Armstrong World Industries Q2 2025 Earnings Report

Armstrong World Industries EPS Results

• Actual EPS: $2.09
• Consensus EPS: $1.75
• Beat/Miss: Beat by +$0.34
• One Year Ago EPS: $1.62

Armstrong World Industries Revenue Results

• Actual Revenue: $424.60 million
• Expected Revenue: $404.05 million
• Beat/Miss: Beat by +$20.55 million
• YoY Revenue Growth: +16.30%

Armstrong World Industries Announcement Details

• Quarter: Q2 2025
• Date: 7/29/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 10:00AM ET

Armstrong World Industries (NYSE:AWI), together with its subsidiaries, engages in the design, manufacture, and sale of ceiling and wall solutions in the Americas. It operates through Mineral Fiber and Architectural Specialties segments. The company offers mineral fiber, fiberglass wool, metal, wood, felt, wood fiber, and glass-reinforced-gypsum; ceiling component products, such as ceiling perimeters and trims, as well as grid products that support drywall ceiling systems; ceilings, walls, and facades for use in commercial settings; and manufactures ceiling suspension system (grid) products. It serves commercial and residential construction markets, as well as renovation of existing buildings sectors. The company sells its products to resale distributors, ceiling system contractors, wholesalers, and retailers comprising large home centers. Armstrong World Industries, Inc. was founded in 1860 and is headquartered in Lancaster, Pennsylvania.

Armstrong World Industries Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Armstrong delivered a record quarter with 16% net sales growth, 23% adjusted EBITDA increase and a 200 bps margin expansion to 36%, driving 29% EPS growth.
• Positive Sentiment: Full-year 2025 guidance was raised to 11–13% net sales growth and 12–15% adjusted EBITDA growth, up from prior ranges of 9–11% and 8–12%, respectively.
• Positive Sentiment: Architectural Specialties achieved 37% sales growth (organic +15%) and 61% adjusted EBITDA growth, with margins reaching ~22%, the strongest Q2 result since 2020.
• Positive Sentiment: The Temploc energy-saving ceiling tiles, now eligible for 40–50% tax credits and integrated into top energy-modeling software, are poised to accelerate renovation demand.
• Negative Sentiment: Management anticipates a softer back half of 2025 amid tariff, inflation and rate uncertainties, which could dampen discretionary renovation activity.

Presentation

[Operator]

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter twenty twenty five Armstrong World Industries Incorporated Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. It is now my pleasure to turn the call over to Theresa Womble, Vice President of Investor Relations and Corporate Communications. You may begin.

[Theresa Womble, VP - IR & Corporate Communications at Armstrong World Industries]

Thank you, Tina, and welcome, everyone, to our call this morning. Today, we have Vic Grizzle, our CEO and Chris Calzaretta, our CFO, to discuss Armstrong World Industries' second quarter results and rest of year outlook.

[Theresa Womble, VP - IR & Corporate Communications at Armstrong World Industries]

We have provided a presentation to accompany these results that is available on the Investors section of the Armstrong World Industries website. 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 GAAP measures is included in the earnings press release and in the appendix of the presentation issued this morning. Both of these are available on the 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, 07/29/2025.

[Theresa Womble, VP - IR & Corporate Communications at Armstrong World Industries]

These statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of the risks and uncertainties in our SEC filings, including the 10 Q 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 turn the call over to Vic.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Thank you, Theresa, and good morning, and thank you for joining our call today to discuss our second quarter twenty twenty five results and our expectations for the remainder of the year. We delivered another quarter of record sales and earnings as we continue to execute at a high level and to demonstrate the resilience of our business model in these unique and uncertain market conditions. In the second quarter, on a consolidated basis, we increased net sales by 16% and adjusted EBITDA by 23%. And with efficient execution, we expanded adjusted EBITDA margin by 200 basis points over the prior year to 36%. Adjusted diluted earnings per share rose 29% year over year, marking the company's highest quarterly EPS growth rate since separating from the foreign business in 2016.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Similarly, we generated strong adjusted free cash flow both in the quarter and on a year to date basis, allowing for the continuation of funding of all of our capital allocation priorities despite uncertain market conditions. In these times of market uncertainty, it is even more critical to employ an even higher level of focus within an organization, and that's what our organization did in the second quarter. Our team stayed focused on what we can control, our costs, our initiatives and our service to customers. And I'm pleased with how we have focused and executed in each of these areas. Our plant teams continue to exemplify our safety culture with improvement on all of our safety metrics and delivered strong productivity results in the quarter.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And our commercial teams worked even closer with our customers to deliver industry leading service and support. I want to take this opportunity to thank our teams for their outstanding work and their dedication to consistent execution and delivery of results for our customers and our shareholders. Turning now to highlight our segment performance. In our Mineral Fiber segment, our second quarter net sales grew 7% with strong AUV growth of 5% and a modest contribution from volume, both of which were supported by our innovation efforts and our digital initiatives that continues to propel growth at the high end of our product portfolio. Adjusted EBITDA in the Mineral Fiber segment grew 16% and adjusted EBITDA margin expanded by three fifty basis points, driven by contributions from Wave along with good SG and A cost control and manufacturing productivity gains.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

This margin level was the best second quarter result since our separation from flooring in 2016. Turning next to our Architectural Specialties segment, where our net sales grew 37% in the quarter. Both organic and inorganic sales grew double digits. Both our new acquisitions, Threeform and Zaner, exceeded expectations in the quarter. But especially impressive was the organic growth of 15%, well above market activity levels.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Both organic and inorganic growth performance reflect strong penetration into the specialties market with our expanding portfolio of products and capabilities. As we have noted before, our expansion of Architectural Specialties and new materials and capabilities allows us to sell more products into more spaces of a building. With this expanded product portfolio, we can continue to penetrate further into the same commercial buildings where we sell Mineral Fiber today. These additional spaces include solutions beyond the core ceiling plane, extending into specialty walls, other interior finishes like column covers, grills and partitions and now exterior facades and rainscreens. And with our confidence in our cash flow growth, we continue to build our pipeline for future bolt on acquisitions to further expand our portfolio.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

This collective organic and inorganic growth has been a successful strategy for the company, delivering nearly a 20% CAGR since our separation from flooring. This breadth of the portfolio, coupled with our digital initiatives, is best illustrated with a recent project win of a four story health center building in Virginia. Project Works was used for each of the seven phases of the project, providing significant productivity and speed for the customer. In total, 32 unique Armstrong solutions were specified and used on the project, including a range of products and services that no other single manufacturer could provide. This breadth of portfolio, along with the automated design services provided by ProjectWorks, are a unique competitive advantage for Armstrong.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

In addition to our impressive sales growth in Architectural Specialties, I'm particularly pleased with the profitability performance in this segment. We continue to make strides in improving our operational efficiency and gaining operating leverage, which drove adjusted EBITDA growth of 61% and an adjusted EBITDA margin of approximately 22% in the quarter. This was the highest quarterly adjusted EBITDA margin of any quarter since 2020. We expect that 2025 will mark the third consecutive year of improved organic adjusted EBITDA margin growth, and we remain confident in our ability to deliver greater than 20% EBITDA margins in the Architectural Specialty segment. Overall, in the second quarter, we increased our efforts to improve efficiency throughout the business in anticipation of softer economic conditions ahead.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

The early results of these efforts contributed to the margin expansion we delivered in the quarter. In the sales organization, we saw strong performance with our commercial initiatives, which are improving our coverage and penetration in our core markets. Earlier this year, we implemented a sales and marketing optimization program to better position the commercial team with our customers, driving greater efficiency and selling capacity to better serve both our A and D customers and our distribution partners. These changes, together with our innovation and our various growth initiatives, are making a difference in delivering above market level performance. So again, very pleased with the level of focus and execution demonstrated by our teams and the results so far this year.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Let me pause here and turn it over to Chris for more details on the financials. Chris?

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Thanks, Vic, and good morning to everyone on the call. As a reminder, throughout my remarks, I'll be referring to the slides available on our website and Slide three, which details our basis of presentation. Beginning on slide six, we summarize our second quarter Mineral Fiber segment results.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Mineral Fiber net sales were up 7% in the quarter, primarily driven by favorable AUV of 5% and a modest increase in volumes, both of which were primarily driven by strong commercial execution and benefits from growth initiatives. Specifically, the growth in AUV versus the prior year was driven by both favorable like for like pricing and mix. Mineral Fiber segment adjusted EBITDA grew by 16% and adjusted EBITDA margin expanded by three fifty basis points to approximately 45% on strong execution by the business in the quarter. Notably, this marks the tenth consecutive quarter of year over year adjusted EBITDA margin expansion in the Mineral Fiber segment. Q2 Mineral Fiber EBITDA growth was primarily driven by AUV growth, contribution from the WAVE joint venture and lower SG and A expenses, which included the benefit from our disciplined focus on cost control as well as the positive impact of higher sales volumes in the quarter.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Higher input costs driven primarily by inflation in both raw materials and energy were partially offset by a decrease in manufacturing costs. On slide seven, we discuss our Architectural Specialties or AS segment results, where we highlight net sales growth of 37%. This growth was driven primarily by contributions from our twenty twenty four acquisitions, Freeform and Zayner, both of which continue to perform better than expected. On an organic basis, I'm very pleased to report that we delivered second quarter sales growth of 15%, driven by strengthening broad based penetration throughout our specialty product categories. AS segment adjusted EBITDA grew 61% with an adjusted EBITDA margin of approximately 22%, marking the best Q2 margin performance since 2019.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Adjusted EBITDA margin expanded three ten basis points as higher acquisition related operating costs were more than offset by strong sales growth from our twenty twenty four acquisitions. Additionally, the improvement in adjusted EBITDA margin reflected continued improvement in operational leverage on our cost base in the segment. We are pleased to have achieved 20% or greater adjusted EBITDA margins for both the organic and inorganic sides of the AS business in the quarter. The integration work on our twenty twenty four acquisitions is on track, and these businesses are performing better than expected. We remain committed to achieving our goal of a greater than 20% adjusted EBITDA margin on a full year basis in this segment.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Slide eight highlights our second quarter consolidated company metrics. We delivered 16% net sales growth and 23% adjusted EBITDA growth with 200 basis points of adjusted EBITDA margin expansion along with 29% growth in adjusted diluted net earnings per share. Incremental volume for both segments, strong AUV performance and healthy equity earnings from Wave drove our adjusted EBITDA growth in the second quarter versus the prior year period. These benefits more than offset an increase in SG and A, which was driven by our twenty twenty four acquisitions of 3Form and Zener. Excluding the impact of these acquisitions, we delivered an organic total company adjusted EBITDA margin of approximately 38%, which represents 300 basis points of margin expansion as compared to the 2024.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Turning to Page nine, we highlight our first half consolidated company metrics, which reflect double digit net sales and adjusted EBITDA growth with margin expansion. Through the first six months of the year, with sales up 17% and adjusted EBITDA up 20%, margins expanded 100 basis points versus the prior year period. Adjusted diluted net earnings per share increased 25% and adjusted free cash flow increased 29%. The drivers of year to date adjusted EBITDA growth are similar to the previously mentioned second quarter drivers. Slide 10 shows our year to date adjusted free cash flow performance versus the prior year.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

The 29% increase was driven primarily by higher cash earnings and dividends from our Wave joint venture. These results demonstrate our ability to consistently achieve adjusted free cash flow growth despite challenging market conditions, allowing us to deploy our cash generation for investments back into the company as well as to provide returns for our shareholders. In the second quarter, we paid $14,000,000 in dividends and repurchased $30,000,000 of shares. As of 06/30/2025, we have $610,000,000 remaining under the existing share repurchase authorization. Given our healthy balance sheet and our proven ability to consistently generate strong cash flow, we remain well positioned to execute and advance our strategy.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Slide 11 shows our updated full year 2025 guidance. We are raising our full year guidance due to our first half performance and our expectations for continued execution for the remainder of the year. The change in our guidance versus our prior guide provided in April is primarily driven by stronger first half performance as well as stronger performance in AS, both organically and from our 2024 acquisitions. We still expect softening market conditions in the back half of the year as compared to the first half. We now expect total company net sales growth of 11% to 13% for the full year, up from our prior expectations of 9% to 11%, and total company adjusted EBITDA growth in the 12% to 15% range, up from the previous range of 8% to 12%.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Additionally, we are increasing our guidance both for adjusted diluted net earnings per share and adjusted free cash flow. As was the case in April, our updated guidance continues to reflect the impacts of currently implemented and announced tariffs. While tariffs as they stand today are a modest headwind, they did not have a material direct impact on our second quarter results, and we do not anticipate that they will have a significant direct impact on our second half results due to our planned mitigation actions and our predominantly local supply chain. The tariffs as currently implemented and announced represent a direct impact to our total cost of goods sold of approximately 1%, which is lower than our prior outlook. For WAVE, the tariffs as currently implemented and announced have about a 5% direct impact on the JV's total cost of goods sold and is consistent with our prior outlook.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

We are successfully mitigating the impacts of these tariffs, and our updated guidance is reflective of those actions. I'd like to turn your attention briefly to the recently finalized tax bill. While this legislation is complex and we are still evaluating its full impact on our business, we currently estimate that it will result in a cash tax benefit in 2025. And as such, we expect a normalized full year cash tax rate of approximately 22%. As Vic noted, we are pleased with our first half financial performance and the margin expansion that we have achieved in both segments.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

As we look to the back half of the year, we remain committed to driving profitability, expanding margins, continuing to deploy cash to generate growth and creating value for our shareholders. And now I'll turn it back to Vic for further comments before we take your questions.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Thanks, Chris. Previously, we have communicated how critically important innovation is to our competitive advantage and our overall strength of our market position and its importance for AUV growth. I'd like to take a few minutes now to update you on the progress of Temploc, our latest innovation for energy saving ceilings.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

As many of you know, we fully launched the Temploc product line in early twenty twenty four and have been working to increase the awareness and the understanding of the energy saving value proposition Temploc offers building owners and operators. This is the industry's first ceiling tile that can help regulate temperatures within buildings and reduce the costs and energy usage required for heating and cooling. With a proprietary phase change material formulation, Temploc products can help reduce energy used to heat and cool buildings by up to 15%. As such, these products address the increasing demand for both energy efficiency and decarbonization while also reducing energy usage at peak times, thereby lessening the strain on the grid systems in The US. And this becomes increasingly important as data center growth accelerates.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

We also mentioned in our last call that phase change material gained explicit inclusion as a qualifying thermal energy storage technology for tax credits under the Inflation Reduction Act. We are happy to report that those credits remain in the final tax law that Congress passed earlier in July. Customers of Temploc may be eligible for tax credits of 40% to 50% through 02/1933, dramatically improving the return on their investment. This means that Temploc, with its unique application of phase change material, can provide an accelerated return for building owners and operators through lower material and labor costs. We see this as an enabler to accelerate the rate of renovation of this large installed base in North America.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

I'm also pleased to share that now Temploc products are part of the energy modeling software platform offered by Integrated Environmental Solutions, or IES. IES is the global leader in energy modeling for the built environment. IES software is used by tens of thousands of architects, designers, and engineers to analyze and optimize building performance on metrics like carbon emissions and energy consumption. The inclusion of Temploc into the IES software now opens up the ceiling plane as a new source of energy savings to building energy modelers, and we expect this will further accelerate the awareness and adoption of Temploc. So with more certainty around the potential tax credit in place and now the ability for customers to model their energy savings from Temploc with the IES software and together with growing customer awareness of Temploc, we have even greater excitement about the opportunity to accelerate the rate of renovation.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Now before we get to your questions, a few comments about the market. Overall, in the first half, we have experienced about what we had expected, an overall kind of flattish, sideways moving market, albeit with some chop against the backdrop of uncertainty. Our outlook remains for a slightly softer back half compared to what we saw in the first half due to forecasted lower levels of overall economic activity, again largely driven by uncertainty, uncertainty on tariffs, inflation, labor and interest rates. This persistent level of uncertainty is expected to slow commercial construction activity with the greatest impact likely on more discretionary type renovation projects. This outlook is largely in line with leading economic forecasts as well as more commercial specific leading indicators.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

In our updated guidance, you can see that despite softer market conditions, we will continue to outperform the market through consistent AUV growth, productivity gains and margin expansion. Our 2025 guidance reflects the benefits of the diversity of our end markets, contributions from our growth initiatives and momentum in the Architectural Specialties segment, along with our proven ability to prudently control costs. We have demonstrated this above market performance for the past several years. This gives us confidence in our ability to continue our efficient execution in these uncertain market conditions and to deliver our third year in a row of double digit bottom line growth with margin expansion. With consistent, strong adjusted free cash flow growth and the ability to execute on all of our capital allocation priorities, we remain focused on advancing our growth strategy and creating value for our shareholders throughout all parts of the cycle.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And with that, we'll be happy to take your questions.

[Operator]

And our first question comes from the line of Susan Maklari with Goldman Sachs. Please go ahead.

[Susan Maklari, Senior Equity Research Analyst at Goldman Sachs]

Good morning, everyone, and thanks for taking the questions.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Good morning.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Good morning, Susan.

[Susan Maklari, Senior Equity Research Analyst at Goldman Sachs]

Good morning. My first question is focusing on the Architectural Specialties segment. The organic growth that you saw this quarter was impressive, especially given the operating backdrop. Can you give us a bit more color on how these initiatives are coming together to drive that level of growth that you saw? And then any thoughts on how we should be thinking of the back half performance as the comps there start to get a bit tougher on a relative basis?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yes. I'll take that first part, Susan, and then, Chris, I'll let I'll turn over the back half cost. The arch architectural specialty growth, the organic growth, as you mentioned, Susan, was impressive. It was, a continuation, I think, of the momentum on how we're executing and penetrating the market. We we certainly know the market's not growing at this level.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

So it it really is demonstrating the the success of our commercial teams in penetrating and getting access to more spaces in these buildings. The the one highlight, to your point about our growth initiatives, the ProjectWorks software platform is proving to be an extremely important profit productivity tool for architects to do more complex designs and take some of the complexity out of the design when it gets to the contractors. And that is enabling, I think, more and more architectural specialties to be specified in spaces and even more complex, solutions to be specified in these these statement spaces. So it really is the breadth of the portfolio and the commercial execution to take that to market into more architects' offices, coupled with our digital, tools to make it easier to specify Armstrong solutions and really hire, more complex solutions from Armstrong that makes them more unique in the marketplace. I think that's gaining traction, and that's really helping us drive the organic part of the growth in AS.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

I just you know, since you brought up AS, is that the what's also very impressive is the two new acquisitions. Right? Threeform and Zayner. The integration with those two organizations is going extremely well. And, when you look at they did exceed our expectations, at least, in the second quarter with their performance.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And it's really a tribute to the management teams there. They're really professional, highly skilled management teams, and they have the right attitude to integrate with Armstrong. And I think that's allowed the integration to go, you know, much better than than we could have imagined, from the beginning. So very pleased with both the inorganic and the organic growth in Architectural Specialties.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

And maybe, Susan, to comment on the top line growth in the back half of the year, you're right, lapping a stronger second half top line performance on the organic side in 2024.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

So when you account for that, still a healthy level of organic top line growth, with, with margin expansion, expected in the in the back half of of the year organically. And just to just to highlight again, you know, net sales for the total AS segment expecting greater than 25% top line growth this year, with about a 19% adjusted EBITDA margin. So to Vic's point, really, really pleased with both the organic and inorganic contributions, on the AS side of the of the business.

[Susan Maklari, Senior Equity Research Analyst at Goldman Sachs]

Yes. Okay. That's helpful color. And then maybe building on that, can you talk a bit about what you're seeing in terms of the bidding activity, either regionally or in terms of various end markets and segments in there? And how that compares to your comment that you expect to outperform the market in the second half even with all the macro uncertainty that continues?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. The overall market, that we saw in the first half and the bidding activity will will connect to this is it's really been an overall, I would say, stable market condition, flattish and sideways moving as we talked about. There's really been no uptick in project delays or project cancellations in the first half. And, but when you look at the first time bidding activity, that Dodge that, Dodge reports on, it remained soft again in the second quarter. It wasn't as soft as we saw in the first quarter, but it certainly reflects the, a level of uncertainty that's in the market in terms of the first time bidding activity.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And it's very logical when you think about first time bidding activity is for projects that that haven't started. You know, they haven't broke ground. They haven't started the rental work. So it really is at the very beginning. And if there's some uncertainty there, folks that could wait are probably choosing to wait, and that's showing up in that the first time bidding activity numbers.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

I'll comment, though, on the ground level bidding activity, which is, I think, more aligned with what we're experiencing in terms of a stable, flattish, sideways moving market condition, the bidding activity remains steady and active on the ground with our contractors and our distribution partners. That level has not seen a change either up or down and remains, fairly steady. So we're paying attention to both of these, again, because we think these are both kind of the triangulation of what is the actual environment that we're we're going to experience in the back half.

[Susan Maklari, Senior Equity Research Analyst at Goldman Sachs]

Okay. That's great color. Thank you both, and good luck with everything.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Thank you.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Thanks, Susan.

[Operator]

Our next question comes from the line of Garik Shmois with Loop Capital. Please go ahead.

[Zack Pacheco, Equity Research Associate at Loop Capital]

Hey. Good morning. This is actually Zach Pacheco on for Garik this morning. Thanks for taking my question.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Good

[Zack Pacheco, Equity Research Associate at Loop Capital]

morning, Good morning. Maybe to follow-up on the Architectural Specialties guidance. Any more detail specifically on the cost side? Kind of how long do you think you can keep, manufacturing costs down in the segment despite the volume growth? Maybe just any more details you can offer.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. Zach, the you you gotta look at the the drivers to the improved operating margins is really, the volume is contributing to operating leverage. Right? So as long as we continue to grow and and drive the efficiencies in our manufacturing operations, I think we can continue to maintain these these, higher levels of of margins and and the operating leverage we're getting from there. Our teams are really executing, though, on both sides of the equation in terms of, you know, being good purchasers of raw materials and being very efficient in manufacturing, but also when it gets to the marketplace and making sure that we're specking higher value products and, more unique products.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And that really shows up also in the profitability mix. So I think it broadly, the way we're executing across, you know, the buy, make, sell component of that business, I think as long as we keep executing that way, we can maintain these higher margins. That gives us the confidence that we can continue to get to our stated goal of greater than 20% margins in this segment.

[Zack Pacheco, Equity Research Associate at Loop Capital]

Understood. And then breaking down the Wave contributions, if you could speak to maybe just how much of it was getting out of tariffs versus just the, stronger market? Thanks.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. I wouldn't point to a stronger market here in the second quarter. As I outlined, I think it's pretty much a kind of flattish sideways moving market as we expected. We did have some additional, volume in the quarter. Again, I think our growth initiatives are making a difference relative to what we're seeing in the actual market and driving above market, growth rates.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

The other, piece of this is as we get quarter to quarter some noise in the retail channel, we got a little bit more volume rebalancing in the retail channel. If you remember in our first quarter, we talked about, some weather impacted softness in the retail channel. Some of that got rebalanced in the second quarter, and that contributed both for the wave business as well as, as well as the, the tile business. But I I I think the main point around what Wave is continuing to do is they're managing their, price over inflation or or price over cost really well, And that's showing up, I think, in the numbers in addition to some of the volume contribution.

[Zack Pacheco, Equity Research Associate at Loop Capital]

Understood. Best of luck.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Thank you.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Thank you.

[Operator]

Our next question comes from the line of Tomohiko Sana with JPMorgan. Please go ahead.

[Tomohiko Sano, Managing Director at JP Morgan]

Hello, can you hear me?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yes. Good morning.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Good morning.

[Tomohiko Sano, Managing Director at JP Morgan]

Yes. Good morning. Thank you for taking my questions. So I'd like to follow-up on, especially Mineral Fiber side on AAV.

[Tomohiko Sano, Managing Director at JP Morgan]

And, Vik, you talked about the temp clock, how is it actually attractive and getting attractions from customers. So could you talk about, how you see the temp plug in terms of more financial numbers that actually contributing to both sales and AUV side and any opportunities for, like, having more, like, a sales accelerations on Mineral Fiber business, please?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yes. Happy to talk about that. The the Temploc building blocks, if you will, the market development building blocks that we're building out to support a brand new attribute like energy savings in ceiling tiles, it's the first of its kind, first in the industry, and so there's a large market development body of work that has to happen for the industry to embrace this. We're very encouraged by the interest level and the customer enthusiasm around this. And as I noted in my prepared remarks, around the building blocks around getting it into the IES software so people designing right up front can see Armstrong Ceiling Solutions as an as a option to drive energy savings.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And, of course, since now it's part of the tax bill, there's an accelerator here for returns for our our customers. So we're encouraged, and I'm excited about the building blocks that are coming in and and and going into place. The sales impact, since we're in the early early days of this market development effort, is really minimal. And so we'll keep you posted on how we continue to gain traction there and drive sales growth. But I think it's still an opportunity in front of us versus driving the, you know, the second quarter results.

[Tomohiko Sano, Managing Director at JP Morgan]

Thank you, Big. And follow-up on, Canopy, your ecommerce platform has been gaining traction with a small commercial contractors. How do you see its role involving within the Mineral Fiber business? And are there plans to expand the offering to more, specialty or AS product side as well, please?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. It's a good question. We we continue to be, encouraged by Canopy's ability to reach a customer that's not being served today through our existing, channels, to market. They're they tend to be smaller customers. They order smaller quantities.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And so they kind of fall through the cracks, of some of our larger our larger channels, larger customers. So we're really encouraged with this cost effective digital initiative to reach those customers. And we're gonna continue to expand the product offering on that so we can, again, offer what those unique customers are looking for to update their their spaces. One of the things that, Tom, I would highlight in the quarter, I'm very pleased with, the Canopy platform is its increasing profitability and its contribution to EBITDA growth for the for the Mineral Fiber segment business. So, we're we're, again, I think we have a a very cost effective digital channel to reach a customer base that we're not serving today, and we're gonna continue to expand the portfolio on there so we can continue to grow that platform and do it profitably, which we're demonstrating here even in the second quarter.

[Tomohiko Sano, Managing Director at JP Morgan]

Alright. Very clear. Thank you very much and congrats again.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Thank you very much.

[Operator]

Your next question comes from the line of Brian Burrows with Thompson Research Group. Please go ahead.

[Brian Biros, Equity Analyst at Thompson Research Group]

Hey, good morning. Thank you for taking my questions today. Outlook and the raise guidance, I on outlook and the raised guidance, it seems like most of the raise is from q two's performance and, I guess, just general Armstrong specific initiative rather than any kind of big change in market conditions in the back half. Is that the right way to think about it, or is there maybe a little bit more nuance to that?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Nope. I think, I think you got it you got it characterized right there for there, Brian.

[Brian Biros, Equity Analyst at Thompson Research Group]

Okay. I just wanted to make sure that was clear. And then I guess the the Mineral Fiber margins were particularly strong this quarter. You talked about in prepared remarks. Can you help unpack that margin number maybe a bit more?

[Brian Biros, Equity Analyst at Thompson Research Group]

I think you provided some of the drivers, but maybe provide some magnitude of which drivers were maybe more or less beneficial. And I guess, that kind of sustainability going forward? Thank you.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Sure. Yeah. To unpack the, the second quarter a bit in in Mineral Fiber as as, I shared and Vic shared in our prepared remarks, you know, a little bit more, you know, contribution from from Mineral Fiber volume. I'd say, overall, you know, really driven by the strong execution, across across the business. You know, disciplined focus on on cost control, impacted, our s U SG and A, drove some favorability there.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Our initiatives, you know, as as we commented in terms of, you know, the overall contribution to to the top line, in in terms of the Wave joint venture and the contributions from equity earnings there that we saw in the quarter really drove strong equity earnings contribution from the from the JV. And, that's coupled with, you know, the the execution, the top line growth. And then, you know, as we we commented, you know, continued benefits from from price cost benefits price and discipline there. So overall, I mean, I'd say those were the drivers really in Mineral Fiber in the second quarter. When you look to the back half of the year, again, looking for a step down in volumes for the year, we're outlooking, the same kind of volume outlook we had back in April, which is volumes flat to down low single digits, but still expect that AUV to be growing at a greater than 6% rate for the year.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

So hopefully that gives you a little more color around the back half in Mineral Fiber.

[Brian Biros, Equity Analyst at Thompson Research Group]

Got it. Thank you.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

You.

[Operator]

Your next question comes from the line of Keith Hughes with Truist. Please go ahead.

[Keith Hughes, Managing Director at Truist Securities]

Thank you. There was a transaction with one of your large customers that was announced several weeks ago. I guess if you could just talk to the audience here about your relationship with the customers, exclusivity, things like that. And does this really change how you go to market at all to the contract community?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. Keith, the the your question is around the consolidation in the distribution our distribution network. Right? And Correct. And it's it's continuing.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Right? This has been a consolidation this consolidation has been going on for a decade now. And so, this is again, Home Depot, acquiring or potentially acquiring, one of our large distributors is a continuation of that, of that consolidation. I've had the opportunity, personally, to talk to both Home Depot and, SRS, leadership teams. I like what I hear so far.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

I think, they're really focused on a lot of things that we wanna get focused on in terms of growing the business. I'm I'm particularly pleased with the continuity of management that they have committed to. So, you know you know, John Turner is staying, and several of his, leadership team is staying in place. And we're excited about that because the GMS team knows the ceilings category very well, and they know, you know, how we're successful in the ceilings category. So we're really pleased with those relationships are really staying in place, and that continuity, I think, is really gonna be good.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

So we've been a net, I'd say, beneficiary of consolidation over the last last ten years, looking back, and we're gonna continue to look for that opportunity in this this next wave of of consolidation.

[Keith Hughes, Managing Director at Truist Securities]

And one other question on you talked a little bit in this call about Temploc. Is given what you're seeing in the interest level on the product, in '26, would you have enough orders that would be meaningful in revenue? Or do we have to think longer term about when that could be a real needle mover for results?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Well, no, I think we're going to grow our sales this year. We'll grow them again next year. I think we this is a very long term opportunity, though, because when you think about the large installed base here of nearly 40,000,000,000 square feet, and all of it can get renovated to an energy savings, a cost saving ceiling tile. So we're excited about renovating the entire, installed base over time. So this is a very long tailed opportunity for us.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

But we we expect traction in the volumes, and they're gonna get more and more meaningful year after year. So we're gonna build on '25 success. And now these building blocks are in place, we should see some acceleration into '26 and '27. So I won't outlook too much about how big they'll be in '26 and '27, but we're, we plan to get some meaningful traction again in '26 and '27 just like we are that we have in '24 and '25.

[Keith Hughes, Managing Director at Truist Securities]

Okay. And one other question on that is, is TempLock accretive to AUV as you sell those units?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Absolutely. Absolutely. Very nicely sell.

[Keith Hughes, Managing Director at Truist Securities]

Okay. Thank you very much.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yes. Thank you.

[Operator]

Your next question comes from the line of Rafe Jadracha with Bank of America. Please go ahead.

[Rafe Jadrosich, MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America]

Hi. Good morning. Thanks for taking my question.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

All right.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Hey, Rafe.

[Rafe Jadrosich, MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America]

If we look at the EBITDA guidance for Mineral Fiber for the year, the 43%, that brings you back to twenty nineteen levels or almost there on much lower volumes. I think that's basically about the highest you've had historically. Can you talk about from this current level what the sort of opportunity is now that you've gotten back to 43% and sort of what the algorithm would be for for for further growth?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. Right. That's a good question. Let me, because we get this question a lot. As you can imagine, when are you gonna get back to 2019 levels?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Right? And so we we've been talking about this with with all of you for a while. The answer is really that a lot of the same because the building blocks and the drivers of margin expansion in that business are the same. You have to get good AUV growth, and that means really strong innovation pipeline into the marketplace to feed what is a natural dynamic to mix up and to make sure that you're covering inflation with with your pricing initiatives. So AUV has been a big driver of how we get back there even on lower volume.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Driving productivity every year is becoming a hallmark of the company. Even when volumes have been softer, we're able and our plant teams do, a terrific job at identifying where opportunities are to drive productivity gains, greater than 3% a year for many years now. So that's gonna continue. We have a commitment to that, and we invest in that two or three years, in advance. So doing all of that and managing and feathering in the right level of SG and A to support your growth, it's really those are the building blocks.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

That's how we've kinda gotten back to here from the 2019 levels, to your point, the historical level, and it should propel us higher from here as we go forward executing on those three building blocks.

[Rafe Jadrosich, MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America]

Alright. And then just following up on the the price piece of it, your largest competitor on the on the Mineral Fiber side, USG, I think, announced price that was modestly higher than what you did in in August. And I think historically, if you go back and look, you're the one that tends to lead on price. Is this sort of a surprise to you? And does this create more opportunity for you to raise price going into next year?

[Rafe Jadrosich, MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America]

Or does that just increase the either the realization or likelihood that that second half twenty five price sticks?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Really, right, Prithout, there's not much to comment on that in particular. We run our business, and we look at our costs and, our expectations of inflation. Yes. So and we talk to our customers, and so we run our play. And and, you know, if if our competitors are gonna do something different, then that's really their play to run.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

We're just staying focused on the play that we're running with our our distribution partners and our customers. And, we've been doing that. We're gonna continue to do that, and that works well for us.

[Rafe Jadrosich, MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America]

Thank you.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Thank you.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Thanks.

[Operator]

Your next question comes from the line of John Lovallo with UBS. Please go ahead.

[John Lovallo, Analyst at UBS Group]

Good morning, guys. Thanks for taking my questions as well.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Hey, John.

[John Lovallo, Analyst at UBS Group]

Hey, Hey, how are you guys? The first question is on Mineral Fiber.

[John Lovallo, Analyst at UBS Group]

There were some modest input cost inflation in the second quarter. Can you maybe just expand upon what drove that and what your expectations are into the second half?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Chris, got that?

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Yes, sure. So maybe to answer the second part first. In terms of overall input cost inflation for the year, expecting low single digit inflation. And if you recall, about 35% of our inputs are raw materials related.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

We expect raws to kind of be down in that low single digit range for inflation. And then energy is about 10%. We expect about mid teens inflation there in terms of energy. And then freight, it's about 10%, and that's effectively flat. So when I think about the second quarter, in terms of overall input costs, was, call it nat gas pressure on the energy side and then raw material inflation there in that low single digit range there in Q2.

[John Lovallo, Analyst at UBS Group]

Got you. Okay. That's helpful. And then you guys repurchased about $30,000,000 of stock in the second quarter. Is there an opportunity to step this up in the second half as you guys generate a little bit more cash?

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Yes. I'd say our capital allocation priorities remain unchanged. As you know, we've got a very high ROIC business.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And our first priority is to invest back into the into the business where we see those high returns.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Our our second priority is to to deploy capital, where we see opportunities to to grow, inorganically.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

And our third priority is to kind of flex with share repurchases as part of returning cash to shareholders, and that'll continue to be our flex option here as we progress through the rest of the year given our cash flow generation and opportunities within the other two categories there.

[John Lovallo, Analyst at UBS Group]

Great. Thank you.

[Brian Biros, Equity Analyst at Thompson Research Group]

Sean.

[Operator]

Our next question comes from the line of Kim with Evercore ISI. Please go ahead.

[Stephen Kim, Senior MD at Evercore ISI]

Yes. Thanks very much, guys. I just want to clean up a couple of things. You talked about the homesteaders, the weather related inventory destocking early in the year. You recovered that in 2Q.

[Stephen Kim, Senior MD at Evercore ISI]

I just want to make sure you fully recovered that? Or do you still have some left in 3Q? And is returning to a more normal home center mix of sales going to be a factor behind, anticipated AUV, stronger AUV growth for Mineral Fiber in the back half?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. To answer, Steven, your the the last part your question is we don't think it's a a factor in the back half. You know, as you know, you've been close to this for a long time. You know that their inventories can move around a little bit. So I it feels like, you know, we didn't get all of it back from the first quarter into the second quarter.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

I'm not sure if that was really expected, but it felt like there was some rebalancing. And it's the inventory level seemed to be at a more balanced level, at least in for the economic environment we're in now. So we haven't factored anymore, if you will, rebalancing or correcting in the back half that would have a a negative impact on AUV, if I understand your question.

[Stephen Kim, Senior MD at Evercore ISI]

Yeah. Okay. That's helpful.

[Stephen Kim, Senior MD at Evercore ISI]

Alright. And then let's just jump in here to TEMPLOC. My sense is your competition is kind of pretty far behind you on this phase change ceiling tile thing. I was curious if you could talk about the competition and what they're offering in terms of, this kind of phase change solution.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Well, you know, for competition, I I think this is a brand new attribute for the ceiling tile itself. I think I understand your question. Our direct competition, other ceiling tile manufacturers, really, what we're, you know, we're selling with and and maybe in some cases and against is other solutions for capturing energy savings. Right? So that's really, I I think, more of what we see as the competitive landscape versus our competitors, who we haven't seen a response for on this.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

But I think we're really thinking about customers' options for energy saving solutions. And that's why being in this IES platform is so important for us because we're the only ceiling tile manufacturer in that platform now, but they have access to all kinds of other building, energy saving solutions in that that platform. So it's really a good way for us to kinda rack stack this savings opportunity versus what they can get in other building or energy saving solutions. So that's a little bit of a a kind of a long winded answer, but we kind of view our competition more around other energy saving solutions versus direct tile manufacturers.

[Stephen Kim, Senior MD at Evercore ISI]

Yeah. No. That's helpful. Yeah. Really interesting.

[Stephen Kim, Senior MD at Evercore ISI]

Next question I had related to your quarterly cadence. I guess, picking on arms on AS first, I think that you're generally sorry, you had, I think, answered earlier when Susan had a question about that. I think you had said that you felt better about your ability to comp positively in the back half over tougher comps. And I just wanted to make sure that I was hearing that. Did you think you can comp positively in both 3Q and 4Q?

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Yes. We don't as you know, we don't guide to quarters. But expectation is, yes, the back half would be positive and there'd be positive top line contribution organically in both quarters.

[Stephen Kim, Senior MD at Evercore ISI]

Excellent. Okay. That's really encouraging. Okay, great. Thanks very much guys.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Sure bet. Thank you.

[Operator]

And our final question comes from the line of Phil Ng with Jefferies. Please go ahead.

[Philip Ng, Managing Director at Jefferies Financial Group]

Hey guys. Congrats on another strong quarter. So, Vic, if I heard you correctly, on the ground bidding activity sounds pretty stable for Mineral Fiber. So just kind of remind us how far out do you bid for jobs, for MF, from an on the ground basis? And then any color on what you're seeing on some of major end markets?

[Philip Ng, Managing Director at Jefferies Financial Group]

I'm particularly, interested in seeing what you're seeing on the education side. There's obviously been some noise around that front. And any more color on how office and retail is performing?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. Yeah. Happy to do that, Phil. Yeah. On the again, on the ground level bidding activity kinda remains steady and, I think, supportive of a flattish market that we've we've described.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

We don't have a lot of visibility on the discretionary part of the Mineral Fiber business. So, you know, like in AS, we can bid projects, you know, a year in advance or even farther in advance and and, of course, a lot shorter than that. It depends on the size and the complexity of the project. But, you know, I think what's the the the more sensitive or elastic to uncertainty is that discretionary part of the market that kinda just shows up through distribution for the most part. So that that's what we think is potentially that can it's it can be turned on and turned off very quickly because of its discretionary nature.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

And that's what we're outlooking where we see the potential softness in the back half. So let me just, you know, for a bidding activity, let's leave it at that for a second. And and the verticals that, you're asking about, you know, the data centers, transportation, health care continue to be quite active. Some of them obvious for obvious reasons. And, education is hanging in there.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

I I think we're off to a decent start for the season and education from what we can see, in the month of June, which is where we typically get, some visibility to the year we're gonna have there. So it's not fallen off like I think a lot of folks maybe thought it could fall off with the extra funds, expiring at the end of the year, of the prior year. The office sector, I would just describe it this way. It just continues to kind of stabilize and create a bottom here with, signs of stability overall in the leasing activity. You know, leasing volume was pretty flattish and steady in the first in the second quarter.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Office occupancy also was pretty steady in the second quarter. There is some green shoots of life, if you will, in in the office sector. What we're hearing in the marketplace with, more talk around tenant improvement bidding activity, from the field, that's a that's potentially a positive that, again, reflects maybe a bottoming here. And then this whole flight to quality in the office segment is something that's really continuing. We've talked about it right from class b to class a, from class a to class a plus type quality buildings.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

That eventually, as the occupancy rate is really high at the high end of the the quality, office market, it's eventually gonna pull the building, the, Class B buildings into the renovation cycle. So we're encouraged by that green shoe. We'll see, how that manifests itself over the next quarter or two. I think the one other thing I would call out is in New York City. Obviously, a big market, big office market.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

It's a big market for, for the building products industry. Leasing in the leasing activity in the first half was the strongest first half in a decade. And I think that bodes well for, again, a bonnivine and potentially some green shoots for the office market going forward. So that's, that's a little bit of an overview, a walk around the verticals and what we're seeing in the market.

[Philip Ng, Managing Director at Jefferies Financial Group]

That's super helpful, Vic. And then on the m and a side, you guys have been pretty busy, and you've done some larger deals on the three forms, Xanar side of things. Curious what you're seeing on that front. Are sellers in the market? Sometimes when you have uncertainty like that, people kind of retrench.

[Philip Ng, Managing Director at Jefferies Financial Group]

But love to hear what you're seeing out there and just the size of these deals, any chunkier stuff, in the pipeline?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yep. You know, we we continue to work this hard. Right? So we, we've been successful. We have a good successful track record in bolting these on and really scaling them, creating value with our shareholders.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

So we wanna do more of these. We got a team that gets up every day, and this is all they do. As you know, they'll fill a lot of these companies that we're acquiring are not for sale. So we're we're working that process with them, that relationship building. So when they're ready to sell, that this is the place they come.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

So we're gonna continue to work the pipeline. It's active, and I like what I see in our pipeline. We we should see some more activity, in the near term, in in this in our pipeline. So more to come there, but, yeah, we're open for business there and driving it.

[Philip Ng, Managing Director at Jefferies Financial Group]

Great. I'm gonna stake one in. Chris, on the margins, AS was awesome. You're seeing a good margin expansion there. Obviously, it's been a big SG and A investment cycle.

[Philip Ng, Managing Director at Jefferies Financial Group]

M and A aside, if nothing really big and chunky happens, could we see that SG and A continue to taper? Like, what's a good way to think about SG and A spend, on a more normalized basis, as we kinda look forward?

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. Specific to to AS, I I think you're right. We, you know, with some of the acquisitions that we've done, we see opportunities to continue to to leverage, drive operational efficiency, and and get that operating leverage, in some of the businesses that we've that we've acquired most of that that SG and A line has been an area, for us. So I'd say, initially, like we saw with the the three form and Zayner acquisitions, a bit of a step up. But I think over time, you know, as we continue to get that that operating leverage, drive that efficiency, that'll come down.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

But at at the end of the day, I mean, we're pleased with the level of penetration that we're getting in the AS segment overall and really kind of investing back into that business to drive that, to get that SG and A leverage. It's something that we'll we'll continue continue to do. We've been very successful at at doing it and are pleased with the algorithm that we have in place there.

[Philip Ng, Managing Director at Jefferies Financial Group]

Okay. Appreciate all the color guys. Continue the great work.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Yeah. Thank you.

[Chris Calzaretta, SVP & CFO at Armstrong World Industries]

Thanks, Phil.

[Operator]

And with no further questions in queue, I will turn the call back over to Vic Grisel for closing remarks.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

Thank you all for joining our call today. Really proud of the first half performance by our team. The execution is really solid. And as a result of that, we're well positioned going into a back half that might see a little softer, environment. But our confidence is, is very high.

[Victor Grizzle, President, CEO & Director at Armstrong World Industries]

My confidence personally in our team to execute with agility in these kind of market conditions is going to lead to another record year for the company. So thank you again for for joining, and safe and have a safe and fun summer.

[Operator]

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Participants

Executives

• Theresa Womble, VP - IR & Corporate Communications
• Victor Grizzle, President, CEO & Director
• Chris Calzaretta, SVP & CFO

Analysts

• Susan Maklari, Senior Equity Research Analyst at Goldman Sachs
• Zack Pacheco, Equity Research Associate at Loop Capital
• Tomohiko Sano, Managing Director at JP Morgan
• Brian Biros, Equity Analyst at Thompson Research Group
• Keith Hughes, Managing Director at Truist Securities
• Rafe Jadrosich, MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America
• John Lovallo, Analyst at UBS Group
• Stephen Kim, Senior MD at Evercore ISI
• Philip Ng, Managing Director at Jefferies Financial Group