Armstrong World Industries Inc

Ladies and gentlemen, thank you for standing by and welcome to the Q Forward full-year 2021 Armstrong World Industries Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your host, Theresa Womble, Director of Investor Relations. You may begin.

Thank you, Kevin, and welcome everyone to our call this morning. On today's call, we'll have Vic Grizzle, our CEO, and Brian McNeil, our CFO, discuss Armstrong World Industries' fourth quarter and full year 2021 results, our 2022 outlook, and progress on our growth initiative. Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC's Regulation G. A reconciliation of these measures with the most directly comparable GAAP measure is included in the earnings press release and in the appendix of our presentation, which was 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 results and our performance as of today's date, February 22nd, 2022. These statements also 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 STC filings including the 10-K filed earlier this morning. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities laws. Now, for those of you following along, we'll start our presentation as I turn the call over to Dick.

Thank you, Theresa, and good morning to all of you, and thank you for joining our call this morning. As we reported this morning, we ended 2021 with a strong quarter in both our segments, and delivered robust top-line growth for the full year of 18% as we surpassed $1.1 billion in net sales. Our team delivered these results while facing a choppy, uneven market recovery, rapid inflation, supply disruptions, and labor shortages. I'm proud of the strong execution by our organization, and I'd like to take a moment to thank all of our teams for their hard work this year in this difficult environment. These results would not have been possible without the effort and dedication of each of our 2,800 employees who remained focused on our objectives, continued innovating, kept our plants running safely and efficiently, and maintained our best-in-class service to customers. First, turning to our quarterly results, we delivered 18% year-over-year growth in consolidated adjusted net sales. Mineral fiber segment sales increased 13% year-over-year with strong pricing and positive volume for volume growth contributing to this double-digit performance. Architectural specially adjusted sales rose 34% with contributions from both our base business and our 2020 acquisitions. In addition, I'm happy to report that our mineral fiber sales this quarter were also ahead of 2019's result by 5%, and our organic AES business posted higher sales than 2019's levels as well. Now, these are important milestones pointing to the healing and the market recovery coming out of the pandemic. For the full year, consolidated net sales increased 18% year-over-year, with mineral fiber sales increasing 13% and architectural specialty sales increasing 37%. Consolidated adjusted EBITDA for the full year increased by 13% from 2020 levels. Taking a step back and reflecting on the year, again, I'm very pleased with these results and how our teams executed in the face of, again, rapid inflation, supply chain disruptions, labor availability, and while battling COVID in our communities. And our teams did all this without disruption to the best in class service levels our customers have come to count on, no matter what. In 2021, the underlying fundamentals of our business that have supported our results and enabled us to consistently outperform in all parts of the cycle were on full display. These fundamental value drivers have been tested and once again proven to be resilient in all parts of the cycle, including through a pandemic. Among the most notable value drivers on display in 2021 has been AUV, or our average unit value for our mineral fiber business. For well over a decade now, we have sustained AUV growth throughout both inflationary and deflationary periods, and it remained a positive story for us in 2021. For the full year, our mineral fiber AUV increased 10% from 2020, primarily driven by like-for-like pricing as we successfully stayed ahead of inflations. As we have reported throughout the year, we are able to consistently achieve like-for-like price growth due to the strength of the total value we bring to our customers. This value encompasses our innovation, consistent quality, and customer service, as well as our brand strength and our deep relationship with architects and designers. It's critical work, particularly with uncertainty and the various challenges of a year like we had in 2021, and it's being acknowledged by our customers. The unique focus and credibility we have in the market allows us to be responsive to customers and earn these price increases. And it's enabled us to expand our mineral fiber gross margins by 170 basis points, even in a rapid inflationary environment. In addition to like-for-like price, the other contributing component of AUV is sales of higher value products and solutions that are supported by our innovation and new product development efforts. Throughout the pandemic, our unique focus as an America ceilings and specialty walls company allowed us to continue our strong engagement with customers and to deliver market-driven innovation that addresses current and emerging market needs. Our new product development is a critical component of our AUV strength by allowing us to improve our product mix consistently over time. And it's what drives our strong product vitality index, which is a measure of sales from products introduced in the last five years. For the second year in a row, this measure was about 40 percent, an elite level in the building products industry. Looking forward, we expect to sustain this performance with innovation focused on supporting healthier indoor spaces, as we will discuss later in the call. Mineral fiber sales volume growth was another positive for the year, as we delivered nearly 3 percent year-over-year growth. Now, this represents the strongest annual growth rate since 2005. Beginning in the second quarter, we delivered year-over-year improvements in our sales rates per day each quarter and expected to exit 2021 at a rate above 2019's levels, and we did, with the fourth quarter coming at 5 percent ahead of fourth quarter 2019's result. While most of this improvement was driven by price, we did see some positives from a volume perspective as well. Mineral fiber volumes closed in on 2019 levels and we're just 5% below 2019's fourth quarter, which was the best comparable all year. Also looking back on 2021, we're pleased with the strong performance in our architectural specialty segment through advancements in capabilities made both in terms of organic growth and the integration of our 2020 acquisitions. Sales grew a robust 34% in 2021 against a soft new construction backdrop. Importantly, organic sales for this business segment contributed nicely, increasing high single digits, again, against a soft new construction backdrop. We're especially encouraged by the record-setting level for order intake in the architectural specialty segment, driving the project backlog to historic highs, with our 2020 acquisitions backlog up 40% from prior year. Now, it's worth calling out this meaningful increase in backlog for the new acquisitions because it again confirms the revenue synergies realized when we add these smaller, highly capable companies onto the Armstrong platform. We also made progress throughout the year to improve the margins in this segment through innovation, increased operational efficiency, and pricing discipline. We're well on our way back to 20% EBITDA margins in this segment. These advancements in our capabilities and our execution and the higher backlogs are providing a positive setup for 2022 and into 2023, for the architectural specialty segment. Finally, as we look back on 2021, despite a choppy and uneven rate of recovery, we are encouraged by the traction we're seeing in the underlying fundamentals in the market. Return to office rates, non-residential construction bidding and starts have all improved, and we saw a quarter-on-quarter improvement throughout 2021 for the Castle Back to Work Index. Commercial construction bidding activity also improved, beginning in the second quarter and continued to strengthen throughout the year. Bidding activity remained up in double digits, broadly for nearly all verticals, and specifically bidding activity for office ended the fourth quarter at its highest levels for the year. Meanwhile, new construction starts were depressed for the year as we expected, but improved quarter to quarter throughout the year. We are encouraged by these developments as well as the positive sentiments we are hearing from our distribution partners as we look forward to 2022. So let me pause there and allow Brian to walk through more of our details on our financial results, and I'll be back to add some additional comments on our outlook.