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 27, 2021
ARMSTRONG WORLD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| Pennsylvania | 1-2116 | 23-0366390 |
|---|---|---|
| (State or other jurisdiction<br><br><br>of incorporation or organization) | (Commission<br><br><br>File Number) | (IRS Employer<br><br><br>Identification No.) |
| 2500 Columbia Avenue P.O. Box 3001<br><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><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 27, 2021, Armstrong World Industries, Inc. (the “Company”) issued a press release announcing its first quarter 2021 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 5 – Corporate Governance and Management
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On April 20, 2021, the Company’s board of directors appointed Mr. James T. Burge, age 45, to serve as the Company’s Vice President and Controller, and principal accounting officer, effective April 30, 2021. Mr. Stephen F. McNamara will remain the Company’s principal accounting officer until the effective date of Mr. Burge’s appointment. Mr. Burge has served as the Controller of the Americas business unit of the Company since December 2017, and previously served as External Reporting and Consolidations Manager from January 2017 to December 2017, and as External Reporting Manager from May 2015 to December 2016. Prior to joining the Company, Mr. Burge held various auditing, controller and financial reporting roles with Fulton Financial Corporation, York International and Grant Thornton. Mr. Burge is a certified public accountant and received his bachelor’s degree in accounting from Bucknell University.
Mr. Burge is not a party to any arrangement or understanding regarding his appointment as principal accounting officer. Mr. Burge has no family relationships with any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer of the Company. Mr. Burge is not a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Section 7 – Regulation FD
Item 7.01 Regulation FD Disclosure.
On April 27, 2021, the Company issued a press release announcing that it will report its first quarter 2021 consolidated financial results via a webcast and conference call on April 27, 2021 at 11:00 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. 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 27, 2021 |
|---|---|
| No. 99.2 | Earnings Call Presentation First Quarter 2021 dated April 27, 2021 |
| 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/ Mark A. Hershey |
| Mark A. Hershey | |
| Senior Vice President, General Counsel, Secretary and Chief Compliance Officer |
Date: April 27, 2021
4
awi-ex991_6.htm
Exhibit 99.1
Armstrong World Industries Reports
First Quarter 2021 Results
Key Highlights
| • | Net sales up 1% versus the prior year quarter |
|---|---|
| • | Operating income down 29% versus the prior year quarter |
| --- | --- |
| • | Adjusted EBITDA down 12% versus the prior year quarter |
| --- | --- |
| • | Maintaining 2021 guidance: Net Sales of +10% to +13% and adjusted EBITDA of +9% to +13% |
| --- | --- |
LANCASTER, Pa., April 27, 2021 -- Armstrong World Industries, Inc. (NYSE:AWI), a leader in the design, innovation and manufacture of commercial and residential ceiling, wall and suspension system solutions, today reported financial results for the first quarter 2021.
“The first quarter of 2021 was a solid start to what we expect will be a robust year of growth for AWI,” said Vic Grizzle, President and CEO of Armstrong. “We are encouraged by the re-openings in many of our markets and progress toward broader economic recovery, highlighted by the record order intake for our Architectural Specialties products in the first quarter. We remain confident that our actions over the past year have strengthened our position to capitalize on a market recovery in 2021 and beyond. I am especially pleased to see growing interest and engagement in our Healthy Spaces initiatives. We are squarely focused on the emerging opportunity to provide solutions designed to facilitate a return to safe and sustainable indoor spaces.”
First Quarter Results from Continuing Operations
| (Dollar amounts in millions except per-share data) | For the Three Months Ended March 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | ||||||
| Net sales | $ | 251.9 | $ | 248.7 | 1.3 | % | ||
| Operating income | $ | 54.1 | $ | 76.0 | (28.8 | )% | ||
| Earnings (loss) from continuing operations | $ | 37.5 | $ | (222.6 | ) | Favorable | ||
| Diluted earnings (loss) per share | $ | 0.78 | $ | (4.64 | ) | Favorable |
Consolidated net sales for the first quarter of 2021 increased 1.3% over the same period in 2020 due to favorable Average Unit Value (AUV) of $5 million, partially offset by lower volumes of $2 million. Mineral Fiber net sales decreased by $9 million and Architectural Specialties net sales increased by $12 million. Volumes for both the Mineral Fiber and Architectural Specialties segments were pressured by lower market demand due to COVID-19 which began impacting the Company’s sales activity in the second quarter of 2020. These declines were more than offset by a $17 million increase in net sales attributable to the acquisition of Turf Design, Moz Designs and Arktura in 2020.
Operating income decreased in line with Company expectations from the strong prior year quarter, driven primarily by lower sales volume in the Mineral Fiber segment and higher SG&A costs attributable to incentive compensation accruals and incremental costs from the 2020 acquisitions. These headwinds were partially offset by favorable AUV, improved manufacturing productivity and an increase in WAVE equity earnings.
Prior year period net earnings were impacted by the transfer of certain pension benefit obligations and assets of the U.S. Retirement Income Plan (RIP), which resulted in a $374 million settlement loss recorded in 2020.
Additional (non-GAAP*) Financial Metrics from Continuing Operations
| (Dollar amounts in millions except per-share data) | For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | |||||
| Adjusted EBITDA | $ | 85 | $ | 97 | (12.0 | )% | |
| Adjusted net income | $ | 41 | $ | 54 | (24.5 | )% | |
| Adjusted diluted earnings per share | $ | 0.84 | $ | 1.10 | (23.4 | )% | |
| Adjusted free cash flow | $ | 23 | $ | 36 | (37.9 | )% |
* The Company uses the above non-GAAP adjusted measures in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. The Company also believes that the adjustments help users of our financial information understand the effect of those adjusted items on our selected reported results and provide useful alternative measurements of performance. See Supplemental Reconciliations of GAAP to non-GAAP Results (below) for a breakdown of the adjustments and a reconciliation of the selected reported results to these non-GAAP measures.
| (Dollar amounts in millions) | For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | |||||
| Adjusted EBITDA | |||||||
| Mineral Fiber | $ | 78 | $ | 87 | (10.1 | )% | |
| Architectural Specialties | 7 | 10 | (28.9 | )% | |||
| Consolidated Adjusted EBITDA | $ | 85 | $ | 97 | (12.0 | )% |
Consolidated adjusted EBITDA declined in the first quarter when compared to the same prior year period, driven primarily by unfavorable channel mix and an increase in SG&A expenses, partially offset by favorable AUV, and WAVE equity earnings. Adjusted free cash flow declined primarily due to lower operating cash flows, driven by volume declines. The decline in adjusted EBITDA was in line with management’s expectations.
First Quarter Segment Highlights
Mineral Fiber
| (Dollar amounts in millions) | For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | |||||
| Net sales (as reported) | $ | 188.7 | $ | 197.7 | (4.6 | )% | |
| Operating income (as reported) | $ | 60.6 | $ | 70.0 | (13.4 | )% | |
| Adjusted EBITDA | $ | 78 | $ | 87 | (10.1 | )% |
Mineral Fiber net sales decreased due to lower volumes, driven by decreased demand due to COVID-19, partially offset by favorable AUV. Favorable AUV was driven by positive like for like pricing and mix attributable to the sale of higher end products.
Operating income decreased as expected in the first quarter primarily due to the negative impact of lower sales volume and higher SG&A attributable incentive compensation accruals, partially offset by higher WAVE earnings, the impact of favorable AUV and a reduction in manufacturing costs.
Architectural Specialties
| (Dollar amounts in millions) | For the Three Months Ended March 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | ||||||
| Net sales (as reported) | $ | 63.2 | $ | 51.0 | 23.9 | % | ||
| Operating (loss) income (as reported) | $ | (4.9 | ) | $ | 7.5 | Unfavorable | ||
| Adjusted EBITDA | $ | 7 | $ | 10 | (28.9 | )% |
Net sales in Architectural Specialties increased by 24%, driven by the 2020 acquisitions of Turf Design, Moz Designs and Arktura, partially offset by a reduction in demand as a result of COVID-19.
Operating (loss) income decreased in the first quarter due to increases in acquisition related expenses and amortization expense related to the 2020 acquisitions, as well as lower sales excluding the impact of the 2020 acquisitions. Manufacturing and SG&A expenses were also higher due to additional investments in manufacturing, selling, and design capabilities.
Unallocated Corporate
Unallocated corporate operating loss was $2 million in the first quarter of 2021 and 2020.
Market Outlook and 2021 Guidance
“We continue to see market conditions steadily improve and are pleased to see the vaccination rollout across the US begin to allow more businesses to open their doors,” said Brian MacNeal, CFO of Armstrong. “Through our growth initiatives, including Healthy Spaces and kanopi, and the year-on-year benefit of our 2020 acquisitions, we are maintaining our 2021 guidance and expect to grow sales 10% to 13%, adjusted EBITDA 9% to 13%, to drive a free cash flow margin of 19% for the full fiscal year.”
Earnings Webcast
Management will host a live internet broadcast beginning at 11:00 a.m. eastern time today, to discuss first quarter 2021 results. This event will be broadcast live on the Company's website. To access the call and accompanying slide presentation, go to www.armstrongceilings.com and click Investors. The replay of this event will also 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. 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” section of our report on Forms 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
More details on the Company’s performance can be found in its annual report on Form 10-Q for the quarter ended March 31, 2021 that the Company expects to file with the SEC today.
Armstrong World Industries, Inc. (AWI) is a leader in the design and manufacture of innovative commercial and residential ceiling, wall and suspension system solutions in the Americas. With $937 million in revenue in 2020, AWI has approximately 2,800 employees and a manufacturing network of 15 facilities, plus six facilities dedicated to its WAVE joint venture.
Additional forward-looking non-GAAP metrics are available on the Company’s website at www.armstrongceilings.com under the Investors tab. The website is not part of this release and references to our website address in this release are intended to be inactive textual references only.
As Reported Financial Highlights
FINANCIAL HIGHLIGHTS
Armstrong World Industries, Inc. and Subsidiaries
(Amounts in millions, except for per-share amounts, quarterly data is unaudited)
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Net sales | $ | 251.9 | $ | 248.7 | ||
| Cost of goods sold | 164.4 | 157.4 | ||||
| Gross profit | 87.5 | 91.3 | ||||
| Selling, general and administrative expenses | 54.4 | 34.8 | ||||
| Equity earnings from joint venture | (21.0 | ) | (19.5 | ) | ||
| Operating income | 54.1 | 76.0 | ||||
| Interest expense | 5.7 | 6.7 | ||||
| Other non-operating (income) expense, net | (1.3 | ) | 369.4 | |||
| Earnings (loss) from continuing operations before income taxes | 49.7 | (300.1 | ) | |||
| Income tax expense (benefit) | 12.2 | (77.5 | ) | |||
| Earnings (loss) from continuing operations | 37.5 | (222.6 | ) | |||
| Net (loss) from discontinued operations | (2.1 | ) | (3.6 | ) | ||
| Net earnings (loss) | $ | 35.4 | $ | (226.2 | ) | |
| Diluted earnings (loss) per share of common stock, continuing operations | $ | 0.78 | $ | (4.64 | ) | |
| Diluted (loss) per share of common stock, discontinued operations | $ | (0.04 | ) | $ | (0.07 | ) |
| Net earnings (loss) per share of common stock | $ | 0.74 | $ | (4.71 | ) | |
| Average number of diluted common shares outstanding | 48.0 | 48.0 |
SEGMENT RESULTS
Armstrong World Industries, Inc. and Subsidiaries
(Amounts in millions)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31, | ||||||
| 2021 | 2020 | |||||
| Net Sales | ||||||
| Mineral Fiber | $ | 188.7 | $ | 197.7 | ||
| Architectural Specialties | 63.2 | 51.0 | ||||
| Total net sales | $ | 251.9 | $ | 248.7 | ||
| Three Months Ended | ||||||
| March 31, | ||||||
| 2021 | 2020 | |||||
| Segment operating income (loss) | ||||||
| Mineral Fiber | $ | 60.6 | $ | 70.0 | ||
| Architectural Specialties | (4.9 | ) | 7.5 | |||
| Unallocated Corporate | (1.6 | ) | (1.5 | ) | ||
| Total consolidated operating income | $ | 54.1 | $ | 76.0 |
Selected Balance Sheet Information
(Amounts in millions)
| March 31, 2021 | December 31, 2020 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets | $ | 316.3 | $ | 311.8 |
| Property, plant and equipment, net | 523.6 | 529.9 | ||
| Other noncurrent assets | 875.4 | 876.8 | ||
| Total assets | $ | 1,715.3 | $ | 1,718.5 |
| Liabilities and shareholders’ equity | ||||
| Current liabilities | $ | 156.2 | $ | 172.3 |
| Noncurrent liabilities | 1,085.5 | 1,095.3 | ||
| Equity | 473.6 | 450.9 | ||
| Total liabilities and shareholders’ equity | $ | 1,715.3 | $ | 1,718.5 |
Selected Cash Flow Information
(Amounts in millions)
(Unaudited)
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Net (loss) earnings | $ | 35.4 | $ | (226.2 | ) | |
| Other adjustments to reconcile net (loss) earnings to net cash provided by operating activities | 8.7 | 283.4 | ||||
| Changes in operating assets and liabilities, net | (24.5 | ) | (31.5 | ) | ||
| Net cash provided by operating activities | 19.6 | 25.7 | ||||
| Net cash (used for) investing activities | (8.8 | ) | 9.9 | |||
| Net cash (used for) provided by financing activities | (26.2 | ) | 66.8 | |||
| Effect of exchange rate changes on cash and cash equivalents | 0.1 | (0.8 | ) | |||
| Net (decrease) increase in cash and cash equivalents | (15.3 | ) | 101.6 | |||
| Cash and cash equivalents at beginning of year | 136.9 | 45.3 | ||||
| Cash and cash equivalents at end of period | $ | 121.6 | $ | 146.9 |
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. 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 earnouts, 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 will be recorded over the vesting period, as such payments are subject to the sellers’ and employees’ continued employment with the Company. 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 2021. 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, legacy environmental matters and litigation. 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.
Consolidated Results from Continuing Operations – Adjusted EBITDA
| For the Three Months Ended March 31, | |||||
|---|---|---|---|---|---|
| 2021 | 2020 | ||||
| Earnings (Loss) from continuing operations, Reported | $ | 38 | $ | (223 | ) |
| Add/(Less): Income tax expense (benefit), as reported | 12 | (78 | ) | ||
| Earnings (Loss) before tax, Reported | $ | 50 | $ | (300 | ) |
| Add: Interest/other income and expense, net | 4 | 376 | |||
| Operating Income, Reported | $ | 54 | $ | 76 | |
| Add: RIP expense (1) | 1 | 1 | |||
| Add: Acquisition related charges (2) | 4 | - | |||
| Add: Net environmental expenses | - | 1 | |||
| Operating Income, Adjusted | $ | 59 | $ | 78 | |
| Add: D&A | 26 | 18 | |||
| Adjusted EBITDA | $ | 85 | $ | 97 | |
| (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 the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration and deferred compensation accruals. | ||||
| --- | --- |
Mineral Fiber
| For the Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Operating Income, Reported | $ | 61 | $ | 70 |
| Add: Net environmental expenses | - | 1 | ||
| Operating Income, Adjusted | $ | 61 | $ | 71 |
| Add: D&A | 18 | 16 | ||
| Adjusted EBITDA | $ | 78 | $ | 87 |
Architectural Specialties
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Operating (Loss) Income, Reported | $ | (5 | ) | $ | 8 | |
| Add: Acquisition related charges (1) | 4 | - | ||||
| Operating (Loss) Income, Adjusted | $ | (1 | ) | $ | 8 | |
| Add: D&A | 8 | 2 | ||||
| Adjusted EBITDA | $ | 7 | $ | 10 | ||
| (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 and deferred compensation accruals. | |||||
| --- | --- |
Unallocated Corporate
| For the Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Operating (Loss), Reported | $ | (2 | ) | $ | (2 | ) |
| Add: RIP expense (1) | 1 | 1 | ||||
| Operating (Loss), Adjusted | $ | (0 | ) | $ | (0 | ) |
| 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 and did not make cash contributions to our RIP. | |||||
| --- | --- |
Adjusted Free Cash Flow
| For the Three Months Ended March 31, | |||||
|---|---|---|---|---|---|
| 2021 | 2020 | ||||
| Net cash provided by operations | $ | 20 | $ | 26 | |
| Net cash (used for) investing activities | (9 | ) | 10 | ||
| Add: Payments for sale of international | 12 | - | |||
| Add: Environmental payments, net | - | 1 | |||
| Adjusted Free Cash Flow | $ | 23 | $ | 36 |
Consolidated Results from Continuing Operations – Adjusted Diluted Earnings Per Share
| For the Three Months Ended March 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | ||||||||||
| Total | Per Diluted<br><br><br>Share | Total | Per Diluted<br><br><br>Share | ||||||||
| Earnings (Loss) from continuing operations, As Reported | $ | 38 | $ | 0.78 | $ | (223 | ) | $ | (4.64 | ) | |
| Add/(Less): Income tax expense (benefit), as reported | 12 | $ | (78 | ) | |||||||
| Earnings (Loss) from continuing operations before income taxes, As Reported | $ | 50 | $ | (300 | ) | ||||||
| Add: RIP (credit) expense (1) | - | 372 | |||||||||
| Add: Acquisition related charges (2) | 4 | - | |||||||||
| Add: Net environmental expenses | - | 1 | |||||||||
| Adjusted earnings from continuing operations before income taxes | $ | 54 | $ | 72 | |||||||
| (Less): Adjusted income tax expense (3) | (13 | ) | $ | (19 | ) | ||||||
| Adjusted net income | $ | 41 | $ | 0.84 | $ | 54 | $ | 1.10 | |||
| Adjusted EPS change versus Prior Year | -23% | ||||||||||
| Diluted Shares Outstanding (4) | 48.0 | 48.7 | |||||||||
| As Reported Tax Rate (5) | 25% | 26% |
| (1) | RIP expense (credit) represents the entire actuarial net periodic pension expense (credit) recorded as a component of earnings from continuing operations. 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 the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration and deferred compensation accruals. |
| --- | --- |
| (3) | Adjusted income tax expense is calculated using the as reported tax rate multiplied by the adjusted earnings from continuing operations before income taxes. |
| --- | --- |
| (4) | 2021 Dilutive shares are as-reported. 2020 dilutive shares outstanding include anti-dilutive common stock equivalents which are excluded from U.S. GAAP Accounting. |
| --- | --- |
| (5) | The tax rate for 2020 excludes the Q1 pension annuitization. |
| --- | --- |
Adjusted EBITDA Guidance
| For the Year Ending December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|
| Low | High | ||||||
| Net income | $ | 189 | to | $ | 198 | ||
| Add: Interest expense | 25 | 25 | |||||
| (Less): RIP credit (1) | (9 | ) | (9 | ) | |||
| Add: Income tax expense | 60 | 63 | |||||
| Operating income | $ | 264 | to | $ | 276 | ||
| Add: RIP expense (2) | 6 | 6 | |||||
| Add: D&A | 90 | 90 | |||||
| Adjusted EBITDA | $ | 360 | to | $ | 372 | ||
| (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 2021 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, 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Low | Per Diluted<br><br><br>Share^(1)^ | High | Per Diluted<br><br><br>Share^(1)^ | ||||||||
| Net income | $ | 189 | $ | 3.93 | to | $ | 198 | $ | 4.12 | ||
| Add: Interest expense | 25 | 25 | |||||||||
| (Less): RIP credit (2) | (9 | ) | (9 | ) | |||||||
| Add: Income tax expense | 60 | 63 | |||||||||
| Operating income | $ | 264 | to | $ | 276 | ||||||
| Add: RIP expense (3) | 6 | 6 | |||||||||
| (Less): Interest expense | (25 | ) | (25 | ) | |||||||
| Adjusted earnings before income taxes | $ | 245 | to | $ | 257 | ||||||
| (Less): Income tax expense | (61 | ) | (64 | ) | |||||||
| Adjusted net income | $ | 184 | $ | 3.80 | to | $ | 193 | $ | 4.00 | ||
| (1) | Adjusted EPS guidance for 2021 is calculated based on an adjusted effective tax rate of 25% and based on ~48 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) | Adjusted income tax expense is based adjusted earnings before income tax. | ||||||||||
| --- | --- |
Adjusted Free Cash Flow Guidance
| For the Year Ending December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|
| Low | High | ||||||
| Net cash provided by operating activities | $ | 200 | to | $ | 210 | ||
| Add: Return of investment from joint venture | 65 | 70 | |||||
| Adjusted net cash provided by operating activities | $ | 265 | to | $ | 280 | ||
| Less: Capital expenditures | (80 | ) | (75 | ) | |||
| Adjusted Free Cash Flow | $ | 185 | to | $ | 205 |
14
Earnings Call Presentation 1st Quarter 2021 April 27, 2021 Exhibit 99.2
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. 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 Forms 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 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 27, 2021 and will not be updated or affirmed unless and until we publicly announce updated or affirmed guidance Safe Harbor Statement
All figures throughout the presentation are in $ millions unless otherwise noted. Figures may not add due to rounding. When reporting our financial results within this presentation, we make several adjustments. Management uses these non-GAAP measures in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. As reported results will be footnoted throughout the presentation on a continuing operations basis (excludes corporate unallocated). Basis of Presentation Explanation Results throughout this presentation are presented on a normalized basis with the exception of cash flow.
We remove the impact of certain discrete expenses and income. The Company excludes certain acquisition related expenses (i.e. – changes in the fair value of earnouts, deferred compensation accruals, impact of adjustments related to the fair value of inventory and deferred revenue) for recent acquisitions(1). 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 other large unusual items. We also adjust for our U.S. pension plan (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. 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. U.S. pension (credit) expense represents the actuarial net periodic benefit cost expected to be recorded as a component of earnings from continuing operations. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation.
Consolidated Company Key Metrics-First Quarter 2021 As reported EPS: $0.78 in 2021 and ($4.64) in 2020 due to pension annuitization. As defined by the terms of our credit agreement.
COVID-19 impacts demand Positive like-for-like pricing above inflation Daily shipping rate y-o-y improves sequentially for third straight quarter 2020 cost outs return in 2021
Mineral Fiber First Quarter Results Price over inflation, sales rate per day improvement continues Key Highlights
2020 acquisitions add $17 million of sales Architectural Specialties (AS) organic* sales down (9%) or ($4) million driven by Covid-19 impacts on project timing Growth investments continue in both organic and inorganic AS Architectural Specialties First Quarter Results Strong order intake positions segment for full year profitable growth Key Highlights *AS organic excludes 2020 Acquisitions of Turf, Moz, Arktura
Adjusted EBITDA Bridge – First Quarter 2021 vs. PY ($1) $2 $1 ($12) ($3) $2 Favorable price and 2020 acquisitions partially offset MF volume decline and higher SG&A Normalized (1) May not sum due to rounding (2) Excludes depreciation (3) Excludes SG&A related amortization
Adjusted Free Cash Flow Bridge - First Quarter 2021 vs. PY ($1) Cash earnings decline driven by volume declines due to Covid-19 ($8) $1 ($4) (2) NOTE: Adjustments include cash used or proceeds received for acquisitions and divestures, legacy environmental matters and litigation May not sum due to rounding Includes cash earnings, working capital and other current assets and liabilities Normalized(1) $23 ($2)
Maintaining 2021 Guidance $3.80 – $4.00 5% – 10% YoY $3.63 Adjusted EBITDA Adjusted EPS* Adjusted Free Cash Flow Revenue $937 $330 $1,030 – $1,060 10% – 13% YoY $360 – $372 9% – 13% YoY MF AUV 4%-6%, positive like-for-like pricing & mix Growth Initiatives, primarily kanopi & Healthy Spaces, drive MF volume up 0%-2% 2020 acquisitions benefit AS 25%-30% AUV and volume gains fall through Manufacturing productivity and improved earnings from WAVE drive margin improvement Includes benefit of 2020 acquisitions Investment in growth initiatives continues in 2021 $75-$80 million of Cap Ex $25 million of cash interest expense Cash tax rate 20% - 25% Higher Working Capital due to increased sales 2020 Actual 2021 Guidance $25 million of interest expense 25% book tax rate $90 million of depreciation 48 million average diluted shares outstanding $185 – $205 (13%) – (3%) YoY 19% FCF Margin $212 *As reported EPS: ($1.76) in 2020 due to pension annuitization
2021 Sales Guidance COVID-19 impacts create unusual seasonality in 2021 Q2 2020 key city shutdowns drives changes to historic seasonality
Appendix
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 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.
Adjusted Diluted Earnings Per Share Reconciliation (1) RIP expense (credit) represents the entire actuarial net periodic pension expense (credit) recorded as a component of earnings from continuing operations. 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 the fair value of acquired inventory and deferred revenue, changes in fair value of contingent consideration and deferred compensation accruals. (3) Adjusted income tax expense is calculated using the as reported tax rate multiplied by the adjusted earnings from continuing operations before income taxes. (4) 2021 Dilutive shares are as-reported. 2020 dilutive shares outstanding include anti-dilutive common stock equivalents which are excluded from U.S. GAAP Accounting. (5) The tax rate for 2020 excludes the Q1 pension annuitization.
Adjusted Free Cash(1) Flow Reconciliation Adjusted free cash flow is defined as cash from operations and dividends received from the WAVE joint venture, less expenditures for property and equipment, and is adjusted to remove the impact of cash used or proceeds received for acquisitions and divestitures, legacy environmental matters and litigation. The Company believes adjusted free cash flow is useful because it provides insight into the amount of cash that the Company has available for discretionary uses, after expenditures for capital commitments and adjustments for acquisitions and divestitures. Free cash flow includes discontinued international operations.
Segment Reported Operating Income (Loss) to Adjusted 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 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.
Adjusted Net Sales Reconciliation Represents the impact of acquisition-related deferred revenue adjustments to fair value.
EBITDA – Guidance Reconciliation Adjusted EBITDA 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 U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation. RIP expense represents only the service cost related to the U.S. pension plan that is recorded within Operating Income. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income Plan.
Adjusted EPS & Free Cash Flow – Guidance Reconciliation Adjusted Diluted Earnings Per Share Adjusted Free Cash Flow Adjusted EPS guidance for 2021 is calculated based on an adjusted effective tax rate of 25% and based on ~48 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 U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation. RIP expense represents only the 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 U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation. Adjusted income tax expense is based adjusted earnings before income tax.