Q4 2019 Earnings Call

with regards to

Which is our quarterly tax rate was 14% versus 23% in Q4 2018 for the full year. Our tax rate adjusted only for the wave gain we discussed last quarter was 19% versus 22% for the full year of 2019 both the quarterly rate and the full year were favorable to our Outlook.

During the fourth quarter. We determined that tax Reserve adjustments where necessary to our deferred tax assets related to stock-based compensation Additionally the fourth quarter taxes benefited from the expiration of state statute of limitations going forward. We expect a more stable tax rate in the mid-20s with cash taxes in to 25% 20% to 25% range adjusted free cash flow declined by $17 or 19% over the prior year as we are lapping last year's $20,000 waived special dividend.

be special dividends

typically occur every three to four years as waves earnings grow and they do you ever

absent the wave special dividend the base. Adjusted free cash flow was up eight million dollars or 13%

that that is $71 higher than last year driven primarily by the Acquisitions of a CGI and MRK share repurchase activity in dividend payments.

As of the end of the year our net debt-to-ebitda is 1.4 times and leaves us plenty of capacity to fund our strategic and capital allocation priorities in the corner. We repurchased fifty million dollars of stock since the Inception of the repurchase program. We have bought back nine point two million shares at a cost of $562 a month for an average price of $61.05 as of the end of the year. We had $138 remaining under our share repurchase program. Which runs through October 2012.

turning now to

I've adjusted ebitda increased 14% with every line item contributing positively the architectural specialty segment drove volume growth and the middle fiber segun contribute. He gained strong manufacturing performance and a strong quarter from ways.

Input costs where a tailwind and sg&a expenses were modestly lower year-on-year partially due to some one-time items and the base. Related.

The biggest change in the quarter is the distributions from ways. I'll remind you that in the fourth quarter of 2018. We had a special dividend from wave of 25 million dollars and we bought the Patriot at 9 million dollars from International wave locations related to the sale of our international business.

These items waves cash contributions for the. Are flat with prior-year and total free cash flow was up 13%

flight seven begins our segment reporting in the quarter middle fiber sales grew six million dollars or 3% versus prior year the improvements were driven by like-for-like Price pricing increases and continued mixed games find was down 2% in the quarter driven by the factors Victory reviewed softness at the low end of our product portfolio uneven flow business office in a weak economy in Canada adjusted ebitda was up ten million dollars or 15% versus prior year as margins expanded 430 basis points.

A u v game strong performance for a manufacturing operation and a strong quarter from wave or the key drivers of earnings growth.

Sg&a expenses were also lowering the quarter partially impacted by the one-time items in 218 that I mentioned earlier.

Moving to architectural specialty segment on slide eight quarterly sales increased 4% versus prior year, they could dress the factors impacting architectural specialty sales including the large Transportation projects in the base. And an issue with a supplier that extended lead times which impacted our sales.

You will see in our 10-K that we have increased our disclosure on sales related to our acquired businesses as part of our acquisition strategy. When we integrate these new businesses. We could we move our sourcing to optimize productivity consequently this new disclosure includes changes in sourcing between our existing manufacturing and the acquired businesses.

This is why we choose the framework guidance in terms of the total business which includes all acquisitions closed prior to January 1st 2020.

Separately, we are targeting to close 1/2 3 Acquisitions in 2020, which will be incremental to our greater than 15% guidance for architectural specialties.

I just did.

Ebitda, an architectural Specialties was up 2% versus prior year in the quarter as costs associated with our acquired companies and our investments in sales and designed support added expense.

ebitda margins excluding businesses acquired in 2019 expanded 90 basis points

turning now to slide 9 for the full year sales of 1.038 billion dollars or up 6% versus prior year and adjusted ebitda increased 14% versus thousand a year driving ebitda margin expansion of 270 basis points.

Adjusted diluted earnings per share of $4.78 grew a very strong 31% driven by increased profitability lower taxes than they reduce your account.

Year-to-date adjusted free cash flow group eight million dollars or 3% versus prior year excluding the 2018 wave special dividend free cash flow was up $33 or 16% versus prior year.

So I tend details the bridge of our results for the year strong performance in the middle fiber segment was the key driver to our increased profitability when combined with volume gains and the architect of specialty segment manufacturing performance increase profitability at ways and lower sg&a spending these factors resulted in adjusted ebitda up 14% versus prior year manufacturing productivity gains more than offset. The fixed costs embedded in our acquisitions.

Slide eleven displays the driver's of adjusted free cash flow for the year strong operating cash flow performance driven by earnings growth was the key factor in 2019 performance.

It's like 12:00 provides our initial guidance for 2020. We once again exact sales to grow in the high single-digits with future Acquisitions incremental to that growth, the expansion in the middle fiber segment combined with increased penetration and you're on your contributions from our 2019 acquisition of ACG. I will drive sales higher in architecture Specialties. Our profitability will also be aided from continue manufacturing productivity and increased contributions from ways.

adjusted eps

Will benefit from lower interest expense and a lower share count that will offset a higher tax rate as our tax rate normalizes in 2020. We expect to grow industry-leading cash flow double-digits to 25% of sales or greater than 5% or $5 per share.

Before returning the call back to Vic. There is a non-operating finance item that I like to discuss.

As you've likely seen just last week we entered into an agreement to transfer over a billion dollars of pension obligations related to approximately 10,000 retirees to athene annuity & Life.

While Armstrong has had an overfunded pension for many years and has not made a cash contribution to more than ten years the size of the total obligation over one point four billion dollars a month is significant for a company our size as such this transaction significantly reduces tail risk on our balance sheet relative to the plan it protects our retirees off and leaves remaining plan when with an even greater overfunded position.

A result of these transactions of this transaction we expect to record a non-cash expense in the range of $350 million dollars and four hundred million dollars in the first quarter of 2028 as a component of non-operating expense to reflect a partial plan settlement charge.

As with other non-cash pension expense and income we will exclude this from our adjusted Financial results.

We will not have to make any cash contributions to the pension as a result of this transaction and do not anticipate contributions in the coming years. This is a great transaction for our retirees Armstrong and our shareholders a win-win-win for all parties to close.

I'm pleased with the results the business delivered in 2019 sales up 6% and adjusted ebitda up 14% We were able to execute two more strategic Acquisitions further south are architectural Specialties capabilities, and I'm confident that we have the plans in place to once again deliver High single-digit sales growth and double-digit adjusted ebitda growth inconsistent with our value-creation model. We have a strong balance sheet and we generate very strong free cash flow every year. We believe the strong cash generation of our business is truly unique and special we can use this annual cash generation and liquidity to further invest in our business fund Acquisitions and return cash to shareholders. We expect 2020 will be another strong your faith cash flow generation with that. I'll turn it back over to the

Thanks, Brian.

19 with another year of salad steady performance here at Armstrong where we continue to change the trajectory of our sales growth while expanding margins and improving our overall competitiveness 2019 off the third straight year. We delivered sales growth greater than 6% after many years of low single-digit growth. We grew adjusted ebitda by double digits. Again. We commercialize design a game-changing Innovation and acoustic Bill. We accelerated our digitalization initiative to provide more frictionless customer experience and and improved manufacturing productivity and 2019. We celebrated the twenty year anniversary of the Armstrong ceilings recycling program is the longest-running recycling program of its kind to date we have recycled more than two thousand square feet of ceiling panels saved more than a million tonnes of Virgin raw materials and diverted more than a hundred thousand tons of waste from landfills.

We completed two more Acquisitions in architectural Specialties making it 5 in the last three years.

Closed on the sale of our businesses in Europe and Asia ultimately realizing $290 million dollars a benefit for our shareholders. This makes us an America's only business with minimal exposure to terrorist or the impact of the coronavirus. We refinanced our credit agreement extending maturities adding flexibility and lowering our borrowing costs. We repurchased over a hundred thirty million dollars of stock and increased our quarterly dividend by 14% And finally, we elevated our design capabilities and capacity and made organizational Investments to enable our strategic priorities in 2020 and Beyond and in 2020, we will build on this momentum for another exciting year where we expect to grow sales in the high single-digits expand margins and deliver best in cash free cash flow.

We will bring new innovation to Market in the form of both new products and new digital tools. We will build on our broadest architectural specially portfolio through both Innovation and new acquisition to drive penetration and especially ceilings and walls space at a double-digit rate. Our plants are poised to deliver another strong year of productivity and way will continue to increase their contribution and Thursday. We linked with Armstrong on Innovation and product development.

our balance

Approach to Capital deployment remains. We're going to invest back into our business through high-return projects. We're going to execute on 1 2 3 Acquisitions a year and return cash to shareholders through our dividends and share repurchase program.

We will maintain a prudent balance sheet as is Brian just discussed. We've already taken action this year to transfer a billion dollars of pension obligations off our balance sheet to reduce any tail risk. I'm not worried about the opportunity and the momentum where we have going into twenty-twenty. The teams are aligned. They're focused and equipped to deliver another great year as you've heard me say before Armstrong remains committed to bring Innovative products and digital solutions to provide the best possible experience for our customers and we are committed to making a difference in the spaces where people live work learn heal and play dead now with that. We'll be happy to take your questions.

Thank you to ask a question. You need to press star one on your telephone to withdraw your question. Press the pound key.

Our first question comes from Steve and Kim with is I your line is open.

Yeah, thanks very much guys good quarter and encouraging Outlook. I wanted to ask you though a little bit about the in the RX back, you know, this this delay with understanding that you've indicated that it's pretty much, you know normalized at this point your your God and seems to assume that this impact was about ten million dollars the way we reckon it that you're going to get it back and then proceed along, you know with the trajectory of the business in addition to that and assuming so I'm curious why why wouldn't you see that recovery in some very good number because you said that we're off to kind of a slower start in that business and I was trying to reconcile that those two things.

Yes, even first of all I said, you know, we're off to a tough first quarter inch or slower start to the first quarter with some of this standard wage flowing into the quarter. So I think the first half going to be fine, I think we're just out looking that we're we're we're looking at excuse me, we're off, you know in the base. Were lapping two very large Transportation projects that coupled with a bit of this this softer start and the standard product category what you're saying? Hey could be a little bit of a softer start to the year. But when you look at the backlog our backlog in our custom product, which is the majority of the businesses, you know, it's very strong and we're very encouraged by what we're seeing and and everybody I've talked to out the market place in terms of the bid activity continues to be strong. So I'm optimistic about the year I think wage.

without looking that this quality issue that we resolved in and behind us is probably gotten

Soft to our slower start than we would have expected or hoped for in the first quarter.

Okay, you're not it sounds like you're not really making a comment about the second quarter though.

Not not expect us to linger linger into the second quarter and I do not I do not. Okay curious as to if you could talk about a manufacturing put activity log in terms of you know, how meaningful this could be. Like it certainly things are going very well sounds like in addition to what improvements you saw in the quarter you install these 1300 sensors knowing that that's just one aspect of life activity initiatives, but it sounds like you did that right the end of the year, so it probably didn't have a huge impact on the four q and yet you've generated eight million dollars or so of improvement in the last two quarters of curious as to what we should be thinking about that into the front half and maybe even Beyond in twenty-twenty and what's included in your outlook.

Yeah, I'm very pleased with the the the teams in the plant. I mean, we have a big focus on productivity anyway, so it's kind of a base. We have very strong leadership team in our plants. They're really focused on productivity. And as you were mentioning, you know, the digital initiatives are kind of adding onto already very strong base of productivity and change the the sensors that we added at the early part of the year. So the first half of last year are really what we we saw in the third quarter and we talked about some of those impacts on the third quarter and that carried through Thursday. So does the from them we've been continuing to deploy sensors and will be deploying Those sensors even into the first half of this year off is why we're we're expecting to see some continuing productivity improvements from the first phase of sensors, but also the the second phase and again, I think this is going to be a dog

Not displacing or replacing be already.

Activity initiatives that we've that we've already launched in the plants. So again, I I really like what are plants are doing the focus that they have. I think this the digital tools are giving them another level of data and ability to analyze the data to be even more preventive than we have in the past and again that shows up in better uptime reduce scrap. And so that that really shows up in our p&l so very proud of the work that teams doing there and it gives me again as I said my prepared remarks a lot of confidence going into 2020 and we'll continue to build on this by the way. Steven will keep we've got more initiatives Behind These sensors that we want to add to our plants and our operations. So it's it's 20 20 and Beyond really

Got it. Great. Thanks very much. Great. Thank you.

Thank you. And our next question comes from Michael would with no more at your line is open. Hi, good morning. I wanted to ask you about this Dynamic. I'm talking about with the large remodel new construction being strong and smaller projects being more uneven curious if you've seen this before and what do you think is really the underlying cause for that weakness in the smaller projects.

Yeah, these smaller projects.

Like tend to be discretionary in nature. So certain if certain Dynamics or indicators aren't in place for some of these verticals as we've often. I mean just to carry that through if if certain Dynamics show up then their discretionary spend they can delay these until the next year. We saw this in the education sector for several years as we talked about when state and local budgets were were really pinched a lot of those School Renovations are um, uh maintenance work was was delayed off again, very discretionary in nature. They could wait until the following year. So I don't think that's the case in education particular now because I think we're seeing some improvement. They're both in state local budgets and the discretionary wage and as we reported the last summer months was better and we're anticipate that to continue but that can be again vertical the vertical you can have discretionary spend and it really shows off.

smaller projects

Color on the impact of the Home Center and Canadian business or really, I'm just trying to get the underlying mineral fiber volumes excluding the retail portion.

Mike is your question specific to fourth quarter.

Yes, yeah and the box and which is our retail Channel and our Canadian sales rep to be negative volume in the quarter. We did see a slight positive and Latin America which was a continuation of the Improvement. We we've been reporting their collectively they were continued continued to be down and as a headwind for us in a quarter now, they're less down than they were and as we talked about we've got several initiatives in each of these three areas that we've been working with and I expect those to continue to improve from where they are today into a more positive Aryan in 2020.

Hey, thank you. Thank you, Mike.

Thank you or next question comes from John with Bank of America. Your line is open. Hey guys, thank you for taking my questions. The first one. It sounds like your commentary on the building activity is pretty encouraging. I'm just curious, you know versus the last quarter has anything changed either positively or negatively or is it still kind of steady-state? Yeah. No, I think the market is pretty much what we saw currently what we're saying now is what we saw, you know at the end of year are shortfall in the fourth quarter and architecture, especially in particular was very much supplier. It's not market-based and I was out in the field quite a bit this first quarter talking to both contractors and Distributors and the sentiment is is positive thoughts. I think we're we're kind of carrying through the same Market level of activity that we we experienced in 2019 because it's helpful and then in terms of your wage

Okay, great. And can you also give

Outlook Brian, what do you

Not only in terms of material cost inflation.

Yeah, a similar backdrop low single-digits overall net inflation. Great. Thanks guys. Thanks.

Our next question comes from Susan.

The glory with Goldman Sachs your line is all.

Thank you. Good morning. Good morning. My first question is just when we do think about 20 20 and noting the the comment you made around the project activity. But how much are you thinking about revenues coming out from Price relative to the volume growth?

Yeah in the middle fiber Susan you're talking about middle fiber segment. Yes. Yes. We're going to continue on the exact same a UV rating page that we've been on which is in that 426 range. So if you look at our top line of about 5% growth in in Mineral fiber that implies somewhere around a flat to slightly positive mineral fiber volume for the year, which is an improvement over 2019.

Okay, that's helpful. And then it just you know wanted to get a little more color on how you're thinking about Capital allocation. I know that you mentioned the the potential for one two three repetitions this year. How do you think about the balance sheet and leverage? I mean the Leverage is come down pretty significantly and thinking about the cash generation this year. It seems like it could really further come down. And so I don't know. Is there anything you can share with us in terms of a target? Maybe as it relates to leverage or or how you're thinking about that balance?

Sure Susan, this is Brian. We've said that anything below three were pretty comfortable with as you look at. You know, our cost of capital is is is the same anywhere below 3000 now we're sitting at one point four times and that's towards the lower end, but we'll we'll keep the monitoring how frequently we're doing the Acquisitions and and using that Capital to make those Acquisitions off our Capital allocation students here to your question of the capital allocation for us remains that you know, our first priority with the hybrid turns that we get in this business to invest back in business. That's our number one priority is to support the growth initiatives that we have in our Core Business and then one two, three Acquisitions, you know, I'd be very disappointed if we only did one this year. I think we have the opportunity with the uh, building Pipeline and encouraging pipeline that we could do more than one this year. And that's our second priority. And then of course the third is the return to shareholders dead.

Through our our share repurchase program as well as our dividend. So those those

Station and priorities remain the same for us.

Okay, great. Thank you.

Thank you. And our next question comes from Kathryn Thompson with Thompson research your line is open. All right, thank you for taking my questions today. The first is really on supply chain and the triple check to ensure a supply chain. It's not seeing any impact mostly from raw materials related to China and a coronavirus and really assures. There isn't any potential trade that to your supply chain. Thank you Catherine virtually no impact or no effect from the coronavirus on our supply chain.

Okay, perfect. Thank you and appreciate the color you've given on backlogs and the nation. My question really more has to do from a product standpoint looking more in terms of what is driving demand Choice plush out how much demand is driven by Legacy mineral fiber versus architectural Specialties. We're assuming that the demand is less driven by traditional tiles following destitute of War driven by wage you'd market adoption of architectural Specialty Products. And really this is a question of not just for twenty twenty, but beyond that.

Thank you for the question.

You know our architectural Specialties, if you if you take a step back and the it's being it's more biased toward new construction. Okay, so that's number one. And so Thursday, we there's more new construction activity than there are in terms of growth in there is our in our activity. So that's a a bias in the positive direction that way but for the most part our growth in architecture Specialties is really Market penetration and and share gain in that segment. It's a relatively it's a it's a fragmented Space versus very different than the minimum wage. And so there's lots of pockets for us to move into into leverage our scale and our presence with the architectural community. So that's really I think the the main phone numbers between architectural especially and I expect that business to continue to grow at double-digit rates, which is as you know far above where the demand for Middle fiber is today with that said I think in the middle of birth

We continue to see high single-digit volume growth at the high end.

Our portfolio through the new Innovative products that we're bringing out through the specification work that we're doing with Architects and I can I expect that to continue especially when I see the adoption rate that we're seeing with design Flex a total Acoustics and now acoustic Bill the the level of interest that we're seeing Around The Crucible is dead. It's very impressive. It's very encouraging that there's a real nice home in new spaces where we're not selling mineral fiber today to grow that business. So but but I think you can really suck architectural Specialties should continue to lead as a overall growth engine on the volume side. We're going to continue to grow the high end of the portfolio and mineral fiber and we're going to grow are a bulb in Mineral fiber overall.

Great. Thank you. Thank you.

Our next question comes from confused with SunTrust Robinson your line is open. Thank you question in architectural Specialties Route 2019. So manufacturing wage expenses related Acquisitions where it's like we see similar negatives giving your your acquisition plans here in 2020.

Well, it's tough to speculate on what new acquisitions keep if that's your question. If we the new acquisitions we add if they will be head winds. Most of the these smaller companies were buying twins to our already high levels of of productivity and and he peed all levels. So it's your question is around that it's hard to it's hard to come back on those that positions that we have in place like plaster form the steel ceilings acquisition. And now a CGI we continue we we should continue to see productivity in manufacturing and margin improvements in those businesses as we have seen historically with sort of our other Acquisitions. I would expect that to continue. Okay, looking Beyond 2020. Are you getting to the size and Architectural Specialties that you can immediately flex your cost based on them smaller acquisition that you do?

Can you say some more? So for example in in sales that you've already have the infrastructure set up?

That you can bolt them in without without some of the you know, build up work you've had to do since you really started this program a couple of years ago. Where are you at that point yet?

I don't see a slowing down or a need to slow down the Feathering in of our design capacity. If you will, we've been kind of Feathering that in as we go but certainly get our base larger. We can Flex more into these smaller Acquisitions with less resources. It's just through good efficiency and productivity and how we use our resources. I could tend to be encouraged by how efficient we are in architectural Specialties and being able to absorb these Acquisitions and increase our our efficiency and how we serve those Acquisitions month and I have to expect us to continue to feather in sg&a pay-as-you-go approach versus big batches of capacity put in. Okay. Thank you. At your question. Yes, it does. Thank you. All right. Thanks.

Thank you. Our next question comes from Justin speier with Delmon.

Associates your line is open. All right. Thanks guys. Appreciate it just on that and thinking about 20 20. Do you do you expect sg&a expense to be up in line with Revenue growth or do you think that you can continue to grow that below Revenue growth if you as you look ahead.

Yeah Justin, this is Brian. I would expect us to continue to invest in sg&a. So it'll grow slightly above our sales growth rate.

Okay.

And then in terms of the the quarter impacts that architectural Specialties from the supply chain issue. Can you maybe help us understand the magnitude of the impact? They're into the nature of the issue. They're just dead what happened? Yeah, the nature of the issue. There just was a a manufacturing quality issue without getting into the specifics of what the manufacturing it was meeting the Armstrong standards and the team made a decision to stop shipments that we fix it. So we wouldn't have a negative impact in the market place on these standard Products off. So it was a manufacturing-related quality issue that caused the the lead times to go out on our on our products. That's a very lead time sensitive part of our portfolio as well. So, you know to break it out. It's in that three to four million dollar range in the corridor gives the way to think about that that level of impact. Okay and wage.

terms of just terms of of thinking about

For the nature of the growth going forward you mentioned some difficult comparisons from transportation and related projects. I guess maybe help us understand when those fell into your model and and why the cuz I don't see organic growth being a big issue in terms of year-over-year comparisons in the first half from last year, but maybe help us get a sense for them. Maybe the timing of some of the workers you think about phasing it in and ultimately what you're thinking organic growth when excluding Acquisitions when excluding any other Expeditions organic growth looks like for 2020

Yeah, sure. So first of all on m r k I just want to be clear there is no sales contribution really thin Marche. They were pretty much a captive supplier for us as we talked about last quarter and they have unique capabilities that we wanted in house. So there it's there's not a lot of new customers or new sales coming with that acquisition. So Marge enhancement, but not off the top line. So just to be clear level set on that last year the first quarter we had to really large projects. They're both Transportation projects the Grand Central Station and in New York City as well as LAX out west and we were shipping both of those in the same quarter again, too large projects like that can kind of skew the base. If you don't repeat to more large projects, which we won't be repeating in the first quarter, we have some nice large projects that will ship later in the year, but they won't be in the same base. So that's the head one. We're talking about. They got they got feathered Inn and Pub.

And third quarter last year, so we um, you know, it'll be just different and I think in this first call.

What we had the bulk of the shipments going in the first quarter are organic growth Outlook continues to be double-digit for next year in spite of that. You know that I would say slower took it to the to the to the year because of the base. Comparison.

Okay, and then last question for me just the penetration of portfolio this year 2019 versus last year for premium price product in the mineral fiber business and you give us some context for where that is. And where do you think you're going to take its way twenty?

Is your is your question around the pricing? I'm sorry, Justin just say a little more like the premium. Yeah, the premium price product that in terms of the mix you mentioned the more commoditized I guess lower wage are more lower-priced product was was weaker in the quarter but big picture what what are you looking for for mix in terms of penetration of portfolio towards that better mix product away from lower mix. I don't know if you break it out that way or not. But just curious what it looks like today versus maybe last year. Yeah. It's really a continuation of what we've seen the last few years around them mixed contribution to the UV again, mid-to-high single-digits in terms of volume growth at the premium segment is you call that the higher end of our month or Fiber portfolio is what we've been experiencing over the last several years and we expect that to continue into twenty-twenty.

and that's anywhere from you know, 2 and 1/2 to 3 and

half percent contribution to of mixed contribution to the U V

That's the way too but obey in terms of absolute volumes what percentage of the business of your total businesses and that higher price point product? Yeah. We don't really break it out that way. I'm not sure the reason why is because everybody's definition of Premium or high-end products is different and to avoid that confusion, and we just don't break it out that way.

Understood. Thank you guys. Appreciate it.

Thank you. Our next question comes from filling with Jeffrey's your line is open. Hey guys, I guess for margins for a has taken a little step back, you know part of that intentional with Investments you're making it sounds like your continued to step up as soon as I so appreciate and you can't predict m&a personally with these Investments kind of coming into more fruition and something on a deal that you've done fully integrated. Do you expect ebitda margins in the ASP up Flatbush down? How should we think about it directionally?

Hateful, it's Brian.

So absent any new acquisition of expected to be flat up if if we do 1 to 3, like our intent we will see some headwinds on the ebitda wage as we still ramp upscale in those acquired businesses. Can I put a 5 appointment that Phil just to say for maybe for everybody's benefit the the margin in our business from Legacy says if you will not the new acquisitions, but the margins and those businesses is positive we continue to incrementally improve the efficiency in the operations of business. The headwind we have is when we acquire these new businesses, and of course their margins are much lower than ours and until we bring our productivity best practices and so we drive the official to get their margins to ours for even greater. We did in the techs in case those are the the head when you see but I think it's important to note that the base business The Architects business continued age.

Improve a Jeep about margins year after.

Got it. Okay, that that's really helpful. And then based on your TV Guide implies continue the momentum, which I think is quite impressive considering, you know, inflation's going to be pretty committed this year. Can you give us a sense how to think about the split between mix versus pricing in 2020 and if there were any key product lines that's driving that mix Improvement. It seems like it's accelerating.

It's fine again, you know historically we've had a fifty-fifty split between that for for like-for-like pricing and and mix I don't anticipate it being too different from that as we move forward. It's been way for twenty years now, so I don't anticipate any real big shift in that in that ratio wage got it. You just want it comes back to the conversation. We were having a middle fiber as we look at some of the innovations that we've launched off total acoustic sustain even designed Flex those parts of the mineral fiber business are growing faster than the lower end of that portfolio range. And so that's going to continue to age

Got it, and just on that note.

That in your guide your are you anticipating any noticeable contributions from some of these newer products like acoustic build and design flex and twenty twenty x lot.

I think acoustic is going to be a very small contribute to that. It's just getting started. It's in the spec process. I do expect us to grow sales nicely there. But against a very large base wage wouldn't see a huge contribution from that but from design flex and it and the pain until the Acoustics which we are a couple of years into now. I I expect to see a nice contribution from those products to continue. Okay. Thanks a lot. All right. Thank you. Thank you. Our next question comes from David MacGregor with his open Palm. Yep, good morning and congrats on the quarter. Just wanted to explore a couple of things discussed previously on the call. I guess first of all with regard to manufacturing productivity. It kind of encouraging part of the story how much money capital is required to continue driving progress in other words progress Capital dependent at this point.

Yeah, this is this is Brian would typically spending about 7% of sales. You'll see in our guidance. It's for 2020 where guidance seventy to eighty million.

X roughly half half of that is really repairs and maintenance and the other half is for productivity.

I guess I'm asking specifically about the digital productivity initiatives and you were talking about all the sensors and the work that you're doing. They're just trying to get a sense of whether further progress. There is capital dependent off. Yeah, it's relatively we're not breaking that out. So just we won't be able to break out. I'll give you exact number but I can tell you it's a relatively smaller percentage of the of the fifty percent of the capex that Brian a line for you. Okay, that's good to hear the second question. Just you mentioned in the press release additional investments in selling and design capacities. And I guess the question is was this more feet on the street. Am I able to quantify the impact on the p&l? And how should we think about the payback on these Investments and how fast this will benefit Revenue growth?

Yeah, I think the rate and Pace in which we feathered this sg&a and you can go back and look at the last three years. I think we've we've really done a nice job and Feathering it in and so that we're adding the right pace and same Pace as our growth and so it's getting a door and we're getting a great return when you look at the ebitda expansion over those last three years in spite the fact that we're adding them around and adding the capacity. It's both be on the street David as well as back office project managers CAD designers and supporters of the divorce part of the business. So I I I think about it that way it's it's both

really close to the customer, but also in the

To support the the more intensive design work, especially that comes with things like design flex and or architectural Specialty Products, but thanks very much that's on the progress. Okay. Thank you very much. Thank you, and I'm showing no further questions at this time. I'd like to turn the call back to mr. For closing comments. Yeah, just a quick. Thank you to everybody for joining the call. Look forward to seeing many of you out on the road the next couple of weeks and and then everybody back here in late April for our first quarter call. Thank you and have a nice day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect everyone. Have a great day.

Thursday Thursday, Thursday Thursday