Armstrong World Industries Inc

Welcome to the Q1 2023 Armstrong World Industries Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Teresa Womble, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you. Good morning and welcome everyone to our call. On today's call, Vic Grizzle, our CEO, and Chris Calzaretta, our CFO, will discuss Armstrong World Industries' first quarter 2023 results and our 2023 outlook. To accompany these remarks, we have provided a presentation that is available on the investor section of our website. Our discussion of operating and financial performance will include non-GAAP measures within the meaning of SEC Reg 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 the presentation we issued this morning. Both, again, are available on the Investors section of our 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, April 25, 2023. These statements involve risks and opportunities that may differ materially from those expected or implied. We provide a detailed discussion of the risks and uncertainties in our SEC filings, included with the 10-Q filed earlier this morning. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law. And now I'll turn the call over to Vic.

Thank you, Theresa, and good morning, and thank you all for joining our call today. The results we reported this morning represent a solid start to 2023 as our team successfully executed on our strategic initiative and controlled costs against a backdrop of economic uncertainty. Our consolidated net sales increased 10% year-over-year, while adjusted EBITDA grew 9%, and adjusted free cash flow increased more than 50%. Our mineral fiber segment was a key contributor to the good start, with double-digit sales and adjusted EBITDA growth, as well as adjusted EBITDA margin expansion of 20 basis points. We delivered 9% mineral fiber volume growth in a quarter, largely due to recovery in sales following what was a challenging first quarter of 2022. As you will recall, in the first quarter of 2022, several of our distribution partners were reducing inventories after a period of accumulating higher levels of inventory in anticipation of improving market conditions as well as to buffer against supply chain disruptions and persistent inflationary pressures. We believe first quarter sales this year on this channel was strong versus that week comparison and have returned to more normal patterns that are consistent with maintaining historical inventory levels. This is also true for sales of our ceiling grid products from our wave joint venture. And we were pleased with the 14% earnings growth achieved in the quarter from our wave joint venture. Architectural Specialties had a slower start to 2023 with year-over-year sales growth of 3% and a $1 million decline in adjusted EBITDA. We experienced lower sales growth in the quarter tied to lower order intake in the fourth quarter of 2022. compounded by additional project delays in the quarter. All this against a strong performance quarter last year that had 26% sales growth as projects that had been delayed throughout 2021 moved forward as supply chain and labor constraints throughout the commercial construction industry had improved. Even with this slow start, we remain comfortable with our full year outlook in our specialty segment. comfort is driven primarily by the continuation of strong bidding activity across all our verticals with notable strength and transportation and health care in markets there appears to be more and larger projects out there tied to the infrastructure bill that have schedules into 2024 and beyond and this bodes well for our architectural specialty products we're also encouraged that our increasingly diverse product portfolio is providing additional demand from new spaces and commercial buildings. This is driving solid order intake for product categories like tectum, felt, wood, and metal. All in all, while we're pleased with how we started 2023, we remain cautious for the balance of the year. We continue to see challenges ahead for the commercial construction market, and we know we must remain focused on execution and cost management to deliver our outlook of solid top line growth with margin expansion across both segments. Our current view remains that market demand for the full year will be challenged. We continue to expect a mild recession to occur in the second half of the year, although the exact timing and duration remains uncertain. We also see continued weakness where return to office activity has stalled. And in some sectors of the economy that have slowed their investments. These factors, along with escalating interest rates, have pressured the office vertical more than others. Now that said, it's a fair reminder that the office vertical represents less than a third of our mineral fiber segment revenue. More broadly, overall bidding activity did turn positive in the quarter with pockets of strength in areas like transportation and municipal spending with investments in airports, metro stations, and convention centers. Healthcare is also an active area. along with education and data centers. While it's too early to conclude anything from this positive level of activity, the stabilization of demand that can occur from the diversity of end markets and how it can dampen demand in a downturn is noteworthy. While we continue to face a challenging and uncertain backdrop, we remain focused on what we can control, like how we manage our plants to achieve quality and productivity, our overall cost structure, our innovation efforts, and our investments for future growth. As we announced in February, we've made some difficult decisions around trimming our costs and reprioritizing certain investments in light of market weakness. And we will remain disciplined with all of our discretionary spending. As we move forward, what I've been very impressed with so far this year is how our teams have embraced our mission to deliver profitable growth with expanding margins and strong cash flow generation. The work our teams are accomplishing Accomplishing is notable and is helping us set up for long-term success. This includes our production teams who have done a tremendous work to exceed their productivity targets in the quarter, continuing the strong performance they delivered in 2022. Our sales teams and their new structure have also worked hard to achieve both our volume and pricing goals. And we're also pleased to share that our business development team remains active with good activity in the pipeline. Progress has also continued across our key growth initiatives. With our automated design service, Project Works, we remain focused on making the project design process as efficient as possible to the benefit of architects, designers, and contractors. We're expanding this automated service by including more and more of our product portfolio in this tool. And we are now able to offer the services earlier in the process to help architects and designers match their conceptual ideas of design with the best product solutions. We're currently on track to double the number of projects using Project Works this year. Our online sales platform, Canopy by Armstrong, also had a strong start to 2023 with strong increases across all key metrics. We continue to be very pleased with our progress with this unique offering for our category with the validation that we can find and serve new customers through this digital platform and last we continue to further develop our healthy spaces initiative while increasing sales growth and our healthy spaces product product portfolio we continue to fine-tune our value proposition around total indoor environmental quality which includes air temperature sound and light and we do this As we do this, we are seeing some promising opportunities and a connection between these attributes and ceiling solutions that improve the overall health and sustainability of a building. Still early days, but it's increasingly clear that ceilings have an important role to play in healthy, sustainable buildings of the future. Now let me pause there for a moment and let Chris provide some additional details on the quarterly financials.