Masonite q1 2014 earnings call presentation

2014 First Quarter Earnings Presentation

NYSE: DOOR

May 7, 2014

Safe Harbor / Non-GAAP Financial Measure

SAFE HARBOR / FORWARD LOOKING STATEMENTS This investor presentation contains forward-looking information and other forward-looking statements within the meaning of applicable Canadian and/or U.S. securities laws, including our discussion of improvements in the housing market and related markets and the effects of our pricing and other strategies. When used in this Investor Presentation, such forward-looking statements may be identified by the use of such words as “may,” might, “could,” “will,” would,” “should,” “expect,” “believes,” “outlook,” “predict,” “forecast,” “objective,” “remain,” “anticipate,” “estimate,” “potential,” “continue,” “plan,” “project,” “targeting,” or the negative of these terms or other similar terminology. Forward-looking statements involve significant known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Masonite, or industry results, to be materially different from any future plans, goals, targets, objectives, results, performance or achievements expressed or implied by such forward-looking statements. As a result, such forward-looking statements should not be read as guarantees of future performance or results, should not be unduly relied upon, and will not necessarily be accurate indications of whether or not such results will be achieved. Factors that could cause actual results to differ materially from the results discussed in the forward-looking statements include, but are not limited to, general economic, market and business conditions; levels of residential new construction, residential repair, renovation and remodeling and non-residential building construction activity; competition; our ability to successfully implement our business strategy; our ability to manage our operations including integrating our recent acquisitions and companies or assets we acquire in the future; our ability to generate sufficient cash flows to fund our capital expenditure requirements and to meet our debt service obligations, including our obligations under our senior notes and our senior secured asset-backed credit facility; labor relations (i.e., disruptions, strikes or work stoppages), labor costs, and availability of labor; increases in the costs of raw materials or any shortage in supplies; our ability to keep pace with technological developments; the actions by, and the continued success of, certain key customers; our ability to maintain relationships with certain customers; new contractual commitments; our ability to generate the benefits of our restructuring activities; retention of key management personnel; environmental and other government regulations; limitations on operating our business as a result of covenant restrictions under our existing and future indebtedness, including our senior notes and senior secured asset-based credit facility; and other factors publicly disclosed by the company from time to time.

NON-GAAP FINANCIAL MEASURE Adjusted EBITDA is a measure used by management to measure operating performance. It is defined as net income (loss) attributable to Masonite plus depreciation, amortization of intangible assets, restructuring costs, loss (gain) on sale of property, plant and equipment, impairment of property, plant and equipment, registration and listing fees, interest expense, net, other expense (income), net, income tax expense (benefit), loss (income) from discontinued operations, net of tax, net income attributable to non-controlling interest and share based compensation expense. Adjusted EBITDA is not a measure of financial condition or profitability under GAAP, and should not be considered as an alternative to (i) net income (loss) or net income (loss) attributable to Masonite determined in accordance with GAAP or (ii) operating cash flow determined in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not include certain cash requirements such as interest payments, tax payments and debt service requirements. We believe that the inclusion of Adjusted EBITDA in this press release is appropriate to provide additional information to investors about our operating performance. Not all companies use identical calculations, and as a result, this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Moreover, Adjusted EBITDA as presented for financial reporting purposes herein, although similar, is not the same as similar terms in the applicable covenants in our ABL Facility or our senior notes. Adjusted EBITDA, as calculated under our ABL Facility or senior notes would also include, among other things, additional add-backs for amounts related to: cost savings projected by us in good faith to be realized as a result of actions taken or expected to be taken prior to or during the relevant period; fees and expenses in connection with certain plant closures and layoffs; and the amount of any restructuring charges, integration costs or other business optimization expenses or reserve deducted in the relevant period in computing consolidated net income, including any one-time costs incurred in connection with acquisitions. The appendix sets forth a reconciliation of Adjusted EBITDA to net income (loss) attributable to Masonite for the periods indicated.

2

① Company / Industry Update

② Financial Review

③ Summary / Q&A

0

5

10

15

20

25

30

2011 2012 2013 Q1'13 Q1'14

Company / Industry Update

North American Door Volume Growth

Masonite’s North American Door Volume

4

Key Drivers

Acquisition volume

Unit Volume Has Trended Up Acquisitions and a recovering U.S.

housing market has been driving North

American unit volume

Volume Softness in Q1’14 Harsh winter conditions and Lowe’s*

business loss led to a decline in unit

volume versus Q1’13

Macro Factors Remain Positive • New housing inventory remains low

• Interest rates remain low

• NAHB estimates 1,055,000 new U.S.

housing starts in 2014 (+14%)

• Non-residential construction

recovery expected to follow

residential

(in millions)

NA Volume in Q1’14 Was Impacted By Harsh Winter Conditions

+8.3% vs. YA

+5.3% vs. YA

-3.0% vs. YA

(*) Previously announced partial business loss in the Northeast U.S. and Texas related to Lowe’s Q4 2012 PLR.


North American Average Unit Price Has Been Improving

North American Average Unit Price Increasing

U.S. Wholesale Price Increases* • Mid single digit price increases

in Q1’13 & Q4’13.

• Mid to high single digit price

increases in Q1’14.

NA Retail Price Increases* Mid to high single digit price

increases in Q1 2014.

Product Mix More specialized products with

higher average unit prices, like

Stile & Rail, are helping increase

average unit price.

Key Drivers

(AU

P G

row

th %

, y

ea

r o

ve

r y

ea

r)

5

NA Average Unit Price Has Increased for 4 Consecutive Quarters

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Q1'1

1

Q2'1

1

Q3'1

1

Q4'1

1

Q1'1

2

Q2'1

2

Q3'1

2

Q4'1

2

Q1'1

3

Q2'1

3

Q3'1

3

Q4'1

3

Q1'1

4

(*) – Net of 2013 retail price concessions, the 2014 net impact of NA pricing is estimated at mid single digits across ~55% of global revenue for the remaining three quarters in 2014.


North American Product Mix Is Benefiting From Stile & Rail

Q1'12 Q1'13 Q1'14

6

+39% vs. Q1’12

Stile & Rail Doors: Anatomy 101

Stile & Rail Unit Volume Progression

Rails Top, cross, lock and bottom horizontal rail sections

Stiles Edge and center vertical stile sections

Wood Panels Wood sections that fit within the stile & rail section

Muntin Bars Vertical and horizontal wood bars separating the glass panels

Lemieux & Chile Acquisitions Created A Leadership Position in Stile & Rail

Stile & Rail: Good / Better / Best

Retail price ~$114

Retail price ~$285

Retail price ~$549

Glass Panels Glass sections that fit within the stile & rail sections and/or the wood muntin bars


Five Focus Areas Designed to Create Shareholder Value

Automation

Product Line Leadership

Electronic Enablement

Sales and Marketing Excellence

Strategic Tuck-In Acquisitions

7

Goal: Grow Share & Expand Margins Beyond Macro Economic Recovery



③ Summary / Q&A

$21.7

$19.7

$15.0

$20.0

$25.0

$30.0

Q1'13 Q1'14

$424.5 $422.5

$250.0

$300.0

$350.0

$400.0

$450.0

$500.0

Q1'13 Q1'14

8.17.8

5.0

6.0

7.0

8.0

9.0

10.0

Q1'13 Q1'14

Net Sales Adj. EBITDA* Door Volume^

(in millions) (millions of USD) (millions of USD)

Q1’13 Q1’14 Q1’13 Q1’14 Q1’13 Q1’14

(^) – Does not include South Africa segment. (*) – See appendix for non-GAAP reconciliations. (#) – Q1’13 Adj. EBITDA (as reported) was $26.2mm. However, this included a $4.5 million net recovery related to the final resolution of the Marshfield business interruption insurance claim.

2014 First Quarter Financial Results

Door Volume, Net Sales and Adjusted EBITDA

9

Harsh Winter Impacted Door Volume, Net Sales & Adjusted EBITDA

#


Q1’14 Year Over Year Reconciliation Items

≤1 lost shift

>1-2 lost shifts

3 or more lost shifts

Winter 2014

• Volume impacted by harsh winter conditions

• Higher utilities and labor costs due to lost shifts

Business and Macro-Economic Factors

• Lowe’s business loss not fully annualized

• 2013 mid-year retail price concessions

• Weakness in France & negative FX impacts

Business Interruption Insurance Claim*

$4.5 million net recovery in Q1’13

Continuing Costs

• Increased salary and benefit costs

• Investment in growth initiatives / Sales &

Marketing excellence

Other Q1 Costs

• Expenses related to Door-Stop acquisition

• Higher international bad debt expense • Property, plant & equipment disposal

(*) – The BI claim was recorded as a $4.5 million benefit to SG&A in Q1’13.

10

Q1’14 SG&A Increases Q1’14 Headwinds

Masonite Experienced 39 Lost Production Shifts During Q1’14

(*) – See appendix for non-GAAP reconciliations (^) – Excluding the $4.5 million net recovery related to the final resolution of the Marshfield business interruption insurance claim, SG&A and SG&A%, were up 12.1% and 160 bps., respectively; and Adj. EBITDA and Adj. EBITDA % were down 9.2% and 40 bps., respectively. (#) – SG&A increase includes increases of $1.5mm salaries & benefits, $1.1mm professional fees, $1.0mm loss on disposals of PP&E, $0.8mm SG&A costs related to Door Stop and $0.6mm bad debt expense.

Net Sales

Gross Profit

Gross Profit %

SG&A#

SG&A %

Adj EBITDA*

Adj EBITDA %

Q1’14

$422.5

$53.0

12.5%

$57.8

13.7%

$19.7

4.7%

Q1’13

$424.5

$50.4

11.9%

$47.0^

11.1%^

$26.2^

6.2%^

Change

-0.5%

+5.2%

+60 bps.

+23.0%

+260 bps.

-24.8%

-150 bps.


Consolidated P&L Information

11

Improving Gross Margin Despite Lower Net Sales

(Millions of USD)

Q1’13 Net Sales

Volume*

Avg. Unit Price

Other

FX

Q1’14 Net Sales

North America

$319.3

($14.2)

$17.9

($2.2)

($6.4)

$314.4

Europe/ROW

$88.7

($0.9)

$2.4

$1.6

$2.8

$94.6

South Africa

$16.5

($4.0)

$3.8

$0.0

($2.9)

$13.4

Total

$424.5

($19.1)

$24.1

($0.6)

($6.4)

$422.5

(4.5%)

5.7%

(0.1%)

(1.5%)

(0.5%)

(*) - Includes the incremental impact of our 2013 & 2014 acquisitions and the loss of Lowe’s business announced in 4Q12.

(Millions of USD)

-1.5% +6.7% -18.8%

% Change


Net Sales Reconciliation by Reportable Segment

Average Unit Price Increased in All 3 Reportable Segments

12

3.7

3.4

3.3

3.6

5.2

2.6 2.6

2.3

2.6

3.5

3.1 3.3

3.6

3.2 2.8

1.9 2.0 2.1

1.8

1.5

1.0

2.0

3.0

4.0

5.0

6.0

3/31/13 6/30/13 9/29/13 12/29/2013 3/30/2014

Total Debt / Adj. EBITDA Net Debt / Adj. EBITDA

Adj. EBITDA / Interest (Adj. EBITDA - Capex) / Interest

Financial Policy & Coverage Ratios

Selected Cash Flow Data Q1’14 Q1’13

Cash flow from continuing operations ($10.6) ($4.0)

Additions to property, plant & equipment ($8.4) ($6.4)

Cash used in acquisitions ($50.3) $0.0

Gross Proceeds from issuance of long-term debt

$138.7 $0.0

Payment of financing costs ($1.9) $0.0

Increase (decrease) in cash & cash equivalents

$65.4 ($12.7)

Target

financial

leverage

range

Unrestricted Cash $166.3

ABL Borrowing Base $108.0

AR Purchase Agreement $12.3

Total Available Liquidity $286.6

Liquidity at Mar 30, 2014 (millions of USD)

LTM Adj. EBITDA^ $99.4

LTM Interest Expense $35.0

Total Debt $513.6

Net Debt $347.3


Liquidity, Credit and Debt Profile

Debt Issuance History

8.25% Senior Unsecured Notes due 2021

(*) - Adjusted for Door-Stop acquisition and Jan 2014 $125mm debt add-on

4.8 *

$0

$100

$200

$300

$400

$500

2011 2012 2013 2014

3.2*

13 (^) – See appendix for non-GAAP reconciliations.

2.6*



③ Summary / Q&A

Challenging First Quarter Dynamics Unusually harsh winter conditions in North America affected homebuilding and home

improvement and increased costs

Residual effects from highly competitive North American retail environment

Pricing Trends Improving North America average unit price has increased for 4 consecutive quarters

U.S. Wholesale & NA Retail mid to high single digit price increases

Price increases in U.K. and France helping Europe / ROW pricing trends

Strong Volume Growth and Positive Mix Impact From Stile & Rail Lemieux and Chile Stile & Rail acquisitions are proceeding according to plan

Footprint optimization and synergy capture for Stile & Rail operations underway

Market Indicators Remain Positive U.S. new housing expected to experience continued growth in 2014

U.S. Home Improvement market expected to display steady growth in 2014

Long-term, demographically driven demand characteristics remain strong

15

Summary

Growth Expected to Accelerate After Tough First Quarter

Questions & Answers

Appendix

Reconciliation of Adjusted EBITDA to Net Income

(loss) Attributable to Masonite

18

(In thousands)

March 30

2014

March 31

2013

March 30,

2014

December 29,

2013

September 29,

2013

June 30,

2013

March 31,

2013

Adjusted EBITDA, excluding business interruption insurance 19,718$ 21,677$ 99,418$ 101,377$ 107,189$ 105,740$ 99,219$

Business interruption insurance proceeds, net — 4,500 — 4,500 4,500 4,500 4,500

Adjusted EBITDA 19,718 26,177 99,418 105,877 111,689 110,240 103,719

Less (plus):

Depreciation 15,446 16,526 61,000 62,080 63,544 63,898 63,933

Amortization 5,691 4,270 18,479 17,058 16,889 16,968 16,191

Share based compensation expense 2,283 1,830 8,205 7,752 7,664 7,609 6,792

Loss (gain) on disposal of property, plant and equipment 1,087 110 (797) (1,774) 231 3,203 2,750

Impairment — — 1,903 1,903 3,254 1,350 1,350

Registration and listing fees — — 2,421 2,421 — — —

Restructuring costs 721 1,440 9,911 10,630 10,847 13,411 12,330

Interest expense (income), net 9,993 8,250 34,973 33,230 33,169 32,808 33,051

Other expense (income), net 181 (158) (949) (1,288) (1,445) (1,110) 512

Income tax expense (benefit) 19 (1,036) (22,308) (23,363) (14,743) (8,612) (9,385)

Loss (income) from discontinued operations, net of tax 142 90 649 597 236 224 206

Net income (loss) attributable to non-controlling interest 741 680 2,166 2,105 2,915 2,990 3,070

Net income (loss) attributable to Masonite (16,586)$ (5,825)$ (16,235)$ (5,474)$ (10,872)$ (22,499)$ (27,081)$

Three Months Ended Twelve Months Ended

Masonite q1 2014 earnings call presentation

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Transcript of Masonite q1 2014 earnings call presentation