Armstrong World Industries, Inc. Price & Performance (AWI)

February 25, 2025, 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 ks filed earlier this morning. We undertake no obligation to update any forward looking statements beyond what is required by applicable securities law, Now, I will turn the call over to Vic.

Thank you, Theresa. Good morning, and thank you all for joining our call. Today, we announced record setting fourth quarter and full year 2024 results as our teams continue to execute our strategic priorities and deliver consistent growth. At the total company level for the full year, our net sales increased nearly 12% from 2023 results and our adjusted EBITDA grew 13% with our adjusted EBITDA margin expanding 50 basis points. Our adjusted free cash flow also rose 13% and our adjusted diluted earnings per share were up 19% This marks the fourth consecutive year we have generated net sales and earnings growth, In the face of challenging market conditions, this would not have been possible without the dedication and relentless focus on execution by our teams. I'm extremely proud of our team's commitment to consistent execution excellence in innovation and serving our customers well. All of which enabled these record setting results. So I want to say thank you to all of our 3,600 Armstrong colleagues and to our distribution and channel partners who we work closely with to deliver for our customers. Both Mineral Fiber and Architectural Specialty segments positively contribute to these record setting results. Mineral Fiber ended the year with approximately 6% net sales growth, 11% adjusted EBITDA growth, and adjusted EBITDA margin expansion of more than 200 basis points.

And with the addition of two acquisitions, 3Form and Zaynor, Architectural Specialties generated year over year net sales growth of 27%. And adjusted EBITDA growth of 24%. Importantly, on an organic basis, the Architectural Specialties segment also expanded adjusted EBITDA margin by 40 basis points to approximately 19%. This furthers our progress toward our goal of a 20% margin in this segment. Now turning to our fourth quarter results, In Mineral Fiber, we achieved 9% average unit value or AUV growth which was the strongest quarterly growth rate of the year. And was driven by both mix and like for like pricing. For the full year, AUV grew 7% nicely above our historical average. Similar to our results last quarter, contribute positively to the Mineral Fiber AUV and volume results. And largely offset softer market conditions. Strong AUB growth along with solid productivity gains and impressive performance from our Wave to Own venture, drove 10% Mineral Fiber EBITDA growth and 70 basis points of EBITDA margin expansion to 37.5% This was the best fourth quarter EBITDA margin in the Mineral Fiber segment since 2019. In fact, we've generated year over year EBITDA margin expansion in this segment in each of the last eight quarters.

Delivering this consistent performance requires strong execution across the business. Including our sales teams, our manufacturing and innovation teams. These results demonstrate the resilience of our growth model in all parts the economic cycle. Now turning to our fourth quarter results in Architectural Specialties. Sales for this segment increased 41% with more than half of that growth driven by our recent acquisitions of Book 3Form and Zayner. The organic architectural specialty sales also continued to accelerate this quarter up 15% year over year with solid demand across our portfolio. Order intake also increased on a broad based strength from our across our product portfolio. As we've noticed throughout 2024, we continue to see benefits from large Acquisitions have been and continue to play an important role in expanding our portfolio of diverse materials and unique capabilities enabling us to sell more into more spaces. Since 2016, we've completed 12 acquisition in the specialty space, creating the broadest portfolio of products and design capabilities with a world class manufacturing network This has become a clear competitive advantage as we have grown. And has opened new opportunities for growth. This is particularly evident in the metal category. Over the past decade, Armstrong has successfully developed and acquired world class metal design and manufacturing capabilities for interior ceilings and specialty walls.

As a result of this work, we have established an industry leading position in interior architectural metal solutions in North America. Now we are taking this industry leadership position to the exterior exterior of a building. Our most recent acquisition Zaynor accelerates our ability to grow our position in exterior architectural metal applications with the company that is globally known as the leading expert [indiscernible] and fabrication of complex, highly crafted exterior architectural metal projects. Simply said, for the most iconic exterior architectural metal projects architects and designers go to Zeyner. The addition of Zayner allows us to accelerate our penetration to this adjacent highly specifiable market category. Building on the capabilities of Polk Modern, that we acquired in twenty twenty three, We believe that metal exterior applications are a natural extension of our interior architectural metal platform within the Architectural Specialty segment with high growth potential, With the addition of this adjacency, we estimate we've added another $1,000,000,000 to the addressable market for our Architectural Specialties segment. Bringing its total addressable market to more than $2,500,000,000 We're excited to apply our growth model to this adjacent market and to continue our above market growth rate for years to come.

So let me pause there for a second and hand it over to Chris for more details on our financial results. 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 discuss our fourth quarter Mineral Fiber segment results. Mineral Fiber sales grew 8% in the quarter, driven by strong AUV growth of 9%, partially offset by modestly lower sales volumes. The increase in AUV was roughly balanced between both favorable mix and positive like for like pricing. On volume, one extra shipping day in the quarter partially offset market conditions that can Mineral Fiber segment adjusted EBITDA grew by 10% in the quarter with adjusted EBITDA margin expanding 70 basis points to approximately 38% despite lower volumes. Adjusted EBITDA margin expansion was primarily driven by the fall through of AUV and higher equity earnings from our Wave joint venture. WAVE equity earnings were driven by favorable AUV higher volumes and lower steel costs. These benefits more than offset an increase in Mineral Fiber SG and A which was driven primarily by higher employee costs and a decrease in company owned officer life insurance gains related to deferred compensation plans as compared to the prior year period.

As Vic mentioned, Mineral Fiber's adjusted EBITDA margin 37.5% in the quarter was the best Q4 margin performance for this segment since 2019. This level of financial performance highlights our Mineral Fiber value creation drivers. Including consistent AUV growth annual productivity gains and earnings from our WAVE joint venture With this solid fourth quarter performance, full year Mineral Fiber adjusted EBITDA margin finished above 41% and was consistent with our previously outlook expectations. On Slide seven, we discuss our Architectural Specialties or AS segment results. Healthy sales growth of 41% in the quarter was driven primarily by contributions from our recent acquisitions of BOK, 3Form and Zaynor. Importantly, year over year organic AS sales growth continued to accelerate sequentially. As we noted on our last two calls, we expected to see the continuation of top line organic growth in the AS business along with continued organic margin expansion in the second half of twenty twenty four. And I'm pleased to report that we delivered AS organic sales growth of 15% with AS organic adjusted EBITDA margin expansion of 70 basis points. AS segment adjusted EBITDA grew 33% in the quarter and the year over year growth rate accelerated throughout 2024.

Higher sales more than offset increased SG and A from our recent acquisitions. Order intake also strengthened over the second half of the year. We also remain encouraged by the positive activity we're seeing in the transfer [indiscernible] And are optimistic that our project pipeline will continue to build as we progress throughout the year. For the full year 2024, adjusted AS segment was approximately 18% and consistent with our previously outlook expectations, which did not include the December acquisition of Zaynor, We are pleased that the 40 basis points to approximately 19% and was able to dampen the dilutive impact of our recent acquisitions on the AS segment's adjusted EBITDA margin for the year. We expect continued progress on increased profitability and margin improvement of these recently acquired businesses. Slide eight highlights our fourth quarter consolidated company metric in which we delivered strong double digit growth for both sales and adjusted EBITDA. Adjusted diluted net earnings per share grew 23% and total company adjusted EBITDA margin compressed 100 basis points reflecting our recent acquisitions. Excluding the recent acquisitions, total company adjusted EBITDA margin [indiscernible] 40 basis points Adjusted EBITDA growth in the quarter was driven by the fall through impact of strong AUV performance increased AS sales and positive WAVE equity earnings.

These impacts were partially offset by increased SG and A primarily attributable to our recent acquisitions. These key drivers remain consistent with the full year period as we turn to Page nine, as full year sales were up 12% and full year adjusted EBITDA was up 13%, resulting in 50 basis points of margin expansion. Adjusted diluted net earnings per share were up 19% driven by higher pretax earnings, a lower effective tax rate and lower shares outstanding. The lower tax rate in the fourth quarter and full year 2024 was driven primarily by discrete items. A capital loss valuation allowance release related to the sale of real estate and a tax reserve benefit related to a tax year statute closure. Adjusted free cash flow grew 13% and was at a healthy 21% of net sales and 61% of adjusted EBITDA. In 2024, our core value value drivers delivered profitable growth with incremental volume from recent acquisitions and growth initiatives consistent strong AUV performance and healthy equity earnings contribution from WAVE. These benefits more than offset the increase in SG and A, a significant portion of which was driven by our recent acquisitions. Slide 10 shows our full year adjusted free cash flow performance versus the prior year.

The 13% increase was primarily driven by higher cash earnings which was partially offset by higher cash taxes paid. The strong adjusted cash flow margin profile of our business allows us to execute on all of our capital allocation priorities. As a reminder, these are first, to reinvest back into the business where we see the highest returns second, to execute strategic acquisitions and partnerships to create shareholder value and third, to return cash to shareholders through dividends and share repurchases. In the fourth quarter of twenty twenty four, we acquired the issued and outstanding shares of Zaynor, for cash consideration of $46,000,000 reflective of a purchase price of 42,000,000 inclusive of $16,000,000 of cash acquired, subject to customary post closing adjustments for working capital. Additionally, in the fourth quarter, we repurchased $15,000,000 of shares and paid $14,000,000 of dividends. As of 12/31/2024, we have $662,000,000 remaining under the existing share repurchase authorization which runs through the end of twenty twenty six, We entered 2025 with a strong balance sheet and ample available liquidity and with our proven ability to consistently generate strong free cash flow, we remain committed to all of our capital allocation priorities. Slide 11 presents our guidance for 2025.

With overall stabilizing market conditions, we expect choppiness throughout the year and flattish Mineral Fiber volume for the full year. We also expect Mineral Fiber AUV growth above our historical average of about 5% Adding to Mineral Fiber growth, we expect AS organic growth to continue as we penetrate a highly fragmented market. Note that results from 3Form will be incremental through the first four months of 2025 and results from Zaynor will be incremental throughout almost the entire year. We expect these two acquisitions together to drive more than half of the growth in total AS segment sales. This results in total company net sales growth of nine to 11%. As you know, our first quarter is typically one of the weaker quarters of our year for Mineral Fiber due to better weather conditions and timing of renovation and new construction activity. While we don't provide quarterly guidance, we do expect a higher degree of variability quarter to quarter in twenty twenty five as we navigate choppy market conditions. Moving to adjusted EBITDA, we expect Mineral Fiber AUV impacts to more than offset low single digit input cost inflation. With this, growth in the AS segment the benefits from Wave and continued focus on execution throughout the organization we expect adjusted EBITDA growth of 8% to 12% We expect adjusted EBITDA margin expansion in both segments for the full year with the total company flat to prior year as we drive the integration of our recent acquisitions.

For the full year, we expect adjusted diluted net EPS and adjusted free cash flow to grow at rates similar to adjusted EBITDA. You'll notice that our capital expenditure assumption is slightly higher as compared to recent years due to planned investments in our energy saving ceilings manufacturing capabilities in support of future growth. Please note that additional assumptions are available in the appendix of this presentation. We are well positioned to deliver strong results in 2025 as we continue to demonstrate the resilience of our business model despite a near term choppy market outlook. Our teams have proven agile have consistently advanced our strategy while navigating uncertain market conditions in recent years. And I expect that to continue in 2025. And now I'll turn it back to Vic before we take your questions. Thanks, Chris. Picking up on the market conditions that Chris just referenced, let me provide additional color there on how we're thinking about the markets in 2025. Overall, we see demand in our key markets continuing to stabilize while we navigate the uncertainty from potential tariffs and new policies. New construction starts were positive throughout 2024, driven by education, transportation and data centers. Lagging those starts should be a positive contributor to our markets in '25.

Dodge bidding activity in the fourth quarter remained choppy and a sideways moving pattern as it has all year and we are encouraged by the increase in back to work mandates and higher leasing activity over recent quarters in the office vertical. We also continue to benefit from large transportation projects, as I mentioned, as well as major entertainment and sports venues, including convention centers and NFL and other sports stadiums. [indiscernible] remains a level of uncertainty that is likely to cause some additional choppiness in 2025. With potential tariffs and new policies and their impact on inflation, and interest rates These factors could create pauses and potential wait and see decisions impacting project That said, we know how to execute in uncertain market conditions. And with our diverse set of end markets and our resilient business model, we are well positioned to deliver sales and earnings growth again in 2025. Underpinning the strength of our business model and a key element of our value creating building blocks is our industry leading innovation. Our innovation is guided by market and customer needs. And one of the strongest, most prevalent need is for energy saving solutions. As we've shared before, buildings consume nearly 40% of global energy.

In The U. S, the built environment consumes nearly 75% of all electricity used. And about half of that energy Usage is to heat and cool buildings. Given this, there's a strong desire for companies like Armstrong to help reduce commercial building energy usage. Beyond an economic benefit of energy savings, there's a larger need for reducing the strain on our electrical grid system to support the expansion of AI and the build out of supporting data centers. This need for energy savings is likely to be a catalyst for innovation and solutions across many industries for many years to come. This megatrend across industries has led Armstrong to our Temploc technology that addresses this challenge. Templock is a unique sealing product that contains phase change material that works as thermal energy storage. Passively absorbing and releasing heat in the building and reducing the cycles for heating and cooling. With this new energy saving attribute, our temp lock ceiling tiles can reduce heating, and cooling costs and generate meaningful cost savings while also helping to reduce the strain of the built environment puts on the nation's electrical grid systems. In January, we along with our customers received some positive news when the U. S. Treasury and IRS issued final regulations under Section 48 of the Internal Revenue Code.

This section expanded the energy investment tax credits under the Inflation Reduction Act, These final regulations confirm that solid liquid phase change material is a type of thermal energy storage property that may qualify for the investment tax credit under Section 48. Templock as a phase change material may qualify for an investment tax credit of up to 50% This means that depending on the project, customers installing Tembloc in new construction or renovation projects may qualify for an investment tax credit that would allow them to pay less for a ceiling In addition, just last week, we also learned that Temploc products are now part of the approved selection of sealing products available for the U. S. Government Services Agency Agency, which manages the large portfolio of government office buildings. These developments are part of the growing validation of these products in the marketplace. And are encouraging milestones for an important long term initiative driving renovation and its potential impact on Mineral Fiber volume growth. In closing, again, I want to thank our employees for their dedication and execution that enabled enabled us to deliver record results again in 2024. This has been another important year for us as we further strengthen our value creating building blocks along with our overall competitive Armstrong.

We continue the pursuit of our growth initiatives to offset soft market conditions. In 2024, this included industry shaping innovation and technology like our Temp Block energy saving sealing products that pay for themselves over time, We've made significant strategic acquisitions that expand our addressable market and strengthen our ability to provide unique specifiable products to more parts of a building and now including its exterior. And finally, we continued the advancement of our digital initiatives to both support AUV and volume growth by serving markets untouched by our traditional channels. With Canopy by Armstrong, and further deepening our relationship with architects, designers and contractors, with ProjectWorks. These advancements have further strengthened our business model.

Made Armstrong even more resilient and position us well for continued growth in 2025 and beyond. And with that, we'll now be happy to take your questions. [indiscernible] Our first question comes from the line of Susan Maklari with Goldman Sachs.

Thank you. Good morning, everyone, and congrats on a nice quarter. Good morning. Thank you.

I want to start by talking about the new product because it sounds like you're gaining some really nice momentum there that is starting to truly come through in the results. Can you talk a bit more Vic about some of those initiatives that you are seeing out there? How we should think about the guide for the Mineral Fiber AUB to come in ahead of the historical range for 25%? How much of that is coming from these initiatives relative to like for like pricing in there? And just any additional color on how those products are coming through in the marketplace? Sure.

Thank you. Happy to address that. Our initiatives over the last couple of years have contributed both to, as you were saying, AUV growth and volume growth. And we continue to see traction in our Canopy platform, for example, that is reaching a very small niche customer and we continue to grow double had double digit growth in 2024 on that platform again. We're very encouraged by the traction that we continue to get there And by the way, to your question around the AUV, Canopy is a net contributor to positive AUV growth. Our average unit value on the Canopy platform is nearly 2x of our average unit value for Mineral Fiber. And so ProjectWorks is another example of where we continue to gain traction. We nearly doubled the amount of projects through ProjectWorks in 2024 And again, connected back to the AUV growth, the AUV through ProjectWorks is five or six times our average unit value of Mineral Fiber volume. So again, nice growth initiative that's adding to current and future AUV growth. And then the energy savings, which I think is the specific of your question, the milestones that we got in the marketplace in terms of the support with tax credits, also being adopted by the GSA are real big milestones for overall market adoption of this new tech [indiscernible] and a very new application for ceiling tiles.

And I continue to be very encouraged by the fact that we're over the right target having a different level of conversation with customers who are looking to solve this energy savings challenge that they have. And again, so when you look at the AUV of our energy saving ceiling tiles, again, to tie it back to our AUV growth, it's 2x or 3x our average unit value on, Mineral Fiber products. [indiscernible] when you think about the AUV growth and the consistent AUV growth, that has been legacy of this business for the past ten plus years And you think about this new technology and the new growth in initiative that we're bringing to market, you can't help be excited and encouraged by the opportunity consistently and continue to grow our AUV in this business. Going forward.

Yes. Okay. That's great color. That's It's very exciting to hear that. And then maybe turning to the discretionary R and R side. Appreciate the commentary you gave on the broader market and how you're thinking about some of those factors coming in. But can you talk a bit about that discretionary R and R piece just given where rates have been and any additional Yes. When you look at bidding activity overall, it kind of followed the same pattern we saw all through 2024 with one quarter positive, and the next quarter down Next quarter positive, next quarter down following this kind of choppy pattern, but sideways moving, That continued in the fourth quarter And the bidding pattern has been really consistent over the past nine quarters in this light. And to your question, really the bidding activity has been strongest on the new construction side which kind of matches what we've been seeing on the new construction starts. Which was positive. Throughout 2024 versus 2023. So we've the discretionary renovation has been the weakness I'm sure this is the genesis of your question, the That renovation activity the discretionary type in particular has been on hold. While some of the uncertainty plays itself out given the level of uncertainty, the renovation now it's around tariffs and policy changes and things like that, that discretionary renovation continues to be on the sidelines.

And so that is that's when we're going to be watching very closely in 'twenty five as some of the uncertainty around the overall market and the optimism around the overall market progresses throughout the year. To see some of that renovation discretionary renovation come back into the marketplace. Again, I think in 2025, new construction is going to be a tailwind As we lag those new construction starts into 2025, it's going to be a tailwind for us in 2025. And then when you look at the office segment in particular, we had the third consecutive quarter of leasing activity that increased in the fourth quarter. And it's at levels post pandemic highs now, going into 2025. And the outlook for 2025 in the office segment is that vacancy rates are forecasted to improve in 2025. So we won't call this necessarily, a turning point at this point. But there are more green shoots and more optimism around one of the softer discretionary renovation verticals for us and that's been the office segment. I hope that provides a little more color there.

Yes. No, that was great. Thank you for all of that, Vick, and good luck with everything.

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

Hi, thank you. I was wondering if you could provide a little bit more color on how we should be modeling the quarterly cadence for the year. You indicated you'd expect see more variability as you navigate some of these choppy conditions, but any additional hand holding, whether it's on the top line or on the margin would be great.

Hey, Garrett, it's Chris. Yes. On the mineral fiber side, I'll speak [indiscernible] we obviously don't don't don't guide to quarters. But if I take a step back and think about really the first half second half dynamic, Outlooking flattish volume for the year in Mineral Fiber, with a little more of softness in the first half of the year. And then turning more favorable in the back half. And that's really around trying to see and navigate how some of the uncertainty that's that's out there in the market kind of shakes out and winds up settling down. So a little bit softer in the front half and more favorable in the back half of '25. Okay, that's that's helpful. I wanted to follow-up on AUV. You're guiding to another year of above normal AUV growth. As you've been speaking in certainly to the answer to the previous question with respect to favorable mix moving forward, If we start to see some better demand conditions, as you're expecting, it reasonable to think that we might be entering into a period of normal [indiscernible] And the AUV could be above normal for an extended period of time here.

Yes. I think, when I take a step back and think about the longer kind of the longer term horizon, Vic mentioned our innovation in some of our new products and the call it the incremental AUV points relative to our existing AUV. I think that provides some potential for additional AUV growth in the future. When I think about 2025, I'd say between the first half of the year and back half of the year, it's relatively balanced in terms of that AUV growth. But sure, I mean, it's really a testament to our innovation pipeline, staying close to our customers, and really aligning with the needs in the market. And I think our products and solutions align to that and creates a lot of opportunity for to continue to grow the AUV side of our equation. Okay, very good. Thanks. Best of luck. Thank you. Next question comes from the line of Kate Hughes with Rui Securities. Please go ahead.

Thank you. Just wanted to narrow in a couple, well, one industry market office, which gets a lot of discussion. How did the order pattern, particularly in office renovation, end the year? And what are you sort of expecting from that in 2025?

Yes. In that office vertical, Keith, It was consistent with what we've been seeing. It kind of a sideways kind of stabilizing Pattern in office. Again, this is the third fourth quarter was the third quarter consecutive of leasing activity improving. The bidding activity also was notable notably positive in the fourth quarter in office.

So I think It was The order pattern was consistent and sideways moving, stabilizing versus the soft downward motion we've been experiencing over the last couple of years in the office vertical. So again, I think it's a little early to be calling a recovery in the office segment but certainly it's consistently moving sideways as as we're trying to establish at least a trough here. That's what we're modeling going into 2025 as well. Not a big recovery in office, but I think the downward pressure is is behind us on the office segment.

Okay. One other question. As we enter '25, what end user market is the strongest Well, I think transportation the data centers, which is now being broken out from office are real highlights in terms of opportunity growth there. I think the healthcare continues to be positive. And even though the ESR funds expiring in the Education segment It was a really good election season for state municipal bonds. That is likely to backfill the Ester funds. I wouldn't say it's going to be a real positive I don't think it's going to be the negative That's something maybe anticipated with the Ester funds tailing off. So I kind of see it in that order for us.

Keith, All right. Thank you very much. You bet. Your next question comes from the line of Philip Ng with Jefferies. Please go ahead. This is Fiona on for Phil.

How do you expect the recent tariff on steel and aluminum to impact your WAVE earnings in 2025? Just wondering, do you have the ability to push price higher? [indiscernible] let me take the tariff question here. And and maybe take a broader approach to your question, because I think Wave is part of the part of the the question and part of the answer also here. And then I'll ask Chris to put a fine point on the impact that that might have for us on a cost cost basis. With the tariffs that we know, at or at least the potential tariffs that are out there and well publicized, short answer for the impact on Armstrong is quite limited And when you look at The limited nature, we still have mitigation plans on that limited impact to even further minimize the overall impact of that. So let me break that down very quickly. We really are a North American supply chain And really when you you boil it down, it's primarily a U. S. Supply chain [indiscernible] From the China tariffs that are in place, we buy very little from China, mostly MRO MRO or spare part type items.

That can be sourced locally. In Mexico, we buy virtually nothing. Canada, we do have a Montreal plant for metal ceilings that represents less than 3% sales for the company And as you know, we have a pretty large footprint in The United States for metal sealing manufacturing that we can mitigate by local sourcing some of those projects here in The U. S. To your question though, the steel and aluminum tariffs are the other place where Armstrong could be impacted and it's really in the Wave joint venture, we buy a small quantity of steel and aluminum from imports in our Wave joint venture for the production of our grid systems. We have local sources that import volume to And of course, our pricing discipline, we were factoring in any cost impact into our pricing plans here in the early part of twenty twenty five. So I'll just say again, we have limited impact from the tariffs that we know Both the ones in place, but the potential ones that we know about and we have a strong track record of covering any inflationary impact from these tariffs with our pricing initiatives. And to get very specific, Chris, I'll ask you to comment on the cost impact.

Sure. And as Vic mentioned, on the supply chain side, for Mineral Fiber and Architectural Specialties, relatively insulated there.

Expect less than a 1% impact on Armstrong AWI Armstrong of goods sold in 2025. Taking a step back and looking at Wave, as Vic mentioned, less than 2% of their cost of goods sold on steel and aluminum. And overall, I think about this from a competitive and broader backdrop, there's there's also a similar backdrop of other folks in the market facing similar dynamics as it pertains to tariff impact. So So relatively small, we're insulated, and minimal impact I think about it in terms of supply chain impact on costs. Thank you. That's really helpful. My follow-up questions will be in your 2025 guidance, you mentioned a choppy market outlook for Mineral Fiber. Do you expect volumes that segment to probably inflect in 2026? Yes, I'll pause and stop short of guidance for 2026. Again, want to see how 2025 unfolds. As Vic mentioned, there's a degree of uncertainty, obviously, choppiness associated with the market.

So our best view right now is flattish volume for Mineral Fiber and we'll see how the year progresses before thinking about 2026. But thanks for the question.

Thank you. I appreciate the color.

You're welcome. [indiscernible] Your next question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.

Hi, this is Atish on for Steve.

Thanks for taking the questions. So first, in Mineral Fiber, it was mentioned that input costs became a headwind in kind of clarify which inputs and how we should think about the pressure there as we move through 2025? Yes, sure. So let me pause and take a step back and just talk about what we've assumed in our guide for 2025. Overall, from a total input cost perspective, outlooking low single digit inflation Just a reminder, labor is about 10% of our COGS inflation inputs in Mineral Fiber. Energy is 10, Freight's 10 and RAS are about 35%. So all up, total input costs in that low single digit inflation [indiscernible] From a freight perspective, expecting inflation on both the rate basis and fuel basis, so in that low single digit range RAS, low single digit inflation, for 25 And then, about 10% or so inflation on energy, and that's really driven by natural gas. And if you think about how pricing for natural gas has progressed from '24 into '25 and kind of the latest outlook for 25. That will make a lot of sense. So it just kind of adds a little bit more color around how we're thinking about about this year.

Great. That's super helpful. And then on ARK spec, following the Zayner acquisition, can you help us kind of contextualize the the total percent of the company sales that are in exterior now?

Yes, Chris, let me take this first and then I'll You can add add to that. Thanks for the question, because we're really excited about the acquisition. When you step back and look at Architectural Specialties since 2016, it's averaged 20% CAGR growth since then and we're out looking another 20% in 2025. And of course, that's a combination of organic penetration into this this specialties area but also inorganic additions to the business. And Zaynor is just another step of that One of the exciting things about the Zaynor acquisition coupled with the BOC acquisition is that it really does establish a design and manufacturing platform for the exterior part of the building that opens up another $1,000,000,000 total addressable market That's about the size of the market when we started in 2016 on this run of 20% So the way we think about it and one of the reasons why we're excited is it obviously opens up another opportunity pool for us to play in but it gives us confidence that we can continue to the growth of architectural specialties for years to come as we have now a renewed leg of penetration opportunities in addition to future inorganic bolt on opportunities.

So I will mention again that This is the third consecutive year and 2024 was the third consecutive year that we were able to expand margins in this business organically. So we're driving really strong top line and expanding margins and we're demonstrating we have the right levers to pull to expand margins in this business. So we're excited about the segment overall. The Zener acquisition just gives us a whole another leg and capability with our bulk acquisition to continue our growth into the future. Yes. And just to add on as well to your question, assumed about 20% top line growth in the AS segment for 25%, more than half of that is related to inorganic contribution in the year. And overall segment expand margins for 2025. And as Vik mentioned, we've this is the play we've run around acquisitions where we can bring these unique specifiable attributes and capabilities into the company and continue to grow, create value for shareholders by leveraging the Armstrong platform. So really excited about the opportunity to do that.

In 2025 with our recent 24 acquisitions. Great.

Thank you. Thank you. Your next question comes from the line of Rafi Adrosich with Bank of America. Please go ahead.

Hi, good morning, it's Ray. Thanks for Starting with the Tembloc, can you talk about how you think about the potential either TAM or just market size of TenBlock relative to some of the other growth initiatives you've had over the last few years like a healthy spaces or [indiscernible] big could Tempeck be over time? Yes, that's a good question, Ray, because it's really when you think about this particular Technology and the application broadly speaking to drive renovation, it's a much, much bigger opportunity, which is why we're excited about it. Why we're innovating around this. This phase change material has a lot of different avenues that we can go with it. So when you think about the installed base of Mineral Fiber at 39,000,000,000 square feet, and over time getting to the point where why would you ever put another ceiling tile in doesn't pay for itself over time. It doesn't save you energy. It's an exciting opportunity. So we're not sizing it publicly, but you can get the gist. It's a very large opportunity and we think for many, many years to come as we transition all of the installed base ceiling tile over time to energy saving ceiling tiles.

And then two more follow ups kind of on 10 Block. The some of the other growth initiatives you've had, there's been investment ramp associated with that? Do you need to put additional SG and A in, to to drive that conversion or for price innovation on Tembloc to kind of realize that market opportunity. And then the second question is like how do we think about TempBloc AUV relative to your average Yes. The AUV contribution is somewhere in the neighborhood of two or three x of our average Mineral Fiber volume. So it's a nice adder and contributor to positive AUV growth over time. The answer to your SG and A question, we are already feathering in SG and A to support the market development and the the market acceptance, if you will, the development of different customers that make decisions around this. So we're already doing that and we'll continue to do that into 2025. And we factored that into our cost outlook So in addition to that, you didn't ask, but in addition to that, you'll notice a little step up in our CapEx spending and that is to support some additional capacity creation finishing capacity creation one of our plants to support the energy saving sealing tile production.

So you wouldn't expect a step up in like beyond '25, it you would not expect to step up in SG and A or CapEx beyond what you've already done to support the growth?

Yes, I think there can be obviously rate at the rate and pace of of sales growth, there could be a little bit of a step up in SG and A. But the way I think about it is relative to rate and pace, On the CapEx side, no, not at this point in time. We think with the capacity that we're adding should support our short term growth outlook. Hopefully and again, we remain excited about the opportunity that Tempoq offers So should that outpace our expectations? Given that level of AUV opportunity and Mineral Fiber volume growth. We remain excited about the potential that this product has.

Great. Thank you.

Your next question comes from the line of John Lovallo with UBS. Please go ahead. Good morning, guys. Thanks for taking my questions as well. The first one is, you're expecting flattish Mineral Fiber volume growth in 2025. Curious first of all, how that sort of compares to the market? And then I think last quarter, you guys had seemed reasonably confident in the ability to return to the more normalized kind of 2% to 4% volume growth this year Sounds like markets have stabilized a bit and maybe some green shoots. So what's it going to take to get back to those levels of growth? [indiscernible] Implication for the market is in that plus or minus 1% range We're still confident that our growth initiatives are going to add up to one point of growth offsetting the softer market condition or adding to a flatter market condition. I think plus or minus 1% is a pretty good proxy for a choppy market going forward.

As far as the 2% to 4%, the 2% to 4% middle to long term outlook was the growth initiatives plus the market recovery back to 2019 levels? So wouldn't say that we're out looking we're certainly not out looking 2025 to be a market recovery with the flattish market. So to get back to the two to four, we're going to have to have the market contribute to to that to get to that 2% to 4% range. To complement our growth initiatives that that we continue to be very optimistic about Okay.

Makes sense. And then on Architectural Specialty, the EBITDA margin forecast of 18%. It seems like that's being impacted by some of the more recent acquisitions like Zaynor. Just curious, does this change or push out the outlook for kind of consolidated 20% EBITDA margins in that segment.

Well, we're going to continue to make progress. As I mentioned earlier, this is the third consecutive year that we've expanded the margins organically in that business. So we're on the right path. As you know, as we add new acquisitions to this segment, they come in at lower EBITDA margins. Given the scale or the lack of scale that they have And the opportunity for us to scale these businesses is the opportunity to drive operating leverage and improve the overall EBITDA margin business. We're running that play. I think we're going to continue to do that. But certainly when we bring on new acquisitions like you're noting here, there's work to do for us to get those businesses up to the 20% EBITDA. Level. Again, I think, I really feel good about the three consecutive years really demonstrating that we have our right levers that we're focusing on. We're pulling them in the right way and making really good headway toward the 20% we remain confident that we're going to get this business to a 20% EBITDA business Over time, Got it. Thank you, guys.

You bet. Thanks. Your next question comes from the line of Brian Bierros with Thompson Research Group. Please go ahead. Hey, good morning. Thank you for taking my questions. On the Zeyner acquisition, I guess it seems like larger step into the exterior space.

In like a strategic decision to grow into that category as you mentioned. I guess how do we think about further acquisitions to rent out the exterior offering or is that more of a organic growth initiative from here to kind of attack that know you mentioned $1,000,000,000 in new addressable market. Yes, Brian, it's an exciting space for us. And five years ago, this wouldn't have been a space that we could attack But because of the metal design and fabrication capability that we've been building and developing partly through acquisitions as well, We really have a world class metal design and fabrication capability that we can use now to take to the exterior side of the building. And with the expertise and the brand about a company like Zaynor, it really is an accelerator for us to participate and play organically now in this space, But again, when you look at the sales of Zayner with Boke and $1,000,000,000 TAM opportunity that puts us at less than 10% share And so again, very similar place that we started with architectural specialties in over ten years ago. So there's plenty of penetration opportunity here organically, but also there's going to be additional players that we could bolt on to this business as we go.

And we'll be open for business in that particular category as we are in the interior side. I'm getting excited to see how that turns out. I guess on the [indiscernible] twenty five one of the the puts and takes to get maybe to the high and low end of guidance between volume, AOV anything else that would kind of drive the range? It seems like volume might be the biggest driver of the range, but any more color would be helpful. Yes, I'd say volume for sure, but if I just take a step back and take broader look at the overall landscape in the market, it's a little more clarity and some calmness applied to the chop that we have outlook for the year. I think a lot of it's going to be just around the broader macro shakes out, the market shakes out, which could provide some potential upside and on the downside case be at the lower end. So that's really the biggest variable. And the dynamic we face here in 2025 and that quarter to quarter chop throughout the market. So that's kind of how we how I would size the ranges and the variability on the guide.

Thank you. You're welcome.

Thanks. As there are no further Grizzle, President and CEO for closing remarks. Thank you, and thank you all again for joining and for your questions. Again, as we We navigate some more turbulent market conditions going forward here. I think our diverse set of end markets plays well for us to keep a very stable a stable business. Our consistent ability to drive AUV growth our ability to continue to drive productivity even in soft market conditions really allow us the resiliency that we need in market conditions like this. And we remain five outlook and look forward to updating you on our next call.

Thank you very much. This concludes today's conference call. Thank you for participating. You may now disconnect.