specialty engineered products and materials
THIS DOCUMENT, OR AN EMBODIMENT OF IT IN ANY MEDIA, DISCLOSES INFORMATION WHICH IS PROPRIETARY, IS THE PROPERTY OF LYDALL,
INC. AND/OR ITS AFFILIATE (COLLECTIVELY, “LYDALL”), IS AN UNPUBLISHED WORK PROTECTED UNDER APPLICABLE COPYRIGHT LAWS AND IS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 USED FOR 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.
AUTOMOTIVE
FILTRATION &
ENGINEERED
MATERIALS
LIFE
SCIENCES
Thermal/Acoustical Metals Thermal/Acoustical F ibers
Performance Materials
Vital F luids
SPECIALTY ENGINEERED PRODUCTS AND MATERIALS
THIS DOCUMENT, OR AN EMBODIMENT OF IT IN ANY MEDIA, DISCLOSES INFORMATION WHICH IS PROPRIETARY, IS THE PROPERTY OF LYDALL, INC. AND/OR ITS
AFFILIATE (COLLECTIVELY, “LYDALL”), IS AN UNPUBLISHED WORK PROTECTED UNDER APPLICABLE COPYRIGHT LAWS AND IS DELIVERED ON THE EXPRESS CONDITION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 USED FOR
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.
Q3 2014 Earnings Conference CallQuarter ended
September 30, 2014
Industrial F iltration
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Forward-looking Statements
This presentation contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained in this presentation that are not statements of historical fact, including statements regarding margin and working capital improvement, results from application of Lean Six Sigma principles, anticipated cost synergies, the expected impact of the acquisition on Lydall’s future financial and operational performance and positioning, and overall outlook for the fourth quarter of 2014 may be deemed to be forward-looking statements. All such 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. Forward-looking statements generally can be identified through the use of the words such as, “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs,” and other words of similar meaning in connection with the discussion of future operating or financial performance. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Such risks and uncertainties include, among others, worldwide economic cycles that affect the markets which the businesses serve could affect demand for the Company’s products and impact the Company’s profitability; disruptions in the global credit and financial markets, including diminished liquidity and credit availability; swings in consumer confidence and spending; unstable economic growth; raw material pricing and supply issues; fluctuations in unemployment rates; increases in fuel prices; and the outcome of legal proceedings, claims and investigations including with respect to possible violations of German anti-trust laws by employees in our German operation; each of which could cause economic instability and could have a negative impact on the Company’s results of operations and financial condition. Accordingly, the Company’s actual results may differ materially from those contemplated by these forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our filings with the Securities and Exchange Commission, including the risks and uncertainties identified in Part I, Item 1A - Risk Factors of Lydall’s Annual Report on Form 10-K for the year ended December 31, 2013.
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 or that may, from time to time, be made by or on behalf of the Company.
This presentation contains non-GAAP financial measures, including organic sales growth, adjusted earnings per share, adjusted gross margin, and adjusted operating margin. The Appendix at the end of this presentation includes a reconciliation to the most comparable GAAP measures. We believe that the presentation of these non-GAAP financial measures, among other things, provides enhanced visibility into our performance. It is important to view each of these non-GAAP financial measures in addition to, rather than as a substitute for, the comparable GAAP measures
2
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Key Takeaways for Q3 2014 vs. Q3 2013
3
Growth Profitability Other
� Sales up 37.0%, $134.2m vs. $98.0m
� Organic growth of 5.8% vs. Q3 2013
� Growth primarily driven by transformational acquisition
� Adjusted gross margin up 60 bps, 21.5% vs. 20.9%
� Adjusted operating margin up 60 bps, 8.1% vs. 7.5%
� Adjusted EPS up 59%, $0.43 vs. $0.27
1
� Ongoing German anti-trust investigation
� Integration of the Industrial Filtration business on track
1 Reference Appendix for reconciliation between adjusted and GAAP financials.
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Clear, Consistent Strategy For Profitable Growth
New Product Development
Lean Six Sigma
Geographic Expansion
Select Acquisitions
Execute disciplined M&A for Filtration & Engineered Materials
Evaluate opportunities to further strengthen global footprint
Drive revenue and margin expansion through operational excellence
Develop and quickly deploy next generation product offerings
Profitable Growth
4
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Business Conditions
5
Typical seasonality and program timing may impact fourth quarter results
Thermal / Acoustical Metals
Automotive Life Sciences
Thermal / Acoustical Fibers
Performance Materials
Life SciencesVital Fluids
Industrial Filtration
Filtration & Engineered Materials
� Growth in excess of market in North America
� Monitoring pace of European recovery
� Growth in line with market in North America
� Continued improvements in Europe for filtration products
� Softness in Thermal Insulation
� Monitoring customer plant shutdowns for retooling
� Orders for high temperature products continue to move to the right
� Integration of business on track
� Backlog for bioprocessing remains strong
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE. 6
Financial Highlights of Q3 2014 vs. Q3 2013
Income Statement Balance Sheet
� Net sales of $134.2m, up 37.0% � 5.8% organically
� Adjusted operating margin up 60 bps, 8.1% vs. 7.5%
� Reported margin of 4.3% was negatively impacted by 380 bps related to a $4.9m non-cash pension plan settlement charge and $0.2m purchase accounting adjustments
� Adjusted EPS up 59%, $0.43 vs. $0.27 � Reported EPS down 11%, $0.24 vs. $0.27
inclusive of the non-cash pension plan settlement charge and purchase accounting adjustments
� Free cash flow2 is 339% of net income for Q3 2014, YTD 2014 cash flow is 136% of net income
� Cash balance of $76.6m as of September 30, 2014
� Debt of $61.1m primarily related to acquisition, consolidated leverage ratio of ~1.1
1
1 Reference Appendix for reconciliation between adjusted and GAAP financials. 2 Cash from operations less capital expenditures
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE. 7
Financial Highlights YTD 2014 vs. YTD 2013
Income Statement
� Record sales of $408.2m, up 37.0%
� 8.3% organically� 1.0% from foreign currency translation
� Adjusted operating margin up 210 bps, 9.4% vs. 7.3%
� Reported margin of 6.4%, down 150 bps inclusive of one-time expenses related to a sales commission settlement, transaction related expenses, purchase accounting adjustments and pension plan settlement charge
� Adjusted EPS up 91%, $1.47 vs. $0.77
� Reported EPS up 7%, $0.95 vs. $0.89 inclusive of one-time expenses related to a sales commission settlement, transaction related expenses, purchase accounting adjustments and the pension plan settlement charge
1
1 Reference Appendix for reconciliation between adjusted and GAAP financials.
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Thermal / Acoustical Metals
� Net part sales were in line with or stronger than regional factory sales
North America 7% 7% Europe 6% 4%
� China startup operating losses included in Q3 2014 performance were 80 bps
8
General Motors recognizes Lydall with Supplier Quality Excellence Award
Current Quarter Highlights
Lydall Industry1
1 Source: Deutsche Bank AG market research 10/02/14 2 Reference Appendix for reconciliation between adjusted and GAAP financials
($ in 000) Q3 2014 Q3 2013 Var $ Var %
YTD 2014
Adj. YTD 2014 YTD 2013 Var $ Var %
Net sales
Parts 35,165 32,910 2,255 6.9% 110,891 110,891 101,976 8,915 8.7%
Tooling 4,835 2,939 1,896 64.5% 14,904 14,904 14,995 (91) -0.6%
Metals Segment 40,000 35,849 4,151 11.6% 125,795 125,795 116,971 8,824 7.5%
Operating income 4,267 3,742 525 13,384 10,484 11,191 2,193
% of net sales 10.7% 10.4% 10.6% 8.3% 9.6%
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Thermal / Acoustical Fibers
� Parts sales increase was driven by continued strong demand for vehicles in North America and new platform launches; tooling net sales decreased due to timing of new product launches
� Operating margin expansion of 560 bps was primarily attributable to a favorable mix between parts and tooling sales, improved absorption of fixed costs and manufacturing efficiencies
� Pursuing manufacturing of select products in China through Thermal / Acoustical Metals facility
9
Ford F-150 with Aluminum Body (Photo: Ford)
Current Quarter Highlights
($ in 000) Q3 2014 Q3 2013 Var $ Var % YTD 2014 YTD 2013 Var $ Var %
Net sales
Parts 30,807 26,642 4,165 15.6% 95,791 80,884 14,907 18.4%
Tooling 206 4,533 (4,327) -95.5% 4,043 6,177 (2,134) -34.5%
Fibers Segment 31,013 31,175 (162) -0.5% 99,834 87,061 12,773 14.7%
Operating income 6,911 5,206 1,705 23,531 16,792 6,739
% of net sales 22.3% 16.7% 23.6% 19.3%
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Performance Materials
10
Filters utilizing Solupor® membrane
Current Quarter Highlights
� Sales increase was primarily driven by improved demand for air filtration and life science products in both Europe and North America, partially offset by sales decline for thermal insulation products
� Operating income declined slightly as a result of higher selling, product development and administrative costs and unfavorable mix
($ in 000) Q3 2014 Q3 2013 Var $ Var % YTD 2014 YTD 2013 Var $ Var %
Net sales
Filtration 17,911 15,536 2,375 15.3% 55,330 50,089 5,241 10.5%
Thermal Insulation 7,525 9,877 (2,352) -23.8% 24,046 26,612 (2,566) -9.6%
Life Sciences Filtration 3,190 2,447 743 30.4% 9,355 7,610 1,745 22.9%
Performance Materials Segment 28,626 27,860 766 2.7% 88,731 84,311 4,420 5.2%
Operating income 2,272 2,419 (147) 7,701 6,967 734
% of net sales 7.9% 8.7% 8.7% 8.3%
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Industrial Filtration
11
Industrial air filter bags & needle felts
Current Quarter Highlights
� Strong sales continued into Q3, anticipate typical seasonality of sales in Q4
� Adjusted operating income excludes $0.2 million purchase accounting inventory fair value step-up adjustment
� No further purchase accounting inventory step-up adjustments
1
1 Reference Appendix for reconciliation between adjusted and GAAP financials.
($ in 000)
Q3 2014
Adj. Q3 2014 Q3 2013 Var $
YTD 2014
Adj. YTD 2014 YTD 2013 Var $
Net sales
Industrial Filtration Segment 30,553 30,553 - 30,553 82,344 82,344 - 82,344
30,553 30,553 - 30,553 82,344 82,344 - 82,344
Operating income 2,073 1,833 - 2,073 6,862 4,817 - 6,862
% of net sales 6.8% 6.0% 8.3% 5.8%
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Other Products and Services
12
Freeze-Pak™ Bags
Current Quarter Highlights
� Sales increase was primarily driven by increased demand for bio-processing and cell therapy products
� Operating margin increased primarily due to higher net sales, favorable absorption and lower selling, product development and administrative expenses
($ in 000) Q3 2014 Q3 2013 Var $ Var % YTD 2014 YTD 2013 Var $ Var %
Net sales
Life Sciences Vital Fluids 5,164 4,114 1,050 25.5% 14,752 12,684 2,068 16.3%
Other Products and Services 5,164 4,114 1,050 25.5% 14,752 12,684 2,068 16.3%
Operating income
Life Sciences Vital Fluids 537 112 425 1,243 593 650
Other Products and Services 537 112 425 1,243 593 650
% of net sales 10.4% 2.7% 8.4% 4.7%
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Appendix
13
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Q3 2014 vs. Q3 2013 Summary Statements of Operations
14
As Reported
($ in 000) Q3 2014 Q3 2013 Var $
Net sales 134,227 97,995 36,232
Gross profit 28,564 20,494 8,070
% 21.3% 20.9% 0.4% pts.
Sell ing, product development and administrative expenses 22,785 13,108 9,677
% 17.0% 13.4% 3.6% pts.
Operating income 5,779 7,386 (1,607)
% 4.3% 7.5% -3.2% pts.
Interest expense 327 77 250
Other income, net (508) (16) (492)
Income before income taxes 5,960 7,325 (1,365)
Income tax expense 1,802 2,750 (948)
As % of income 30.2% 37.5% -7.3% pts.
Net income 4,158 4,575 (417)
Diluted earnings per share 0.24$ 0.27$ (0.03)$
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Summary Balance Sheets
15
($ in 000) Sep. 30, 2014 Dec. 31, 2013 Var $
Cash 76,567 75,407 1,160
Accounts receivable, net 91,741 52,301 39,440
Inventories 49,280 34,917 14,363
Prepaids and other current assets 11,678 9,636 2,042
Total current assets 229,266 172,261 57,005
Property, plant and equipment, net 113,710 78,863 34,847
Goodwill and other intangible assets 30,347 22,099 8,248
Other assets, net 2,225 1,462 763
Total assets 375,548 274,685 100,863
Accounts payable 47,616 29,768 17,848
Accrued payroll and other compensation 12,901 10,393 2,508
Other current liabilities 10,472 8,523 1,949
Total current liabilities 70,989 48,684 22,305
Long-term debt 60,488 1,051 59,437
Benefit plan and other long-term liabilities 30,312 24,863 5,449
Total liabilities 161,789 74,598 87,191
Total stockholders' equity 213,759 200,087 13,672
Total liabilities and stockholders' equity 375,548 274,685 100,863
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Summary Statements of Cash Flows
16
Nine Months Ended September 30,
($ in 000) 2014 2013
Cash flows from operating activities:
Net Income 16,114$ 15,022$
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 13,177 9,586
Inventory step-up amortization 2,053 -
Deferred income taxes (4,358) 2,722
Stock based compensation 2,023 1,187
Pension settlement 4,870 -
Loss on disposition of assets 73 234
Changes in operating assets and liabilities:
Accounts receivable (13,184) (15,768)
Inventories 7,385 (6,950)
Accounts payable 1,065 4,635
Accrued payroll and other compensation 1,469 (1,253)
Accrued taxes 1,763 (1,247)
Other, net (1,951) 2,740
Net cash provided by operating activities 30,499 10,908
Cash flows from investing activities:
Business acquisitions, net of cash acquired (79,407) -
Capital expenditures (8,641) (9,502)
Acquisition earn out payments (113) (158)
Net cash used for investing activities (88,161) (9,660)
Cash flows from financing activities
Proceeds from borrowings 60,000 -
Debt repayments (491) (536)
Common stock issued 1,566 1,204
Common stock repurchased (504) (6,411)
Excess tax benefit on stock awards 956 197
Net cash provided by (used for) financing activities 61,527 (5,546)
Effect of exchange rate changes on cash (2,705) 671
Increase (Decrease) in cash and cash equivalents 1,160 (3,627)
Cash and cash equivalents at beginning of period 75,407 63,623
Cash and cash equivalents at end of period 76,567 59,996
Free Cash Flow (Cash provided by ops - Cap exp) 21,858 1,406
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
In millions except per share data
Net sales $ 134.2 $ - $ 134.2 $ 98.0 $ - $ 98.0
Cost of sales 105.7 (0.2) (a) 105.4 77.5 - 77.5
Gross profit 28.6 0.2 28.8 20.5 - 20.5
Gross margin 21.3% 21.5% 20.9% 20.9%
Selling, product development and administrative expenses 22.8 (4.9) (b) 17.9 13.1 - 13.1
Operating income 5.8 5.1 10.9 7.4 - 7.4
operating margin 4.3% 8.1% 7.5% 7.5%
Interest expense 0.3 - 0.3 0.1 - 0.1
Other income, net (0.5) - (0.5) (0.0) - (0.0)
Income before income taxes 6.0 5.1 11.1 7.3 - 7.3
Income tax expense 1.8 1.9 (c) 3.7 2.8 - 2.8
Net income $ 4.2 $ 3.2 $ 7.3 $ 4.6 $ - $ 4.6
Earning per share
Basic $ 0.25 $ 0.44 $ 0.28 $ 0.28
Diluted $ 0.24 $ 0.43 $ 0.27 $ 0.27
Weighted average number of common shares outstanding
Basic 16.7 16.7 16.4 16.4
Diluted 17.0 17.0 16.7 16.7
For the quarter ended September 30, 2014 For the quarter ended September 30, 2013
As Reported,
Lydall, Inc Adjustments
Adjusted
Results
As Reported,
Lydall, Inc Adjustments
Adjusted
Results
Reconciliation Between Adjusted and Reported GAAP Financials
17
(a) Excludes cost of sales of $0.2 million realized on the sale of inventory that was increased to fair value due to purchase accounting(b) Excludes one-time pension plan settlement expense of $4.9 million(c) Excludes the tax benefit realized on the adjustments in (a) and (b)
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
In millions except per share data
Net sales $ 408.2 $ - $ 408.2 $ 298.1 $ (2.4) (d) $ 295.7
Cost of sales 318.8 (2.1) (a) 316.8 233.2 (0.6) (d) 232.6
Gross profit 89.4 2.1 91.5 64.9 (1.8) 63.1
Gross margin 21.9% 22.4% 21.8% 21.3%
Selling, product development and administrative expenses 63.4 (10.3) (b) 53.1 41.5 - 41.5
Operating income 26.0 12.4 38.4 23.4 (1.8) 21.6
operating margin 6.4% 9.4% 7.9% 7.3%
Interest expense 0.8 - 0.8 0.2 - 0.2
Other income, net (0.2) - (0.2) 0.0 - 0.0
Income before income taxes 25.3 12.4 37.7 23.1 (1.8) 21.3
Income tax expense 9.2 3.6 (c) 12.8 8.1 0.1 (e) 8.3
Net income $ 16.1 $ 8.8 $ 24.9 $ 15.0 $ (1.9) $ 13.1
Earning per share
Basic $ 0.97 $ 1.50 $ 0.90 $ 0.79
Diluted $ 0.95 $ 1.47 $ 0.89 $ 0.77
Weighted average number of common shares outstanding
Basic 16.6 16.6 16.6 16.6
Diluted 17.0 17.0 16.9 16.9
For the nine months ended September 30, 2014 For the nine months ended September 30, 2013
As Reported,
Lydall, Inc Adjustments
Adjusted
Results
As Reported,
Lydall, Inc Adjustments
Adjusted
Results
Reconciliation Between Adjusted and Reported GAAP Financials (Cont.)
18
(a) Excludes cost of sales of $2.1 million realized on the sale of inventory that was increased to fair value due to purchase accounting (b) Excludes one-time sales commission settlement expense of $2.9 million (T/A Metals segment), transaction related costs of $2.6 million related to the Industrial
Filtration acquisition and pension plan settlement charge of $4.9 million(c) Excludes the tax benefit realized on the adjustments in (a) and (b)(d) Excludes net sales of $2.4 million and cost of sales of $0.6 million from a non-recurring customer project and pricing negotiation(e) Excludes the tax expense realized on the adjustment in (d) of $0.7 million and excludes discrete tax benefits of $0.8 million primarily related to the conclusion of U.S.
federal income tax matters
USE OR DISCLOSURE OF INFORMATION CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTIONS ON THE TITLE SLIDE.
Industrial Filtration Segment Quarter Ended Nine Months Ended
($ in 000) Sept. 30, 2014 Sept. 30, 2014
Operating income, as reported 1,833 4,817
Purchase accounting adjustment 240 2,045
Operating income, adjusted 2,073 6,862
Operating margin, as reported 6.0% 5.8%
Operating margin, adjusted 6.8% 8.3%
Thermal/Acoustical Metals Segment Quarter Ended Nine Months Ended
($ in 000) Sept. 30, 2014 Sept. 30, 2014
Operating income, as reported 4,267 10,484
Sales commission settlement expense - 2,900
Operating income, adjusted 4,267 13,384
Operating margin, as reported 10.7% 8.3%
Operating margin, adjusted 10.7% 10.6%
19
Reconciliation Between Adjusted and Reported GAAP Financials (Cont.)