EX-99.1 2 a15-5836_1ex99d1.htm EX-99.1

Exhibit 99.1

 

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Raymond James Institutional Investors Conference March 4, 2015

 


Disclaimers Forward-Looking Statements This presentation includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that the forward-looking information presented herein is not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this presentation. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “plan,” “seek,” “comfortable with,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. A number of important factors could cause actual events to differ materially from those contained in or implied by the forward-looking statements, including those factors discussed in our filings with the U.S. Securities & Exchange Commission’s (the “SEC”), including our annual report on Form 10-K, as amended, for the year ended February 2, 2014, which can be found at the SEC’s website www.sec.gov. Any forward-looking information presented herein is made only as of the date of this presentation, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise. Non-GAAP Financial Measures HD Supply supplements its reporting net income (loss) with non-GAAP measurements, including Adjusted EBITDA. This supplemental information should not be considered in isolation or as a substitute for the GAAP measurements. Additional information regarding Adjusted EBITDA referred to in this presentation is included at the end of this presentation under “Reconciliation of Non-GAAP Measures.” HD Supply Proprietary and Confidential

 


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HD Supply Proprietary and Confidential Company Overview $8.7 Billion of LTM Q3 ’14 Sales; $829 Million of LTM Q3 ’14 Adjusted EBITDA (9% of Sales) 18 Consecutive Quarters of Year-Over-Year Sales Growth as of Q3’14 Leading Industrial Distributor With #1 Positions1 in Large, Fragmented Markets Specialized Business Units Providing Diversity in Products, Customers, and Vendor Relationships ~1 Million SKUs ~500,000 Customers Scale, National Presence and Local Market Expertise Drive Competitive Advantage ~650 Locations, 48 U.S. States and 7 Canadian Provinces2 Combination of Distribution Center and Branch Based Operating Models Talent with Deep, Relevant Experience Driving Speed and Precision National Footprint HD Supply Operates a Sourcing Office in China Sales by End Market3 Maintenance, Repair and Operations 29% Residential Construction 14% Non-Residential Construction 23% Infrastructure and Other 34% $8.2B Leading Industrial Distributor Specializing in MRO, Infrastructure and Construction 1 Management Estimates Based on Market Data and Industry Knowledge 2 As of Q3 ‘14 3 For 2013; Excludes Canada HD Supply Site

 


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HD Supply Proprietary and Confidential Leading Industrial Distributor Specializing in MRO, Infrastructure and Construction Business Overview “Maintenance, Repair and Operations” “Infrastructure” “Specialty Construction” Selected Product Examples Maintenance Professional of: Multifamily Residential Properties Hotels and Lodging Facilities Senior Care Facilities Underground Utility Contractors Municipalities Supply Chain Leader for Municipal, Co-Op and Investor Owned Utilities Professional Contractors Professional Contractors in Non-Residential and Residential Construction “Face of the Customer” LTM 3Q ’14 Sales $2.5B ($ in billions) $2.4B $1.9B $1.4B (Adj. EBITDA%) (19%) (8%) (4%) (7%)

 


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HD Supply Proprietary and Confidential Controllable Execution +300 Basis Points Above Market Estimate 1 Long-term average growth target based on management estimates and aspirations +200 BPs to +500 BPs +300 BPs Long-term Growth Above Market Estimate Targets1 +200 BPs to +500 BPs +200 BPs to +500 BPs +0 BPs to +200 BPs (BPs Above BU End Market Estimate) 1. Sell More to Existing Customers (i.e., Share of Wallet) 2. Introduce New Products and Services 3. Expand the Channels to Reach Our Customers (e.g., Internet, Catalog, Mobility) 4. Acquire New Customers 5. Enter New Geographies (i.e., Open New Locations) Five Growth “Plays”

 


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HD Supply Proprietary and Confidential 3Q’14 Earning Call Presentation – Dec. 9th Topics of Investor Interest Latest Outlook to be Provided During March 24th Earnings Call End Market Outlook Oil & Gas Effect Winter Weather Impact Category Management Execution Foreign Exchange Exposure Intangibles Amortization Schedule (See Appendix) Operating Leverage Outlook Taxes Capital Structure Opportunities Topics of Investor Interest

 


HD Supply Proprietary and Confidential Liquidity and Capital Structure Q3’14 Debt Balances Sec. ABL Sec. Term Loan Sec. 1st Lien Notes Sec. 2nd Lien Notes Unsec. Sr. Notes Unsec. Sr. Notes $330 1,266 675 1,000 1,275 6/28/18 6/28/18 4/15/19 4/15/20 7/15/20 7/15/20 Gross Debt Less Cash Net Debt $5,401 107 $5,508 Facility Balance2 Maturity 1 For a discussion of the risk of a change of control on our tax net operating losses, see the risk factor entitled “Our NOL carryforwards could be limited if we experience an ownership change as defined in the Internal Revenue Code” in our prospectus related to our secondary public offering filed with the U.S. Securities and Exchange Commission on May 2, 2014 2 Net of original issue discount and premium 3 Represents the stated rate of interest, without including the effect of discounts or premiums 4 Subject to applicable redemption price terms 5 Excludes the impact of the $27M tentative settlement of the IRS audits ~$1.2B of Liquidity with No Near Term Debt Maturities ($ in millions, unless otherwise noted) 1.65% 4.0% 8.125% 11.0% 11.5% 7.5% Interest Rate3 962 n/a now 4/15/15 4/15/16 10/15/16 10/15/16 Soft Call Date4 $5.4B Net Debt at the End of Q3’14 $206M of Cash Interest Paid in Q3’14; $426M YTD ~$1.2B Liquidity at the End of Q3’14 Favorable Tax Asset with Significant Gross Federal Net Operating Loss Carryforwards of $2.3B ($1B Tax-affected Amount of Federal and State NOLs)1 Cash Taxes: $3M in Q3’145 $10M YTD5 $10M – $15M Estimated for FY’145 $15M – $25M Estimated for FY’15 GAAP Taxes: $30M in Q3’14 $50M YTD ~$60M Estimated for FY’145 and FY’15 $1,250 5.25% 12/15/21 12/15/17

 


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HD Supply Proprietary and Confidential Historical Financial Performance Strong Growth, Operating Leverage ($ in millions) 1 Sales and Adj. EBITDA Growth Excludes the Impact of the 53rd Week in 2012 Note: All Periods Adjusted for Sale of Hardware Solutions Adj. EBITDA Sales GM % Adj. EBITDA % YOY %1 YOY %1 ’10A 27.7% $355M 5.9% $6,065 n/a n/a 27.8% ’11A $447M 6.7% $6,661 26% 10% ’12A 28.1% $624M 8.2% $7,647 37% 13% ’13A 28.7% $734M 8.9% $8,228 20% 10% 27% CAGR LTM Q3 ’14 28.7% $829M 9.5% $8,748 18% 8% Adj. EBITDA

 


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HD Supply Proprietary and Confidential Investment Themes Trusted Local Execution, Market and Product Knowledge, Customer Relationships Based on Reliability of Service, and Supplier Alignment Based on Performance #1 Positions with ~7% Share in Estimated ~$115 Billion Fragmented Market MRO, Infrastructure and Construction End Market Exposure with Sequential, Overlapping Growth Strategic High Return Growth Investments Which We Believe Will Deliver Growth in Excess of Estimated Market Growth Focused on Getting Better and Faster Through Team Work, Process Excellence and Trusted Relationships Leading Industrial Distributor Specializing in MRO, Infrastructure and Construction

 


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Appendix HD Supply Proprietary and Confidential

 


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HD Supply Proprietary and Confidential Illustrative Adjusted EPS Calculation Adjusted EBITDA 1 Includes Amounts Recorded Within Cost of Sales 2 Weighted Average Diluted Shares Outstanding Based on Management Estimates Adjusted Net Income per Diluted Share Adjusted Net Income = = Diluted Shares Outstanding2 ÷ Illustrative Depreciation and Amortization1 ( - ) Amortization of Acquired Intangibles ( + ) Interest Expense (GAAP) ( - ) Cash Income Taxes ( - ) Stock-based Compensation ( - ) Other $253M $0.51 $103M ~200M Q3’14A ($54M) $26M ($115M) ($3M) ($3M) ($1M) ( - ) TBD TBD TBD ~200M Q4’14 TBD TBD TBD ~200M FY ’14 TBD TBD TBD ~200M FY ’15 Estimate ~$33M ($15M – $25M) ($ in millions) TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD Latest Outlook to be Provided During March 24th Earnings Call TBD ~($430M) ($150M – $160M)

 


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HD Supply Proprietary and Confidential Amortization of Acquired Intangibles (Other than Software) ($ in millions) FY ’14 FY ’15 FY ’16 FY ’17 FY ’18 FY ’19 Facilities Maintenance $57M $6M $6M $5M $5M $5M Waterworks 3 2 2 2 1 1 Power Solutions 18 18 18 18 - - Construction & Industrial 14 1 1 1 1 1 Corporate and Other 7 6 6 6 6 6 HD Supply $99M $33M $33M $32M $13M $13M Expected Annual Amortization of Acquired Intangibles (Other than Software)

 


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HD Supply Proprietary and Confidential Operating Leverage 1.7x Operating Leverage in Q3’14 Q1 Operating Leverage1 (VPY%) Q2 Q3 Q4 1.2x 1.5x 0.7x 1.3x nm 1.3x 2.5x 3.6x 1.2x 0.6x 1.2x (6.6x) nm nm 12.2x nm 7.8x 2.4x 2.1x 1.9x 1.1x 2.8x 0.2x nm 2.6x 1.3x 1.2x 1.6x 1.3x 1.7x 2.9x 1.0x 1.8x 3.3x 7.2x 2.6x 10.5x nm 7.7x 4.7x nm 2.9x 2.9x 2.5x 3.9x 1.4x 1.7x 5.1x 12.5x 2.9x FY 1.4x 2.7x 2.5x 4.5x 2.1x 2.7x 3.7x 4.6x 9.2x 4.1x 1.3x 2.0x (2.8x) 3.5x 1.5x 1.6x 2.1x - 2.1x 1.8x 1.6x 2.4x 1.6x 3.7x 2.1x 1.2x 1.5x - 5.2x 2.7x 1 Operating Leverage is Defined as Adjusted EBITDA Growth Divided by Adjusted Net Sales Growth. Adjustments Comprise the 53rd Week in fiscal 2012. Not Meaningful (“nm”) when Sales Growth is Negative and when Prior Period Adjusted EBITDA is Negative. Note: Adjusted for Sale of Hardware Solutions 1.5x 1.3x 2.4x 2.4x 1.8x 2011 Facil. Maintenance Waterworks Power Solutions Construction & Industrial HD Supply 2012 Facil. Maintenance Waterworks Power Solutions Construction & Industrial HD Supply 2013 Facil. Maintenance Waterworks Power Solutions HD Supply Construction & Industrial 2014 Facil. Maintenance Waterworks Power Solutions HD Supply Construction & Industrial HD Supply 2.0x 1.7x 1.5x 1.8x 1.7x

 


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HD Supply Proprietary and Confidential FY’14 YTD Results Adjusted for Hardware Solutions ($ in millions, except per share amounts) Q1-14 Q2-14 Q3-14 YTD Q1-14 Q2-14 Q3-14 YTD Q1-14 Q2-14 Q3-14 YTD Net Sales 2,161 $ 2,447 $ 2,488 $ 7,096 $ (67) $ (79) $ (73) $ (219) $ 2,094 $ 2,368 $ 2,415 $ 6,877 $ Cost of sales 1,530 1,725 1,762 5,017 (39) (43) (39) (121) 1,491 1,682 1,723 4,896 Gross Profit 631 722 726 2,079 (28) (36) (34) (98) 603 686 692 1,981 Gross margin 29.2% 29.5% 29.2% 29.3% -40 bps -50 bps -50 bps -50 bps 28.8% 29.0% 28.7% 28.8% Operating expenses: Selling, general and administrative 447 468 467 1,382 (21) (24) (23) (68) 426 444 444 1,314 Depreciation and amortization 62 64 57 183 (4) (3) (4) (11) 58 61 53 172 Restructuring 3 4 - 7 - - - - 3 4 - 7 Total operating expenses 512 536 524 1,572 (25) (27) (27) (79) 487 509 497 1,493 Operating Income 119 186 202 507 (3) (9) (7) (19) 116 177 195 488 Interest expense 116 116 115 347 - - - - 116 116 115 347 Loss on extinguishment of debt 2 - - 2 - - - - 2 - - 2 Other (income) expense, net 1 - (4) (3) - - - - 1 - (4) (3) Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes - 70 91 161 (3) (9) (7) (19) (3) 61 84 142 Provision (benefit) for income taxes 1 22 31 54 - (3) (1) (4) 1 19 30 50 Income (Loss) from Continuing Operations (1) 48 60 107 (3) (6) (6) (15) (4) 42 54 92 Income (loss) from discontinued operations, net of tax (11) - - (11) 3 6 6 15 (8) 6 6 4 Net Income (Loss) (12) $ 48 $ 60 $ 96 $ - $ - $ - $ - $ (12) $ 48 $ 60 $ 96 $ Adjusted EBITDA 190 $ 258 $ 265 $ 713 $ (7) $ (12) $ (12) $ (31) $ 183 $ 246 $ 253 $ 682 $ Adjusted net income 39 $ 102 $ 111 $ 252 $ (5) $ (11) $ (8) $ (24) $ 34 $ 91 $ 103 $ 228 $ Diluted shares outstanding 198.9 200.5 200.2 199.7 - - - - 198.9 200.5 200.2 199.7 Adjusted net income per diluted share 0.20 $ 0.51 $ 0.55 $ 1.26 $ (0.03) $ (0.05) $ (0.04) $ (0.12) $ 0.17 $ 0.45 $ 0.51 $ 1.14 $ AS REPORTED REVISION FOR HARDWARE SOLUTIONS REVISED

 


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HD Supply Proprietary and Confidential FY’13 Results Adjusted for Hardware Solutions ($ in millions, except per share amounts) AS REPORTED REVISION FOR HARDWARE SOLUTIONS REVISED Q1-13 Q2-13 Q3-13 Q4-13 YTD Q1-13 Q2-13 Q3-13 Q4-13 YTD Q1-13 Q2-13 Q3-13 Q4-13 YTD Net Sales 2,048 $ 2,237 $ 2,273 $ 1,929 $ 8,487 $ (65) $ (70) $ (66) $ (58) $ (259) $ 1,983 $ 2,167 $ 2,207 $ 1,871 $ 8,228 $ Cost of sales 1,455 1,580 1,611 1,369 6,015 (37) (39) (37) (32) (145) 1,418 1,541 1,574 1,337 5,870 Gross Profit 593 657 662 560 2,472 (28) (31) (29) (26) (114) 565 626 633 534 2,358 Gross margin 29.0% 29.4% 29.1% 29.0% 29.1% -50 bps -50 bps -40 bps -50 bps -40 bps 28.5% 28.9% 28.7% 28.5% 28.7% Operating expenses: Selling, general and administrative 433 444 441 415 1,733 (22) (21) (21) (20) (84) 411 423 420 395 1,649 Depreciation and amortization 59 61 61 61 242 (3) (4) (3) (4) (14) 56 57 58 57 228 Restructuring - - - 9 9 - - - - - - - - 9 9 Total operating expenses 492 505 502 485 1,984 (25) (25) (24) (24) (98) 467 480 478 461 1,886 Operating Income 101 152 160 75 488 (3) (6) (5) (2) (16) 98 146 155 73 472 Interest expense 147 145 117 119 528 - - - 147 145 117 119 528 Loss on extinguishment of debt 41 46 - - 87 - - - - - 41 46 - - 87 Other (income) expense, net - 20 - - 20 - - - - - - 20 - - 20 Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes (87) (59) 43 (44) (147) (3) (6) (5) (2) (16) (90) (65) 38 (46) (163) Provision (benefit) for income taxes 43 12 (8) 15 62 (7) 1 3 (1) (4) 36 13 (5) 14 58 Income (Loss) from Continuing Operations (130) (71) 51 (59) (209) 4 (7) (8) (12) (126) (78) 43 (60) (221) Income (loss) from discontinued operations, net of tax (1) (1) - (7) (9) (4) 7 8 - 11 (5) 6 8 (6) 3 Net Income (Loss) (131) $ (72) $ 51 $ (66) $ (218) $ - $ - $ - $ - $ - $ (131) $ (72) $ 51 $ (66) $ (218) $ Adjusted EBITDA 165 $ 219 $ 226 $ 154 $ 764 $ (6) $ (9) $ (8) $ (7) $ (30) $ 159 $ 210 $ 218 $ 147 $ 734 $ Adjusted net income (14) $ 37 $ 76 $ - $ 99 $ (5) $ (7) $ (6) $ (4) $ (22) $ (19) $ 30 $ 70 $ (4) $ 77 $ Diluted shares outstanding 130.6 157.8 197.4 191.9 171.8 - - - - - 130.6 157.8 197.4 191.9 171.8 Adjusted net income (loss) per diluted share (0.11) $ 0.23 $ 0.39 $ - $ 0.58 $ (0.04) $ (0.04) $ (0.03) $ (0.02) $ (0.13) $ (0.15) $ 0.19 $ 0.35 $ (0.02) $ 0.45 $ - - (1)

 


HD Supply Proprietary and Confidential Reconciliation of Non-GAAP Measures: Net Income to Adj EBITDA 1 Depreciation and amortization includes amounts recorded within Cost of sales. 2 Represents the (gains)/losses associated with the changes in fair value of interest rate swap contracts not accounted for under hedge accounting and other non-operating (income)/expense. 3 Represents the loss/(gain) on extinguishment and modification of debt including the premium/(discount) paid to repurchase or call the debt as well as the write-off of unamortized deferred financing costs and other assets associated with such debt. 4 Represents the costs incurred for employee reductions and branch closures or consolidations. These costs include occupancy costs, severance, and other costs incurred to exit a location. 5 Represents the stock-based compensation costs for stock options and restricted stock. 6 HD Supply entered into consulting agreements with the Equity Sponsors whereby HD Supply paid the Equity Sponsors a $4.5 million annual aggregate management fee and related expenses. These consulting agreements were terminated in conjunction with HD Supply’s initial public offering in the second quarter of fiscal 2013. 7 Represents the costs expensed in connection with the company’s initial public offering and subsequent secondary offerings Net income (loss) Less: Income (loss) from discontinued operations, net of tax Income (loss) from continuing operations Interest expense Provision (benefit) for income taxes Depreciation and amortization1 Other (income) expense, net2 Loss (gain) on extinguishment and modification of debt3 Restructuring charge4 Stock-based compensation5 Management fee & related expenses paid to Equity Sponsors6 Costs related to public offerings7 Other Adjusted EBITDA ($ in millions) Fiscal Year Ended November 2, 2014 $30 (2) 32 466 64 234 2 19 16 — (1) $829 LTM Ended February 3, 2013 $(1,179) (68 (1,111) 658 39 309 — 709 — 16 5 — (1) $624 January 29, 2012 $(543) 46 (589) 639 75 298 (1) — — 20 — $447 5 January 30, 2011 $(619) 15 (634) 623 28 308 (6) 5 8 17 5 — $355 1 February 2, 2014 $(218) 3 (221) 528 58 232 87 12 16 2 20 $734 — 2 — — (5)