Q4 2020 Armstrong World Industries Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 and full year 2020 Armstrong World Industries Earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your Touchtone telephone.
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I'd now like to hand, the conference over to your host VP corporate Finance Tom waters. Sir. Please go ahead.
Thank you good morning, and walking welcome everyone.
Please note that members of the media have been invited to listen to this call on the call is being broadcast live on our website at Armstrong ceilings Dot com.
With me on the call today are Vic Grizzle, our CEO and Brian Macneal, our CFO.
Hopefully you have seen our press release this morning on both the release and the presentation, Brian will reference during this call are posted on our website on the Investor Relations section.
Advise you that during this call we will be making forward looking statements that involve risks and uncertainties.
Actual outcomes may differ materially from those expected or implied.
For a more detailed discussion of the risks and uncertainties that may affect Armstrong World Industries. Please review, our SEC filings, including the 10-K filed earlier this morning.
Forward looking statements speak only as of the date. They are made we undertake no obligation to update any forward looking statement beyond what is required by applicable securities law.
In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of the SEC regulation G. A reconciliation.
The Asian of these measures with the most directly comparable GAAP measures is included in the press release and in the appendix of the presentation.
Both are available on our website.
With that I'll turn the call over to the.
Thanks, Tom and good morning, everyone. It's good to be with you today in the thank you. Thank you again for joining before we get into Armstrong fourth quarter and full year of 2020 financials I wanted to take a moment to recognize what we've all been true on a personal level. These last 12 months or 2700 Armstrong employees are key.
<unk>, our partners suppliers, our customers and our shareholders have no doubt been impacted by the multiple crisis, we've all faced.
One of the acknowledged the challenges in the hardships many of you and all of US have experienced and I wanted to share my admiration for the creativity and the teamwork and many acts of selflessness that I have witnessed within our own organization and in our communities. It's been an extraordinary year.
And I wish all of healthy and prosperous 2021.
I have a lots of cover today I'll begin by reviewing our financial results for some commentary on fourth quarter market conditions, and then I'll recap, our 2020 accomplishments and there are many inc.
Clothing, launching new products in response to the threats posed by COVID-19 era shore and via the Shield and then I will discuss the increasing importance of healthy spaces before turning the call over to Brian to provide a detailed review of our financial performance for both the quarter end of year.
Then I'll be back and I'll close our prepared remarks.
By discussing in more detail of what we've been working on in preparation for a post pandemic market to further strengthen our company, namely in the areas of growth digitalization of sustainability.
With regards to the marketplace in the fourth quarter, we saw sequential improvement pretty much as we.
<unk> the various end markets and channel activity continued to be mixed by territory and vertical.
New Orleans for example exhibit quarter over quarter strength related to hurricane damage and the Pacific Northwest continue to improve.
Meanwhile, the upper mid West and Southern California moderated.
The number of health care projects bid during the quarter picked up nicely, but was offset by slower activity in education and so.
So although we saw overall sequential improvement underlying conditions remained choppy and drive near term uncertainty as building owners seek the determined the best path forward to adapt their facilities to enable the safe return of occupants for the full year 2020 sales of $937 million were down 10% from 2019 adjusted EBITDA.
<unk> $330 million was down 18% from 2019.
Coming in at the high end of our guidance range adjusted free cash flow for the year was the strong $212 million or 23% of sales once again, demonstrating the strength of Armstrong is best in class value creation model.
Even in the face of the pandemic driven sales declines.
Full year 2020 results were characterized by a significant drop in sales in the second quarter as the pandemic struck in certain markets were effectively shut down by government mandates.
Since the second quarter, we have experienced sequential improvements on both of the month to month end of quarter to quarter basis.
On the mineral fiber business. In addition to significant volume declines we were faced with two unusual mix headwinds that impacted AUC or average unit value.
Beginning in the second quarter, we experienced significant negative territory mix as our key seven territories, including the New York Metro area, where just portion of really affected by the construction shutdowns. This trend moderated and continued to improve in the fourth quarter.
A compounding au the headwind was channel mix driven by stronger sales to big box customers as work from home became a reality for many of.
This was a good result from a volume perspective and reflects the hard work of our teams with these channel partners. However price points in this channel are lower than our overall average and drill the headwind on mix fall through particularly in the most recent quarter.
We expect these timing related trends to normalize beginning beginning in the second quarter of 2021.
For product mix, the underlying driver of the AAV improvement for the past 10 years.
Continue to be positive in 2020, as our higher end solutions, including the total acoustics of sustained families outperformed the lower price range of our portfolio, reflecting the continued desire of architects on building owners to improve the performance and aesthetics of their spaces.
The other component on underlying driver of the UV is like for like pricing.
Once again in 2020, we delivered positive like for like pricing and price greater than input cost inflation on.
Operationally, our plants ran well adopting new safety protocols, and we were able to maintain high levels of quality service and productivity I'm extremely proud of the way our manufacturing teams innovated to find ways to keep our plants operating and servicing customers throughout this year and do it safely.
Architectural specialties experienced similar disruptions as large renovation and new construction projects were delayed at the outset of the pandemic, but as with the mineral fiber sales recovered sequentially as markets reopen and contractors adapted to the new safety protocols.
The architectural specialties business exited 2020 with the record backlog and is well positioned for 2021.
Now more than any year in my memory 2020 was about more than just financial results in a year of a health crisis, and the resulting economic crisis and the social crisis on top of that two.
2020 was about responding to short term priorities, while preserving the foundation for longer term opportunity.
When the pandemic first hit our priorities, we're protecting the health and safety of our people adapting our business practices to maintain connectivity and collaboration with our customers and continuing to supply of central products, but the special emphasis on serving health care projects.
Once the immediacy of the crisis past, we made several strategic decisions based on the belief that the pandemic low band and the of Nate human desire for connection and community. Once again return assault of offices schools and shops, we made decisions to conserve cash and manage expenses to retain our talent and per.
Preserve organizational capability and capacity that we've worked really hard to build over the past several years.
<unk> committed to our our of digital and M&A initiatives.
And we pivoted, our new product development efforts to meet the need for healthy spaces with an emphasis on improving indoor air quality.
Now sitting here today.
I believe those decisions for the right ones and are delivering on our objective of emerging from this crisis, a stronger more capable and competitive company.
As you recall when the pandemic hit we suspended our share repurchase program and trend capital expenditures prudently to conserve cash we identified enacted on $40 million of temporary cost savings that would not impact our growth and value creation opportunities.
With the return of some stability in the marketplace. We have resumed our share repurchase program. We're returning our capital expenditures to pre pandemic levels and we are enhancing our investments in our digital and healthy space initiatives.
As we've reported we did not furlough our salespeople, we did not lay off resources or slow work on key initiatives. In fact, we launched new digital tools like project works to keep our sales teams better connected the customers and.
And we added resources to our organization in order to accelerate the work around these and other key strategic initiatives.
Specifically, we launched a new digital platform in the fourth quarter that will enable Armstrong to drive mineral fiber volume growth.
I'm going to provide more details on this in a moment.
But I believe.
These actions collectively will further extend Armstrong <unk> leadership position and allow us to accelerate growth as the economy recovers.
Now looking back on 2020 acquisitions were also a bright spot.
Despite the challenges presented by Covid, we were opportunistic and pursued and completed three transactions with turf Moes and Arcturus. These.
Of these companies each bring unique and exciting capabilities as well as talent that cement Armstrong is leadership and felt products custom metal capabilities.
And maybe most importantly, bring design and technology capabilities that can be integrated and scaled across our entire company.
Our M&A pipeline remains active and we continue to have the capability to execute additional acquisitions and partnerships.
And new product introductions, we also had a strong year, we launched 35 new products in 2020, that's a 50% increase from a normal pace of activity.
Could not be more proud of our MPD team and I know that they are working very hard to develop important groundbreaking new products and solutions to further contribute to the healthy space demands that we will all have in 2021 and beyond.
Several of these new products came about from a pivot that we made when it became apparent that the COVID-19 pathogen was largely transmitted through the air as an aerosol.
Even with the enhanced access protocols for labs and test chambers, our team brought to market at record speed the $24 seven defend portfolio to address the need for healthier safer spaces and to specifically improve indoor air quality.
In November we launched the <unk> family of ceiling tiles era of shore is a gasket on sealing solution of that forms the tight feel to the grid system is designed to reduce air leaks through the ceiling plane.
By up to four times over standard ceilings, reducing air leaks can significantly increase the effectiveness of the HVAC systems by forcing more air to flow through of the return of events, where it can be filtered and purified therefore, enabling better air quality.
In addition to allowing more filtering and cleaning of air Arris sure can also reduce the risk of pathogens traveling from space the space in the building and by doing so again aerosol can protect a greater number of people.
Also in November we pared the patented Vitus shield ultra Violet air purification system with Armstrong ceiling panels to provide cleaner safer air and pretty much any commercial space. The system can field in the ceiling plenty of draws air into a chamber integrated into the ceiling tile exposes the air to use.
The light to neutralize the harmful pathogens.
And then returns the cleaner air to the room.
But the shield can be used with our ceilings as a stand alone solution or even better it can be integrated with air sure panels.
These two new products are just the beginning of a robust pipeline of healthy space solutions, which represents a multi year renovation opportunity for Armstrong.
The big picture of healthy spaces is critically important as you likely know we spend 90% of our time on doors. So it stands the reason that the spaces, where we live our lives ought to be of safe healthy and sustainable as possible. They should be deliberately and holistically planned designed and built to be protective reassuring and comfortable.
In my view this has always been true, but the pandemic has redefined what we mean and what we we want and are healthy.
Well spaces and the need for solutions in this area is more pressing than ever the way, we think about the performance of the spaces, we inhabit has changed and expanded forever.
As the CEO I think a lot about my employees and.
How they're doing and how this is impacting their lives in a myriad of ways. When we return to the office I want them to feel safe and secure so that we can focus on doing our best work.
I know that we are at our best and most creative when we are together.
We're excited that Armstrong can play a crucial part of bringing healthy spaces to people.
To help us learn more and bring healthier spaces to life faster, we're installing our $24 seven defense solutions in our own facilities and we are retrofitting one of the existing buildings on our corporate campus to be of healthy spaces living lab.
This healthy space pilot.
We'll showcase what we've learned so far about ceiling systems and will provide a space for us to collaborate innovate with other leading interior component manufacturers.
By working together, we will be able to better design integrated holistic and effect of healthy spaces solutions.
Healthy spaces remains the dominant topic in the commercial construction conversations today, 92% of architects and designers surveyed said they are having conversations with their clients on how to make their spaces healthier and safer.
As you all know Armstrong has always had a strong presence in the a day community and its presence of strengthening as we are at the forefront of these conversations on how to create healthy spaces.
Now with that I'll turn the call over to Brian to review the details of our financial performance.
Brian.
Thanks, Vic and good morning to everyone on the call today I'll be reviewing our fourth quarter and full year 2020 results and provide guidance for 2021 before I begin as a friendly reminder, I'll be referring to slides available on our website and slide three details of our basis of presentation.
Beginning on slide four for overall fourth quarter results sales of $239 million were down 3% versus prior year.
Continued sequential improvement from the third quarter when year over year sales were down 11%.
Adjusted EBITDA fell, 19% and margins contracted 580 basis points adjusted diluted earnings per share of <unk> 77 fell 31% as our 2019.
Fourth quarter tax rate benefited from stock based compensation deductions.
Adjusted free cash flow declined by $3 million versus the prior year.
Our cash balance at quarter end was $137 million and coupled with $275 million of the availability on our revolving credit facility positions us with $412 million of available liquidity.
Down $42 million from last quarter as we completed the tour acquisition during this past quarter and down $18 million from the fourth quarter of 2019.
Net debt of $578 million is $12 million higher than last year as a result of our acquisitions, partially offset by cash earnings.
As of the quarter and our net debt to EBITDA ratio was one eight times versus one five times last year as calculated under the terms of our credit agreement.
Our covenant threshold of 375 times, so we have considerable headroom in this measure.
Our balance sheet is in solid shape.
In the quarter, we repurchased 126, 520 326523 shares for $10 million.
For an average price of $79 four per share.
Since the inception of our repurchase program, we bought back nine 7 million shares at a cost of $606 million for an average price of $62 35.
We currently have $594 million remaining under our share repurchase program, which expires in December 2023.
Slide five illustrates our mineral fiber segment results in the quarter sales were down 7% versus prior year, but improved sequentially from the third quarter when year over year sales were down 14%.
COVID-19, driven volume declines continued at a reduced rate and <unk> was the headwind as relative strength in the big box channel and to a lesser degree territory mix put pressure on sales on adjusted EBITDA in the quarter.
Positive like for like pricing and favorable product mix continued the year long positive trend.
Adjusted EBITDA was down $15 million of 19% as the volume decline in channel driven the weakness fell through to the bottom line.
This table also clearly illustrates the quarterly progression of volume trends.
Which while still negative has improved sequentially.
In the quarter continued manufacturing productivity or cost reduction initiatives and lower raw material and energy costs aided profitability.
SG&A was the headwind as we ramped up the investment in growth initiatives that Nick mentioned.
Wave equity earnings were down due to lower sales volume.
Moving to architectural specialties segment on slide six sales were up $6 million of 13%.
The 2020 acquisitions of turf moes.
And just recently our tour of contributed $11 million in the quarter and offset Covid driven organic sales decline of 9%.
<unk> organic sales also improved sequentially from the third quarter when year over year sales were down 14%.
Despite flat sales direct margins expanded significantly driven by the higher margins of turf Moes and our tour of acquisitions relative to our base business and ongoing productivity in the network, particularly at acquired facilities.
Manufacturing costs in SG&A were up driven by the cost of turf moves on a pure.
And higher overhead allocations.
Our <unk> business continues to win significant projects to build a strong pipeline of.
Among others in the fourth quarter, we were awarded the Virgin voyages Port of Miami Terminal five project.
This job includes metal glass reinforced just Gibson wood in mineral fiber products, a comprehensive solution the demonstrates armstrong competitive strengths.
This multimillion dollar project is scheduled to begin shipping late this year, but will primarily benefit 2022 sales.
Slide seven shows drivers of our consolidated adjusted EBITDA results for the quarter.
We've enhanced the page to break out the impact of our 2020 acquisitions.
Sales from our 2020 acquisitions offset organic volume declines.
Mix organic SG&A investments and wave equity earnings were only partially offset by positive like for like pricing deflation and manufacturing productivity.
Our 2020 acquisitions added a net $3 million adjusted EBITDA benefit and delivered a 27% adjusted EBITDA margin.
Slide eight shows our adjusted free cash flow performance in the quarter versus fourth quarter of 2019 cash flow from operations was down $8 million on lower sales and partially offset by lower capital expenditures of $5 million.
As referenced in the footnotes and detailed on the appendix adjusted free cash flow excludes two significant and largely offsetting adjustments.
First we received $13 million related to environmental insurance recoveries in the quarter.
Second we made a $10 million of one time in damage mobile contribution to the Armstrong World Industries Foundation, which funds earmarked from a portion of the $22 million of proceeds from the sale of our Chengdu, China facility that we received earlier in the year. These.
These items are excluded from adjusted free cash flow as they are unrelated to our core quarterly performance.
Slide nine shows our full year results versus prior year sales were down 10% and adjusted EBITDA was down 18% adjusted.
Adjusted EPS was down 24% driven by a lower 2019 base period tax rate due primarily to deferred state tax adjustments and to a lesser degree the stock based compensation deduction that impacted Q4 and 2019.
Slide 10 is the full year adjusted EBITDA Bridge again, Covid related volume declines of the main driver and they impacted EBITDA by $65 million and were partially offset by volume driven contributions of $14 million from our 2020 acquisitions.
Covid volume declines also drove the wave results.
Net headwinds from the territory and channel drivers, we have called out impacted the <unk> fall through to adjusted EBITDA as Vic mentioned product mix kind of like for like pricing were both positive in 2020.
Input cost deflation and the savings we are driving of manufacturing and SG&A.
Despite our acquisitions and growth investments helped mitigate the sales fall through to EBITDA.
Slide 11 reflects full year adjusted free cash flow of $212 million as with the quarter operating cash flow on dividends from waiver lower capital expenditures reflect the delaying action, we took to prioritize and conserve cash in 2020.
Interest expense is lower as a result of our refinancing in September 2019.
And the year significantly impacted by the pandemic, we delivered a 23% adjusted free cash flow margin.
Slide 12 of our guidance for 2021.
Against the backdrop of a recovering economy, we anticipate revenue in the range of 1.0 of $3 billion to $1.06 billion were up 10% to 13% versus prior year.
Driving this growth has returned to positive mix starting in the second quarter continuation of like for like pricing with the backdrop of rising inflation, which will result in the resumption of our historic 4% to 6% <unk> growth rate.
In addition, our digital growth initiatives canopy, and Victor will discuss in the moment will support mineral fiber growth.
Healthy space the space as product sales will contribute to both volume and mix gains.
The architectural specialty segment will benefit from the full year impact of our 2020 acquisitions as well as a resumption of organic sales growth.
We expect adjusted EBITDA to grow 9% to 13% as the benefit of sales growth falls through and we continue to drive productivity in our plants and benefit from improved results at least.
We will continue to invest in our growth initiatives.
She lives and as previously communicated reinstate some of the the 2020 temporary cuts in SG&A in 2021.
At the midpoint of our EBITDA margin of 35% is slightly down in 2021, driven by the impact of 2020 acquisitions on a full year basis.
Adjusted free cash flow will be 19% of sales as we resume on historic levels of capital spending and working capital expense to support sales growth.
We expect to return to our greater than 20% historical average in the short term.
Page 13 is not something we typically share as our seasonality across the quarters is usually very consistent year to year. However, given the disruption experienced in 2020, the seasonal pattern of our year on year sales will be unusual in 2021.
So we've included this page to assist you with your model.
Sales in Q1 will still be impacted by the pandemic and one less shipping day, but we will sequentially improve versus Q4 of 2020, we.
We expect Q2 sales to improve as we wrap the significant decline in Q2 of 2020 and the benefit of our 2020 acquisitions.
In conclusion I'm excited about the outlook of 2021, with an improving health and economic backdrop and evolving portfolio of healthy space stations products and a new digital tools and capabilities Armstrong is well positioned to advance our value creation model in 2021.
With that I'll turn it back to Vic.
Thanks, Brian 2020 was a busy and by any measure of productive year.
We took care of our people first and we built out our capabilities and capacity for future growth. We took care of our customers. We didn't shut them down we state. If we stayed connected with them digitally and kept them supplied we launched 35, new products many industry leading to serve today's most pressing needs for improving indoor.
Air quality, including our <unk> <unk> products.
We established a dedicated healthy spaces team for a holistic approach the lead the industry forward and the new normal.
We completed three strategic acquisitions again at a record level of activity for us and we advanced our digitalization initiatives just to name a few.
And theres more to come in 2021 with digitalization remaining front and center.
I mentioned early on Brian mentioned, our new digital platform canopy, which is focused on identifying and cost effectively serving more of the renovation.
And smaller new construction marketplace.
I want to provide a little more history here of perspective as to what this is and what opportunities. This provides for Armstrong for the past several years, we have been talking to you about our digital initiatives and we've shared a number of them with you initiatives to make our customer experience frictionless to better enable design collaboration to improve our service levels to increase.
The liability and quality in our manufacturing operations.
During 2020, we took steps to increase the intensity and the pace of these efforts and the result is canopy a solution. We have never discussed publicly before and of critical enhancement to our existing business model.
Canopy by Armstrong spelled with the lower case K.
Is an online is online and I invite you to visit the website at canopy canopy by Armstrong Dot com to explore its capabilities.
Utilizing artificial intelligence and machine learning cannot be provides early access and enhanced visibility to a large part of the market market opportunity. We were previously unable to efficiently track.
This technology allows us to influence and Armstrong solution and makes follow through easier.
Canopy offers facility owners and managers in the end to end solution, including diagnostic tools consulting and pre certified installation services.
Online consumer friendly and fulfilled by our existing best in class distribution network.
Can it be what's happened the pent up renovation demand in smaller scale commercial spaces.
We are investing in the sales and technical resources to roll canopy out on a national level throughout 2021.
Project works on canopy represent an unrivaled set of digital platforms and the ceiling space, providing access and solutions to previously inaccessible opportunities.
We are using digital capabilities and healthy space of the solutions to drive mineral fiber volume growth irrespective of the underlying market is.
As Brian mentioned this will help 2021 is the projects ramp up.
But I'm really excited about what these initiatives can deliver in the medium and long term.
Another area of focus you will see from US in 2021 is around ESG.
Armstrong has always been a company with a strong sense of community purpose and responsibility.
Those of you who have spent time with us know of our commitment to safety sustainability and ethical behavior. We have a long history of community involvement and support we strive to be good stewards of the planet. We were the first to develop a closed loop.
Cycling program for ceiling tiles and to remove Red list chemicals from our ceilings.
We've instituted effect of wastewater management and minimized carbon emissions from our Robbins.
We're passionate about developing products that make indoor spaces healthier and more sustainable higher performing and more statically appealing as demonstrated by our recent era shored by the shield product launches.
In the past 18 months, there's been a good deal of effort behind the scenes on ESG related matters.
We've hired experienced professionals, Helen sake, as our director of sustainability, and Selina coachman to lead our diversity and inclusion initiatives.
We've appointed Mark Hershey of General Counsel, the head up this effort from a management perspective, ensuring it has a champion on my leadership team.
And our board's nominating and governance committee has become the nominating governance and social responsibility committee to demonstrate the complete alignment in these critical areas.
We will be launching an enhanced sustainability website, the spring and publishing of full sustainability report this summer.
This will transparently document our efforts, but also publicly challenge us to get better.
These disclosures will convey our program goals and our targets our line of reporting to leading standards and frameworks and reflect our commitment across our three pillars of focus people planet and products.
I've always believed that Armstrong is a good corporate citizen.
And that said I also believe we can improve and I want to challenge the organization and make ourselves accountable for getting even better.
Finally regarding ESG initiatives, Brian mentioned, we recently made a contribution to the Armstrong World Industries Foundation that will ensure that the foundation can increase the sustained its support for the communities, where Armstrong employees live and work for many years to come.
Armstrong is a clear leader in the commercial construction market and we have been for many many years. We've most recently demonstrated this with arris sure invite the shield two exciting new solutions that demonstrate Armstrong product leadership.
We have strength on multiple fronts, which will allow market leader like Armstrong to return to the top and bottom line growth trajectories, we established before the pandemic hit.
Together with our industry, leading position our digitalization investments are healthy spaces platform and our commitment to ESG Armstrong is well positioned for the near term and the long term the.
The healthy spaces Revolution is only just beginning and I believe we will be of powerful catalysts driving renovation activity for years to come our catalyst turbocharged by a health crisis and backed by a newfound awareness as to how fundamental our health and the health of the built environment is to the strength of our economies and our communities.
We are both ready for and excited about the opportunities ahead. This is all aligned with our commitment to continue to deliver strong results for our shareholders.
Making a positive difference by creating healthier spaces, where we live work learn heal and play.
As I said I had a lots of cover this morning, because theres a lot of exciting things going on here at Armstrong and I bought of thank you, though for your extra time in patients and interests in wood that we'll be happy to take your questions.
As a reminder to ask a question you will meet the press star one on your touch tone telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Kathryn Thompson of Thompson Research. Your question. Please.
Hi, Thank you for taking my question today.
The thing on your new product launches. This year could you give an update on the back from the field in terms of product settlement with your new healthy space products and how sanguine are you about the prospects on conversion to this new product line, particularly in large metro markets in coming months.
Yeah.
Catherine Thanks for your question.
We are.
Announced this at the end of October as you know and then we said that we would be ramping up production in December which we've done I am happy to report that we won our first specifications already where we're <unk>.
Shipping the product of the field already.
We're installing already.
So I'm pretty pleased with how quickly the conversations have progressed since the last time that we spoke to all of you.
And really this is as I said in my prepared remarks. This really is the predominant conversation that's going on with all of our customers everybody is trying to figure out how do we get back to restaurants, and how do we get back to gymnasiums, how do we get back to the offices.
It's been very public around how do we get back to the schools right and get our kids back in the <unk> and there is so much money being spent around how to get that done and some some are.
Grasping at the near term things they can grasp at to make things happen in and more of the conversations have evolved to okay. How do we make some of these these features of the healthier space permanent.
And those of the conversations that we're continuing to progress and Meanwhile, we're selling and shipping product today. So the engagement.
It's not like we have to make up the topic right Kathryn the <unk>.
Topic is already in the marketplace and everybody's trying to figure it out so we're over the right target in this conversation and getting in the middle of it with our two new solutions.
Could you give a flavor of the.
The the types of projects and ease of new construction or is it more conversion.
All of the above I mean, the A&D community is already looking to specify this product for new work that they're doing of course major renovation work that the doing.
But we're also engaged with people who are looking at instead of patch and match just replacing a couple of ceiling tiles. They know they have to do something.
Two <unk>.
Broadly change the healthy nature of their of their space. So at all levels again theres not just one part of the market. That's having this conversation or even one vertical that's having this conversation everybody is engaged in this conversation of how we need to create healthy spaces and what the options are.
Okay and quick follow up the loss of cortisol of tailwind from lower raw material costs, we've seen material ryzen and key products to steel and other raw materials. How are you managing inflation and how does that fit in to the guidance that you gave for the year.
Yes, we're seeing inflation.
Certainly.
Where we normally see at first writers and steel in our grid business.
That's in the the wave.
The way business for us.
We raised price in December as a result of that we raise price again in January and again in February to stay ahead of the the meaningful inflation that we're seeing there.
And the building products space, Theres broad inflationary pressures and a favorable context, when you think about our normal price increase rhythm.
On the <unk> side of the business. So we're expecting an inflationary environments and we're baking that into.
Into our guidance.
Great. Thank you so much thank you Catherine.
Thank you. Our next question comes from John Lovallo Bank of America. Your question. Please.
Hey, guys. Thank you for taking my questions, maybe Brian starting with the SG&A on slides five and six if we think about the $6 million of year over year increase in mineral fiber how much of that was growth related and likely to persist and I guess the same thing on the the $5 million of architectural specialties.
How much of that is due to the acquisitions and likely to be sticky.
Yes, John on the mineral fiber question.
The good bidding of that was around the initiatives right.
Wasn't just one thing we have higher business development costs right as we work some of the acquisition of <unk> Dick mentioned, the digital platform canopy. So additional investment there some of.
Of the digital initiatives, we're working on so it's a number of things there.
That impacted that Q4, as we readied for the.
The growth we're seeing come in in 2021.
Similar on on Aaas.
Good bit of that as is the SG&A from the acquisitions, but there's also some investment there.
We continue to expand that capability in the architectural specialty segment.
Okay. Thanks, and then.
So maybe thinking just about the 4% to 6% mineral fiber AUC improvement in 2021 should that sort of mirror the.
The sales cadence that you provided on slide 13.
Hey, John what do you mean by the sales cadence to make sure I understand your question, Yeah, sorry, I believe more clear, meaning that the that improvement on on a sequential basis should be similar to what you're outlining on slide 13 meeting that it could be slightly negative for the first quarter and then begin recovering nicely in the second quarter.
Yes, I think thats the I think it's fair I think Q1, we.
We have a full base period to compare ourselves to and so on.
Although we will see sequential improvement it will see still be against a comp that reflected pre pandemic conditions. So I think that's a fair conclusion.
Conclusion, and then in Q2, we should we should see.
On a continuing improvement against a favorable comparison certainly in Q2, but even into the second half of the year.
<unk> has been one of those.
Areas of strength for us for a number of years and it's been the underlying conditions that drive it are going to continue with like for like pricing and positive product mix.
I think the worst is behind us in terms of this channel mix in this territory mix that was artificially created by unevenness of government mandates across the country in terms of the effects of the pandemic. So I think.
We feel good about the AAV and getting back on our historical run rate.
Okay. Thank you guys, yes. Thank you.
Thank you. Our next question comes from the line of Adam Baumgartner.
The credit Suisse. Your question please.
Hey, Thanks for taking my questions.
Kind of focusing on the top seven markets you've mentioned in the past just curious if you've seen growth there improve and if yes at this point growth in those markets in aggregate is above or below total company sales growth.
Yes, Brian you want to take that.
Yes, sure Adam we've seen that sequential improvement.
Especially as we look at we did have didn't prepare much remarks on January.
But january versus December so they've converged, we're getting closer to the broader market I think more importantly, though the.
The relative proportion.
Of our total sales have gotten back to the historic levels. So.
Still some room to go there, but that's why we're confident in our 20.
'twenty one guidance with regards to that channel mix fall through on our territory mix.
The fall through.
Got it and then just just on I'm sorry go ahead, and I was just going to add to that because back to John's question around AAV.
I think the worst is behind us in terms of that mix headwind, which is.
Was the negative contributor if you will in 2020, and so that shouldn't repeat in 'twenty, one because I think that part of.
The the headwind the top seven metro areas that we've highlighted the the worst of that's behind us.
Yeah. Okay. I guess that was my next question is should we think about the impact in 'twenty. One is more neutral from channel and in territory mix or do you expect an actual tailwind this year versus last year.
Well I think the first quarter as we talked about is probably going to be still.
Headwind and then we'll see some improving tail winds in the remaining three quarters of the year net net we'll have to see how much of a tailwind but.
On <unk>.
Net we should see a slight tailwind from that.
Got it thanks, a lot you bet.
Thank you. Our next question comes from Susan Mcclary of Goldman Sachs. Your question. Please.
Thank you good morning, everyone. Good morning, Susan.
My first question is you mentioned in your in your commentary that you're coming into 2021 with a record backlog on your architectural specialty segment can you talk a little bit more about what is driving that I know you mentioned the the project in Miami that you won with Virgin, but you know what.
What else is kind of starting to come together there how should we think about the mix in that backlog of and perhaps any color on the timing of that coming through.
Yes, Susan the.
If we commented back in the third quarter that we took in as many orders in the third quarter.
Last year as we did the prior year really and still in the middle of the pandemic and I think that was reflecting the continued penetration of our broader product portfolio of the market.
And really in all parts of the market. So I think when you when you look at our backlog I think it's a reflection of continuing penetration in all verticals and all segments of the market. We continue to take share and to participate more broadly in the market and the more that we expand our portfolio and of course, we've been doing this for the last for.
Five years really intently expanding our portfolio. So we can play in more spaces.
And every commercial building out there and I think this is a manifestation of that we're continuing to do that and penetration.
Not a lot of market tailwind here driving this frankly I think this is a bit of a broader participation of armstrong of the market.
Okay. That's helpful. And then just following up on that you know as we think.
About the digital initiatives that you talked about and the ability to start to get into some of the smaller scale projects that are out there can you give us some color around the margin profile of that business, how we should be thinking about it relative to the core operations and perhaps any thing.
Around the color around the timing of of how you expect this to really kind of ramp up and start to come through in the results over time.
Yes, Susan the.
The part of the market that we're we're going to get at with canopy. In particular is a part of the market that is it's kind of dormant and limit their there as we've talked.
About 35 to 40 billion square feet of installed base of mineral fiber.
Tile that's out there and some of it is quite old.
And a lot of it has bumped into that right. When we go into some of these places when you look up and you see the Theres some pretty.
Nasty of damaged tiles that need to be repaired, but theres a lot of friction and what do we mean by friction is people don't know what to do they don't know how to fix it they don't know where to go to fix it.
And this digital platform is going to make it easy for them to first of all make themselves aware and knowledgeable about how to fix it and then this is a platform with our distribution arm to service of that directly and so we're excited about being able to reach of part of the market and make it really easy for them.
And what happens when you do that is you will accelerate the rate of renovation of this large installed base and that's what we're opening up here with this canopy platform. The margins you should expect to your question. The margins you should expect here or at par with the rest of our business with high fall through rates as you've come to.
No with the mineral fiber business.
Okay Alright, that's helpful. Thank you you bet.
Thank you. Our next question comes from Tim Center of.
Keybanc. Please go ahead.
Good morning, gentlemen, Hi, Ken.
Good morning, Ken.
What a year.
You guys, obviously have.
The managing through what it is.
Kind of volatility in your core end market and with the regional.
Johnson Tracy so I appreciate the.
The disclosures.
Additional disclosures that you guys are providing.
Im just sort of probe a little deeper your guidance for 'twenty in terms of zero to two mineral fiber.
Fiber volume of four to six.
On <unk>.
Please please give us a little first half second half cadence if you would just too.
Think about price and volume relative to your figure I think on page 13 that would be helpful.
My first question is possible.
Ken So let me let me let me take a shot of Brian feel free to help because I mean to split it by halves.
It is a it's a good question and it's a tough one though because we know we have this deep trough in the second quarter to compare.
A continuation of sequential improvement for the fourth quarter for the first quarter into the second quarter.
That could really be skewed by that which is why we try to provide a little color on the page of referencing in terms of our guidance.
It's going to be really hard to break out I think the cadence of AAV in mineral fiber.
I think that's as good of colors, we can provide you at the understood how about this then.
You talked I believe you said, Brian positive price mix in the cell.
Second quarter, which implies something between where we were in fourth quarter.
And up in second quarter is that accurate.
Yes.
We therefore saw a lot of we saw a lot of headwind if you recall in the base period 2022 headwinds on that.
Especially on the call. So we'll see we'll see that benefit in Q2.
Is that just say then you know where you're coming positive in <unk> and obviously to get two of four to six number for the year.
It is most of the negative product.
Product mix and the channel mix, but that's the.
You're obviously going to be pretty strong in the second of house, just using math versus the first half.
Trend that you just outlined.
Ken is with.
With regards to <unk>, specifically I would say.
We won't see as much of the headwind in Q1, but it'll definitely pick up as the benefit and choose to two two for.
Because we expense it some of that proportionality.
All of the hunting as key seven to get back to their normal they could still be down from a volume standpoint in Q1, slightly but but the proportionality of those key seven is improving.
Excellent I appreciate that clarity that's very helpful. If we could just take a step back.
And Victor. Thank you you, obviously outlined a lot of initiatives designed flex was the.
Huge investment you've made in past years.
You're exposed structure as market share gains for you know what had been the kind of warehouses.
Then use for something like that.
With volume down in 2020, you know in volume just kind of being that flat grinding away.
You know trended mineral fiber I think it's because you guys talked about stable market share for mineral fiber. So I think it's just being offset by your architectural gains.
Can you talk to you. If this is really shaken your view about what mineral fiber is as a percent of office retail space.
My first question.
And then second you know with <unk>.
California is still Bryan.
The just to say the least it's trending differently, the Florida and Texas can you talk to what early insights are not so much of the nation.
Homogenous.
Credit, but rather what youre seeing in Florida, Texas for California, because it's.
It's very different outcomes, whether it's kids in schools or economic growth I appreciate that thank you gentlemen.
Yeah on your first question Ken.
It Hasnt changed my view of the role of mineral fiber as a category and all commercial spaces. The.
And in fact, it's confirmed I think that the the mineral fiber technology that we're bringing around total acoustics and sustained.
And the more collaboration spaces that are required acoustics are becoming even more and more important now you add.
On top of that the fact that we need to better contain the virus the viruses are going away.
Vaccine.
All of that at the well.
On the live with this for a long period of time, and so we have to be able to contain and then treat the error that is contained in for the maximum safety of people and so to do that.
The the <unk>.
Suspended ceiling systems that we sell and the gasket installations are going to play on even more important role I don't think I'll tell you my takeaway. So far is that the role of ceilings and interior spaces in terms of what they do the control air flow and of space is becoming more and more.
Better known.
And that is going to be.
I think of very positive for the category overall in itself. If this should grow the category overall.
It's confirmatory I think on our view that there's an opportunity here to.
To grow this category.
So.
With your second question around its very uneven across the country about what's going on on the east coast of the West Coast of lot of folks are still working from home you go to the middle of the country in their back of the offices at.
At least in some way so it's very mixed across the country.
And then it's mixed across the vertical too around how different areas of treating schools of getting gets back in the the schools and the solutions around.
Around offices, so its very mixed but I think the one common thing that I do see is that everybody is trying to solve for.
Creating a healthier space to get people back into their spaces, whether of restaurant owner or a.
The facility manager of an office building and that's the conversation that we're engaging in across the country.
Thank you thanks, Ken.
Thank you. Our next question comes on the line of Keith Hughes of Truest. Your line is open.
Thank you this is Jamie on for Keith Hughes.
Just one quick clarification on your 21 sales guidance on the slide 13.
I believe you said that did that include acquisitions, but the Q1 was one less selling days that correct.
Go ahead, Brian.
Our guidance for 2021 includes all of the acquisitions completed in 2020.
Okay got you. Thank you.
And you also you sales guidance you talk a lot about.
The impact of your question is the initiatives and things are kind of specific to you.
The aren't impacted by the market, but do you have any kind of broad comments about.
The market growth.
The market growth in your guidance.
Yeah, Brian let me take that because the way we're thinking about this as debt we expect modest improvement.
'twenty one versus 'twenty I think the worst is behind us.
In terms of the pandemic impact on the market now, it's all about rate and pace that we improved from the 2020 based so we were thinking there is some modest improvement in the market in that guidance of zero to two.
And then we think theres positive contributions and we're baking that in from these growth initiatives that we talked about specifically around the healthy spaces initiatives, the new products, there as well as canopy the.
New digital platform. So we think that's the other part and that's within all contained within that guidance, but we do see some incremental improvement of the market in 'twenty one.
Okay, great. Thank you you bet.
Yeah.
Thank you. Our next question comes from the line of Nishu Sood of you.
Your line is open.
Thanks. So first question I wanted to ask was about your <unk> outlook.
Kind of return to the mid single digits.
On the mineral fiber for 'twenty one.
The two mix related headwinds in 'twenty between the the DIY.
Headwind as well as the.
The the large the large markets the kind of Covid headwind how are you thinking about those playing out in 'twenty, one because if those unwind it it might even give a boost to beyond just the normal rate of price improvement. So I just wanted to get your thoughts on that please.
Yes, it's good question issue because the underlying fundamental of the improvement is low.
Like for like pricing and product mix right. Both of those remain positive in 2020, and we expect those to continue to be positive in 'twenty, one as the baseline.
But youre right I think the channel mix and we talk about channel mix every once in a while we'll have a quarter, where the big box guys. We'll we'll do a big load in right for inventory and we will talk about its impact in the quarter, but just like in other situations. This will kind of time its way out and those will normalize throughout the year and back to them.
My earlier comment around the seven key territories that we highlighted where they were really that territory mix was a real headwind.
For US again, that's already improving and so I wouldn't expect that to repeat and there could be a tailwind there actually as we get into the second half I think youre alluding to that and I think directionally that's correct.
Got you got you great and the.
Second question three.
Three acquisitions in 2020 does that you know.
Obviously, you folks have done a good job of integrating these acquisitions for manufacturing perspective in the past given that there are now three of that have happened.
Bob.
Especially the one of the December does that give you some some pause about continuing.
On 'twenty one at the same pace or will you would you remain opportunistic on that.
Well I think the.
The the answer to that and how we think about an issue is that we need to continue to stay opportunistic about this and add the organizational capacity as we go but as you know.
The timing of these is really hard to nail down because of these companies arent for sale.
For.
We're building relationships with them, we're building common visions for the future of our business is being together and that takes time. So this can be very lumpy.
The quarter to quarter year to year, certainly, but I think the one to three cadence is a good cadence for us both from an organizational capacity standpoint, but also from the the landscape in which we see we have opportunities. So I still like that 1% to three cases on I think that's how we're thinking about it for.
'twenty one.
Got you. Thanks, so much you bet.
Thank you. Our next question comes from the line of Gerrick small of.
The capital your line is open.
Great. Thank you. Thanks for all of the color just wondering on the mineral fiber of UV guidance.
On the context of inflation outlook.
For the in the growth.
Assuming normal cadence the price increases so.
The one here in February.
We would expect one later of the year as you look at the cost per basket and you talked about inflation of ramping across the many building product categories. If you will.
Need to go out more frequently with the pricing relative to normal years.
Yes, the <unk>.
Like we said earlier right, Eric a big contributor to the EV is the like for like pricing and we do have a favorable backdrop. When you as we come into 'twenty, one from an inflationary backdrop standpoint with the other building materials already.
Seeing some meaningful inflation. So at this point, we don't see a change in our cadence, but as we always do we size the price increase amount relative to the inflation that we're seeing so I would expect us to run of very similar play this year same cadence, but we will.
Size, the the price increase accordingly.
Okay. Thank you.
The real quick one point of clarity there.
True for mineral fiber and on the steel side effects of our JV waves.
We may see a slightly different cadence as Vic already outlined we've done three already.
Yes, that's clear.
Thank you for that.
Follow up question is just on the EBITDA on margin outlook.
Looking for relatively flat for the year, but how should we think about it by segment just given you've had some of the increase in S.
SG&A in the fourth quarter, you talked about the little bit on a prior question, but how.
How should we think about the combination of the increase in SG&A.
For some of the inflationary impacts versus the integration of the acquisition should we expect the mineral fiber margins to expand architectural specialties the decline or should we expect relatively flat margins by segment.
In 2021.
Brian you want to take that.
Sure, Yes, great question.
Both should expand slightly.
So call it relatively the same as <unk>.
20.
As we outlined the acquisitions carry a.
Higher EBITDA margin than the <unk> segment, so that's kind of help pull that up.
The mineral fiber it'll be relatively flat.
Great. Thank you.
Okay.
Thank you. Our next question comes from the line of ease for them here.
Zane Pnp progress.
Your line is open.
Good morning, everyone and thanks for taking my question I, just wanted to come back to the kind of peak.
The segment could you maybe give us an indication of what's the addressable market potential here and what it could represent in the percentage of revenues.
Normalized world.
That's my first question.
Yes the.
Canopy has a digital platform to be clear I know its new but it's a digital platform that allows us to access.
A good part of the market, we think that that untapped or the market that is let's say it's not influenced.
Of directly by Armstrong is in the neighborhood of 4% to $500 million.
Dollars.
So what's the amount of I didn't catch that sorry for years to $500 million.
Okay.
Yeah, the the size of the market that we're targeting to influence.
Okay. Thanks, and my second question.
I guess I wanted to get a better view as to how you address your clients when it comes to the new product segments in terms of say for indoor spaces in seating.
The example of schools for example.
I presume, they're first objective is to allow for social distancing to reopen.
Three of the trigger to make them aware of the benefits of changing the shipping times.
Having let's say for indoor space adventure.
How do you identify the right triggers there.
Well, we're in discussions with them on.
And the right trigger is really around air quality and the indoor air quality.
The one thing that they know is that theyre not going to prevent kids or people to come to the schools without of virus.
On the real trick is how do you protect the other students and the other people in the classroom and in the schools in the event that that happens and win when that happens. So it's really around the transmission through air selling throughout the year. So the trigger point is already there in that discussion and then the role of the feeling and how the.
Sealing plays in being able to capture that air and get of treated and cleaned back into the space before it infects others or goes as we've talked about those from classroom to classroom to classroom. That's the the opportunity with our solution. So the trigger of really is around how do you get the <unk>.
Healthiest there.
On an ongoing basis in the classroom of threat schools.
Okay, and I guess just out of curiosity of Jimmy.
What's the success rate of.
Putting those type of sitting in the classroom someone has COVID-19.
Because of the error in the seating tons have been changing the whole system is a safer.
The percentage success of catchy.
COVID-19.
Well, let me ask the door, it's it's it's being tested and those very specific applications of referred to but but this is not new technology or a new design approach. If you look at how.
Hospitals and operating rooms of clean rooms are designed today theyre designed with gasconade sealing systems for that very purpose to contain whatever's in that space for going anywhere else in the in the building. So this is this is a well known technology of design approach.
To protect occupants for pathogens, both on the existing space, but also in the next spaces.
Reinsurance Inc. Thank you so much guys Youre welcome.
Thank you on our next question comes from Justin Speer of.
The element of <unk> Associates. Please go ahead.
Thank you guys I appreciate you.
Squeezing me in here I just thought of.
For your questions one sorry.
Starting with the guidance and really appreciate the hand holding on the on the phasing of your guidance, but just wanted to get a sense for your confidence.
And the forecast and that phasing of implied in your presentations or is there of backlog in hand in mineral fiber or.
Or maybe customer discussions that provide confidence, particularly of confidence on that second quarter and beyond the second quarter growth path and beyond or or.
Or is it still pretty muddy out there in terms of line of sight.
Yes.
Well I'll say it this way just out of it I think we have.
We have more clarity than we did a quarter ago of two quarters ago and.
So, but that said theres still a lot of uncertainty in the rate and pace of which.
People get back to the offices and the kids get bad classroom.
The overall markets open up and get back to.
A better cadence and they were on in the first half of last year. So there's still some uncertainty out there and I think.
The the term that I hear from our customers and are both of our distribution of our contractor partners and the activity level that we're watching in the marketplace in terms of bid activity.
The.
Cautious optimism.
This is going to continue to improve throughout the year and I think we've got a very prudent.
Set of guidance here that reflects I think of cautious optimism about a market that's modestly going to improve versus 2020, and we get back to executing in the market. The way that we have traditionally executed I think thats. The gives us a good level of confidence in our in our guidance.
Well I guess is there because I know you've got the kind of the new construction piece of the smaller and you've kind of got the referred.
Piece, that's going to be a larger or kind of constitute a larger piece of the business. Maybe are there any discernible trends there in terms of like year over year change of backlog for projects, particularly of mineral fiber on we're more focused on the mineral fiber side of the ledger.
Yeah, I mean, we have we have limited back.
Backlog visibility right on the mineral fiber business given the majority of that business is renovation activity.
But again to the level of activity on the mineral fiber side is encouraging in terms of its sequential improvement.
And.
Even when you think about the number of cases of Covid in the United States in November December January.
We're huge right and there was more than you had in <unk> and the first two quarters. So I think I think that in spite of that I think we're figuring out how to operate and to continue to open up in spite of those things and now with the vaccine I think theres a lot of logic in support that this should increase.
The mentally continue to improve.
And.
That's what we're that's what we're thinking in baking in here as well.
The other piece of the probably.
Smaller, but I, but we know that home improvement activity has been very strong I guess, how much was the home center growth in the quarter and I guess, what is the sequencing of that and what is your expectation.
Into the first half and for the for the year for the home center growth because that's been a really robust.
Grower in general.
Yes. It was strong in the third quarter net got stronger in the in the fourth quarter of we expect that to still show some strength in the first quarter, but then we'll see where we go from there.
Should.
Seasonally adjust now that we get back into the.
On the comps were home centers started to see additional activity in the back half of the year.
Okay, maybe I'll get make hopefully some some more context on how strong that was was it up like mid teens or 20 or is it the.
The single digits in terms of of the sequencing there.
I don't have that off the top Bryan on no. If you do not or we could get back to Justin.
Yeah. It was it was for the quarter mid teens for the year low teens.
Awesome Awesome and then the last question for me just in terms of the SG&A spend.
I don't know how how to think about that did you did you pull SG&A expense into 2020.
2021 for me.
Maybe a way to think about it how should we think about or how you're modeling absolute SG&A dollar spend.
This year versus versus 2020.
Go ahead, Brian.
So we.
We would expect we exited the year roughly at 20% of sales.
Given the temporary costs that we cut in 2020 and expect them to return in 'twenty one for the full year 'twenty, one I would expect the SG&A to be just right around that 20% of sales range, maybe a little lower.
But as we've talked before.
That's a rebound year and so our longer term objective is not to run the business at a 20% of sales rate.
That's just a reflection of the.
The pivot between 'twenty and 2021.
Excellent actually I have a few more questions, but I'm going to take those offline and I. Appreciate your time guys great. Thanks, gentlemen.
Thanks Jessica.
Thank you. Our next question comes from Phil <unk> of Jefferies. Your line is open.
Thanks for squeezing me in the.
Nick a lot of great color just curious just from of financial crisis standpoint, the last cycle, you saw a pretty sharp snapback in volume.
The first year out of the downturn.
And it was pretty muted afterwards for this year kind of flattish volume incremental fiber, but curious when you look at the 2022, how do you kind of envision that pace of recovery I know theres nothing big nothing normal about the pandemic, but any color in terms of the pace of of recovery, one kind of look out.
Yes, I think youre right to compare back to the financial crisis, because when new construction goes down we have seen a bounce back and renovation activity.
And we saw that actually in the last couple of recessions. So.
We're expecting that that's going to be the case again in 'twenty, one and we expect that to continue into 'twenty two as well, there's a lot of uncertainty between here and there of course, but we're expecting that new construction is going to we're going to feel the effects of a bit of a pause on new construction activity.
Again, I remind people that.
It didn't go to zero, new construction activity did not stop altogether, it was down 10% to 15% and that's 30% of our overall demand profile. So again, we expect that to be a bit of a headwind in 'twenty one of 22.
But offset by what you are referring to fill which is a bounce back in renovation activity and we're counting on some of that in 'twenty, one I think we're being.
I think we're being enough we're showing some caution here enough I think given the uncertainty of it in 'twenty, one, but the numbers would say that this should continue into 'twenty, two and we should continue to see renovation activity pick up in 'twenty two.
Okay, great and some of your newer products on the health care side sounds really promising I know not raising the stuff.
Take time, you just rolled it out but is the contribution.
Going to be a little more impactful on the back out this year or should we think of it is more of of 2022 opportunity.
No I think we should continue to see.
Whether it will move the overall needle I think you've got it in our guidance of zero to two on the mineral fiber side, you've got the captured we've got of captured there I think but.
As you have alluded to fill this does take some time to get some traction.
And to get some critical mass behind it much like our total acoustics and some of our other launches have done so I expect 'twenty to be much better in 'twenty, one of course, but I expect some some continuation of sequential growth quarter to quarter throughout the year.
Got it and just one last one what's the go to market strategy for your canopy offering will just be more direct to the end consumer are you doing this in conjunction with your wholesale partners.
It's going to be all of the above I think we have an opportunity to because of the digital platform, we have an opportunity to reach out to.
The building owners.
Occupancy of spaces, we have we have an opportunity to obviously.
Support our distribution of sales efforts and some of the specific markets that theyre targeting.
Again, that's the I think one of the benefits of of digital platform. It does give you that flexibility to cost effectively reaching in touch very specific markets.
Because of its digital format and I expect us to have a broader capability to touch more of the market and more of the stakeholders and influencers of these market segments with this digital platform.
Super helpful guys. Good luck on the quarter yeah. Thanks, Phil Thanks.
Thanks.
Thank you of our next question comes from David Macgregor of Longbow Research. Your line is open.
Yes, good morning, everyone and congratulations on the results Nick.
I guess I want.
Wanted to ask you about acquisitions go back too.
It's kind of a couple of previous questions but.
Can you talk about the cadence.
Lying ahead as being maybe 1% to three transactions.
I think I heard you say capacity organizational capacity may be the way youre thinking about limiting factors.
I guess just to sort of focus maybe on the one versus the three transactions you've got a good balance sheet, one eight times EBITDA at the end of the quarter, but with the depressed EBITDA, but it should be.
The only some level of recovery here.
Clearly of the capacity to do larger transactions and I'm just wondering how you kind of reconcile the two.
On the one hand, the possibility of doing larger transactions that would make a more sort of.
A material contribution to growth versus.
The opportunity set for Susan the funnel in that occupation of the organizational capacity that you referenced.
Yes, we're not opposed to doing larger transactions.
And the and the.
The areas of the market that were hunting right now, we're trying to fill gaps of capabilities capacity.
Theyre not large companies that we've come across so it's not like we are.
We're opposed to doing larger transactions. So to your point, we clearly have the capability to do larger transactions I think where we are in our evolution of this the segment architectural specialty segment the.
The opportunities arent large transactions.
So as we as we continue to evolve and we continue to look at technology as a dimension of our overall space in which we are hunting and we've expanded that to the digital technology.
We'll have to see what happens here, but we're not letting we're not avoiding larger transactions.
Because of our cadence or because of our capacity either either either way we're open for business on both large and smaller projects.
Do you foresee the possibility of your acquisition program, taking you into Adjacencies.
Well there.
Can you say adjacencies, David of Youre, referring to something outside of the ceilings and walls.
Yes, I guess something that the.
Your customers buying something else that your customers buying that you could leverage off that.
The distribution capability.
Right now we see the spec writing capability, Yeah, I mean, we see plenty of opportunity for us to expand into the adjacencies within ceilings and walls.
And we're doing that we're expanding into.
The other types of materials and capabilities and design within ceilings and walls and I think we have plenty of opportunity. There. We don't need to go look for a different field of play in it at this time I never say never but again, where we are today, we have plenty of opportunities to stay focused on ceilings and walls.
Great. Thanks, very much for you bet. Thank you.
Yes.
Thank you at this time I would like to turn the call back over to CEO Vic Grizzle for closing remarks, Sir I just wanted to thank you I just want to thank everybody for hanging in there and for the terrific questions. We had a lot of material we went over today.
Mainly driven by we had a lot of to cover today, but I want to thank everybody for hanging in there. Thank you for your questions and your interest and we look forward to talking to you next quarter.
Stay safe out there.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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