITDA
For the Year Ending December 31, 2023 Low High Net earnings $206 $217 Add: Income tax expense 68 73 Earnings before income taxes $274 $289 Add: Interest expense 35 37 Add: Other non-operating (income) (7) (6) Operating income $302 $321 Add: RIP expense1 3 4 Add: Acquisition-related impacts2 4 5 Add: Cost reduction initiatives 3 3 Adjusted operating income $312 $332 Add: Depreciation and amortization $83 $88 Adjusted EBITDA $395 $420 Note: Assumes rounding to sum segments to consolidated company figures. 1. RIP expense represents only the plan service cost related to the RIP that is recorded within Operating income. For all periods presented, we were not required to and did not make cash contributions to our RIP. 2. Represents the impact of acquisition-related adjustments for deferred compensation and restricted stock expenses. “NA”: Not applicable. Full Year 2023 (Supports low-end Adj. EBITDA Margin % assumption) For the Three months Ended March 31, MF AS UC Net sales $892 $366 $ - Operating income (loss) $258 $48 ($3) Add: RIP expense1 - - 3 Add: Acquisition-related impacts2 - 4 - Add: Cost reduction initiatives 3 - - Adjusted operating income $261 $52 - Add: Depreciation and amortization 69 14 - Adjusted EBITDA $330 $66 $ - Operating income margin (Operating income % of net sales) 29% 13% NA Adjusted EBITDA margin (Adjusted EBITDA % of net sales) 37% 18% NA 2023 Adj. EBITDA Guidance Reconciliation 2023 Segment Adj. EBITDA Guidance Reconciliation
RIP (credit) represents the entire actuarial net periodic pension (credit) recorded as a component of Net earnings. We do not expect to make cash contributions to our RIP. Represents the impact of acquisition-related adjustments for deferred compensation and restricted stock expenses. Represents the intangible amortization related to acquired entities, including customer relationships, developed technology, software, trademarks and brand names, non-compete agreements and other intangibles. Adjusted income tax expense is based on an adjusted effective tax rate of ~25%, multiplied by adjusted earnings before income tax. For the Year Ending December 31, 2023 Low High Net earnings $206 $217 Add: Income tax expense 68 73 Earnings before income taxes $274 $289 Add: RIP (credit)1 (1) (2) Add: Acquisition-related impacts2 4 5 Add: Acquisition-related amortization3 5 6 Add: Cost reduction initiatives 3 3 Adjusted earnings before income taxes $285 $301 (Less): Adjusted income tax expense4 (70) (74) Adjusted net earnings $215 $227 Diluted shares outstanding ~45M ~45M Effective tax rate ~25% ~25% Diluted net earnings per share $4.57 $4.81 Adjusted diluted net earnings per share $4.80 $5.05 For the Year Ending December 31, 2023 Low High Net cash provided by operating activities $220 $240 Add: Return of investment from joint venture 85 95 Adjusted net cash provided by operating activities $305 $335 (Less): Capital expenditures (75) (85) Adjusted Free Cash Flow $230 $250 2023 Adj. Diluted EPS Guidance Reconciliation 2023 Adj. Free Cash Flow Guidance Reconciliation