Armstrong World Industries, Inc. Q2 FY2025 earnings call

• Delivered record sales and earnings with 16% net sales growth and 23% adjusted EBITDA growth in Q2. - Team focused on costs, initiatives, and customer service. - Mineral Fiber segment saw innovation and AUV growth driven by WAVE and manufacturing productivity. - Architectural Specialties segment benefited from organic growth of 15% and strong performance from acquisitions 3form and Zahner. - TEMPLOK innovation for energy-saving ceilings launched, integrated with IES software, and eligible for tax credits.

Mineral Fiber segment: Second quarter net sales grew 7% with strong AUV growth of 5% and modest volume contribution. Adjusted EBITDA grew 16% and adjusted EBITDA margin expanded by 350 basis points. Architectural Specialties segment: Net sales grew 37% in the quarter. Both organic and inorganic sales grew double digits. Adjusted EBITDA grew 61% with an adjusted EBITDA margin of approximately 22%.

• Raised full-year 2025 guidance: total company net sales growth expected 11%-13% (up from 9%-11%), adjusted EBITDA growth 12%-15% (up from 8%-12%). - Adjusted diluted net earnings per share and adjusted free cash flow also increased. - Tariffs are a modest headwind but mitigated, with a ~1% impact on COGS. - Anticipates a cash tax benefit in 2025 with a normalized cash tax rate of ~22%.

• Uncertain market conditions including tariffs, inflation, labor, and interest rates. - Expected softening market conditions in the back half of 2025, particularly impacting discretionary renovation projects.

Q: Focusing on Architectural Specialties segment organic growth, can you give more color on initiatives driving growth?

A: Organic growth is due to commercial teams penetrating more spaces in buildings, PROJECTWORKS software aiding productivity, and breadth of portfolio. Acquisitions 3form and Zahner integration is going well.

Q: Follow up on Architectural Specialties cost side, how long can manufacturing costs be kept down with volume growth?

A: Volume contributes to operating leverage, and efficiencies in buy, make, sell components allow maintaining higher margins.

Q: On Mineral Fiber AAV and TEMPLOK, how is TEMPLOK attracting customers?

A: TEMPLOK is first in industry with energy-saving attributes, integrated with IES software, and eligible for tax credits, but sales impact is minimal currently.

Q: On raised guidance, is the raise mostly from Q2 performance?

A: Yes, the raise is driven by strong first half performance and stronger AS segment performance.

Q: On Mineral Fiber input cost inflation, what drove it and expectations for second half?

A: Input costs had low single-digit inflation, with raws low single-digit, energy mid-teens, and freight flat. Expect low single-digit inflation overall for the year.

Q: On TEMPLOK competition, how does Armstrong's offering compare?

A: View competition more around other energy-saving solutions rather than direct tile manufacturers, and TEMPLOK is unique in being in IES platform.

Q: On M&A in AS, are sellers active and any pipeline?

A: Sellers are active, pipeline is active, and more M&A activity expected in near term.