First Quarter 2016 Results › uploads › 2016 › 6 › 2 › 4887384 › ...Jun 02, 2016  · Q1 Adjusted EPS was $0.02, Excluding Realignment Charges May 4, 2016 12 Earnings Per

First Quarter 2016 Results

May 4, 2016

Certain statements contained in this presentation that are not historical facts, including any statements as to future market conditions, results of operations and financial projections, are forward-looking statements and are thus prospective. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future express or implied results.

Although SPX FLOW believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition, estimates of future operating results are based on the company’s continuing operations, which are subject to change.

Particular risks facing SPX FLOW include risks relating to economic, business and other risks stemming from changes in the economy, our international operations, legal and regulatory risks, cost of raw materials, pricing pressures, pension funding requirements, and integration of acquisitions. More information regarding such risks can be found in SPX FLOW’s SEC filings.

Statements in this presentation are only as of the time made, and SPX FLOW does not intend to update any statements made in this presentation except as required by regulatory authorities.

This presentation includes non-GAAP financial measures. A copy of this presentation, including a reconciliation of the non-GAAP financial measures with the most comparable measures calculated and presented in accordance with GAAP, is available on our website at www.SPXFLOW.com.

May 4, 2016 2

Full Year 2016 Financial Guidance

May 4, 2016 3

2016 Financial Guidance

GAAP Basis Realignment Program /

Net Pension Funding Adjusted* Basis

Revenue $2,100 to $2,200 $2,100 to $2,200

Corporate Expense ~$65 ~$65

Special Charges ~$60 ($60) ~$0

Operating Income $108 to $128 +$60 $168 to $188

Earnings Per Share $0.75 to $1.05 +$1.10 $1.85 to $2.15

Free Cash Flow* $10 to $30 +$105 / +$41 $155 to $175

EBITDA* $175 to $195 +$60 $235 to $255

($ millions, except per share data)

*See appendix for reconciliation of non-GAAP metrics

Opening Remarks

Marc Michael, President and CEO

Opening Remarks

Realignment Program on Track; Backlog Increased 4% Sequentially

Pleased with effort across the enterprise to aggressively execute our realignment program:

On track to reduce our cost structure by at least $110m (~5% of revenue) by the end of 2017

Recorded $41m of realignment charges in Q1 2016

Targeting a 10% to 15% reduction to both headcount and manufacturing footprint

Completed construction of Poland manufacturing facility:

Migration of manufacturing from Denmark and Germany underway

Demand across many end markets is stable, pockets of encouraging activity:

Backlog increased 4% sequentially

Large orders for fresh liquid dairy offset weakness in OE orders in oil-related markets

May 4, 2016 5

Q1 2016 Results vs. Guidance

Financial Metric Q1 2016 Guidance

Q1 2016 Results

Commentary

Revenue $500 to $525 $505 (2%) currency impact y-y

(9%) organic decline y-y

Corporate Expense ~$20 $19

Special Charges $35 to $40 $41 Realignment program on track

Operating Loss ($15) to ($25) ($22) Within range despite higher special charges

Earnings Per Share ($0.60) to ($0.70) ($0.75) Low tax benefit on realignment actions

Adjusted to Exclude Realignment Program

Adjusted

Operating Income* $10 to $20 $19 Excludes $41 of special charges

Adjusted

Earnings Per Share* ($0.10) to $0.00 $0.02

Excludes $0.77 per share of special charges related to the realignment program

($ millions, except per share data)

*See appendix for reconciliation of non-GAAP metrics

May 4, 2016 6

Backlog

Q1 Backlog Increased 4% Sequentially with Backlog Up in Two of Three Segments

Sequential Analysis

($ millions)

$408 $395

$177 $190

$322 $359

Q4 2015 Q1 2016

Food & Beverage

Industrial

Power & Energy

Q1 backlog up 4%, or $37m, sequentially:

Food & Beverage up 11%

Industrial up 7%

Power & Energy down (3%)

Q1 orders increased 3% sequentially:

Driven by large fresh dairy orders

~80% of backlog expected to be converted to revenue in 2016E

$907 $944

May 4, 2016 7

Food & Beverage Market Trends

Encouraging Market and Order Trends in Food & Beverage

Aftermarket and component demand steady:

Positive trends in North American components market

Global surplus of milk powder continues to delay customer investments for new dry dairy plants

Growing consumer demand for nutritious products in fresh dairy, non-dairy alternatives and nutritional beverages:

Awarded three, large fresh dairy orders in Q1 valued at more than $55m combined

Positive quoting activity for small-to-medium size systems

May 4, 2016 8

Power & Energy Market Trends

Oil-Related Markets Remain Challenging, But Relatively Stable; Encouraging Signs Developing in the Front Log

May 4, 2016 9

Aftermarket orders steady to second half 2015 run-rate

In oil, OE orders remain at low levels in a competitive environment:

Upstream and downstream activity stable at low levels

Midstream quoting activity for pipeline valves is encouraging

Recent order win for >50 ball valves, a new product launch aimed at midstream liquid and gas applications

In power generation, opportunities are developing, particularly in Nuclear

Industrial Market Trends

Short-Cycle Demand in Industrial Markets Remained Stable in Q1

Short-cycle demand stable across general industrial markets:

Steady run-rate orders in deydration and mixer product lines

Stabilization in hydraulic technology orders

Low level of capital projects

May 4, 2016 10

First Quarter 2016 Financial Review

Jeremy Smeltser, Vice President and CFO

Q1 Earnings Per Share Bridge

Q1 GAAP EPS was ($0.75); Q1 Adjusted EPS was $0.02, Excluding Realignment Charges

May 4, 2016 12

Earnings Per Share

Q1 Mid-Point EPS Guidance ($0.65) Q1 EPS guidance range was ($0.60) to ($0.70)

Segment Income $0.02

Corporate Expense $0.02

Special Charges ($0.17) $41m recorded vs. target range of $35 to $40 (assumed 33% tax rate) $0.07, or $4m above mid-point $0.10 lower tax benefit than anticipated (23% actual tax rate)

Net other items $0.03

Q1 GAAP EPS ($0.75)

Add back $41m special charges $0.77 $41m of charges related to the realignment program;

23% tax rate and 41.2m shares outstanding

Q1 Adjusted EPS $0.02

Food & Beverage Q1 Results

Decline in Revenue and Segment Income Due Primarily to Timing of Large Projects; Solid Execution on SG&A and Cost Initiatives

Q1 Year-Over-Year Analysis

Revenue decreased ($25m), or (12%):

(2%) currency impact

(10%) organic decline:

Lower systems revenue

Segment Income decreased ($5m), or (22%):

9.4% segment income margins

(130) points of margin contraction

($ millions)

$210

$185

10.7%

9.4%

Q1 2015 Q1 2016

Revenue

Segment Income Margin

May 4, 2016 13

Power & Energy Q1 Results

Q1 Financial Results Reflect Impact of Lower and Uncertain Oil Prices

Q1 Year-Over-Year Analysis

Revenue decreased ($24m), or (14%):

(3%) currency impact

(11%) organic decline:

Reflecting the impact of lower and uncertain oil prices on customer spending behavior

Segment Income declined ($14m), or (86%):

1.5% segment income margins

Segment income and margin decline due to:

Lower volume, competitive price pressure and low utilization at certain manufacturing facilities

$173

$150

9.2%

1.5%

Q1 2015 Q1 2016

Revenue

Segment Income Margin

($ millions)

May 4, 2016 14

Industrial Q1 Results

(7%) Organic Revenue Decline and (230) Points of Margin Contraction

Q1 Year-Over-Year Analysis

Revenue decreased ($17m), or (9%):

(2%) currency impact

(7%) organic decline:

Due primarily to lower level of capital projects and lower sales of hydraulic tools into energy markets

Segment Income declined ($6m), or (25%):

11.4% segment income margins

Segment income and margin decline due to:

Organic revenue declines and unfavorable sales mix

$188

$171

13.7%

11.4%

Q1 2015 Q1 2016

Revenue

Segment Income Margin

($ millions)

May 4, 2016 15

2016 Financial Guidance and Financial Position

Q2 2016 Financial Guidance

May 4, 2016 17

Q2 2016 Financial Guidance

GAAP Basis Adjusted Basis*

Revenue $525 to $545 $525 to $545

Segment Income $50 to $60 $50 to $60

Corporate Expense ~$15 ~$15

Special Charges $10 to $12 $0

Operating Income $25 to $35 $36 to $46

Earnings Per Share $0.15 to $0.25 $0.35 to $0.45

($ millions, except per share data)

*Adjusted guidance excludes $11m of special charges related to the company’s realignment program See appendix for reconciliation of GAAP guidance to adjusted guidance and for non-GAAP reconciliations

Full Year 2016 Financial Guidance

May 4, 2016 18

($ millions, except per share data)

*See appendix for reconciliation of non-GAAP metrics

2016 Financial Guidance

GAAP Basis Realignment Program /

Net Pension Funding Adjusted* Basis

Revenue $2,100 to $2,200 $2,100 to $2,200

Corporate Expense ~$65 ~$65

Special Charges ~$60 ($60) ~$0

Operating Income $108 to $128 +$60 $168 to $188

Earnings Per Share $0.75 to $1.05 +$1.10 $1.85 to $2.15

Free Cash Flow* $10 to $30 +$105 / +$41 $155 to $175

EBITDA* $175 to $195 +$60 $235 to $255

Free Cash Flow

Financial Position

May 4, 2016 19

Capital Structure April 2, 2016 Projected

December 31, 2016

Short-term debt $38

Current maturities of long-term debt $16

Long-term debt $989

Gross debt $1,043

Less: Cash on hand ($220)

Net debt $823

Net leverage (1) 3.0x ~2.7x

Gross leverage (1) 3.6x ~3.6x

Q1 free cash flow:

Free Cash Usage: ($85)

Adjusted*: ($61)

Q1 cash usages included:

Interest and taxes: ($45)

Capital expenditures: ($17)

Unbilled revenue: ($13)

Net pension funding: ($8)

Restructuring: ($7m)

Full year free cash flow guidance:

Free Cash Flow: $10 to $30

Adjusted FCF*: $155 to $170

(1) Leverage calculation uses debt and EBITDA as defined by the company’s credit facilities

($ millions)

*Adjusted guidance excludes items related to the company’s realignment program and $41m of net pension funding for retirees. See appendix for reconciliation of adjusted guidance to GAAP Guidance

Debt Structure

Evaluating Refinancing Options for 2017 Bond Maturity

Debt Structure and Maturity Schedule

$600m bonds at 6.875%

Maturity August 2017, NC life

Senior credit facilities:

$400m Term Loan A

$450m Revolver

$500m non-cash performance bond

Maturity to 2020

Securitization facility: $50m (annual renewal)

~60% Fixed Rate Debt

$0

$100

$200

$300

$400

$500

$600

$700

2016 2017 2018 2019 2020

$10 $20 $20 $20

$330

$600

Term Loan A @ ~2% 6.875% Senior Notes

May 4, 2016 20

($ millions)

Closing Remarks Marc Michael, President and CEO

Realignment Program Status

Q1 2016 Program to Date

Program Target

Cost Savings(2) $7 $17 At least $110

Special Charges $41 $83 ~$140

Headcount Reduction 229 541 10% to 15%

($ millions)

May 4, 2016 22

Q1 Actions

Significant reduction in workforce

Completed construction of new manufacturing facility in Poland

Targeting 10% to 15% reduction in global manufacturing square footage(1):

4 manufacturing facilities in process of being consolidated

Finalizing evaluation for additional footprint reduction actions

2015 2016 2017 2018

$42

~$60

~$40

$10

~$40

~$50

~$10

Special Charges Incremental Savings

(1) Manufacturing square footage at ~4m square feet at the end of 2015 (2) Net of projected merit increases

Poland Expansion

Completed Construction of 300,000 Square Foot Manufacturing Facility in Bydgoszcz, Poland

May 4, 2016 23

Poland Expansion

May 4, 2016 24

Phase I of plant consolidations underway and expected to be completed in 2016:

Kolding, Denmark: 84k square feet

Heat exchangers

Unna, Germany: 60k square feet

Valves and homogenizers

Phase II plant consolidations under final review and expected to be executed in 1H 2017

Value Proposition

Expect Realignment Program to Drive Significant Value Creation

Illustrative Value Proposition

Key Assumptions

Flat revenue to 2016 mid-point

$110m cost savings

Net of annual merit increases

$10m of restructuring in 2018

Competitive pricing offset through supply-chain initiatives

EPS

Free Cash

Flow EBITDA

2016 Mid-Point GAAP Guidance $0.90 $20 $185

Pension funding for retirees $41

Elimination of realignment expense $0.92 $105 $50

Incremental 2017-2018 cost savings $1.03 $60 $60

Illustrative 2018 EPS and EBITDA $2.85 $225 $295

Note: See appendix for reconciliation of non-GAAP metrics

May 4, 2016 25

Appendix

Q1 2016 Organic Revenue Reconciliation

Total Revenue Foreign Organic Revenue

Change Currency Change

Food & Beverage (12.0) % (2.1) % (9.9) %

Power & Energy (13.7) % (2.8) % (10.9) %

Industrial (9.2) % (2.2) % (7.0) %

SPX FLOW (11.6) % (2.4) % (9.2) %

Three months ended April 2, 2016

May 4, 2016 27

Free Cash Flow

May 4, 2016 28

Q1 2016

Net cash from operations ($68) $65 to $95

Capital expenditures ($17) ($55) ($65)

Free Cash Flow ($85) $10 to $30

Net Pension Funding $8 $41 $41

Realignment cash outflows $7 $80 $80

Realignment capital expenditures $10 $25 $25

Adjusted Free Cash Flow ($61) $155 to $175

2016E

($ millions)

Adjusted Debt Reconciliation

4/2/2016

Short-term debt 38$

Current maturities of long-term debt 16

Long-term debt 989

Gross Debt 1,043$

Less: Purchase card program and extended A/P programs (24)

Adjusted Gross Debt 1,019$

Less: Cash in excess of $50 (170)

Adjusted Net Debt 849$

Note: Adjusted debt as defined by the company’s credit facilities

($ millions)

May 4, 2016 29

Consolidated LTM Bank EBITDA Reconciliation

($ millions) Q2 2015

Last 9

Months LTM

Net Income (14)$ (14)$

Income tax provision 21 21

Related party interest income (7) (7)

Interest expense 32 32

Income before interest and taxes 31$ 31$

Depreciation and amortization expense, including intangibles 50 50

Basic EBITDA 80$ 80$

Adjustments:

Non-cash compensation expense 23 23

Non-cash impairments and other organizational costs 23 23

(Gains)/Losses on disposition of assets (8) (8)

Pension adjustments 8 8

Extraordinary non-cash charges 12 12

Extraordinary non-recurring cash charges 65 65

Other 0 0

Bank EBITDA 85$ 202$ 287$

Note: EBITDA as defined by the company’s credit facilities

May 4, 2016 30

2016 Mid-Point EBITDA Reconciliation

May 4, 2016 31

2016E

Net Income $37

Income Tax Expense 20

Interest Expense 59

Depreciation & Amortization 70

EBITDA $185

Realignment Expense 60

Adjusted EBITDA $245

Non-cash Compensation Expense 28

Non-service Pension Costs 2

Interest Income 2

Other 1

Bank Consolidated EBITDA $279

($ millions; except per share data)

Reconciliation of 2016 GAAP to Adjusted Guidance

May 4, 2016 32

Revenue Special Charges

Operating Income

Earnings Per Share

Free Cash Flow EBITDA

2016 GAAP Basis Guidance $2,100 to $2,200 ~$60 $108 to $128 $0.75 to $1.05 $10 to $30 $175 to $195

2016 Special Charges - 60 60 1.10 50 60

2015 Special Charges (cash outflows in 2016) - - - - 30 -

Capital Expenditures on New Poland Facility - - - - 25 -

Net Pension Funding for Retirees - - - - 41 -

2016 Adjusted Basis Guidance $2,100 to $2,200 $ - $168 to $188 $1.85 to $2.15 $155 to $175 $235 to $255

($ millions; except per share data)

Reconciliation of Q2 2016 GAAP to Adjusted Guidance

May 4, 2016 33

Operating Income

Earnings Per Share

Q2 2016 GAAP Guidance $25 to $35 $0.15 to $0.25

2016 Special Charges $11 $0.20

Q2 2016 Adjusted Guidance $36 to $46 $0.35 to $0.45

May 4, 2016 34

Full Year 2016 Guidance Summary

2016E

Revenue $2,150

Segment income % 11.5%

Corporate expense ($65)

Pension and Post Retirement Expense ($4)

Realignment Expense ($60)

Operating Income $118

Operating Income % 5.5%

Interest expense, net ($58)

Other income or (expense) $0

Income before taxes $60

Income tax provision: assumes 35% rate ($20)

Income from continuing operations $39

Minority interest, net of taxes ($2)

Net income from continuing operations $37

Mid-Point EPS Guidance $0.90

Shares Outstanding 41.5

2016 EPS GAAP Mid-Point Guidance Model

($ millions, except per share data) 2016E

Revenue $2,150

Segment income % 11.5%

Corporate expense ($65)

Pension and Post Retirement Expense ($4)

Realignment Expense $0

Operating Income $178

Operating Income % 8.3%

Interest expense, net ($58)

Other income or (expense) $0

Income before taxes $120

Income tax provision: assumes 29% rate ($34)

Income from continuing operations $86

Minority interest, net of taxes ($2)

Net income from continuing operations $83

Mid-Point EPS Guidance $2.00

Shares Outstanding 41.5

2016 EPS ADJUSTED* Mid-Point Guidance Model

($ millions, except per share data)

*Adjusted guidance excludes $60m of special charges and $105m of cash outflows related to the Company’s realignment program; and $41m of net cash pension funding for retirees.

May 4, 2016 35