Thermal Acoustical SolutionsPerformance Materials Technical Nonwovens
… delivering value-added engineered materials and specialty filtration solutions that promote a cleaner, quieter, safer world.
November 2020
Investor Presentation
THIS DOCUMENT, OR AN EMBODIMENT OF IT IN ANY MEDIA, DISCLOSES INFORMATION THAT IS PROPRIETARY, IS THE PROPERTY OF LYDALL, INC. AND/OR ITS AFFILIATE (COLLECTIVELY, “LYDALL”), IS AN UNPUBLISHED WORK PROTECTEDUNDER APPLICABLE COPYRIGHT LAWS AND IS DELIVERED ON THE EXPRESS CONDITION THAT IT IS NOT TO BE USED, DISCLOSED, OR REPRODUCED, IN WHOLE OR IN PART (INCLUDING REPRODUCTION AS A DERIVATIVE WORK), OR USEDFOR MANUFACTURE FOR ANYONE OTHER THAN LYDALL WITHOUT ITS WRITTEN CONSENT. NO RIGHT IS GRANTED TO DISCLOSE OR SO USE ANY INFORMATION CONTAINED HEREIN. ALL RIGHTS RESERVED. © LYDALL, INC. 2020
Forward-Looking Statements
This presentation contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of the Company based on current expectations and assumptions relating to the Company’s business, the economy and other future conditions, and generally can be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs,” and other words of similar meaning. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially and adversely from those expressed in any forward-looking statement. Investors, therefore, are cautioned against relying on any of these forward-looking statements. Lydall’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other Securities and Exchange Commission filings discuss important risk factors that could affect the Company’s business, results of operations and financial condition.
These forward-looking statements speak only as of the date of this presentation, and Lydall does not assume any obligation to update or revise any forward-looking statement made in this presentation.
This presentation contains non-GAAP financial measures as defined by SEC regulations. The Appendix of this presentation includes a reconciliation to the most comparable GAAP measures.
2
POSITIONINGNiche solutions in diverse segments
EXECUTIONOperational excellence
to enhance margins and cash flow
GROWTHClear, consistent
strategy for profitable growth
LIQUIDITYStrong balance sheet provides
flexibility
DISCIPLINEDCapital allocation to
fund additional strategic opportunities
Leading Provider of Engineered Customer Solutions
3
Serving Attractive End Markets Driven by Strong Secular Trends
Lydall at a Glance (NYSE: LDL)
4
Global Manufacturer of Specialty Engineered Products
Key StatisticsFounded 1869Headquarters Manchester, CTRegions Served GlobalGlobal Employees ~3,300
2019 Financial HighlightsRevenue $837M
Technical Nonwovens Performance MaterialsThermal Acoustical Solutions
30%28%42%
Adj. EBITDA Margin1 9.6%Free Cash Flow2 $51.0M
1 Reference Appendix for reconciliation between adjusted financials and GAAP financials; 2 FCF = Cash flow from operations less capex.
Global Footprint | 2019 Revenue by Region & Locations
Technical Nonwovens Performance Materials Thermal Acoustical Solutions
Filtration & Engineered Materials Automotive
10%Asia
27%EMEA
63%N. America
Vision for Profitable Growth1
5
Sales
EBITDA Margin
2012
$362M
10.0%
2019
$837M14% CAGR
9.6%
Vision
GDP+
MarginExpansion
Filtration & Engineered Materials Automotive
1 Reflects continuing operations; reference Appendix for reconciliation between adjusted financials and GAAP financials.
CLEAR PRIORITIES
Margin expansion driven by productivity, innovation, and organic growth
Expansion into new verticals through innovation
Focused growth in Specialty Filtration and Engineered Materials
Deliver long-term shareholder value through our focus on creating a cleaner, safer, and quieter world
Estimated Share of Segment Served 2019 Sales by ApplicationIndustrial Filtration2 Advanced Materials3
Technical Nonwovens at a Glance
6
Financial Performance1 2019 Sales by Region
$139 $156
$269 $277 $255
$225
13% 16% 15% 14% 14% 14%
0%
10%
20%
30%
40%
50%
60%
70%
$-
$50
$100
$150
$200
$250
$300
2015 2016 2017 2018 2019 TTMQ3-20
Revenue EBITDA Margin
62%27%
11%
North AmericaEMEAAsia
57%43% Industrial Filtration
Advanced Materials
($M)
25%9%
1 Reference Appendix for reconciliation between adjusted and GAAP financials; 2 Competitors: BWF Envirotec, Savings, and Testori; 3 Competitors: Propex, TexTech, TenCate, and Sandler.
Business Highlights Leading industrial air filtration
media for dust and pollution control
Advanced materials serves a broad set of applications and multiple sectors
Combination of 3 market leading businesses Andrew Filtration (Feb 2014) Texel (Jul 2016) Gutsche (Dec 2016)
Competitive Advantages Global brands renowned for
quality and innovation Manufacturing scale and
operational efficiency Diversified end markets and
geographies
Performance Materials at a Glance
7
Financial Performance1 2019 Sales by Region
Estimated Share of Segment Served 2019 Sales by ApplicationFiltration2 Sealing & Advanced
Solutions3
$102 $111 $117 $169
$245 $247
13% 15% 14% 14% 12% 17%
0%
10%
20%
30%
40%
50%
60%
70%
$-
$50
$100
$150
$200
$250
$300
2015 2016 2017 2018 2019 TTMQ3-20
Revenue EBITDA Margin
58%26%
16%
North AmericaEMEAAsia
1 Reference Appendix for reconciliation between adjusted and GAAP financials; 2 Competitors: Hollingsworth & Vose, Ahlstrom Munksjo, Hokuetsu, and Neenah Paper; 3 Competitors: Unifrax, Owens Corning, Neenah Paper, EnPro, and Frenzelit
38%
62%
Filtration
Sealing &Advanced Solutions
($M)
21% 6%
Business Highlights Comprehensive high-performance
specialty filtration media for air and liquid; meltblown applications to improve indoor air quality
Complete sealing solutions with preeminent fiber technology
New product development in air and liquid filtration is a key element to profitable growth
Competitive Advantages Leadership in fine fiber meltblown
and fiber-based wetlaid production Providing complete portfolio of
filtration media from residential to high efficiency HEPA/ULPA clean room applications
Expertise in organic, polymer, and nano-fibers
Flexibility, with technical and application expertise to address innovative solutions
Thermal Acoustical Solutions at a Glance
8
Financial Performance1 2019 Sales by Region
Estimated Share of Segment Served CustomersHeat Shield (Global)2 Acoustical (U.S.)3 Light Vehicle Heavy Truck/Other
$298 $321 $342 $365 $362
$293
20% 20% 19%13% 10% 5%
0%
10%
20%
30%
40%
50%
60%
70%
$-
$50
$100
$150
$200
$250
$300
$350
$400
2015 2016 2017 2018 2019 TTMQ3-20 Revenue EBITDA Margin
68%
27%
5%
North AmericaEMEAAsia
12% 15%
1 Reference Appendix for reconciliation between adjusted and GAAP financials; 2 Competitors: ElringKlinger, Federal Mogul, Dana, and Autoneum; 3 Competitors: Autoneum, Borgers, HP Pelzer Group, and IAC.
($M)
Business Highlights Fabricated thermal and acoustical
barriers Margin enhancement with dual
wall encapsulation applications Sole sourced for awarded
applications; material pass through exists for approximately half of heat shield business
Competitive Advantages Highly engineered solutions for
customer requirements Vertical integration (insulation
material and fibers) Rapid solution provider with global
presence World-class manufacturing
Key Products and Applications by Business
9
TECHNICAL NONWOVENS PERFORMANCE MATERIALS THERMAL ACOUSTICAL SOLUTIONS
PRO
DU
CTS
Nonwoven needled felt designed and manufactured for Industrial Filtration and a diverse selection of demanding material applications
Wide range of nonwoven engineered materials for Filtration, Insulation, and Sealing Solution markets
Portfolio of engineered heat shields providing heat and noise abatement to sensitive components and passengers in high temp transportation applications
Full range of engineered nonwoven products to assist in noise, heat management, and weight reduction within the transportation sector
APPL
ICAT
ION
S
Industrial Filtration Fabrics and filter bags for filtration of particulate
and emission control for incineration, food/ pharma/chemical, power generation, and cement/asphalt/steel
Advanced Materials High performance for demanding applications
including geosynthetics, acoustics, pipe rehabilitation, and medical applications
Filtration Specialty filtration media engineered for high
performance air and liquid applications, including fine fiber meltblown media used in N95 respirators, surgical masks, and enhance indoor air quality
Sealing and Advanced Solutions Sealing material used in equipment to keep fluids
in and contaminants out, applications include drivetrain, transmission, axles, compressors
Advanced solutions are materials in niche areas such as cryogenic insulation, thermal insulation, electrical papers, and aerospace papers
Thermal Acoustical Solutions Shielding for heat and component protection
including turbocharger wrap, emissions system, hybrid electric accessories, and EV motor
Acoustic components for sound attenuation and thermal protection including aero shield, battery, integrated floor liners, and wheel arch liners
Attractive End Markets with Secular Growth Drivers
10
Well Positioned to Take Advantage of Multiple Trends Driving Above GDP Growth
10
FILTRATION & ENGINEERED MATERIALS
AUTOMOTIVE
Sustainability & RegulationGlobal air and water standards improving
InfrastructureAging systems in US, EU, and Asia
EnergyAvailability, management, and efficiency
Localization of mission critical filtration media and engineered materials to support COVID-19 PPE pandemic requirements and provide healthier indoor air quality
Conversion to higher efficiency particulate capture technologies Filtration in industrial, commercial, and residential growing in
excess of GDP Increased civil construction repair and replacement projects Increasingly converting waste to energy and reducing landfills
Emission & Noise RegulationIncreasing global standards
ElectrificationGrowth of hybrid and battery vehicles
Connected VehiclesContinuous electronics introductions
Lightweighting secular themes Smaller engines with turbochargers for economy, weight, and performance Material technology shifts: metal plastic and plastic fiber
Higher use of Noise, Vibration, and Harshness (NVH) products Battery and electric motors creating new types of thermal,
electrical, and noise requirements Increased content (hybrids and electrical components) driving need for
thermal shielding
HOW LYDALL CAPITALIZES Engineered specialty filtration solutions
with global footprint and decades of experience positioned to address more stringent performance requirements
Leading position in geosynthetics and growth position in pipe rehabilitation
Best-in-class thermal insulation Wide installed based for industrial filtration
Suite of thermal shields that can be acoustically tuned
Battery insulators to manage thermal environments
Turbo wraps designed to reduce noise and improve performance
Fiber technology displacing plastics in multiple locations
RF Shields to protect sensitive electronics
Key Competitive Differentiators
11
Providing Complete Engineered Solutions
to Solve Customer Problems
Lydall Lean Six Sigma Embraced by All
Businesses
Synergistic Segments
Market Leadership
UnmatchedTechnologies
Robust design, testing, and simulation capabilities
Quick turnaround on new product deployment
Quality is a cornerstone
Improved quality, service, and on-time delivery
Capacity optimization Significant opportunity to
improve acquired businesses
Engineered materials expertise enables innovative automotive products and vertical integration Polyester rolled good
media converted to acoustical barriers
Microglass insulation media dual wall heat shields
Top 10 global nonwovens company
#1 industrial air filtration media globally
#1 geotextile producer in Canada
Only filtration media company providing industrial, commercial, and residential solutions
Suite of nonwoven technologies
Deep materials science expertise in both design and production
Engineering and R&D expertise to deliver innovation
Continuous Improvement Mindset with Deep Customer Relationships
Clear Capital Allocation Strategy and Strong Liquidity Position
Capital Allocation Strategy Support organic growth programs with capital investments Use strong operating cash flows to paydown debt to ensure appropriate leverage Long term leverage ratio target <2.5x Buyback is secondary consideration to offset dilution
12
Flexible Balance Sheet Provides Liquidity to Fund Organic Growth
Summary Balance Sheet1 ($M)
Total Current Assets $355
Working Capital $169
PPE, Net $205
Total Assets $774
Total Debt $283
Debt to Total Capitalization 53%
Liquidity Position ($M)
$72 $60 $49 $48 $43 $49 $51 $88 $93 $122 $129
$77
$325 $318 $300 $287 $273 $288 $286 $283
2016 2017 2018 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Target
Cash/ST Investments Debt
Net Leverage: 0.2x 2.8x 3.0x
1 As of September 30, 2020.
2.9x 2.8x 3.0x 2.9x <2.5x3.5x 3.4x
Transform the business to deliver long-term shareholder value
Deliver long-term shareholder value through our focus on creating a cleaner, quieter and safer world
Focus in areas where we provide unique
technologies and applications
Reshape and optimize portfolio; redirect capital which provides superior return to shareholders
Improve margins, drive capital efficiency and increase cash flow
13
Appendix
Strong Corporate Governance
15
BOARD COMPOSITION Independent Chairman Outside Directors: 7 Diversity: 38% Female Average Age: 59 Years Average Tenure: 11 Years
GOVERNANCE HIGHLIGHTS Proxy Access Annual Say-on-Pay Vote Majority Voting Standard Code of Ethics and Business Conduct Directors/Senior Executive Ownership
Guidelines (CEO: Min. 4x Base Salary)
1 2019 Pro-Forma Compensation for Chief Executive Officer (Lydall 2020 Proxy Statement).
23%
23%
54%
Annual Incentive Salary Long-term Incentive
Annual incentive awards tied to the achievement of financial targets – evenly split between operating income and working capital
Performance-based Incentives Support Long-term Objectives1
Long-term incentive awards in the form of performance-based (50%) and stock options (50%)
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1 Reflects estimated pro-forma impact in year of acquisition; 2 Reflects sale of a product line.
Strategic Portfolio Management
Technical Nonwovens Profitable growth opportunities
in advance materials supported by scale and operational efficiency
Performance Materials Profitable growth opportunities
with new product development in air/liquid filtration and adjacent markets
Thermal Acoustical Consistent cash flow generation
to support organic activity and power strategic transformation at group level
16
Transform Business by Growing Filtration & Engineered Materials Segment
DIV
ESTI
TUR
ESAC
QU
ISIT
ION
S
Lydall TransportTrucking$30M
Electrical Papers2
Insulation$12M
AffinityChillers$25M
Charter MedicalLife Sciences$20M
Andrew FiltrationTNW$130M
TNW$50M
TNW$70M
Perf. Matl.$150M
Business SegmentEst. Sales1
($M)
Strategic Approach to M&A | Recent Acquisitions
17
Date 2018 2016 2016Purchase Price $265M $58M $96MEBITDA Acquisition Multiple (Pre | Post
Synergies) 9.0x | 8.0x 9.5x | 6.5x 8.3x | 6.9x
Adjacent to Existing Products and Markets Provides Complementary/New Technologies Deepens Focus on Engineered Materials Expands Global Footprint Meaningful Scale Accretive to Shareholders
KEY RATIONALE Strengthens engineered materials
offering with a leading globally-recognized brand
Leverages existing manufacturing capabilities and know-how
Enhances portfolio with meaningful scale and margin profile
Strengthens position as an industry leader in engineered materials
Further diversifies into attractive adjacent markets with a leading brand
Provides opportunity to leverage existing manufacturing capabilities and expertise
Solidifies Lydall as a global leader in industrial filtration markets
Further diversifies into complementary geographies and attractive adjacent markets with a leading brand
Combination creates further scale and unlocks operational synergies
Background Information
Strategic Filters
$378
$516 $523 $567
$698
$786 $837
2013 2014 2015 2016 2017 2018 2019
20.7% 21.5%23.3%
24.8%23.7%
19.9%18.3%
2013 2014 2015 2016 2017 2018 2019
$42
$64 $72
$85
$95 $90
$80
2013 2014 2015 2016 2017 2018 2019
Execution of Strategy Driving Solid Financial Performance1
18
Strong Long-term Growth Profile
Revenue Growth ($M) Gross Margin Profile EBITDA Growth ($M)
6-yr CAGR: 14% Overall, 4% Organic Commodity Headwinds in 2018 and Operational Issues in 2019 6-yr CAGR: 11%
1 Reflects continuing operations; reference Appendix for reconciliation between adjusted and GAAP financials.
EBITDA Reconciliation to Reported Financials
19
EBITDA is reported for Consolidated Lydall data and defined as Net Income before interest, taxes, depreciation, and amortizationSegment EBITDA is reported for each operating segment (Thermal Acoustical Solutions, Technical Nonwovens, and Performance Materials) and is defined as Operating Income net of depreciation and amortization expenses, plus income/loss from equity method investments
Q3-2019 EBITDAQ3-2020 EBITDA
(1) For purposes of these schedules, the depreciation and amortization expense for the three and nine-month periods ended September 30, 2020, excludes $5.3 million of accelerated depreciation of property, plant and equipment and other intangible assets in the PMsegment since this expense is included in the restructuring expenses of $14.8 million.
EBITDA Reconciliation to Reported Financials
20
EBITDA is reported for Consolidated Lydall data and defined as Net Income before interest, taxes, depreciation, and amortizationSegment EBITDA is reported for each operating segment (Thermal Acoustical Solutions, Technical Nonwovens, and Performance Materials) and is defined as Operating Income net of depreciation and amortization expenses, plus income/loss from equity method investments
YTD Q2-2019 EBITDAYTD Q3-2020 EBITDA
(1) For purposes of these schedules, the depreciation and amortization expense for the three and nine-month periods ended September 30, 2020, excludes $5.3 million of accelerated depreciation of property, plant and equipment and other intangible assets in the PMsegment since this expense is included in the restructuring expenses of $14.8 million.
Reconciliation Between Adjusted and Reported GAAP Financials
21
(a) Exclude the restructuring expenses of $15.0 million, primarily related to the Performance Materials segment.(b) Excludes the tax benefits realized on the adjustments in (a) of $3.5 million.(c) Exclude the restructuring expenses of $0.1 million related to the Technical Nonwovens segment.(d) Exclude the restructuring expenses of less than $0.1 million related to the Technical Nonwovens segment.(e) Exclude the employee benefit plans settlement expense of $0.2 million.(f) Excludes the tax benefits realized on the adjustments in (c), (d), and (e) of less than $0.1 million.
Reconciliation Between Adjusted and Reported GAAP Financials
22
(a) Exclude the reduction-in-force severance expenses of $0.1 million related to the Thermal Acoustical Solutions segment.(b) Exclude the corporate strategic initiatives expenses of $3.1 million and reduction-in-force severance expenses of $0.1 million related to the Thermal Acoustical Solutions
segment.(c) Exclude the impairment of goodwill and other long-lived assets expense of $61.1 million related to the Performance Materials segment..(d) Exclude the restructuring expenses of $15.0 million, primarily related to the Performance Materials segment.(e) Exclude the employee benefit plan settlement expenses of $0.4 million.(f) Excludes the tax benefits and expenses realized on the adjustments in (a), (b), (c), (d), and (e) of $7.4 million.(g) Exclude the restructuring expenses of $0.5 million related to the Technical Nonwovens segment.(h) Excludes the corporate strategic initiatives expenses of $1.2 million and Technical Nonwovens restructuring expenses of $0.1 million.(i) Exclude the employee benefit plans settlement expense of $25.7 million.(j) Exclude the gain on sale from divestiture of $1.5 million.(k) Exclude the tax benefits and expenses realized on the adjustments in (g), (h), (i), and (j) of $10.7 million.
Reconciliation Between Adjusted and Reported GAAP Financials
23
Reconciliation Between Adjusted and Reported GAAP Financials
24
2015 2016 2017 2018 Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Q3-20
Reported EPS 2.71$ 2.16$ 2.85$ 2.02$ 0.22$ (0.40)$ 0.17$ (4.07)$ (4.08)$ (3.25)$ (0.34)$ (0.67)$ Gain on sale of divested business (0.69)$ -$ -$ -$ -$ (0.07)$ -$ -$ (0.07)$ -$ -$ -$ Long-lived asset impairment charge 0.08$ -$ -$ -$ -$ -$ -$ 3.71$ 3.71$ 3.35$ -$ -$ Divested business -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Pension settlement expense -$ -$ -$ -$ -$ 0.86$ 0.01$ (0.02)$ 0.85$ 0.01$ -$ -$ Sales commission settlement expense -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Strategic initiatives expenses -$ 0.17$ 0.03$ 0.19$ 0.04$ 0.01$ -$ 0.01$ 0.07$ 0.09$ 0.06$ -$ Inventory step-up purchase accounting adjustment -$ 0.08$ 0.04$ 0.09$ -$ -$ -$ -$ -$ -$ -$ -$ Discrete tax adjustments -$ -$ (0.04)$ 0.02$ -$ -$ -$ -$ -$ -$ -$ -$ Non-recurring customer project -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ German Cartel settlement -$ 0.20$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Severance expenses -$ -$ 0.05$ -$ -$ -$ -$ 0.09$ 0.09$ -$ 0.01$ -$ Restructuring expenses -$ -$ 0.03$ 0.11$ 0.02$ 0.01$ 0.01$ 0.01$ 0.04$ -$ -$ 0.65$ CEO Transition Expenses -$ -$ -$ -$ -$ -$ -$ 0.10$ 0.10$ -$ -$ -$ Automotive segments consolidation expenses -$ -$ 0.06$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Tax reform adjustments -$ -$ (0.22)$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Adjusted EPS $ 2.10 $ 2.61 $ 2.80 $ 2.43 $ 0.28 $ 0.41 $ 0.19 $ (0.17) $ 0.72 $ 0.20 $ (0.27) $ (0.02)
For the year ended December 31,