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 26, 2022
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 26, 2022, Armstrong World Industries, Inc. (the "Company") issued a press release announcing its first quarter 2022 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 26, 2022, the Company issued a press release announcing that it will report its first quarter 2022 consolidated financial results via a webcast and conference call on April 26, 2022 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.
Caution Concerning Forward-Looking Statements
This Current Report on Form 8-K includes certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Such forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of the Company, including the consummation of the Sale, and other statements that are not historical facts. These statements are based on the current expectations and beliefs of the Company’s management, and are subject to uncertainty and changes in circumstances. This includes both annual guidance and five-year growth targets which represent internal company estimates at a five-year compounded annual growth rate. The Company cautions readers that any forward-looking information is not a guarantee of future performance and that actual results may vary materially from those expressed or implied by the statements herein, due to changes in economic, business, competitive, technological, strategic or other regulatory factors, as well as factors affecting the operation of the business of the Company. More detailed information about certain of these and other factors may be found in filings by the Company with the U.S. Securities and Exchange Commission, including its most recent Annual Report on Form 10-K in the sections entitled “Caution Concerning Forward-Looking Statements” and “Risk Factors”, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Various factors could cause actual results to differ from those set forth in the forward-looking statements including, without limitation, the risk that the anticipated benefits from the Sale may not be fully realized or may take longer to realize than expected. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise.
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 26, 2022 |
|---|---|
| No. 99.2 | Earnings Call Presentation First Quarter 2022 dated April 26, 2022 |
| 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 So |
| Austin So | |
| Senior Vice President, General Counsel, Secretary and Chief Compliance Officer |
Date: April 26, 2022
EX-99.1
Exhibit 99.1
Armstrong World Industries Reports First-Quarter 2022 Results
Key First-Quarter Highlights
• Net sales up 12% versus the prior-year quarter
• Operating income up 17% and diluted earnings per share from continuing operations up 21% versus the prior-year quarter
• Adjusted EBITDA up 3% and adjusted diluted earnings per share up 7% versus the prior-year quarter
• Maintaining 2022 Guidance: Net Sales of +10% to 13%, adjusted EBITDA of +10% to 16% and adjusted Free Cash Flow of +13% to 24% versus the prior year
LANCASTER, Pa., April 26, 2022 -- 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 2022 financial results. The company drove net sales growth of 12% and operating income growth of 17%, primarily due to price over inflation gains and strong growth in the Architectural Specialties segment. These gains were partially offset by lower Mineral Fiber sales volumes and equity earnings, primarily due to reductions in distributor inventory levels.
“The double-digit topline growth we achieved is a testament to Armstrong's ability to achieve price ahead of inflation and our strong execution on the growth opportunities in our Architectural Specialties segment and with our digital and Healthy Spaces initiatives,” said Vic Grizzle, President and CEO of Armstrong World Industries. “We remain encouraged by sentiment supporting demand in the commercial construction market, and this, together with our investments for growth, supports our confidence in our outlook for the rest of 2022.”
First-Quarter Results from Continuing Operations
| (Dollar amounts in millions except per-share data) | For the Three Months Ended March 31, | ||||
|---|---|---|---|---|---|
| 2022 | 2021 | Change | |||
| Net sales | $ | 282.6 | $ | 251.9 | 12.2% |
| Operating income | $ | 63.2 | $ | 54.1 | 16.8% |
| Earnings from continuing operations | $ | 44.4 | $ | 37.5 | 18.4% |
| Diluted earnings per share | $ | 0.94 | $ | 0.78 | 20.5% |
| Additional Non-GAAP* Measures | |||||
| Adjusted EBITDA | $ | 87 | $ | 85 | 2.8% |
| Adjusted net income from continuing operations | $ | 48 | $ | 46 | 4.6% |
| Adjusted diluted earnings per share | $ | 1.02 | $ | 0.95 | 7.4% |
* 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 GAAP measure are found in the tables at the end of this press release. Non-GAAP figures are rounded to the nearest million with the exception of per share data.
First-quarter 2022 consolidated net sales increased 12.2% from prior-year results, driven primarily by favorable Average Unit Value (“AUV”) of $23 million and increased sales volumes from the Architectural Specialties segment of $16 million, which was partially offset by lower Mineral Fiber volumes of $8 million.
Operating income increased 16.8% from first-quarter 2021, primarily due to positive AUV in the Mineral Fiber segment, the benefit from higher sales volumes in the Architectural Specialties segment and a decrease in intangible asset amortization related to the Architectural Specialties segment. This favorability was partially offset by higher manufacturing costs, primarily raw materials and energy costs, increased selling expenses, the negative impact from lower Mineral Fiber sales volume and a reduction in equity earnings.
First-Quarter Segment Highlights
Mineral Fiber
| (Dollar amounts in millions) | For the Three Months Ended March 31, | ||||
|---|---|---|---|---|---|
| 2022 | 2021 | Change | |||
| Net sales | $ | 203.2 | $ | 188.7 | 7.7% |
| Operating income | $ | 57.6 | $ | 60.6 | (5.0)% |
| Adjusted EBITDA* | $ | 74 | $ | 78 | (4.7)% |
First-quarter 2022 Mineral Fiber net sales increased 7.7% due to $23 million of favorable AUV, partially offset by lower sales volumes of $8 million. Strong AUV performance resulted from favorable like-for-like pricing. The decrease in volumes was primarily driven by a reduction of inventory levels for certain distributor customers.
First-quarter Mineral Fiber operating income decreased 5.0% from prior-year results primarily due to a $7 million increase in manufacturing costs, primarily increased raw material and energy costs, a $6 million decrease resulting from lower sales volumes, a $5 million increase in selling expenses, primarily related to investments in growth initiatives and incentive compensation, and a $3 million decrease in equity earnings. The decrease in equity earnings was also primarily related to lower volumes, due primarily to the reduction of inventory levels for certain distributor customers. These costs were partially offset by $18 million of favorable AUV.
Architectural Specialties
| (Dollar amounts in millions) | For the Three Months Ended March 31, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | Change | ||||
| Net sales | $ | 79.4 | $ | 63.2 | 25.6% | |
| Operating (loss) income | $ | 6.5 | $ | (4.9 | ) | Favorable |
| Adjusted EBITDA* | $ | 13 | $ | 7 | 88.4% |
First-quarter 2022 net sales in Architectural Specialties increased 25.6% from prior-year results, driven by an increase in custom project sales, improved performance from recent acquisitions compared to the prior year and positive impacts from price increases.
The year-over-year increase in operating income was primarily driven by a $9 million benefit from net sales growth and a $4 million reduction in intangible asset amortization. These benefits were partially offset by a $2 million increase related to additional investments in selling capabilities and incentive compensation expense.
Unallocated Corporate
The Company reported an Unallocated Corporate operating loss of $1 million in the first quarter of 2022 compared to a loss of $2 million in the prior year period.
Maintaining 2022 Outlook
“Despite a slow start to the year for Mineral Fiber volume from impacts of normalizing distributor inventory levels, our Architectural Specialties results and growth initiative performance was impressive,” said Brian MacNeal, AWI CFO. “Our team's demonstrated ability to price ahead of inflation, manage costs throughout the business and the traction of our growth investments gives us confidence in maintaining our full year guidance of net sales growth of 10% to 13% and adjusted EBITDA growth of 10% to 16% versus the prior year.”
| For the Year Ended December 31, 2022 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollar amounts in millions except per-share data) | 2021 Actual | Current Guidance | VPY Growth % | |||||||
| Net sales | $ | 1,107 | $ | 1,215 | to | $ | 1,255 | 10% | to | 13% |
| Adjusted EBITDA* | $ | 372 | $ | 410 | to | $ | 430 | 10% | to | 16% |
| Adjusted diluted earnings per share* | $ | 4.36 | $ | 5.00 | to | $ | 5.20 | 15% | to | 19% |
| Adjusted free cash flow* | $ | 190 | $ | 215 | to | $ | 235 | 13% | to | 24% |
Earnings Webcast
Management will host a live webcast conference call at 10:00 a.m. EDT today, to discuss first-quarter 2022 results. This event will be available on the Company's website. To access the call and accompanying slide presentation, go to www.armstrongworldindustries.com and click Investors. The replay of this event will be available on the Company's website for up to one year after the date of the call.
Uncertainties Affecting Forward-Looking Statements
Disclosures in this release, including without limitation, those relating to future financial results, market conditions and guidance, the impacts of COVID-19 on our business, and in our other public documents and comments, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 both annual guidance and five-year growth targets which represent internal company estimates at a five-year compounded annual growth rate. 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”). 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. (AWI) is a leader in the design, innovation and manufacture of innovative ceiling and wall system solutions in the Americas. With $1.1 billion in revenue in 2021, AWI has nearly 3,000 employees and a manufacturing network of 15 facilities, plus six 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, 2022 that the Company expects to file with the SEC today.
Contacts
Investors: Theresa Womble, tlwomble@armstrongceilings.com or (717) 396-6354
Media: Jennifer Johnson, jenniferjohnson@armstrongceilings.com or (866) 321-6677
Reported Financial Highlights
FINANCIAL HIGHLIGHTS
Armstrong World Industries, Inc. and Subsidiaries
(Unaudited)
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Net sales | $ | 282.6 | $ | 251.9 | ||
| Cost of goods sold | 180.4 | 164.4 | ||||
| Gross profit | 102.2 | 87.5 | ||||
| Selling, general and administrative expenses | 57.1 | 54.2 | ||||
| Loss related to change in fair value of contingent consideration | 0.1 | 0.2 | ||||
| Equity (earnings) from joint venture | (18.2 | ) | (21.0 | ) | ||
| Operating income | 63.2 | 54.1 | ||||
| Interest expense | 5.1 | 5.7 | ||||
| Other non-operating (income), net | (1.3 | ) | (1.3 | ) | ||
| Earnings from continuing operations before income taxes | 59.4 | 49.7 | ||||
| Income tax expense | 15.0 | 12.2 | ||||
| Earnings from continuing operations | 44.4 | 37.5 | ||||
| Net (loss) from discontinued operations | - | (2.1 | ) | |||
| Net earnings | $ | 44.4 | $ | 35.4 | ||
| Diluted earnings per share of common stock, continuing operations | $ | 0.94 | $ | 0.78 | ||
| Diluted (loss) per share of common stock, discontinued operations | $ | - | $ | (0.04 | ) | |
| Diluted net earnings per share of common stock | $ | 0.94 | $ | 0.74 | ||
| Average number of diluted common shares outstanding | 47.2 | 48.0 |
SEGMENT RESULTS
Armstrong World Industries, Inc. and Subsidiaries
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31, | ||||||
| 2022 | 2021 | |||||
| Net Sales | ||||||
| Mineral Fiber | $ | 203.2 | $ | 188.7 | ||
| Architectural Specialties | 79.4 | 63.2 | ||||
| Total net sales | $ | 282.6 | $ | 251.9 | ||
| Three Months Ended | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| March 31, | ||||||
| 2022 | 2021 | |||||
| Segment operating income (loss) | ||||||
| Mineral Fiber | $ | 57.6 | $ | 60.6 | ||
| Architectural Specialties | 6.5 | (4.9 | ) | |||
| Unallocated Corporate | (0.9 | ) | (1.6 | ) | ||
| Total consolidated operating income | $ | 63.2 | $ | 54.1 |
Selected Balance Sheet Information
(Amounts in millions)
| Unaudited | ||||
|---|---|---|---|---|
| March 31, 2022 | December 31, 2021 | |||
| Assets | ||||
| Current assets | $ | 318.1 | $ | 321.9 |
| Property, plant and equipment, net | 539.2 | 542.8 | ||
| Other noncurrent assets | 850.8 | 845.3 | ||
| Total assets | $ | 1,708.1 | $ | 1,710.0 |
| Liabilities and shareholders’ equity | ||||
| Current liabilities | $ | 192.8 | $ | 209.6 |
| Noncurrent liabilities | 977.7 | 980.7 | ||
| Equity | 537.6 | 519.7 | ||
| Total liabilities and shareholders’ equity | $ | 1,708.1 | $ | 1,710.0 |
Selected Cash Flow Information
(Amounts in millions)
Unaudited
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Net earnings | $ | 44.4 | $ | 35.4 | ||
| Other adjustments to reconcile net earnings to net cash provided by operating activities | 5.2 | 8.9 | ||||
| Changes in operating assets and liabilities, net | (32.9 | ) | (24.7 | ) | ||
| Net cash provided by operating activities | 16.7 | 19.6 | ||||
| Net cash provided by (used for) investing activities | 0.2 | (8.8 | ) | |||
| Net cash (used for) financing activities | (39.2 | ) | (26.2 | ) | ||
| Effect of exchange rate changes on cash and cash equivalents | 0.3 | 0.1 | ||||
| Net (decrease) in cash and cash equivalents | (22.0 | ) | (15.3 | ) | ||
| Cash and cash equivalents at beginning of year | 98.1 | 136.9 | ||||
| Cash and cash equivalents at end of period | $ | 76.1 | $ | 121.6 |
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 net sales, adjusted EBITDA, adjusted diluted 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 and deferred revenue) 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 earnings from continuing operations and in calculations of adjusted diluted earnings per share. Examples of other excluded items include plant closures, restructuring charges and related costs, impairments, separation costs, 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. 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 2022. 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 related insurance recoveries. The Company believes adjusted free cash flow is useful because it provides insight into the amount of cash that the Company generates for discretionary uses, after expenditures for capital investments and adjustments for acquisitions and divestitures. 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. 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. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.
In the following charts, numbers may not sum due to rounding. Non-GAAP figures are rounded to the nearest million and corresponding percentages are rounded to the nearest percent based on unrounded figures.
Consolidated Results from Continuing Operations – Adjusted EBITDA
| For the Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Earnings from continuing operations, Reported | $ | 44 | $ | 38 |
| Add: Income tax expense, reported | 15 | 12 | ||
| Earnings before tax, Reported | $ | 59 | $ | 50 |
| Add: Interest/other income and expense, net | 4 | 4 | ||
| Operating Income, Reported | $ | 63 | $ | 54 |
| Add: RIP expense (1) | 1 | 1 | ||
| Add: Acquisition-related impacts (2) | 2 | 4 | ||
| Operating Income, Adjusted | $ | 67 | $ | 59 |
| Add: Depreciation | 16 | 15 | ||
| Add: Amortization | 5 | 11 | ||
| Adjusted EBITDA | $ | 87 | $ | 85 |
(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 the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration, deferred compensation and restricted stock expenses.
Mineral Fiber
| For the Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Operating Income, Reported | $ | 58 | $ | 61 |
| Add: D&A | 17 | 18 | ||
| Adjusted EBITDA | $ | 74 | $ | 78 |
Architectural Specialties
| For the Three Months Ended March 31, | |||||
|---|---|---|---|---|---|
| 2022 | 2021 | ||||
| Operating Income (Loss), Reported | $ | 7 | $ | (5 | ) |
| Add: Acquisition-related impacts (1) | 2 | 4 | |||
| Operating Income (Loss), Adjusted | $ | 9 | $ | (1 | ) |
| Add: D&A | 4 | 8 | |||
| Adjusted EBITDA | $ | 13 | $ | 7 |
(1) Represents the impact of acquisition-related adjustments for the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration, deferred compensation and restricted stock expenses.
Unallocated Corporate
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Operating (Loss), Reported | $ | (1 | ) | $ | (2 | ) |
| Add: RIP expense (1) | 1 | 1 | ||||
| Operating (Loss), Adjusted | - | - | ||||
| Add: D&A | - | - | ||||
| 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, | |||||
|---|---|---|---|---|---|
| 2022 | 2021 | ||||
| Net cash provided by operating activities | $ | 17 | $ | 20 | |
| Net cash (used for) investing activities | - | (9 | ) | ||
| Net cash provided by operating and investing activities | $ | 17 | $ | 11 | |
| Add: Payments related to sale of international, net | - | 12 | |||
| Add: Net environmental expenses | 1 | - | |||
| Add: Contingent consideration in excess of acquisition-date fair value (1) | 2 | - | |||
| Adjusted Free Cash Flow | $ | 20 | $ | 23 |
(1) Contingent compensation payments related to 2020 acquisitions recorded as a component of net cash provided by operating activities.
Consolidated Results from Continuing Operations – Adjusted Diluted Earnings Per Share
| For the Three Months Ended March 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||
| Total | Per Diluted<br>Share | Total | Per Diluted<br>Share | |||||||||
| Earnings from continuing operations, Reported | $ | 44 | $ | 0.94 | $ | 38 | $ | 0.78 | ||||
| Add: Income tax expense, reported | 15 | 12 | ||||||||||
| Earnings from continuing operations before income taxes, Reported | $ | 59 | $ | 50 | ||||||||
| Add: Acquisition-related impacts (1) | 2 | 4 | ||||||||||
| Add: Acquisition-related amortization (2) | 3 | 7 | ||||||||||
| Adjusted earnings from continuing operations before income taxes | $ | 64 | $ | 61 | ||||||||
| (Less): Adjusted income tax expense (3) | (16 | ) | (15 | ) | ||||||||
| Adjusted net income from continuing operations | $ | 48 | $ | 1.02 | $ | 46 | $ | 0.95 | ||||
| Adjusted EPS change versus Prior Year | 7 | % | ||||||||||
| Diluted Shares Outstanding, as reported | 47.2 | 48.0 | ||||||||||
| Adjusted Tax Rate | 25 | % | 25 | % |
(1) Represents the impact of acquisition-related adjustments for the fair value of acquired inventory and deferred revenue, 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 adjusted tax rate multiplied by the adjusted earnings from continuing operations before income taxes.
Adjusted EBITDA Guidance
| For the Year Ending December 31, 2022 | |||||||
|---|---|---|---|---|---|---|---|
| Low | High | ||||||
| Net income | $ | 232 | to | $ | 241 | ||
| Add: Interest expense | 22 | 26 | |||||
| (Less): RIP credit (1) | (4 | ) | (4 | ) | |||
| Add: Income tax expense | 76 | 79 | |||||
| Operating income | $ | 326 | to | $ | 341 | ||
| Add: RIP expense (2) | 4 | 4 | |||||
| Add: Depreciation | 65 | 68 | |||||
| Add: Amortization | 16 | 17 | |||||
| Adjusted EBITDA | $ | 410 | to | $ | 430 |
(1) RIP credit represents the actuarial net periodic benefit expected to be recorded as a component of other non-operating income. We do not expect to and do not plan to make cash contributions to our RIP in 2022 based on guidelines established by the Pension Benefit Guaranty Corporation.
(2) 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.
Adjusted Diluted Earnings Per Share (EPS) Guidance
| For the Year Ending December 31, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Low | Per Diluted<br>Share(1) | High | Per Diluted<br>Share(1) | ||||||||
| Net income | $ | 232 | $ | 4.87 | to | $ | 241 | $ | 5.05 | ||
| Add: Interest expense | 22 | 26 | |||||||||
| (Less): RIP credit (2) | (4 | ) | (4 | ) | |||||||
| Add: Income tax expense | 76 | 79 | |||||||||
| Operating income | $ | 326 | to | $ | 341 | ||||||
| Add: RIP expense (3) | 4 | 4 | |||||||||
| (Less): Interest expense | (22 | ) | (26 | ) | |||||||
| Add: Acquisition related amortization (4) | 8 | 8 | |||||||||
| Adjusted earnings before income taxes | $ | 316 | to | $ | 328 | ||||||
| (Less): Income tax expense (5) | (79 | ) | (82 | ) | |||||||
| Adjusted net income | $ | 237 | $ | 5.00 | to | $ | 246 | $ | 5.20 |
(1) Adjusted EPS guidance for 2022 is calculated based on an adjusted effective tax rate of 25% and based on ~47.7 million of diluted shares outstanding.
(2) RIP credit represents the actuarial net periodic benefit expected to be recorded as a component of other non-operating income. We do not expect to be required to make, nor do we plan to make cash contributions to our RIP based on guidelines established by the Pension Benefit Guaranty Corporation.
(3) RIP expense represents only the plan service cost related to the U.S. pension plan and is recorded as a component of operating income. We do not expect to be required to make, nor do we plan to make cash contributions to our RIP based on guidelines established by the Pension Benefit Guaranty Corporation.
(4) Represents the intangible amortization related to acquired entities, including customer relationships, developed technology, software, trademarks and brand names, non-compete agreements and other intangibles.
(5) Adjusted income tax expense is based on adjusted earnings before income tax.
Adjusted Free Cash Flow Guidance
| For the Year Ending December 31, 2022 | |||||||
|---|---|---|---|---|---|---|---|
| Low | High | ||||||
| Net cash provided by operating activities | $ | 210 | to | $ | 230 | ||
| Add: Return of investment from joint venture | 95 | 105 | |||||
| Adjusted net cash provided by operating activities | $ | 305 | to | $ | 335 | ||
| Less: Capital expenditures | (90 | ) | (100 | ) | |||
| Adjusted Free Cash Flow | $ | 215 | to | $ | 235 |
1st Quarter 2022 Earnings Presentation April 26, 2022 Exhibit 99.2
Safe Harbor Statement Our disclosures in this presentation, including without limitation, those relating to future financial results market conditions and guidance, the impacts of COVID-19 on our business, and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. 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 both annual guidance and five-year growth targets which represent internal company estimates at a five-year compounded annual growth rate. 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 may affect our ability to achieve the projected performance 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”). 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-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 Generally Accepted Accounting Principles (“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 26, 2022, and will not be updated or affirmed unless and until we publicly announce updated or affirmed guidance.
Basis of Presentation Explanation 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 net sales, adjusted EBITDA, adjusted diluted earnings per share (EPS) and adjusted free cash flow. The Company excludes certain acquisition related expenses (i.e. – changes in the fair value of earn-outs, deferred compensation accruals(1), impact of adjustments related to the fair value of inventory and deferred revenue) for recent acquisitions. The Company excludes all acquisition-related amortization from adjusted earnings from continuing operations and in calculations of adjusted diluted earnings per share. Examples of other excluded items include plant closures, restructuring actions and related costs, impairments, separation costs, environmental site expenses and related insurance recoveries, endowment level charitable contributions, and certain other gains and losses. The Company also adjusts for our U.S. Retirement Income Plan (RIP) (credit) expense(2). 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. Non-GAAP figures are rounded to the nearest million and corresponding percentages are rounded to the nearest percent based on unrounded figures. The deferred compensation accruals are for cash and stock awards that will be recorded over the vesting period, as such payments are subject to the sellers’ and employees’ continued employment with the Company. RIP (credit) expense represents the entire actuarial net periodic pension (credit) expense recorded as a component of earnings from continuing operations. For all periods presented, we were not required to and did not make cash contributions to our RIP. All dollar figures throughout the presentation are in $ millions, except per share data, and all comparisons are versus prior year unless otherwise noted. Figures may not sum due to rounding.
1 12% increase in Net Sales driven by both Mineral Fiber (“MF”) and Architectural Specialties (“AS”) 2 Mineral Fiber Average Unit Value (“AUV”) growth of 12%, driven by like-for-like pricing above inflation, gross margin expanded 3 Record-setting AS sales and strong AS EBITDA margin expansion of 560 bps 4 Distributor inventory reductions drove lower Mineral Fiber and WAVE(1) volumes Double-Digit Sales Improvement Driven by MF AUV and AS Growth Q1 2022 Summary *Non-GAAP measure. See appendix for reconciliation to nearest GAAP measure. Worthington Armstrong Joint Venture (“WAVE”). Adj. Net Sales* $253 $283 +8% +24% +12% +3% Adj. EBITDA*
Q1 2022 Consolidated Company Key Metrics Q1 2021 Q1 2022 Variance Adj. Net Sales* $253 $283 12% Adj. EBITDA* $85 $87 3% Adj. EBITDA Margin*(%) 34% 31% (270bps) Adj. Earnings Per Share* $0.95 $1.02 7% Adj. Free Cash Flow* $23 $20 (13%) (1) Excludes change in depreciation throughout presentation. (2) Excludes change in amortization throughout presentation. *Non-GAAP measure. See appendix for reconciliation to nearest GAAP measure. $85 $2 $19 ($6) ($0) ($10) ($3) $87
Favorable MF AUV Partially Offset by Volume Headwinds Mineral Fiber Q1 2022 Results Q1 Current Quarter Comments 2021 Adjusted EBITDA* $78 AUV 18 Positive price offset by unfavorable channel mix Volume (6) Distributor inventory impacts partially offset by initiatives Manufacturing (1) Productivity partially offset inflation and PY cost control impacts Input costs (6) Raw material, energy and freight inflation SG&A (7) Increased selling expenses and inflation WAVE (3) Driven by lower sales volumes and increased SG&A 2022 Adjusted EBITDA* $74 Q1 MF EBITDA margin contracted (480bps) % Change (5%) *Non-GAAP measure. See appendix for reconciliation to nearest GAAP measure. Net Sales +8% Mineral Fiber Key Highlights AUV up 12% vs. Q1 2021 on positive like-for-like pricing partially offset by unfavorable channel mix Continued to achieve price over inflation and expand gross margin Sales volume and WAVE equity earnings driven by reductions of distributor inventories
Q1 Current Quarter Comments 2021 Adjusted EBITDA* $7 Adj. Net Sales* 9 Increase in custom project sales, improved performance from recent acquisitions and positive impacts from price increases Period Expense - SG&A (3) Investment in selling capabilities and incentive compensation 2022 Adjusted EBITDA* $13 Q1 AS EBITDA margin expanded 560bps % Change 88% Record-Setting Sales Performance and Strong EBITDA Growth Architectural Specialties Q1 2022 Results *Non-GAAP measure. See appendix for reconciliation to nearest GAAP measure. Adjusted Net Sales* up 24% on increased volumes, share gains and pricing actions Adjusted EBITDA* up 88% on sales fall through and adjusted EBITDA* margin expanded 560 bps, driven by improved operational leverage +24% Key Highlights Adj. Net Sales*
Adjusted Free Cash Flow Decline Driven by Lower WAVE Dividends *Non-GAAP measure. See appendix for reconciliation to nearest GAAP measure. (1) Includes cash earnings, working capital and other current assets and liabilities. $1 ($1) $1 $0 $20 ($4) First Quarter 2022 vs. PY
2021 Actual 2022 Guidance Key Assumptions 2022 Guidance Double-digit growth on both top and bottom line $1,107 $1,215 – $1,255 10% – 13% YoY MF AUV +10% to +12% on positive like-for-like pricing & mix benefits Market recovery and benefits from growth initiatives expected to drive MF volume up +1% to +3% AS >10%; guidance does not include any future acquisitions Net Sales Adjusted EBITDA* Adjusted Diluted EPS* Adjusted Free Cash Flow* $372 $410 – $430 10% – 16% YoY Higher than average AUV fall through, continued price over inflation Manufacturing productivity and improved earnings from WAVE Investing to support growth initiatives AS margin expansion $4.36 $5.00 – $5.20 15% – 19% YoY ~$25 million of interest expense 25% book tax rate $66 million depreciation, $16 million amortization, of which ~$8 million of acquisition amortization is excluded ~48 million average diluted shares outstanding $190 $215 – $235 13% – 24% YoY $90-$100 million of Cap Ex $20 - $25 million of cash interest expense Cash tax rate 20% - 25% *Non-GAAP measure. See appendix for reconciliation to nearest GAAP measure. (Changes in assumptions)
Appendix
Supporting Data Data sourced from U.S. Bureau of Economic Analysis. “Table 2BU. Real Manufacturing and Trade Sales, Seasonally Adjusted at Monthly Rate [Chained 2012 dollars, 1997 forward, NAICS]“ Line 32. “Table 1BU. Real Manufacturing and Trade Inventories, Seasonally Adjusted, End of Period [Chained 2012 Dollars, 1997 forward, NAICS]” Line 32. "Table 3BU. Real Inventory-Sales Ratios for Manufacturing and Trade, Seasonally Adjusted [Based on chained 2012 dollars, 1997 forward, NAICS]“ Line 32.
Q1 2022 Adjusted EBITDA Reconciliation 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 the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration and deferred compensation & restricted stock expenses. For the Three Months Ended March 31, For the Three months Ended March 31, 2022 2021 V Earnings from continuing operations, Reported $44 $38 $7 Add: Income tax expense, as reported 15 12 3 Earnings before tax, Reported $59 $50 $10 Add: Interest/other income and expense, net 4 4 (1) Operating Income, Reported $63 $54 $9 Add: RIP expense (1) 1 1 - Add: Acquisition-related impacts (2) 2 4 (2) Add: Depreciation 16 15 1 Add: Amortization 5 11 (6) Adjusted EBITDA $87 $85 $2
Q1 2022 Adjusted Diluted Earnings per Share Reconciliation Represents the impact of acquisition-related adjustments for the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration and deferred compensation & 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 adjusted tax rate multiplied by the adjusted earnings from continuing operations before income taxes. For the Three Months Ended March 31, For the Three months Ended March 31, 2022 Per Diluted Share 2021 Per Diluted Share V Earnings from continuing operations, Reported $44 $0.94 $38 $0.78 $7 Add: Income tax expense, reported 15 12 3 Earnings from continuing operations before income taxes, Reported $59 $50 $10 Add: Acquisition-related impacts (1) 2 4 (2) Add: Acquisition-related amortization (2) 3 7 (4) Adjusted earnings from continuing operations before income taxes $64 $61 $3 (Less): Adjusted income tax expense (3) (16) (15) (1) Adjusted net income from continuing operations $48 $1.02 $46 $0.95 $2 Adjusted EPS change versus prior year 7% Diluted Shares Outstanding, as reported 47.2 48.0 Adjusted Tax Rate 25% 25%
2022 Adjusted Free Cash Flow Reconciliation Contingent compensation payments related to 2020 acquisitions recorded as a component of net cash provided by operating activities. . For the Three Months Ended March 31, For the Three months Ended March 31, 2022 2021 V Net cash provided by operating activities $17 $20 ($3) Net cash (used for) investing activities - ($9) $9 Net cash provided by operating and investing activities $17 $11 $6 Add: Payment related to the sale of international, net - 12 (12) Add: Net environmental expenses 1 - 1 Add: Contingent consideration in excess of acquisition-date fair value (1) 2 - 2 Adjusted Free Cash Flow $20 $23 ($3)
2022 Segment Reported Operating Income (Loss) to Adj. EBITDA 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 the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration and deferred compensation accruals. MINERAL FIBER ARCHITECTURAL SPECIALTIES UNALLOCATED CORPORATE For the Three Months Ended March 31, For the Three months Ended March 31, 2022 2021 V 2022 2021 V 2022 2021 V Operating Income (Loss), As Reported $58 $61 ($3) $7 ($5) $11 ($1) ($2) $1 Add: RIP expense(1) - - - - - - 1 1 (0) (Less): Acquisition-related impacts (2) - - - 2 4 (2) - - - Add: Depreciation and Amortization 17 18 (1) 4 8 (3) - - - Adjusted EBITDA $74 $78 ($4) $13 $7 $6 - - - (5%) 88%
2022 Adjusted Net Sales Reconciliation Represents the impact of acquisition-related deferred revenue adjustments to fair value. Consolidated For the Three Months Ended March 31, For the Three months Ended March 31, 2022 2021 V Reported Net Sales $283 $252 $31 Deferred revenue adjustment (1) - 1 (1) Adjusted Net Sales $283 $253 $30
2022 Adjusted EBITDA Guidance Reconciliation RIP credit represents the actuarial net periodic benefit expected to be recorded as a component of other non-operating income. We do not expect to be and do not plan to make cash contributions to our RIP based on guidelines established by the Pension Benefit Guaranty Corporation. 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. Consolidated For the Year Ending December 31, 2022 For the Three months Ended March 31, Low to High Net Income $232 to $241 Add: Interest expense 22 26 (Less): RIP credit (1) (4) (4) Add: Income tax expense 76 79 Operating Income $326 to $341 Add: RIP expense (2) 4 4 Add: Depreciation 65 68 Add: Amortization 16 17 Adjusted EBITDA $410 to $430
2022 Adjusted EPS Guidance Reconciliation Adjusted diluted EPS guidance for 2022 is calculated based on an adjusted effective tax rate of 25% and based on 47.7 million of diluted shares outstanding. RIP credit represents the actuarial net periodic benefit expected to be recorded as a component of other non-operating income. We do not expect to be required to make, nor do we plan to make cash contributions to our RIP based on guidelines established by the Pension Benefit Guaranty Corporation. RIP expense represents only the plan service cost related to the RIP and is recorded as a component of operating income. We do not expect to be required to make, nor do we plan to make cash contributions to our RIP based on guidelines established by the Pension Benefit Guaranty Corporation. 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 adjusted earnings before income tax. Consolidated For the Year Ending December 31, 2022 For the Three months Ended March 31, Low Per Diluted Share(1) to High Per Diluted Share(1) Net income $232 $4.87 to $241 $5.05 Add: Interest expense 22 26 (Less): RIP credit (2) (4) (4) Add: Income tax expense 76 79 Operating Income $326 to $341 Add: RIP expense (3) 4 4 (Less): Interest expense (22) (26) Add: Acquisition related amortization (4) 8 8 Adjusted earnings before income taxes $316 to $328 (Less): Income tax expense (5) (79) (82) Adjusted net income $237 $5.00 to $246 $5.20
2022 Adjusted Free Cash Flow Guidance Reconciliation Consolidated For the Year Ending December 31, 2022 For the Three months Ended March 31, Low to High Net cash provided by operating activities $210 to $230 Add: Return of investment from joint venture 95 105 Adjusted net cash provided by operating activities $305 to $335 (Less): Capital expenditures (90) (100) Adjusted Free Cash Flow $215 to $235