Q2 2025 Armstrong World Industries Inc Earnings Call

Operator: Thank you for standing by.

Tina: My name is Tina, and I will be your conference operator today.

Thank you for standing by. My name is Tina, and I will be your conference operator today.

Tina: At this time, I would like to welcome everyone to the second quarter 2025 Armstrong World Industries Incorporated earnings call. All lines have been placed on mute to prevent any background noise.

Tina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.

Hi, I would like to welcome everyone. To the second quarter, 2025 Armstrong, World Industries, Incorporated earnings, call all lines have been placed on mute to prevent any background noise.

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

This remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again,

thank you. It is now my pleasure to turn the call over to Theresa Womble vice president of investor relations and corporate Communications. You may begin

Theresa Womble: Thank you, Tina, and welcome everyone to our call this morning. Today, we have Vic Grizzle, our CEO, and Chris Calzaretta, our CFO, to discuss Armstrong World Industries' second quarter results and rest of your outlook. We have provided a presentation to accompany these results that is available on the investors section of the Armstrong World Industries website. Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the earnings press release and in the appendix of the presentation issued this morning.

Thank you Tina and welcome everyone to our call this morning. Today we have Vic, Grizzle our CEO, and Chris ceretta, our CFO to discuss Armstrong World Industries, second quarter results, and rest of your outlook we have provided a presentation to accompany these results that is available on the investors section of the Armstrong, World Industries website.

Theresa Womble: Both of these are available on the website.

Theresa Womble: During this call, we will be making forward-looking statements that represent the view we have of our financial and operational performance as of today's date, July 29, 2025. These statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of the risks and uncertainties in our SEC filings, including the 10Q filed earlier this morning. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law.

Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC regulation. A reconciliation of these measures with the most directly comparable GAAP measures is included in the earnings press release and in the appendix of the presentation issued this morning. Both of these are available on the website.

During this call, we will be making forward looking statements. That represent the view. We have of our financial and operational performance as of today's date. July 29th, 2025.

These statements involve risks and uncertainties that may differ materially from those expected or implied.

We provide a detailed discussion of the risks and uncertainties in our SEC filings, including the 10-Q filed earlier this morning.

Vic Grizzle: Now, I'll turn the call over to Vic. Thank you, Theresa. Good morning, and thank you for joining our call today to discuss our second quarter 2025 results and our expectations for the remainder of the year. We delivered another quarter of record sales and earnings as we continue to execute at a high level and to demonstrate the resilience of our business model in these unique and uncertain market conditions. In the second quarter, on a consolidated basis, we increased net sales by 16% and adjusted EBITDA by 23%. And with efficient execution, we expanded adjusted EBITDA margin by 200 basis points over the prior year to 36%.

We take note; we undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law. Now, I'll turn the call over to Vic.

Thank you, Teresa. Good morning, and thank you for joining our call today to discuss our second quarter 2025 results and our expectations for the remainder of the year.

We delivered another quarter of record sales and earnings as we continue to execute at a high level and to demonstrate the resilience of our business model in these, these unique and uncertain market conditions.

Vic Grizzle: Adjusted diluted earnings per share rose 29% year over year, marking the company's highest quarterly EPS growth rates separating from the foreign business in 2016. Similarly, we generated strong, adjusted free cash flow both in the quarter and on a year-to-date basis, allowing for the continuation of funding of all of our capital allocation priorities, despite uncertain market conditions. In these times of market uncertainty, it is even more critical to employ an even higher level of focus within an organization, and that's what our organization did in the second quarter. Our team stayed focused on what we can control, our costs, our initiatives, and our service to customers.

And the second quarter on a Consolidated basis. We increase net sales by 16% and adjusted Deepa do by 23% and with efficient execution, we expanded adjusted Deepa dot margin by 200 basis points over the prior year to 36%

adjusted diluted earnings per share, Rose 29% year-over-year marking, the company's highest quarterly EPS growth rate since separating from the foreign business and 2016

Similarly, we generated strong, adjusted free cash flow, both in the quarter and on a year-to-date basis allowing for the continuation of funding of all of our Capital allocation priorities.

Despite uncertain market conditions.

Vic Grizzle: And I'm pleased with how we have focused and executed in each of these areas. Our plant teams continue to exemplify our safety culture with improvement on all of our safety metrics and delivered strong productivity results in the quarter. And our commercial teams worked even closer with our customers to deliver industry-leading service and support.

In these times of Market uncertainty, it is even more critical to employ an even higher level of focus within an organization. And that's what our organization did in the second quarter. Our team stayed focused on what we can control our costs, our initiatives and our service to customers

And I'm pleased with how we have focused and executed in each of these areas.

And delivered strong productivity results in the quarter.

Vic Grizzle: I want to take this opportunity to thank our teams for their outstanding work and their dedication to consistent execution and delivery of results for our customers and our shareholders.

And our commercial teams worked even closer with our customers to deliver industry-leading service and support.

How would it take this opportunity to thank our teams for their outstanding work, and their dedication to consistent execution and delivery of results for our customers, and our shareholders?

Vic Grizzle: Turning now to highlight our segment performance. In our mineral fiber segment, our second quarter net sales grew 7% with strong AUV growth of 5% and a modest contribution from volume, both of which were supported by our innovation efforts and our digital initiatives that continues to propel growth at the high end of our product portfolio. Adjusted EBITDA on the mineral fiber segment grew 16%, and adjusted EBITDA margin expanded by 350 basis.

Turning. Now to highlight our segment performance in our mineral fiber segment our second quarter, net sales grew 7% was strong auv growth of 5% and a modest contribution from volume.

Both of which were supported by our innovation efforts and our digital initiatives, that continue to propel growth at the high end of our product portfolio.

Vic Grizzle: driven by contributions from WAVE, along with good SG&A cost control, and manufacturing productivity gains. This margin level was the best second quarter result since our separation from flooring in 2016.

Adjusted iPad on the mineral, fiber, segment grew 16% and adjusted our margin expanded by 350 basis points.

Driven by contributions from wave along with good sgna cost control and Manufacturing productivity gains.

This margin level was the best second quarter result since our separation from flooring and 2016.

Vic Grizzle: Turning next to our architectural specialty segment, where our net sales grew 37% in the quarter. Both organic and inorganic sales grew double digits. Both our new acquisitions, 3Form and Zayner, exceeded expectations in the quarter, but especially impressive was the organic growth of 15%, well above market activity level. Both organic and inorganic growth performance reflect strong penetration into the specialties market with our expanding portfolio of products and capabilities. As we have noted before, our expansion of architectural specialties and new materials and capabilities... allows us to sell more products into more spaces of a building. With this expanded product portfolio, we can continue to penetrate further into the same commercial buildings where we sell mineral fiber today.

Turning next to our Architectural Specialties segment, where our net sales grew 37% in the quarter.

Both organic and inorganic sales grew double digits.

Both are new acquisitions 3 form and zener exceeded expectations in the quarter, but especially impressive was the organic growth of 15%, well above Market activity levels.

Both organic and inorganic growth performance reflects strong penetration into the specialties market with our expanding portfolio of products and capabilities.

As we have noted before our expansion of our architectural Specialties in new materials and capabilities.

Allows us to sell more products into more spaces of a building.

Vic Grizzle: These additional spaces include solutions beyond the core ceiling plane, extending into specialty walls, other interior finishes like column covers, grills, and partitions, and now exterior facades and rain screens. And with our confidence in our cash flow growth, we continue to build our pipeline for future bolt-on acquisitions to further expand our portfolio. This collective organic and inorganic growth has been a successful strategy for the company. delivering nearly a 20% CAGR since our separation from flooring. This breadth of the portfolio, coupled with our digital initiatives, is best illustrated with a recent project win of a four-story health center building in Virginia.

With this expanded product portfolio, we can continue to penetrate further into the same commercial buildings where we sell mineral fiber today.

These additional spaces include solutions beyond the core ceiling plane, extending into specialty walls, other interior finishes like column covers, grills, and partitions, and now exterior facades and rain screens.

And with our confidence in our cash flow growth, we continue to build our pipeline for future bolt-on Acquisitions to further expand our portfolio.

This Collective organic and inorganic growth has been a successful strategy for the company, delivering nearly a 20%. Cager since our separation from flooring,

Vic Grizzle: Project WORX was used for each of the seven phases of the project providing significant productivity and speed for the customer. In total, 32 unique Armstrong solutions were specified and used on the project, including a range of products and services that no other single manufacturer could provide. This breadth of portfolio, along with the automated design services provided by ProjectWorks, are a unique competitive advantage for Armstrong.

The breadth of the portfolio, coupled with our digital initiatives, is best illustrated with a recent project—a four-story Health Center building in Virginia.

Project Works was used for each of the seven phases of the project, providing significant productivity and speed for the customer.

In total 32 unique Armstrong Solutions, were specified and used on the project, including a range of products and services that no other single manufacturer could provide.

This breadth of portfolio along with the automated Design Services. Provided by project works are a unique competitive Advantage for Armstrong.

Vic Grizzle: In addition to our impressive sales growth in architectural specialties, I'm particularly pleased with the profitability performance in this segment. We continue to make strides in improving our operational efficiency and gaining operating leverage, which drove adjusted EBITDA growth of 61% and an adjusted EBITDA margin of approximately 22% in the quarter. This was the highest quarterly adjusted EBITDA margin of any quarter since 3Q of 2020. We expect that 2025 will mark the third consecutive year of improved organic adjusted EBITDA margin growth. And we remain confident in our ability to deliver greater than 20% EBITDA margins in the architectural specialty segment.

In addition to our Impressions, impressive sales growth in architectural Specialties, I'm particularly pleased with the profitability performance in this segment.

We continue to make strides in improving our operational efficiency and gaining operating leverage which drove adjusted EPA. Dot growth of 61% and an adjusted iPad do margin of approximately 22% in the quarter,

This was the highest quarterly adjusted EPA dot margin of any quarter since 3Q of 2020.

We expect that 2025 will mark the third consecutive year of improved organic adjusted EBITDA margin growth.

And we rank remain confident in our ability to deliver greater than 20% ibaon margins in the architectural specialty segment.

Vic Grizzle: Overall, in the second quarter, we increased our efforts to improve efficiency throughout the business in anticipation of softer economic conditions ahead. The early results of these efforts contributed to the margin expansion we delivered in a quarter. In the sales organization, we saw strong performance with our commercial initiatives which are improving our coverage and penetration in our core market. Earlier this year, we implemented a sales and marketing optimization program to better position the commercial team with our customers, driving greater efficiency and selling capacity to better serve both our A&D customers and our distribution partners. These changes, together with our innovation and our various growth initiatives, are making a difference in delivering above-market-level performance.

Overall, in the second quarter, we increased our efforts to improve efficiency throughout the business in anticipation of softer. Economic conditions ahead.

The early results of these efforts, contributed to the margin expansion. We delivered in a quarter.

And the sales organization, we saw strong performance with our commercial initiatives, which are improving our coverage and penetration in our core markets.

Earlier this year, we implemented a sales and marketing optimization program to better position the commercial team with our customers, driving greater efficiency and selling capacity to better serve both our A and D customers and our distribution partners.

Vic Grizzle: So again, very pleased with the level of focus and execution demonstrated by our teams and the results so far this year.

These changes together with our Innovation and our various growth initiatives are making a difference in delivering above Market, level performance.

Chris Calzaretta: Let me pause here and turn it over to Chris for more details on the financials. Chris? Thanks, Vic. And good morning to everyone on the call. As a reminder, throughout my remarks, I'll be referring to the slides available on our website and slide three, which details our basis of presentation.

so again, very pleased with the level of focus and execution demonstrated by our teams and the results so far this year

Chris Calzaretta: Beginning on slide six, we summarize our second quarter mineral fiber segment results. Mineral fiber net sales were up 7% in the quarter, primarily driven by favorable AUV of 5%, and a modest increase in volumes, both of which were primarily driven by strong commercial execution and benefits from growth initiatives. Specifically, the growth in AUV versus the prior year was driven by both favorable like-for-like pricing and met Mineral fiber segment adjusted EBITDA gross by 16% and adjusted EBITDA margin expanded by 350 basis points to approximately 45% on strong execution by the business in the quarter. Notably, this marks the 10th consecutive quarter of year-over-year adjusted EBITDA margin expansion in the mineral fiber segment.

Thanks Vic. Good morning to everyone on the call, as a reminder, throughout my remarks I'll be referring to the slides available on our website and slide 3 which details our basis of presentation

Beginning on slide 6, we summarize our second quarter mineral, fiber segment results.

Mineral fiber. Net sales were up 7% in the quarter, primarily driven by favorable auv of 5% and a modest increase in volumes both of which were primarily driven by strong commercial execution and benefits from growth initiatives.

Specifically, the growth in awe versus the prior year was driven by both favorable like-for-like pricing and mix.

The mineral fiber segment's adjusted EBIT grew by 16%, and the adjusted EBITDA margin expanded by 350 basis points to approximately 45% on strong execution by the business during the quarter.

Notably this marks, the 10th consecutive quarter of year-over-year. Adjusted ebit on margin expansion in the mineral fiber segment.

Chris Calzaretta: Q2 mineral fiber EBITDA growth was primarily driven by AUV growth, contribution from the wave joint venture and lower SG&A expenses, which included the benefit from our disciplined focus on cost control, as well as the positive impact of higher sales volumes in the quarter. Higher input costs, driven primarily by inflation in both raw materials and energy, were partially offset by a decrease in manufacturing costs.

Q2 mineral, fiber EBIT, dog. Growth was primarily driven by AUV growth contribution from the Wave joint venture and lower SG&A expenses, which included the benefit from our disciplined focus on cost control, as well as a positive impact of higher sales volumes in the quarter.

Chris Calzaretta: On slide seven, we discuss our architectural specialties or AS segment results, where we highlight net sales growth of 37 percent. This growth was driven primarily by contributions from our 2024 acquisitions, 3Form and Zayner, both of which continue to perform better than expected. On an organic basis, I'm very pleased to report that we delivered second quarter sales growth of 15 percent driven by strengthening broad-based penetration throughout our specialty product category. AS segment adjusted EBITDA grew 61% with an adjusted EBITDA margin of approximately 22%, marking the best Q2 margin performance since 2019. Adjusted EBITDA margin expanded 310 basis points as higher acquisition-related operating costs were more than offset by strong sales growth from our 2024 acquisition.

Higher input costs, driven primarily by inflation in both raw materials and energy, were partially offset by a decrease in manufacturing costs.

On slide 7. We discuss our architectural Specialties or as segment results where we highlight net sales, growth of 37%

This growth was driven primarily by contributions from our 2024 Acquisitions 3 form, in zener, both of which continue to perform better than expected.

On an organic basis. I'm very pleased to report that we delivered second quarter sales, growth of 15% driven by strengthening broad-based penetration throughout our specialty product categories.

As segments adjusted ebit, dog. Grew 61% with an adjusted ibaon margin of approximately 22% marking the best q22 margin performance since 2019.

Chris Calzaretta: Additionally, the improvement and adjusted EBITDA margin reflected continued improvement and operational leverage on our cost base in the sector. We are pleased to have achieved 20% or greater adjusted EBITDA margins for both the organic and inorganic sides of the AS business in the quarter. The integration work on our 2024 acquisitions is on track and these businesses are performing better than expected. We remain committed to achieving our goal of a greater than 20% adjusted EBITDA margin on a full year basis in this segment.

Adjusted ebit margin expanded 310 basis points as higher acquisition related. Operating costs were more than offset by strong sales. Growth from our 2024 acquisitions.

Additionally the Improvement and adjusted Evita margin reflected continued improvements in operational, leverage on our cost base in the segment.

We are pleased to have achieved 20% or greater adjusted ebata margins for both the organic and inorganic sides of the as business. In the quarter, the integration work on our 2024 Acquisitions is on track and these businesses are performing better than expected.

We remain committed to achieving our goal of a greater than 20% adjusted. Evita margin on a full year basis in this segment.

Chris Calzaretta: Slide 8 highlights our second quarter consolidated company metrics. We delivered 16% net sales growth and 23% adjusted EBITDA growth with 200 basis points of adjusted EBITDA margin expansion, along with 29% growth in adjusted diluted net earnings per share. Incremental volume for both segments, strong AUV performance, and healthy equity earnings from WAVE drove our adjusted EBITDA growth in the second quarter versus the prior year period. These benefits more than offset an increase in SG&A, which was driven by our 2024 acquisitions of 3-form and Zaner. Excluding the impact of these acquisitions, we delivered an organic total company adjusted EBITDA margin of approximately 38 percent, which represents 300 basis points of margin expansion as compared to the second quarter of 2024.

Slide 8 highlights our second quarter Consolidated company metrics.

We delivered 16% net, sales growth and 23% adjusted IBA, dog. Growth with 200 basis points of adjusted, Evita margin expansion, along with 29% growth, in adjusted, diluted net, earnings per share.

Incremental volume for both segments, strong AEV performance and healthy Equity earnings from wave drove, our ad, adjusted ebata growth. In the second quarter versus the prior year period.

These benefits more than offset an increase in SG&A, which was driven by our 2024 acquisitions of 3 Foreman Zur.

Excluding the impact of these Acquisitions. We delivered in organic total company, adjusted Eva margin of approximately 38%, which represents 300 basis points of margin expansion as compared to the second quarter of 2024.

Chris Calzaretta: Turning to page 9, we highlight our first half consolidated company metrics, which reflect double-digit net sales and adjusted EBITDA growth with margin expansion. Through the first six months of the year, with sales up 17 percent and adjusted EBITDA up 20 percent, margins expanded 100 basis points versus the prior year period. Adjusted diluted net earnings per share increased 25% and adjusted free cash flow increased 29%. The drivers of year-to-date adjusted EBITDA growth are similar to the previously mentioned second quarter drivers.

Turning to page 9 we highlight our first half Consolidated company metrics which reflect double-digit net sales and adjusted Eva dog growth with margin expansion.

Through the first 6 Months of the Year with sales up, 17% and adjusted IBA up. 20%, margins expanded, 100 basis points versus the prior year period.

Adjusted diluted net earnings per share, increased 25% and adjusted free cash flow. Increased 29% the drivers of year to date adjusted. Even dog growth are similar to The previously mentioned. Second quarter drivers.

Chris Calzaretta: Slide 10 shows our year-to-date adjusted free cash flow performance versus the prior year. The 29% increase was driven primarily by higher cash earnings and dividends from our Wave joint venture. These results demonstrate our ability to consistently achieve adjusted free cash flow growth despite challenging market conditions, allowing us to deploy our cash generation for investments back into the company, as well as to provide returns for our shareholders.

Slide 10 shows our year-to-date adjusted free. Cash flow performance versus the prior year.

The 29% increase was driven primarily by higher cash earnings and dividends from our wave joint venture

These results demonstrate our ability to consistently achieve adjusted free, cash flow growth despite challenging market conditions allowing us to deploy. Our cash generation for Investments, back into the company, as well as to provide returns for our shareholders.

Chris Calzaretta: In the second quarter, we paid $14 million in dividends and repurchased $30 million of shares. As of June 30th, 2025, we have $610 million remaining under the existing share repurchase authorization. Given our healthy balance sheet and our proven ability to consistently generate strong cash flow, we remain well positioned to execute and advance our strategy.

Shares.

As of June 30th 2025, we have 610 million remaining under the existing share repurchase authorization.

Given our healthy balance sheet and our proven ability to consistently generate strong cash flow, we remain well positioned to execute and advance our strategy.

Chris Calzaretta: Slide 11 shows our updated full year 2025 guidance. We are raising our full-year guidance due to our first-half performance and our expectations for continued execution for the remainder of the year. The change in our guidance versus our prior guide provided in April is primarily driven by stronger first half performance, as well as stronger performance in AS, both organically and from our 2024 acquisition.

Slide 11 shows our updated full year 2025 guidance.

We are raising our full year guidance, due to our first half performance and our expectations, for continued execution. For the remainder of the year.

Chris Calzaretta: We still expect softening market conditions in the back half of the year as compared to the first half. We now expect total company net sales growth of 11% to 13% for the full year, up from our prior expectations of 9% to 11%. And total company adjusted EBITDA growth in the 12% to 15% range, up from the previous range of 8% to 12%.

The change in our guidance versus our prior guide provided an April is primarily driven by stronger. First half performance as well as stronger performance in as both organically. And from our 2024 acquisitions

We still expect softening market conditions in the back back, half of the year as compared to the first half.

We now expect total company net sales growth of 11% to 13% for the full year, up from our prior expectations of 9% to 11%.

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

And total company adjusted ebit, dog growth in the 12, to 15% range up from the previous range of 8 to 12%.

Additionally, we are increasing our guidance for both adjusted diluted net earnings per share and adjusted free cash flow.

As was the case in April, our updated guidance continues to reflect the impacts of currently implemented and announced tariffs.

While tariffs, as they stand today are a modest headwind. They did not have a material direct impact on our second quarter results. And we do not anticipate that they will have a significant direct impact on our second. Half results due to our plan to mitigation actions and our predominantly local supply chain.

Chris Calzaretta: For WAVE, the tariffs as currently implemented and announced have about a 5% direct impact on the JV's total cost of goods sold and is consistent with our prior outlook. We are successfully mitigating the impacts of these tariffs and our updated guidance is reflective of those actions.

The tariffs as currently implemented and announced represent a direct impact to our total cost of goods sold of approximately 1%, which is lower than our prior Outlook.

For wave the tariffs as currently implemented and announced have about a 5% direct impact on the jv's total cost of goods sold and is consistent with our prior Outlook.

Chris Calzaretta: I'd like to turn your attention briefly to the recently finalized tax bill. While this legislation is complex and we are still evaluating its full impact on our business, we currently estimate that it will result in a cash tax benefit in 2025. And as such, we expect a normalized full year cash tax rate of approximately 22%.

We are successfully mitigating the impacts of these tariffs and our updated guidance is reflective of those actions.

I'd like to turn your attention briefly to the recently finalized tax bill.

Chris Calzaretta: As Vic noted, we are pleased with our first half financial performance and the margin expansion that we have achieved in both segments. As we look to the back half of the year, we remain committed to driving profitability, expanding margins, continuing to deploy cash to generate growth, and creating value for our shareholders.

While this legislation is complex and we are still evaluating its full impact on our business. We currently estimate that. It will result in a cash tax benefit in 2025 and as such we expect a normalized full year cash tax rate of approximately 22%

As Vic noted, we are pleased with our first half financial performance and the margin expansion that we have achieved in both segments.

Vic Grizzle: And now I'll turn it back to Vic for further comments before we take your questions. Thanks, Chris. Previously, we have communicated how critically important innovation is to our competitive advantage and our overall strength of our market position, and its importance for AUV growth.

As we look to the back half of the year, we remain committed to driving profitability, expanding margins, continuing to deploy cash to generate growth and creating values value for our shareholders.

And now, I'll turn it back to Vic for further comments before we take your questions.

Vic Grizzle: I'd like to take a few minutes now to update you on the progress of Templock, our latest innovation for energy-saving ceiling. As many of you know, we fully launched the Templock product line in early 2024 and have been working to increase the awareness and the understanding of the energy saving value proposition Templock offers building owners and operators. This is the industry's first ceiling tile that can help regulate temperatures within buildings and reduce the costs and energy usage required for heating and cooling. With a proprietary phase-change material formulation, Templock products can help reduce energy used to heat and cool buildings by up to 15%.

Thanks Chris previously. We have communicated. How critically important innovation is to our competitive advantage and our overall strength of our Market position and it's important for Au growth,

I'd like to take a few minutes now to update you on the progress of templo. Our latest Innovation for energy saving ceilings

As many of, you know, we fully launched the templo product line and early 2024, and have been working to increase the awareness, and the understanding of the energy saving value. Proposition 10 block offers building owners and operators.

This is the industry's first ceiling tile that can help regulate temperatures within buildings and reduce the costs and energy usage required for heating and cooling.

Vic Grizzle: As such, these products address the increasing demand for both energy efficiency and decarbonization while also reducing energy usage at peak time. thereby lessening the strain on the grid systems in the U.S. And this becomes increasingly important as data center growth accelerates.

With a proprietary phase change material, formulation temp, block products, can help reduce energy, use to heat and cool buildings by up to 15%.

As such these products address, the increasing demand for both Energy, Efficiency and decarbonization while also reducing energy usage at peak times.

Vic Grizzle: We also mentioned in our last call that phase change material gained explicit inclusion as a qualifying thermal energy storage technology for tax credits under the Inflation Reduction Act. We are happy to report that those credits remain in the final tax law that Congress passed earlier in July. Customers of Templot may be eligible for tax credits of 40-50% through 2033, dramatically improving the return on their investment. This means that Templock, with its unique application of phase change material, can provide an accelerated return for building owners and operators through lower material and labor costs. We see this as an enabler to accelerate the rate of renovation of this large installed base in North America.

Thereby lessening The Strain on the grid systems in the US and this becomes increasingly important as data center growth accelerates.

We also mentioned in our last call that phase change material gained explicit inclusion, as a qualifying thermal energy storage technology for tax credits, under the in inflation reduction Act.

We are happy to report that those credits remain in the final tax law. That Congress passed an earlier earlier in July,

customers of 10 block, may be eligible for tax credits of 40 to 50% through 2033 dramatically, improving the return on their investment.

Vic Grizzle: I'm also pleased to share that now Templot products are part of the energy modeling software platform offered by Integrated Environmental Solutions, or IES. IES is the global leader in energy modeling for the built environment. IES software is used by tens of thousands of architects, designers, and engineers to analyze and optimize building performance on metrics like carbon emissions and energy consumption. The inclusion of Templock into the IES software now opens up the ceiling plane as a new source of energy savings to building energy modelers. And we expect this will further accelerate the awareness and adoption of Templock.

We see this as an enabler to accelerate the rate of renovation of this large installed base in North America.

I'm also pleased to share that now Temp Block products are part of the energy modeling software platform offered by Integrated Environmental Solutions (IES). IES is the global leader in energy modeling for the built environment. Its software is used by tens of thousands of architects, designers, and engineers to analyze and optimize building performance on metrics like carbon emissions and energy consumption.

The inclusion of temp block into the is software now, opens up the ceiling plane as a new source of energy savings to building energy modelers.

And we expect this will further accelerate the awareness, and Adoption of temp block.

Vic Grizzle: So with more certainty around the potential tax credit in place and now the ability for customers to model their energy savings from Templock with the IES software, and together with growing customer awareness of Templock, we have even greater excitement about the opportunity to accelerate the rate of renovation.

So with more certainty around the potential tax credit in place and now the ability for customers to model their Energy savings from temp, block with the is software and together with growing customer awareness of temp block. We have even greater excitement about the opportunity to accelerate the reign of rate of renovation.

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

Now, before we get to your questions, a few comments about the market.

Overall, in the first half, we have experienced about what we had expected, an overall, kind of flattish. Sideways moving Market albeit with some chop against the backdrop of uncertainty.

Our outlook remains for a slightly softer back half compared to what we saw in the first half, due to forecasted lower levels of overall economic activity. Again, this is largely driven by uncertainty on tariffs, inflation, labor, and interest rates.

Vic Grizzle: This outlook is largely in line with leading economic forecasts, as well as more commercial-specific leading indicators. In our updated guidance, you can see that despite softer market conditions, We will continue to outperform the market through consistent AUV growth, productivity gains, and margin expansion. Our 2025 guidance reflects the benefits of the diversity of our end markets. contributions from our growth initiatives and momentum in the architectural specialties segment, along with our proven ability to prudently control costs. We have demonstrated this above-market performance for the past several years.

This persistent level of uncertainty is expected to slow commercial construction activity with the greatest impact, likely on more discretionary type renovation projects.

This Outlook is largely in line with leading economic forecasts, as well as more commercial specific, leading indicators.

In our updated guidance, you can see that despite software market conditions,

we will continue to outperform the market through consistent auv, growth productivity, gains and margin expansion. Our 2025 guidance, reflects the benefits of the diversity of our end. Markets contributions from our growth initiatives and momentum in the architectural, Specialties segments, along with our proven ability to prudently control costs,

Vic Grizzle: This gives us confidence in our ability to continue our efficient execution in these uncertain market conditions and to deliver our third year in a row of double-digit bottom-line growth with margin expansion. With consistent, strong-adjusted free cash flow growth and the ability to execute on all of our capital allocation priorities, we remain focused on advancing our growth strategy and creating value for our shareholders throughout all parts of the cycle.

We have demonstrated this above market performance for the past several years. This gives us confidence in our ability to continue our efficient execution. In these uncertain market conditions and to deliver our third year, in a row of double digit, bottom line, growth with margin expansion.

With consistent strong adjusted free cash flow growth and the ability to execute on all of our capital allocation priorities.

Operator: And with that, we'll be happy to take your questions. As a reminder, to ask a question, simply press star one on your telephone keypad. Please limit questions to one and one follow-up. We will now pause for just a moment to compile the Q&A roster.

We remain focused on advancing our growth strategy and creating value for our shareholders throughout all parts of the cycle.

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

As a reminder to ask a question.

Simply press star 1 on your telephone keypad. Please limit questions to 1 and 1 follow up. We will now pause for just a moment to compile the Q&A roster.

Susan Maklari: And our first question comes from the line of Susan Maklari with Goldman Sachs. Please go ahead. Good morning, everyone. Thanks for taking the questions. Good morning.

And our first question comes from the line of Susan McClary, with Goldman Sachs, please go ahead.

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

Susan Maklari: Good morning, Susan. My first... Good morning.

Good morning. Good morning. This is my first.

Susan Maklari: My first question is focusing on the architectural specialty segment. The organic growth that you saw this quarter was impressive, especially given the operating backdrop. Can you give us a bit more color on how these initiatives are coming together to drive that level of growth that you saw?

Susan Maklari: And then any thoughts on how we should be thinking of the back half performance as the comps there start to get a bit tougher on a relative basis?

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

Vic Grizzle: Yes, I'll take that first part, Susan, and then Chris, I'll turn over the back half cost. The architectural specialty growth, the organic growth, as you mentioned, Susan, was impressive. It was a continuation, I think, of the momentum on how we're executing and penetrating the market. We certainly know the market's not growing at this level. So it really is demonstrating the success of our commercial teams and penetrating and getting access to more spaces. in these buildings. The one highlight to your point about our growth initiatives, the ProjectWorks software platform is proving to be an extremely important productivity tool for architects to do more complex designs and take some of the complexity out of the design when it gets to the contractors.

Yes, I'll take that first part Susan. And then Chris I'll I'll turn over the back, half cost the uh our architectural specially growth, the organic growth, as you mentioned since it was impressive. Um it was um a continuation I think of the momentum on how we're executing and penetrating the market. We we certainly know the Market's not growing at this level. Um, so it it really is demonstrating the the success of our commercial teams and penetrating and getting access to more space in these buildings.

Vic Grizzle: And that is enabling, I think, more and more architectural specialties to be specified in spaces and even more complex solutions to be specified in these statement spaces. So it really is the breadth of the portfolio and the commercial execution to take that to market. to more architect's offices, coupled with our digital tools to make it easier to specify Armstrong solutions and really hire more complex solutions from Armstrong that makes them more unique in the marketplace. I think that's gaining traction and that's really helping us thrive the organic part of the growth in AS.

The the 1 highlights to your point about their growth initiatives. The project Works software platform is proving to be an extremely important Prophet uh um productivity tool for Architects to do more complex designs and take some of the complexity out of the design when it gets to the contractors.

Complex, um, solutions to be specified in these, these statement spaces. So, it really is the breadth of the portfolio and the commercial execution to take that to Market.

Vic Grizzle: I just, you know, since you brought up AS, what's also very impressive is the two new acquisitions, right? Freeform and Zayner, the integration with those two organizations is going extremely well. And when you look at, they did exceed our expectations, at least in the second quarter with their performance. And it's really a tribute to the management teams there. They're really professional, highly skilled management teams and they have the right attitude to integrate with Armstrong. And I think that's allowed the integration to go, you know, much better than we could have imagined from the beginning. So very pleased with both the inorganic and the organic growth in architectural specialties.

And to more Architects offices, coupled with our digital uh tools to make it easier to specify Armstrong Solutions and really higher. Um, more complex solutions from Armstrong, that makes them more unique in the marketplace. I think that's gaining traction and that's really helping us drive. Um, the organic part, uh, of the growth in as I just, you know, since you brought up as the what's also very impressive is the 2 new acquisitions, write 3 form. And zener um the integration with those 2 organizations is going extremely well. And um when you look at they did exceed, our expectations at least um,

Uh, and the second quarter with their performance and it's really attribute to the management teams. There they're really professional highly skilled management teams and they have the right attitude to integrate with Armstrong. And I think that's allowed the integration to go, you know, much better than than we could have imagined from the beginning. So very pleased with both the inorganic and the organic growth uh in architectural specialists.

Chris Calzaretta: And maybe, Susan, to comment on the top-line growth in the back half of the year. You're right, you know, lapping a stronger second-half top-line performance on the organic side in 2024. And still, when you account for that, still a healthy level of organic top-line growth with margin expansion expected in the back half of the year organically.

Susan Maklari: And just to highlight again, you know, net sales for the total AS segment expecting greater than 25% top-line growth this year with about a 19% adjusted EBITDA margin. So to Vic's point, really, really pleased with both the organic and inorganic contributions on the AS side of the business. Yeah, okay, that's helpful color.

And maybe Susan to comment on the the Topline growth in the, in the back half of the year, you're right? Um, you know, lapping a stronger second half, Topline performance on The Organic side in 2024. And so when you account for that, still a healthy level of organic Topline growth um with with margin expansion uh, expected in the in the back half of of the Year organically and just to just to highlight again, you know, uh, net sales for the total as segments expecting greater than 25% Topline growth this year, uh, with about a 19% adjusted, but down margin. So, to fix Point really, really pleased with both the organic and inorganic contributions uh on the as side of the of the business

Susan Maklari: And then maybe building on that, can you talk a bit about what you're seeing in terms of the bidding activity, either regionally or in terms of various end markets and segments in there? And, you know, how that compares to your comment that you expect to outperform the market in the second half, even with all the macro uncertainty that continues? Yeah, the, you know, the overall market that we saw in the first half, and the bidding activity will We'll connect to this is, has really been an overall, I would say, stable market condition, flattish and sideways moving, as we talked about, that there's really been no uptick in project delays or project cancellations in the first half.

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

Yeah, the, um, you know, the overall market, um, that we saw in the first half and the bidding activity will, um,

We'll connect to. This is has really been an overall, I would say, Stable Market condition.

Flattish and sideways moving. As we talked about, there's really been no uptick in project delays or project cancellations in the first half.

Vic Grizzle: But when you look at the first-time bidding activity that DODGE reports on, it remained soft again in the second quarter. It wasn't as soft as we saw in the first quarter, but it certainly reflects a level of uncertainty that's in the market in terms of the first-time bidding activity, and it's very logical when you think about first-time bidding activity is for projects that haven't started. You know, they haven't broke ground, they haven't started the reno work, so it really is at the very beginning, and if there's some uncertainty there, folks that could wait are probably choosing to wait, and that's showing up in the first-time bidding activity numbers.

And, um, but when you look at the first-time bidding activity,

Uh, that Dodge that Dodge reports on it remains soft again in the second quarter. It wasn't as soft as we saw in the first quarter, but it's certainly reflects the, um, a level of uncertainty that's in the market. In terms of the first time bidding activity, and it's very logical. When you think about first time, bidding activity is for projects that that haven't started. You know, they haven't broke ground, they haven't started the Rena work. So it really is at the very beginning and if there's some uncertainty there,

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

Folks, that could wait are probably choosing to wait, and that's showing up in that the first time bidding activity numbers.

I'll comment though on the ground level bidding activity, which is, I think more in line with what we're experiencing in terms of a stable flat or sideways, moving Market condition, the bidding activity remains steady and active on the ground, with our contractors and our distribution partners. That level has not seen a change either up or down.

And remains, um, fairly steady. So we're paying attention to both of these, um,

Um again because we think these are both kind of the triangulation of what is the actual environment that we're, we're going to experience in the back half.

Susan Maklari: Okay, that's great colors.

Susan Maklari: Thank you both and good luck with everything. Thank you. Thanks, Susan.

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

Thank you. Thanks Susan.

Garik Shmois: Our next question comes from the line of Garik Shmois with Luke Capital. Please go ahead. Hey, good morning.

Our next question comes from the line of Garrick schmos with loop capital. Please go ahead.

Zach Pacheco: This is actually Zach Pacheco on for Garik this morning. Thanks for taking my question. Yes, good morning. Good morning.

Hey, good morning. This is actually Zach Pacheco on for Garrick this morning. Thanks for, uh, taking my question.

Chris Calzaretta: Maybe to follow up on the architectural specialties guidance, any more detail specifically on the cost side, kind of how long do you think you can keep manufacturing costs down in the segment despite the volume growth? Maybe just any more details you can offer. Thanks. Yes, exactly. You got to look at the drivers to the improved operating margins is really the volume is contributing to operating leverage. Right, so as long as we continue to grow and drive the efficiencies in our manufacturing operations, I think we can continue to maintain these higher levels of margins and the operating leverage we're getting from there.

Yes, good morning, maybe to uh good morning, maybe to follow up on the architectural, Specialties guidance. Um, any more details specifically on the cost side? Kind of, how long do you think you can keep um, manufacturing costs down in the segment? Despite the uh volume growth? Maybe maybe just any more details you can offer. Thanks.

Chris Calzaretta: Our teams are really executing, though, on both sides of the equation in terms of, you know, being good purchasers of raw materials and being very efficient in manufacturing, but also when it gets to the marketplace and making sure that we're specing higher value products and more unique products. And that really shows up also in the profitability mix. So I think broadly, the way we're executing across, you know, the buy, make, sell component of that business, I think as long as we keep executing that way, we can maintain these higher margins. That gives us the confidence that we can continue to get to our stated goal of greater than 20% margins in this segment.

Um, operating margins is really um the volume is contributing to operating leverage, right? So as long as we continue to grow and and drive the efficiencies in our manufacturing operations, I think we can continue to maintain these these um, higher levels of of margins and and the operating leverage, we're getting from there. Our teams are really executing though, on both sides of the equation. In terms of, you know, being good, purchasers of raw, materials, and being very efficient and Manufacturing. But also, when it gets to the marketplace and making sure that we're specking higher value products and, um, more unique products and that really shows up also in the profitability mix. So I think it broadly, the way we're executing across, um, you know, the buy make cell component of that business. I think as long as we keep executing that way, we can maintain these higher margins that gives us the confidence that we can continue to get to our stated goal of greater than 20% margins in this segment.

Zach Pacheco: Understood.

Chris Calzaretta: And then breaking down the wave contributions, if you could speak to maybe just how much of it was getting out of tariffs versus just the stronger market. Thanks. Yeah, I wouldn't point to a stronger market here in the second quarter. As I outlined, I think it's pretty much a kind of flattish, sideways moving market as we expected. We did have some additional volume in the quarter. Again, I think our growth initiatives are making a difference relative to what we're seeing in the actual market, and driving above market growth rates. The other piece of this is, as we get quarter to quarter some noise in the retail channel, we got a little bit more volume rebalancing in the retail channel.

Understood and then breaking down the wave contributions. If you could speak to maybe just how much of it was getting out of Terror tariffs versus just the uh Stronger Market. Thanks.

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

Chris Calzaretta: If you remember in our first quarter, we talked about some weather impacted. Softness in the Retail Channel. Some of that got rebalanced in the second quarter, and that contributed both for the wave business as well as the tile business. But I think the main point around what WAVE is continuing to do is they're managing their price over inflation or price over cost really well. And that's showing up, I think, in the numbers in addition to some of the volume contributions. Understood. Best of luck. Thank you.

The other, uh, piece of this is, as we get quarter to quarter, some noise in the retail channel. We got a little bit more volume rebalancing in the retail channel. If you remember in our first quarter, we talked about, um, some weather impact.

softness in the retail Channel.

Some of that got rebalanced in the second quarter and that contributed both for the wave business as well as um, as well as the uh the tile business.

But I I I think the main point around What wave is continuing to do is they're managing their um price over inflation or the price over cost really well. And that's showing up, I think, in the numbers, in addition to some of the volume, uh, contribution

Just a best of luck.

Thank you. Thank you.

Tomohiko Sana: Our next question comes from the line of Tomohiko Sana with J.P. Morgan. Please go ahead. Hello, can you hear me? Yes, good morning. Good morning.

Our next question comes from the line of tommo Sano.

Morgan, please go ahead.

Hello, can you hear me?

Tomohiko Sana: Thank you for taking my questions.

Tomohiko Sana: So, I'd like to follow up on especially mineral fiber side on AUV and Vic, you talked about the 10th plug, how it's actually attractive and getting attractions from customers.

Vic Grizzle: So, could you talk about how you see the 10th plug in terms of more financial numbers that are actually contributing to both sales and AUV side and any opportunities for like having more like a sales accelerations on mineral fiber business please? Yes, happy to talk about that. The Templock building blocks, if you will, the market development building blocks that we're building out to support a brand new attribute like energy savings in ceiling tiles. It's the first of its kind, first in the industry. And so there's a large market development It's the first in the industry.

Yes, good morning morning, good morning. Thank you uh, for taking my questions. Um, so I'd like to follow up on uh specially mineral fiber side on Ave and uh vix. You talk about the 10 block, how it's actually attractive and getting actions from customers. So could you talk about uh the how you see the 10 plug in terms of more financial numbers that actually contribute into both sales and auv side and any opportunities for like a hobby more? Um, like a sales accelerations or mineral fiber business, please.

Vic Grizzle: And so there's a large market development body of work that has to happen for the industry to embrace this. We're very encouraged by the interest level and the customer enthusiasm around this. And as I noted in my prepared remarks around the building blocks, around getting it into the IES software, so people designing right up front can see Armstrong ceiling solutions as an as an option to drive energy savings. And of course, as now it's part of the tax bill, there's an accelerator here for returns for our customers. So we're encouraged and I'm excited about the building blocks that are coming in and going into place.

Yes. Um, happy to talk about that. That the temp block, uh, building blocks. If you will the market Development building blocks that we're building out to support a brand new attribute, like, Energy savings in ceiling tiles. It's the first of its kind first in the industry, and so there's a, a large Market development.

Body of work that has to happen.

For the industry. To embrace this, we're very encouraged by the interest level and the customer enthusiasm around this.

Vic Grizzle: The sales impact, since we're in the early, early days of this market development effort is really minimal. And so we'll keep you posted on how we continue to gain traction there and drive sales growth. But I think it's still an opportunity in front of us versus driving the second quarter results. Thank you, Vic.

And as I noted in my prepared remarks around the building blocks around getting it into the IIs software. So, people designing right up front can see Armstrong ceiling Solutions as an as a option to drive Energy savings. And of course, as now, it's part of the tax bill. Um, there's an accelerator here for returns for our, our customers. So we're encouraged and I'm excited about the building blocks that are coming in and and, and going into place.

The sales impact, since we're in the early, early days of this market development effort, is really minimal. So, we'll keep you posted on how we continue to gain traction there and drive sales growth. But I think it's still an opportunity in front of us versus driving the, you know, the second quarter results.

Vic Grizzle: And follow up on Canopy, your e-commerce platform that has been gaining traction with a small commercial contractor. How do you see its role involving within the mineral fiber business? And are there plans to expand the offering to more facility or as product side as well, please? That's a good question. We continue to be encouraged by Canopy's ability to reach a customer that's not being served today through our existing channels to market. They tend to be smaller customers, they order smaller quantities, and so they kind of fall through the cracks of some of our larger channels, larger customers.

So have been gained tractions with a small commercial contractors. How do you see its role involving within the mineral fiber business and are there plans to expand the offering to more, uh, specialty or as product side as well, please?

Vic Grizzle: So we're really encouraged with this cost-effective digital initiative to reach those customers. And we're going to continue to expand the product offering on that so we can, again, offer what those unique customers are looking for to update their spaces. One of the things that Tomas would highlight in the quarter, I'm very pleased with the Canopy platform is its increasing profitability and its contribution to EBITDA growth for the mineral fiber segment business. So, again, I think we have a very cost-effective digital channel to reach a customer base that we're not serving today, and we're going to continue to expand the portfolio on there so we can continue to grow that platform and do it profitably, which we're demonstrating here even in the second quarter.

Yeah, it's a good question. We we continue to be uh, encouraged by canopies ability to reach a customer. That's not being served today through our existing, um, channels uh, to Market. Their, they tend to be smaller customers they order smaller quantities. Um, and so they kind of fall through the cracks um, of some of our larger, our larger channels, larger customers. So we're really encouraged with this cost-effective digital initiative to reach those customers.

And we're going to continue to expand the product offering on that so we can again offer what those unique customers are looking for to update their, um, their spaces, 1 of the things, that Tom I would highlight in the quarter. I'm very pleased with, uh, the canopy platform is its increasing profitability and its contribution to epid do growth for the for the mineral fiber segment, the business. So um we're we're again. I think we have a a very cost-effective digital channel to reach a customer base that we're not serving today and we're going to continue to expand the portfolio on there. So we can continue to grow that platform and do it profitably which we're demonstrating.

Trading here, even in the second quarter.

Tomohiko Sana: All right, very clear.

Tomohiko Sana: Thank you very much and congrats again. Thank you very much.

All right. Well, thank you very much and congrats again.

Thank you very much.

Brian Biros: Our next question comes from the line of Brian Biros with Thompson Research Group. Please go ahead. Hey, good morning. Thank you for taking my questions today on the on the raised guidance.

Your next question comes from the line of Brian Burroughs with Thompson research group. Please go ahead.

Brian Biros: On the outlook in the RAISE guidance, it seems like most of the RAISE is from Q2's performance and I guess just general Armstrong-specific initiatives rather than any kind of big change in market conditions in the back. Is that the right way to think about it, or is there maybe a little bit more? Nope, I think I think you got it. You got to characterize right there there, Brian. I just want to make sure that was clear.

Hey, good morning. Thank you for taking my questions today, on the on the top of the raised guidance. Thank you on the on the Outlook and the raise guidance seems like most of the raises from

22's performance.

And I guess this is General Armstrong's specific initiatives rather than any kind of big change in market conditions in the back half.

Is that the right way to think about it? Or is there maybe a little bit more nuance to that?

Nope, I think uh I think you got it. You got a characterized right there for their Brian.

Chris Calzaretta: And then, I guess the mineral fiber margin... Thank you. Sure. Yeah, to unpack the second quarter a bit in mineral fiber, as I shared and Vic shared in our prepared remarks, you know, a little bit more, you know, contribution from mineral fiber volume. I'd say overall, you know, really driven by it's a strong execution across the business. You know, disciplined focus on cost control impacted our SG&A, drove some favorability there. Our initiatives, you know, as we commented in terms of, you know, the overall contribution to to the top line in terms of the wave joint venture and the contributions from equity earnings there that we saw in the quarter really drove strong equity earnings contribution from the from the JV.

Okay, good. Just want to make sure that was clear and then I guess the, the mineral fiber margins were particularly strong this quarter. You talked about in a repair to Mark, can you help unpack that margin number? Maybe a bit more and he provided some of the drivers but maybe provide some magnitude of which drivers were maybe more or less beneficial. And I guess this is that kind of sustainability going forward. Thank you.

Chris Calzaretta: And again, that's coupled with, you know, the the execution, the top line growth. And then, you know, as we commented, you know, continued benefits from from price cost, price cost benefits and discipline there. So overall, I mean, I'd say those were the drivers really in mineral fiber in the in the second quarter.

Sure, he had to unpack the, uh, the second quarter, a bit in, in Mineral fiber as as uh, I shared in vic, shared in our prepared remarks. You know, a little bit more, uh, you know, contribution from from mineral fiber volume. Um, I'd say overall, you know, really driven by it's a strong execution, uh, across across the business. Um, you know, disciplined focus on on cost control, uh, impacted uh, our Su, uh, sgna drove some favorability there. Uh, our initiative, you know, as as we commented in terms of, you know, the overall contribution to to the Topline, uh, in terms of the wave joint venture and the contributions from Equity earnings there that we saw on the quarter, really drove uh, strong, uh, uh, Equity earnings contribution from the, from the JV. And again, that's coupled with, you know, the the execution, the Topline growth. And then, you know, as we, we commented, um, you know, continued benefits from from Price cost, uh, price costs, uh, benefits. And

Chris Calzaretta: When you look to the back half of the year, again, looking for a step down in volumes for the year, we're outlooking the same kind of volume outlook we had back in April, which is volumes flat to down low single digits, but still expect that AUV to be growing at a greater than six percent rate for for the year. So hopefully that gives you a little more color around the back half in in mineral fiber. Got it, thank you. Thank you.

And discipline there. So overall I mean I I'd say those were the drivers really in Mineral fiber uh in the in the second quarter when you look to the back half of the year, um, again looking for a, a step down in, in volumes for the year, uh, we're out looking, uh, the same kind of volume Outlook. We had back in April, which is volumes flat to down low single digits, but still expect that ow to be growing at a greater than 6% uh, rate for for

For the year. So hopefully that gives you a little more color around the back half, uh, in in Mineral fiber,

Yeah, thank you.

Thank you.

Keith Hughes: Your next question comes from the line of Keith Hughes with Truist. Please go ahead. Thank you. There was a transaction with one of your large customers that was announced several weeks ago. I guess if you could just talk to the audience here about your relationship with the customers, you know, exclusivity, things like that. And does this really change how you go to market at all? to the contract. Yeah, Keith, your question is around the consolidation in the distribution, our distribution network, right? And it's continuing, right? This has been a consolidation. This consolidation has been going on for a decade now.

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

Uh, thank you. Um,

There was a a transaction with 1 of your large customers. Um that was announced several weeks ago.

I guess if you could just talk to the audience here about your relationship with the customer's, you know, exclusivity things like that and does this really change how you go to market at all to um to the contract community?

Yeah. Keep the, um, the your question is around the, the consolidation in the distribution, our distribution Network, right? And correct and it's it's continuing, right? This has been a, a consolidation. This consolidation has been going on for a decade now.

Vic Grizzle: And so this is, again, Home Depot acquiring or potentially acquiring one of our large distributors is a continuation of that consolidation.

Um,

Vic Grizzle: I've had the opportunity personally to talk to both Home Depot and SRS leadership teams. I like what I hear so far. I think they're really focused on a lot of things that we want to get focused on in terms of growing the business. I'm particularly pleased with the continuity of management that they have committed to. So, you know, you know. John Turner is staying, and several of his leadership team is staying in place. And we're excited about that, because the GMS team knows the C-Links category very well. And they know how we're successful in the C-Links category.

And so, um, this is I again Home Depot, uh, acquiring or potentially acquiring, um, 1 of our largest Distributors. Is a continuation of that, um, of that consolidation. I've had the opportunity personally, to talk to both Home, Depot and SRS, um, leadership teams. Um, I like what I hear so far, I think, um, they're really focused on a lot of things that we want to get focused on in terms of growing the business.

I'm I'm particularly pleased with the continuity of management that they have committed to. So, you know, you know, John Turner is staying and several of his uh, leadership team is staying in place and we're excited about that because

Vic Grizzle: So we're really pleased with those relationships are really staying in place. And that continuity, I think, is really going to be good. So we've been a net. I'd say beneficiary of consolidation over the last ten years, looking back, and we're going to continue to look for that opportunity in this next wave of consolidation.

The GMS team knows the ceilings category very well, and they know how we're successful in this ceilings category. So we're really pleased with.

Those relationships are really staying in place, and that continuity, I think, is really going to be good. So,

We've been a net.

I'd say beneficiary of consolidation over the last last 10 years. Um, looking back and we're going to continue to look for that opportunity in this this next wave of of consolidation.

Vic Grizzle: And one other question on, we talked a little bit in this call about Templock, is given what you're seeing in the interest level on the product. In 26, would you have enough orders that would be meaningful in revenue? Or do we have to think longer term about when that could be a real real meal mover for Well, no, I think we're we're going to grow our sales this year. We'll grow them again next year.

And 1 of the question on, we talked a little bit in this. Call about 10 block is given what you're seeing in the interest level around the product.

In 26, do we have enough orders to be meaningful and generate revenue? Or do we have to think longer term about when that can be a real, real game changer for results?

Vic Grizzle: I think we this this is a very long term opportunity, though, because when you think about the large installed base here of nearly 40 billion square feet and all of it can get renovated to an energy savings of cost saving ceiling tile. So we're excited about renovating the entire installed base over time. So this is a very long tailed opportunity for us. But we expect traction in the volumes and they're going to get more and more meaningful year after year. So we're going to build on 25 success. And now these building blocks are in place.

Well, no, I think we're um we're we're going to grow our sales this year. We'll grow them again next year. I I think we, um,

This, this is a very, um, long-term opportunity though because when you think about the large installed base here.

Of nearly 40 billion square feet. And um,

Vic Grizzle: We should see some acceleration. It's 26 and 27. So I won't outlive too much about how big they'll be in 26 and 27. But we're we plan to get some meaningful traction again in 26 and 27, just like we are and we have in 24 and 25.

All of it can get renovated to an energy savings, a cost-saving ceiling tile. Um, so we're excited about renovating the entire, um, installed base over time. So this is a very longtailed opportunity for us but we, we expect Traction in the volumes and they're going to get more and more meaningful year after year. So, we're going to build on 25 success and now these building blocks are in place. We should see some acceleration into 26.

Section 27.

Vic Grizzle: And one of the questions on that is, is Temblock accretive to AUV as you sell them? Absolutely. Very, very nicely so.

Um, so I won't Outlook too much about how big they'll be in 26 and 27 but we're um, we plan to get some meaningful traction again in 26 and 27 just like we are and we have in 24 and 25.

Okay. 1 of the question on that is is temp block, a creative, the auv as you sell those units.

Vic Grizzle: Okay, thank you very much. Yeah, yeah, thank you.

Absolutely, absolutely very, very nicely, so, yes. Okay, thank you very much.

Yeah, yeah. Thank you.

Rafe Jadrosich: Your next question comes from the line of Rafe. Jadrosich with Bank of America. Please go ahead. Hi, good morning. Thanks for taking my question. All right. Be brave.

Your next question comes from the line of race.

J Russian with Bank of America, please go ahead.

Hi, good morning. Thanks for taking my question.

Rafe Jadrosich: If we look at the EBITDA guidance for mineral fiber for the year, the 43%, that brings you back to 2019 levels, or almost there, on much lower volumes. I think that's basically the highest you've had historically.

All right, you're right.

Vic Grizzle: Can you talk about, from this current level, what the sort of opportunity is now that you've gotten back to 43% and sort of what the algorithm would be for further growth? Yeah, Rafe, that's a good question. Let me, because we get this question a lot, as you can imagine, when are you going to get back to 2019 levels, right? And so we've been talking about this with, with all of you for a while. The answer is really a lot of the same, because the building blocks and the drivers of margin expansion in that business are the same.

If we look at the uh the ibida guidance for mineral fiber for the year, the 43% uh, that brings you back to 2019 levels or almost there on much lower volumes. Um, and I think that's basically the the highest you've had historically. Can you talk about from this current level what the sort of opportunity is now that you've gotten back to to, to 43% and sort of what the algorithm would be for for for further growth?

Yeah, right, that’s a good question. Let me, um, because we get this question a lot, as you can imagine. When are you going to get back to 2019 levels, right? And so we’ve been talking about this with...

Uh, with all of you for a while. Um,

Vic Grizzle: You have to get good AUV growth. And that means really strong innovation pipeline into the marketplace to feed what is a natural dynamic to mix up and to make sure that you're covering inflation with, with your pricing initiatives. So AUV has been a big driver of how we get back there, even on lower volume. Driving productivity every year is becoming a hallmark of a company. Even when volumes have been softer, we're able, and our plant teams do a terrific job at identifying where opportunities are to drive productivity gains, greater than 3% a year for many years now.

the answer is really that a lot of the same because the building blocks and the drivers of margin expansion in that business are the same

You have to get good AUV growth, and that means a really strong innovation pipeline into the marketplace to see what is a natural dynamic to mix up and to make sure that you're covering inflation with your price initiative. So AUV has been a big driver of how we get back there, even on lower volume.

Vic Grizzle: So that's going to continue. We have a commitment to that. And we invest in that two or three years in advance. So doing all of that and managing and feathering in the right level of SG&A to support your growth, it's really those are the building blocks. That's how we've kind of gotten back to here from the 2019 levels, to your point, the historical level, and it should propel us higher from here as we go forward executing on those three building blocks.

Start to drive productivity gains greater than 3% a year for many years now. So that's going to continue. We have a commitment to that and we invest in that 2 or 3 years, uh, in advance,

So, doing all of that and managing and feathering in the right level of SG&A to support your growth, it's really those are the building blocks. That's how we've kind of gotten back to here from the 2019 levels, to your point, that historical level.

And it should Propel us higher from here as we go. Forward executing on those 3 building blocks.

Vic Grizzle: And then just following up on the price piece of it, your largest competitor on the mineral fiber side, USG, I think announced a price that was modestly higher than what you did in August. And I think historically, if we go back and look, you're the one that tends to lead on price. Is this sort of a surprise to you? And does this create more opportunity for you to raise price going into next year? Or does that just increase the either the realization or likelihood that that second half 25 price sticks?

And then, just following up on the, the price piece of it. Um, your largest competitor on the, on the mineral, fiber side, USG, I think announced the price that was modestly higher than what you did in in August. And I think historically, if you go back and and look, you, you're the 1 that tends to lead on price. Um, is this sort of a surprise to you and does this create more opportunity for you to raise price going into next year or does that just increase the either? Um, the realization or likelihood that that second half, 25 price, uh, sticks

Vic Grizzle: Really, right, you know, there's not much to comment on that, in particular, you know, we we run our business and we look at our costs and our expectations of inflation. Yes, so and we talk to our customers. And so we run our play. And And, you know, if our competitors are going to do something different, then that's really their play to run. We're staying focused on the play that we're running with our distribution partners and our customers. and we've been doing that. We're going to continue to do that and that works well for us.

Really, right. We, you know, there's not much to comment on that in particular. You know, we run our business and we look at our costs and our expectations of inflation. Um, yeah. So, and we talk to our customers and so we run our play and um,

And you know, if our competitors are going to do something different, then that's really their play to run. We're just staying focused on the play that we're running with our distribution partners and our customers.

And um we've been doing that, we're going to continue to do that and that works well for us.

Vic Grizzle: Thank you.

Thank you.

Thank you, thanks.

John Lovallo: Your next question comes from the line of John Lovallo with UBS. Please go ahead. Morning, guys. Thanks for taking my questions as well. The first one is that, hey, how are you guys?

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

John Lovallo: The first question is on mineral fiber. There was some modest input cost inflation the second quarter. Can you maybe just expand upon what what drove that and you know what your expectations are into the second half? Yeah, sure. So maybe to answer the second part first, in terms of overall input costs, inflation for the year, expecting low single-digit inflation. And if you recall, about 35% of our inputs are raw materials related. We expect raws to kind of be down in that low single-digit range for inflation. And then energy is about 10%, we expect, about mid-teen inflation there in terms of energy.

Good morning, guys. Thanks for taking my questions as well. Um, the first one is that, hey, how are you guys? Uh, the first question is on Mineral Fiber. There were some modest input cost inflation in the second quarter. Can you maybe just expand upon what drove that and, you know, what your expectations are into the second half?

Chris Calzaretta: And then freight is about 10%, and that's effectively flat. So when I think about the second quarter, you know, in terms of overall input costs, it was, you know, call it nat gas pressure on the energy side, and then raw material inflation there in that low single-digit range there in Q2. Gotcha. Okay, that's helpful.

You got. Yeah, sure. So maybe to to answer the the second part first, um, in terms of overall input costs uh, inflation for the year expecting low single digit inflation. And if you, if you recall um, about 35% uh, of our uh inputs our our raw materials related, we expect rods to kind of be down in that, uh, low, uh, single digit range, uh, for inflation. Um, and then energy is about 10% we expect uh about uh, mid-teen inflation there, uh, in terms of energy and then Freight, it's about 10% and that's, that's effectively, that's effectively flat. So,

When I think about, um, the second quarter, um, you know, in terms of overall input costs, it was, you know, call call it Nat gas, uh, pressure on the, on the energy side, and then, uh, raw material, uh, inflation, uh, there in that low, single digit range there in, uh, in queue, in Q2.

Chris Calzaretta: And then you guys repurchased about 30 million of stock in the second quarter. You know, is there an opportunity to step this up in the second half as you guys generate a little bit more cash? Yeah, I'd say our capital allocation priorities remain unchanged. As you know, we've got a very high ROIC business. And, you know, our first priority is to invest back into the business where we see those high returns. Our second priority is to deploy capital where we see opportunities to grow inorganically. And our third priority is to kind of flex with share repurchases as part of returning cash to shareholders.

Gotcha. Okay, that that's helpful. And then you you guys repurchased about 30 million of stock in the second quarter. You know? Is there an opportunity to step this up in the second half as as you guys generated a little bit more cash?

Chris Calzaretta: And that'll continue to be our flex option here as we as we progress through the rest of the year, given our cash flow generation and opportunities within the other two other two categories there. Great. Thank you. Thanks. No shot.

Yeah, I'd say our our Capital allocation uh, priorities remain unchanged. As as, you know, we've got a, a very high roic business. And, you know, our first, uh, priority is to invest back into the into the business where we see those High returns. Our our second priority is to to deploy Capital, uh, where we see opportunities to to grow, uh, in organically and our, our third priority is, is to kind of flex with, uh, with share repurchases as part of returning cash to shareholders and that will continue to be our our Flex option here. Uh, as we uh, as we progress through through the rest of the year, uh given our cash flow generation, and, and opportunities. Uh within the other 2 other 2 categories there,

Great. Thank you.

Thanks, Sean.

Stephen Kim: Our next question comes from the line of Stephen Kim with Evercore ISI. Please go ahead. Yeah, thanks very much, guys. I just want to clean up a couple of things. You talked about the home centers, the weather-related inventory to stocking early in the year. You recovered that in 2Q.

Our next question comes from the line of Stephen Kim with evercore isi. Please go ahead.

Stephen Kim: I just want to make sure you fully recovered that, or do you still have some left in 3Q? And is returning to a more normal home center mix of sales going to be a factor behind anticipated AUV, stronger AUV growth for mineral fiber in the back Yeah, to answer Stephen, you're The last part of the question is, we don't think it's a factor in the back half. You know, as you know, you've been close to this for a long time, you know that their inventories can move around a little bit. So it feels like, you know, we didn't get all of it back from the first quarter into the second quarter.

Uh, anticipated AOV, uh stronger AUV growth or mineral fiber in the back half.

Yeah. Uh to answer Stephen. You're the the last part of your question is we don't think it's a a factor in the back half, you know? Um, as you know, you've been close to this real long time. You know, that their inventories can move around a little bit. So I it feels like

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

You know, we didn't get all of it back from the first quarter into the second quarter. I'm not sure that, that was really expected, but it felt like they were some rebalancing and it the inventory levels seem to be at a more balanced level at least in for the economic environment. We're in now. So we haven't factored any more if you will rebalancing, or correcting in the back half that would have a, a negative impact on. Aw. But if I understand your question,

Yeah. Okay.

Stephen Kim: All right. And then.

Vic Grizzle: Let's just jump in here to Templock. My sense is your competition's kind of pretty far behind you on this phase change ceiling tile thing.

All right. And then, um,

Vic Grizzle: I was curious if you could talk about the competition and what they're offering in terms of this kind of phase change solution. Well, you know, for competition, I think this is a brand new attribute for the ceiling tile itself. I think I understand your question, our direct competition, other ceiling tile manufacturers, really what we're, you know, we're selling with and maybe in some cases, and against is other solutions for capturing energy savings, right? So that's really, I think, more of what we see as the competitive landscape versus our competitors, who we haven't seen a response for on this.

Let's just jump in here to Temp block. Um, my sense is your competitions, kind of pretty far behind you on this phase change ceiling. Tile thing was curious. If, uh, if, uh, you could talk about the competition and, and what they're offering, uh, in terms of, uh, this kind of phase change solution.

Well, you know, for competition, I think this is a brand new attribute.

For the ceiling tile itself, I think I understand your question. Our direct competition is other ceiling tile manufacturers.

Really what we're um, you know, we're selling with and and maybe in some cases and against is other solutions for capturing Energy savings, right? So that's really I, I think more of what we see is the competitive landscape versus our competitors. Um,

Vic Grizzle: But I think we're really thinking about customers' options for energy saving solutions.

Vic Grizzle: And that's why being in this IES platform is so important for us, because we're the only ceiling tile manufacturer in that platform now. But they have access to all kinds of other building energy saving solutions in that platform. So it's really a good way for us to kind of rack stack this savings opportunity versus what they can get in other building or energy saving solutions. So that's a little bit of a kind of a long winded answer. But we kind of view our competition more around other energy saving solutions versus direct tile manufacturers. Yeah, no, that's that's helpful.

Who we haven't seen a response for on this but um I think we're really thinking about customers options for Energy savings Solutions, and that's why being in this IE as platform is so important for us because we're the only stealing tile manufacturer in that platform now. But they have access to all kinds of other building, uh, Energy Saving Solutions in that that platform. So, it's really a good way for us to kind of rack and stack this savings opportunity versus what they can get in other, uh, building uh, or Energy Saving Solutions. So, that's a little bit of a, a kind of a long-winded answer, but we kind of view our competition. More around other Energy Saving Solutions versus direct tile. Manufacturers.

Vic Grizzle: Yeah, really interesting.

Vic Grizzle: Um, next question I had related to your quarterly cadence, I guess, to pick it on arms on AS first. I think that you're generally. I'm sorry, you had, I think, answered earlier when Susan had a question about that. I think you had said that you felt better about your ability to comp positively in the back half over tougher comps, and I just wanted to make sure that I was hearing that you think you can comp positively in both 3Q and 4Q? Yeah, we don't we don't as you know, we don't guide to quarters, but the expectation is yeah, the back half would be positive and there'd be positive top line contribution organically in both quarters.

Yeah, no, that's helpful. Um, yeah, really interesting. Um, next question I had related to your quarterly cadence. Um, I guess to pick it on arms, uh, on, um, as first.

I think that, uh, you're generally, um,

Sorry you would, you would I think answered earlier when Susan had a question about that, you you, I think you said that you, uh, felt uh, better about your ability to compositive in the back, half over a tougher comps. And I just wanted to make sure that I was hearing that, that you think you can come positively in both 3, q and 4 q.

Yeah, we don't we don't as you know we don't guide to to quarters but the expectation is yeah. The the back half would be positive and there'd be positive Topline contribution organically in in both quarters.

Vic Grizzle: Okay, great. Thanks very much, guys.

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

Sure bet. Thank you.

Phil Ng: And our final question comes from the line of Phil Ng with Jefferies. Please go ahead. Hey guys, congrats on another strong quarter. So Vic, if I heard you correctly, on the ground bidding activity sounds pretty stable for mineral fiber.

And our final question comes from the line.

Jeffrey, please go ahead.

Vic Grizzle: So just kind of remind us how far out do you bid for jobs for MF from an on the ground basis and then any color on what you're seeing on some of the major end markets. I'm particularly interested in seeing what you're seeing on the education side. There's obviously been some noise around that front. And any more color on how office and retail is performing. Yeah, yeah, happy to do that, Phil. Yeah, on the, again, on the ground level bidding activity kind of remains steady, and I think supportive of a flattish market that we've described.

Hey guys, uh, congrats on the notice of a strong quarter. So, Vic, if I heard you correctly, uh, on the ground bidding activity sounds pretty stable for mineral fiber. So just kind of remind us how far out do you bid for jobs, uh, for MF, uhhhh, from my on-the-ground basis? And then any color on what you're seeing on some of the major markets? I'm particularly, uh, interested in seeing what you're observing on the education side. There's obviously been some noise around that front and any more color.

How office in retail is performing.

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

Yeah, yeah. Happy to do that. Phil. Um, yeah. On the again, on the ground level bidding activity kind of remains steady and I think supportive of a flattish market that we we've described. We don't have a lot of visibility on the discretionary part of the mineral fiber business. So, you know, like in, as we can bid projects, you know, a year in advance or even farther in advance and, and of course, a lot shorter than that. Depends on the size and the complexity of the project,

Um, but you know, I think what's the the the more sensitive or elastic to uncertainty is that, discretionary part of the market that kind of just shows up through distribution for the most part. So that that's what we think is potentially.

um,

Vic Grizzle: And that's what we're outlooking, where we see the potential softness in the back half.

Vic Grizzle: So let me just, you know, for a bidding activity, let's leave it at that for a second. And the verticals that you're asking about, you know, the data centers, transportation, healthcare continue to be quite active. Some of the obvious, for obvious reasons. And education is hanging in there. I think we're off to a decent start for the season and education from what we can see in the month of June, which is where we typically get some visibility to the year we're going to have there. So it's not falling off like I think a lot of folks maybe thought it could fall off with the extra funds expiring at the end of the year, of the prior year.

Top very quickly because of its discretionary nature. And that's what we're out. Looking where we see the potential softness in the back half. So let me just um, you know, for a bidding activity. Let's leave it at that for a second. And and the verticals that, um, you're asking about, you know, the data centers Transportation Healthcare continue, to be quite active. Um, some of them obvious for obvious reasons.

Vic Grizzle: The office sector, I would just describe it this way, just continues to kind of stabilize and create a bottom here with Signs of stability overall in the leasing activity. Leasing volume was pretty flash and steady in the second quarter. Office occupancy also was pretty steady in the second quarter. There is some green shoots of life, if you will, in the office sector. What we're hearing in the marketplace with more talk around tenant improvement bidding activity from the field. That's potentially a positive that, again, reflects maybe a bottoming here. And then this whole flight to quality in the office segment is something that's really continuing.

And um, education is hanging in there. Um, I I think we're off to a decent start for the season and education from what we can see uh, in the month of June, which is where we typically get some visibility to the year. We're going to have there, so it's not falling off. Like I think a lot of folks may be thought it could fall off with the Esser funds. Uh, expiring at the end of the year, um, of the prior year.

The office sector. I would just describe it this way. I just continues to kind of stabilize and create a bottom here.

with um,

Um signs of stability overall, and the leasing activity. You know, leasing volume was pretty flat-ish and steady. In the first in the second quarter office. Occupancy also was pretty steady in the second quarter.

Um, there is some green, shoots of life if you will in in the office sector. What we're hearing in the marketplace with

Um, more talk around.

Vic Grizzle: And we've talked about it right from class B to class A, from class A to class A plus type quality buildings. That eventually, as the occupancy rate is really high at the high end of the quality office market, it's eventually gonna pull the class B buildings into the renovation cycle. So we're encouraged by that green shoot.

Vic Grizzle: We'll see how that manifests itself over the next quarter or two.

Vic Grizzle: I think the one other thing I would call out is in New York City. Obviously a big market, big office markets, a big market for the building products industry. Leasing activity in the first half was the strongest first half in a decade. And I think that bodes well for, again, a bottoming and potentially some green shoots for the office market going forward. So that's a little bit of a.

Tenant Improvement, bidding activity uh from the field. That's a, that's a potentially a positive that again reflects maybe a bottoming here and then this whole flight to Quality in the office segment is something that's really continuing. And we talked about it, right? From class b to class A from class, A to class A Plus type quality buildings um that eventually as the occupancy rate is really high at the high end of the, the quality office Market. It's eventually going to pull the building, uh, the um, Class B buildings into the renovation cycle. So, we're encouraged by that green shoot. We'll see. Um, how that manifests itself over the next quarter or 2? I think the 1 other thing I would call out is in New York City, um, obviously a big Market, big office Market. It's a big market for, um, for the building products industry, leasing in the leasing activity. In the first half was the strongest. Um,

First half in a decade.

Vic Grizzle: an overview, a walk around the verticals and what we're seeing in the market. That's super helpful, Vic.

And I think that bodes well for, again, a bonding and potentially some green Shoots for the office Market going forward. So that's, um, that's a little bit of a

An overview of walk around the verticals and what we're seeing in the market.

Vic Grizzle: And then on the M&A side, you guys have been pretty busy and you've done some larger deals on the three forms, the inner side of things. Curious what you're seeing on that front. Are sellers in the market? You know, sometimes when you have uncertainty like that, people kind of retrench. But love to hear what you're seeing out there and just the size of these deals. Any chunkier stuff in the pipeline? Yeah, you know, we continue to work this hard, right. So we, we've been successful, we have a good successful track record and bolting these on and really scaling them, creating value with first year holders.

That's super helpful, Vic. And then on the m&a side, do you guys have been pretty busy and you've done some larger deals on the 3, for side of things. Curious, what you're seeing on that front are are, uh, sellers in the market, you know, some sometimes, when you have uncertainty like that, people kind of retrench, but love to hear what you're seeing out there and just the size of the these deals. Uh, any chunkier stuff, uh, in the pipeline.

Vic Grizzle: So we want to do more of these, we got a team that gets up every day, and this is all they do. As you know, though, Phil, a lot of these companies that we're acquiring are not for sale. So we're working that process with them that relationship building. So when they're ready to sell that, this is the place they come. So we're going to continue to work the pipeline. It's active. And I like what I see in our pipeline. We should see some more activity in the near term in this in our pipeline. So more to come there.

Yeah, you know, we we continue to work this hard, right? So we um, we've been successful. We have a good successful track record in bolting these on and really scaling them creating value with our shoulders. So we want to do more of these. We got a team that gets up every day, and this is all they do.

As you know, they'll feel a lot of these companies that we're acquiring are not for sale. So we're we're working that process with them that relationship building. Um, so when they're ready to sell that, this is the place they come. So we're going to continue to work the pipeline, it's active, and I like what I see in our pipeline, we we, we should see some more activity. Um,

Vic Grizzle: But yeah, we're open for business there and driving it.

Chris Calzaretta: Great. I'm going to sneak one in. Chris, on the margins, AS was awesome. You're seeing a good margin expansion there. Obviously, it's been a big SG&A investment cycle. M&A aside, if nothing really big and chunky happens, could we see that SG&A continue to taper? What's a good way to think about SG&A spend on a more normalized basis as we kind of look forward? Yeah, specific to AS, I think you're right. We, you know, with some of the acquisitions that we've done, we see opportunities to continue to leverage, drive operational efficiency and get that operating leverage in some of the businesses that we've acquired.

Uh, in the near term, uh, in um, in this in our pipeline, so more to come there, but yeah, we're open for business there and driving it.

Great. I'm going to take one in, uh, Chris, on the, um, margins, as was awesome. You're seeing, uh, good margin expansion there. Um, obviously it's been a big SUA, uh, investment cycle. Um, M&A aside, if nothing really big and chunky happens, could we see that as, you know, continue to taper? Like, what's a good way to think about, as you know, spend, uh, on a more normalized basis, uh, as we kind of look forward?

Chris Calzaretta: And that SG&A line has been an area for us. So I'd say initially, like we saw with the three form and Zaner acquisitions, a bit of a step up. But I think over time, you know, as we continue to get that that operating leverage, drive that efficiency, that'll come down. But at the end of the day, I mean, we're pleased with the level of penetration that we're getting in the AS segment overall and really kind of investing back into that business to drive that, to get that SG&A leverage, something that we'll continue to do. We've been very successful at doing it and are pleased with the algorithm that we have in place there.

Chris Calzaretta: Okay.

Drive that to get that SG&A leverage. Uh, something that will continue, uh, continue to do. We've been very successful at doing it, um, and are pleased with the, uh, with the algorithm that we have, uh, in place there.

Vic Grizzle: Appreciate all the color, guys. Continue the great work. Yeah. Thank you. Thanks, Phil.

Okay, appreciate all the color, guys. Continue the great work.

Yeah, thank you. Thanks. So

Vic Grizzle: And with no further questions in keep, I will turn the call back over to Vic Grizzle for closing remarks. Thank you all for joining our call today. I'm really proud of the first half performance by our team. The execution is really solid. And as a result of that, we're well positioned going into a back half that might see a little softer environment. But our confidence is very high. My confidence personally in our team to execute with agility in these kind of market conditions is going to lead to another record year for the company.

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

Vic Grizzle: So thank you again for joining and safe and have a safe and fun summer. Thank you again for joining us today.

Thank you all for joining our call today. Um, really proud of the first half performance by our team. The execution is really solid, and as a result of that, we're, well, positioned going into a back half that might see a little softer, um, environment. Uh, but our confidence is um is very high. My confidence personally in our team to execute with agility. And these kind of market conditions is going to lead to another record year for the company. So thank you again, for, for joining and safe and have a safe and fun summer.

Operator: This does conclude today's conference call. You may now disconnect.

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