Armstrong World Industries Inc

Good day, ladies and gentlemen, and welcome to the second quarter 2019 Armstrong World Industries Incorporated Earnings Conference Call. At this time, all participants are in 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, please press star on the zero key on your touchtone telephone. As a reminder, this call may be recorded. I would now like to introduce yours for today's conference, Tom Waters, Vice President of Corporate Finance. Please go ahead, sir.

Thank you. 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 statements 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 will turn the call over to Vic.

Thanks, Tom, and good morning, everyone. It's good to be with you today to review our second quarter results, another solid quarter for the company. We delivered sales growth of 9%, adjusted EBITDA improved 14%, and margins expanded 160 basis points. With this strong quarter, we are completing a solid first half of 2019. For the half, sales were up 8%, EBITDA is up 15%, and margins expanded by 240 basis points. Both of our segments are performing well and accelerated throughout the half, and therefore, we remain confident in our 2019 guidance. In a moment, Brian's going to walk you through the details of the results by segment, but I first want to touch on a few of the key takeaways. In the mineral fiber segment, average unit value, or AUV, was up more than 6%, with both like-for-like pricing and mixed improvements positively contributing in the quarter. Our industry-leading innovation continues to be the key driver of mix improvement, with sales of mineral fiber products at the high end of our portfolio growing double digits in the quarter. Recent new product launches, including the Sustain and Total Acoustics product families, are leading the way. But we are now also seeing contribution from DesignFlex, which we launched last summer. Architects and designers are beginning to see the creative possibilities afforded by this leading-edge new offering and we are encouraged by the initial new business results. Our new product vitality measure, which is a measure of sales of new products introduced in the last five years, is now over 40%. For perspective, this measure is up from the low teens as recently as five years ago. This has been a focused effort by our team, and we are now seeing the fruits of this work. Year-to-date, mineral fiber AUV is up over 7%. we're confident in once again delivering AUV growth in the 5% to 7% range, consistent with our historical average. Now, as we discussed when reporting our first quarter results, weather and other timing-related headwinds impacted mineral fiber volume at the start of the year, and we anticipated steady improvement as the year progressed. And that's what we saw in Q2, as volume improved sequentially, making up a meaningful portion of the shortfall. The relatively smaller channels, namely Latin America, continue to lag in the quarter, and given the political and economic conditions in those regions, we expect that these areas will remain a headwind in the second half, resulting in overall flattish volume for the year. Our mineral fiber operations are executing at a high level. In the quarter and year-to-date, mineral fiber gross margins have expanded more than 300 basis points. Our plant reliability metric, a multi-input measure of overall manufacturing performance, continued its recent favorable trend and was near all-time highs in the quarter. Quality and service metrics were also excellent. And most importantly, safety performance remained strong. Now, it's early days, but we are beginning to see results from our digital factory initiatives, a subset of our overall digitalization strategy. To date, we have deployed hundreds of sensors throughout our mineral fiber plants, and are harvesting and analyzing the data using both human and artificial intelligence. Insights from this analysis is already allowing us to optimize how we run our production lines, resulting in lower scrap rates and increased uptime. I believe this technology will enable our solid track record of productivity to continue into the future. Architectural Specialties continues its strong run with sales up 38% in a quarter. The base business, which includes our 2018 acquisitions of plaster form and steel ceilings, grew a strong 23%. And our first quarter 2019 acquisition of ACGI contributed the rest of the growth. We continue to penetrate the specialty ceilings and walls market and expand our leadership position through the broadest portfolio, the best in class design capabilities, and the industry-leading service and quality through our distribution partners. Now, related to this combination of competitive strengths, I'd like to share a real example of a custom job we recently won. A major hotel project in Nashville called for a complex wood fabrication solution that prior to the ACGI acquisition was not an opportunity for us. However, with ACGI's advanced manufacturing capabilities, we were able to provide the required solution containing the highly engineered wood products necessary to achieve the performance and the aesthetic vision of the architect and building owner. This solution included 13 different wood product types, including curved panels, baffles, and radius trim, a rare combination for any single manufacturer. These specialty wood capabilities also opened the door for us to win a significant order of design flex mineral fiber ceilings and drywall grids. No other single company is capable of delivering such a broad combination of products and technical support necessary to make this project a reality. A true one-stop shop experience for the architect and building owner. With the acquisition of ACGI, we now have in-house capabilities in the critical specialty substrates of metal, wood, and wood fiber. Combined with our glass-reinforced gypsum capabilities at Plaster Forum, and our strategic supplier network, we have established a unique leadership platform in the specialties category. While we have come a long way in building these capabilities, there is still much more to come as we broaden and deepen our specialty ceiling and walls capabilities and accelerate growth for years to come. I'm particularly pleased that we were able to expand margins in the architectural specialty segment despite our investments. and while overcoming the integration of lower margin acquired businesses. We remain confident that our playbook of acquiring good businesses, bolting them on to the Armstrong sales and marketing platform, and investing in their manufacturing capabilities will yield significant growth, margin expansion, and create shareholder value. So with that, let me turn the call over to Brian to go through some of the details. Brian?