Armstrong World Industries Inc

Good morning, ladies and gentlemen, and welcome to the Q2 2021 Armstrong World Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero under touchstone telephone. As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host, Ms. Theresa Womble, Director of Investor Relations.

Thank you, Ashley, and welcome, everyone. On today's call, Vic Grizzle, our CEO, and Brian McNeil, our CFO, will discuss Armstrong World Industries' second quarter 2021 results, rest of your outlook, and strategic progress. Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable gap measure is included in the earnings press release and in the appendix of the presentation we issued this morning. Both are available on our investor relations website. During this call, we will be making forward-looking statements that represent the view we have of our financial and operational performance as of today's date, July 27, 2021. The statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of these risks and uncertainties in our SEC filings, including the 10Q, which was filed earlier this morning. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law. Now, I'll ask the operator to turn to slide seven of our presentation, as I turn the call over to Vic.

Thanks, Theresa. You all recognize the new voice on the phone this morning. That's Theresa Womble. It's really great to have her. She is back filling Tom Waters, who retired last quarter. So welcome, Theresa. And thank you all for joining our call today. It's good to be with you to review our second quarter results. It's been a challenging 16 months since the onset of the pandemic, and I want to begin by thanking the 2,800 employees at AWI for their dedication, agility, and excellent execution during these trying times. It's because of their excellent work that AWI is so well positioned to capture their current market recovery. The results we posted this morning mark a strong recovery from last year's second quarter when the pandemic was accelerating, and many markets were effectively shut down by government mandates. On a year-over-year basis, second quarter consolidated net sales grew 38%, driven by a 32% increase in mineral fiber sales and a 59% increase in architectural specialty sales. We generated $100 million of adjusted EBITDA, which was a 44% increase from prior year results, and our adjusted EBITDA margin expanded 160 basis points. Now, this is a particularly impressive margin performance given persistent inflationary pressures and and the investments we are making in people, innovation, and technology in support of our strategic priorities and to serve the growth we see ahead for the rest of 2021 and beyond. On the strength of these results and the expected continuation of the market recovery in the back half of the year, we have updated and increased our 2021 guidance. Before Brian gets into the financial details, I'll provide some insights into market developments this quarter and the drivers behind the strong momentum we have heading into the back half of the year. Across both mineral fiber and architectural specialty segments, we are experiencing a solid rebound in renovation activity, as expected, and consistent with historical norms coming out of recessionary conditions. This activity is broad-based across the majority of our verticals and is providing the expected offset to the continued softness in new construction projects starts from 2020. Overall non-residential construction indicators continue to improve, and many of the delayed projects from 2020 have resumed. Of the various sector drivers we monitor, over half have continued to strengthen since April. Additionally, bidding activity in the quarter improved from first quarter levels, again with improvement in all verticals. Within those verticals, retail and office activity posted the strongest sequential improvements. All of these are positive indicators that the recovery is strengthening, and are providing greater clarity to our outlook for the second half of 2021 and more confidence that we can enter 2022 at a sales run rate at or above 2019 levels. As a result, we have increased our four-year sales, adjusted EBITDA, and adjusted EPS outlook. Turning to the specifics in the segments and looking first at the mineral fiber segment, our sales per shipping day rate continued to recover. and show sequential improvement for the fourth consecutive quarter. July's rates at this point are continuing the upward trend and are in line with what we would normally expect from a seasonality perspective. As with most companies, we have been working hard to manage the impact of inflation, and our sales teams continue to do an outstanding job of ensuring that our announced price actions are realized in the marketplace to offset persistent inflationary pressure. And consistent with our history, our teams delivered like-for-like pricing ahead of inflation again this quarter. As we expect inflation to persist, we have announced our third price increase this year, effective mid-August. AUV in total was an outstanding highlight in a quarter, with significant mix improvements to go along with the strong like-for-like price realization. AUV improved 10% in the quarter, aided by a strong rebound in territory mix as we posted sequential and year-over-year improvements in each of our top seven territories. Operationally, our mineral fiber plants ran well and operating leverage improved. The operational excellence of our manufacturing teams has been a bright spot throughout the pandemic and has never been more critical than now, given the broader material shortages in the construction industry. This is becoming a real competitive advantage for Armstrong. Even in these most challenging times for supply chains, we have maintained our best-in-class service levels. As a result, we hear from our customers that our ability to be a consistent and reliable supplier distinguishes Armstrong, not only in the ceiling space, but in the broader commercial construction market as well. I'm extremely proud of the work our operations teams are doing. Our wave joint venture also had an excellent quarter, again managing to price ahead of significant steel inflation and delivered solid earnings growth. The team at Wave has done an excellent job managing through extraordinary pressures on both steel pricing and availability. With their great work in this first half, they are well positioned to maintain service levels and stay ahead of inflation in the second half of the year. In our architectural specialty segment, our strong top line growth was driven by both our 2020 acquisitions and a nice bounce back in our organic business due to recovering demand for major renovation work as more people return to commercial buildings. EBITDA margin in this business improves sequentially, but remain below prior year levels, primarily due to our investments in commercial and production capabilities to meet the robust outlook we have for the remainder of 2021 and going into 2022. We are pleased with the progress thus far of integrating the 2020 acquisitions, and as sales accelerate through the back half of the year, we expect our margins to continue to improve. The backlog in architectural specialties continues to build on the record levels we referenced in our first quarter call. This is particularly encouraging and demonstrates continued penetration into this fragmented specialty segment. Now, while this bodes well for future sales, we do expect to experience some short-term project delays, similar to what we also see with new construction and major renovation mineral fiber projects, due to material labor shortages impacting upstream building activity. So despite a strong backlog, we could experience some choppiness here in the short term. Inflationary pressures are also impacting the architectural specialty segment, and similarly to our mineral fiber segment activity, we're on our third price increase to offset raw material inflation. All in all, this is a strong quarter for the company, and with the momentum we see in our key markets, we expect to deliver additional growth in the second half of the year. With that, I'll turn the call over to Brian to discuss more of the financial details.