Armstrong World Industries Inc

Good day, ladies and gentlemen, and welcome to the first quarter 2019 Armstrong World Industries Earnings Conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance during the call, please press star and zero on your touch-tone telephone. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Mr. Tom Waters. You may begin.

Thanks, Skylar. Good morning, and welcome. Please note that members of the media have been invited to listen to this call, and the call is being broadcast live on our website at armstrongceilings.com. With me today are Vic Grizzle, our CEO, and Brian McNeil, our CFO. Hopefully you have seen our press release this morning, and both the release and the presentation Brian will reference during this call are posted on our website in the investor relations section. I advise you that during this call we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect Armstrong World Industries, please review our SEC filings, including the 10Q filed earlier this morning. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law. In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the press release and in the appendix of the presentation. Both are available on our website. With that, I'll turn the call over to Vic.

Thanks, Tom, and good morning, everyone. It's good to be with you today to review our first quarter results, a solid start to 2019. We delivered sales growth of 7%, and adjusted EBITDA improved 17%, with margins expanding 330 basis points in the quarter. Organic sales were up 4%, and our recent acquisitions added to that growth. Both segments performed well, and we remain confident in our 2019 guidance. Now, in a moment, Brian will walk you through the details of the results of each of the segments, but I first want to touch on a few of the key themes in the quarter. In the mineral fiber segment, average unit value, or AUV as we refer to it, was up double digits in the quarter. Our AUV accelerated as positive like-for-like pricing, outpaced inflation, and solid mixed gains from our recent new product innovations continued to gain traction in the market. Mineral fiber volumes got off to somewhat of a slow start with specific pockets of weakness in Latin America, our big box channel, and weather-related challenges in the Upper Midwest and parts of Canada. Our view of the underlying North American commercial market is unchanged, as we believe much of this softness is timing-related and will be recaptured as the year progresses. Volumes in our new products and high-end products were positive year over year and continued to outpace the market. And WAVES earnings were up double digits in the quarter. On the operations side, Our mineral fiber plants ran particularly well, and good cost control resulted in lower SG&A as percent of sales. The new innovative mineral fiber platform, DesignFlex, is now fully launched in the market, and we are actively working over 150 projects. The customer excitement for this new platform continues to energize our expectations for continued mixed gains into the future. On our website, the DesignFlex has been our most viewed launch since the unprecedented success of Total Acoustics. Our spring launch will feature an extension to this line with DesignFlex Formations. It's a prepackaged ceiling, perimeter, and suspension kit that will simplify the design and installation process for many jobs. This is another example of how we are making it easier for architects and designers to specify Armstrong products. The highlight of our upcoming spring launch is going to be AcoustaBuilt, our latest innovation in the mineral fiber category. AcoustaBuilt is an acoustical alternative to drywall ceilings. It combines the smooth white aesthetics of a drywall ceiling with superior acoustics of mineral fiber. This platform bridges the gap between drywall and mineral fiber with the same drywall installation methods used by contractors. A number of regional contractors have already embraced the solution, are active in the market, working on jobs. Architectural specialties had another strong quarter with sales up 24%, including the benefits of our recent acquisitions, and adjusted EBITDA grew 15%. The adjusted EBITDA margin of 22% was consistent with full year 2018. Even as we layered in additional resources for future growth, and absorb the expenses of our newly acquired businesses. Given the progress we're making with our architectural specialties operations and the leverage we're gaining on our SG&A base, we remain confident that margins, again, will expand for the full year. Our backlog for the remainder of the year also strengthened nicely, adding to our confidence for another year of strong sales growth in architectural specialty segments. Also notable in the quarter in the architectural specialty business is the close of the Acquisition of Architectural Components Group, or ACGI. Closed that in March, and integration is well underway. Marshfield, Missouri-based ACGI is a leading manufacturer of wood ceiling and wall systems. This fast-growing wood category is strategically important to Armstrong, and ACGI's broad product capabilities will further enhance our leading position in this category. We are making ACGI our center of excellence for wood manufacturing design, and we'll be focusing our future investments for wood here to create a new state-of-the-art facility. ACGI will add $20 to $25 million to our sales in 2019, further accelerating architectural specialty's growth. We continue to make good progress on the integration work at two acquisitions we did last year, Plasterform and Steel Ceilings. We're confirming the synergies we expected in our business cases. Also in the quarter, we began an expansion project at our Montreal metal ceilings plant that will increase our metal capacity by up to 50% and will include new equipment to improve our design capabilities and further increase the flexibility of our manufacturing processes there. As you can see, we continue to build out a strong architectural specialties platform to service both current and future demand and the specialty ceilings and walls. At the company level, other notable activities to highlight. First, our digitalization initiatives are progressing well, and we remain focused on employing more digital technology to create a frictionless experience for all of our customers. So far this year, we've doubled our quoting capacity for architectural specialties through the use of digital technology. And as a result, self-service quoting is up 25% year over year. We're also undertaking digitalization initiatives in our manufacturing processes. To date, we've deployed over 300 sensors in our plants to gather detailed, real-time data on the health of our manufacturing processes. Using this data, we were able to predict the need for preventive maintenance in advance of planned downtime. And this is just one of our digital factory initiatives to increase plant reliability, to minimize energy usage, and ultimately improve product quality and reduce our manufacturing costs. I look forward to updating you on these initiatives and other digitalization projects in the coming quarters. Second in the quarter, you no doubt saw that we have resolved the ROCFON lawsuit. As we reported, all claims are dismissed, and this matter is now behind us. Thirdly, pertaining to the sale of our international business, we continue to support Knopf and their efforts to satisfy EU clearing conditions. and we continue to expect the sale to close in the second quarter. So let me pause there, and I'll turn it over to Ryan for some more details.