Armstrong World Industries Inc

Ladies and gentlemen, thank you for standing by. Welcome to the Armstrong World Industries 8th Third Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Tom Waters, Vice President of Corporate Finance. Please go ahead, sir.

Thank you. Good morning and welcome, everyone. 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 on the call 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 our call over to Vic.

Thanks, Tom, and good morning, everyone, and thanks again for joining us today. I'm pleased to be with you today from our corporate campus in Lancaster, Pennsylvania. Armstrong, like many companies, is adapting to a new normal of hybrid work activity. Here at Armstrong, safety protocols are in place, and our physical spaces have undergone a first phase of modifications to allow our organization to return to the office safely. We're actively working on more permanent changes to our facilities, including the use of new ceiling and grid solutions to create healthier spaces for our staff and visitors. Our manufacturing and distribution facilities continue to operate well and safely. Quality and service levels are high, and our connectivity to customers enabled by our digital tools remains excellent. Overall demand in the quarter improved sequentially much as we had expected. On a seasonally adjusted basis, Q3 was 14 percent better than Q2, down 11 percent versus 25 percent. In addition, we saw sequential improvement within the quarter, as daily mineral fiber sales improved from down 15 percent in July to down 11 percent in September. And October has continued this trend and is progressing better than September. Our top seven territories, which had lagged significantly in the second quarter, returned to the overall national average during the quarter. But the New York metro area, our highest AUV territory, continues to lag. Overall sales of $247 million were down 11% a quarter versus prior year. Volume was down 10%. And mineral fiber AUV was slightly negative. Positive like-for-like pricing improvement and favorable product mix were offset by negative channel mix and negative territory mix, primarily driven by the lag in New York metro area. In addition, sales to big box customers were up in the quarter versus 2019, which is good from a volume perspective, but given the lower sales price in this channel, it was also a headwind to mix. While the overall demand trends in the quarter progressed largely as expected, There were some developments that we observed that I want to share with you to provide context on the market conditions. As expected, construction activity picked up in the territories most impacted by COVID-related restrictions in the second quarter, namely the seven largest territories we referenced on our last call. The easing of state and local regulations on job sites and the increasing ability of contractors to work within newly imposed restrictions both helped this situation. However, as the quarter progressed, we saw delays emerge in previously less impacted territories, namely the South and the Midwest, following the migration of the virus. The shift in regional activity reflects the impact of increasing COVID cases on construction activity and the overall uneven nature of the market reopening. New construction activity has fared pretty well overall as existing projects continue toward completion. while smaller and mid-sized renovation projects experience greater headwinds. In our conversations with our customers, it is clear that there remains a lot of near-term uncertainty as building owners work to determine the best path forward to adapt their facilities to enable the safe return of occupants. This is also true of schools, with some remodel activity remaining on hold, as many students learn from home. Also in the quarter, we continue to experience softness in our low-visibility flow business, These are the small discretionary repair-remodel type projects that flow through our distribution partners and often without a specification. In addition to the uneven opening of the markets, we also experienced minor business interruptions in the quarter due to protest activity in certain cities and Hurricane Sally, which closed our Pensacola, Florida plant for a few days. Thankfully, our team at the plant is safe and we're back up and running. The Armstrong team and our partners continue to earn my admiration as they overcome obstacles and continue to deliver for our customers. Adjusted EBITDA in the quarter of $92 million was down 19% from 2019. The pandemic-driven volume decline is really the entire story as the business continues to operate well and as expected otherwise. Brian will provide more details on our financial results in a moment. But it has been an impressive performance by our operations team in an extraordinary environment. I could not be more proud of the work that they have done thus far. Despite the challenges in the market, our strong cash flow performance continues and we remain on track to deliver over $200 million in adjusted free cash flow. Based on this continued strong cash flow generation and our confidence to continue to do so, our board has approved a 5% increase in our regular quarterly dividend to 21 cents per share, and we are restarting our share repurchase program. The third quarter was also notable in that we completed two M&A transactions. The previously discussed acquisition of Chicago-based Turf Design, the leading provider of custom felt-based ceilings and walls. And then on August 24th, we acquired Mohs Designs. Mohs is a Northern California-based designer and fabricator of custom architectural metal ceilings, walls, dividers, and column covers. Mohs brings unique capabilities that can be utilized to improve the product offerings of our three existing metal ceiling facilities and further strengthens our already leading position in the growing category of metal ceilings and walls. As cleanable surfaces and partition solutions are now more important than ever, I'm delighted to welcome the Mohs team to the Armstrong family. This transaction marks our seventh acquisition since 2017. We are truly building an unmatched platform of specialty ceilings and walls, and we are not done. Our M&A pipeline continues to grow as we see more and more opportunities to build out the most unique set of capabilities in the industry, and our financial strength allows us to do so. Now, with that, I'll pause and turn the call over to Brian to review our financial results, and then I'll be back to talk about the creation of healthy spaces that is dominating the conversation in these times. Brian? Thank you.