Core Viewpoint - Armstrong World Industries (AWI) is positioned well to potentially beat earnings estimates in its upcoming quarterly report, supported by a strong history of surpassing expectations [1][2]. Earnings Performance - The company has consistently exceeded earnings estimates, with an average surprise of 14.21% over the last two quarters [1]. - In the last reported quarter, AWI achieved earnings of $1.60 per share, surpassing the Zacks Consensus Estimate of $1.30 per share by 23.08% [1]. - For the previous quarter, AWI's earnings were $1.38 per share against an expected $1.31, resulting in a surprise of 5.34% [1]. Earnings Estimates and Predictions - Recent changes in earnings estimates for AWI have been favorable, with a positive Earnings ESP (Expected Surprise Prediction) indicating a strong likelihood of an earnings beat [2]. - Stocks with a positive Earnings ESP and a Zacks Rank of 3 (Hold) or better have historically produced positive surprises nearly 70% of the time [2]. Earnings ESP Analysis - AWI currently has an Earnings ESP of +2.66%, suggesting that analysts have recently become more optimistic about the company's earnings prospects [3]. - The combination of a positive Earnings ESP and a Zacks Rank of 2 (Buy) indicates a strong possibility of another earnings beat [3]. - The next earnings report for AWI is expected to be released on February 20, 2024 [3].

Investors with an interest in Building Products - Miscellaneous stocks have likely encountered both Owens Corning (OC) and Armstrong World Industries (AWI) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate ...

CRH plc (CRH) has signed a deal with Caterpillar Inc. (CAT) to advance the deployment of the latter’s zero-exhaust emissions solutions.CRH, a leading aggregates producer in North America, has become the first company in the industry to sign such an agreement with Caterpillar. The agreement will boost the deployment of Caterpillar's 70- to 100-ton-class battery electric off-highway trucks and charging solutions at a CRH site in North America.This apart, CRH will participate in CAT’s Early Learner program for ...

Core Insights - Armstrong World Industries, Inc. (AWI) has formed a strategic partnership with McKinstry, investing in Overcast Innovations to enhance integrated building solutions, aiming to reduce waste and inefficiencies in the construction industry [1][2] - The collaboration focuses on addressing industry challenges such as skilled labor shortages, energy efficiency, and complex installations through Overcast's modular ceiling systems [1][2] - Armstrong has acquired a 20% stake in Overcast, with potential for future increments, and both companies have established strategic partnership agreements to improve supply chains and marketing efforts [2] Company Performance - Armstrong's shares have increased by 35.1% over the past six months, outperforming the Zacks Building Products - Miscellaneous industry's growth of 18.1%, the Construction sector's 12.8% increase, and the S&P 500 Index's rise of 6.9% [4] - In Q3 2023, Armstrong's earnings per share (EPS) exceeded the Zacks Consensus Estimate by 23.1% and grew 17.6% year-over-year, with a trailing four-quarter earnings surprise of 7.9% on average [4] - EPS estimates for 2024 indicate a growth of 6.8% from the previous year, with the estimate moving up to $5.48 per share from $5.45 in the past 60 days, reflecting strong fundamentals and positive market trends [4]

3rd Quarter 2023 Earnings Presentation Safe Harbor Statement Disclosures in this presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, those relating to future financial and operational results, expected savings from cost management ...

Financial Data and Key Metrics Changes - Total company adjusted EBITDA increased by 19% on a 7% increase in net sales, reaching a record $125 million, with an adjusted EBITDA margin expansion of 380 basis points [6][19] - Adjusted diluted earnings per share increased by 18% compared to the prior year [19] - Adjusted free cash flow increased by $26 million or 39% year-over-year [19] Business Line Data and Key Metrics Changes - Mineral Fiber segment reported 7% sales growth and 18% adjusted EBITDA growth, with adjusted EBITDA reaching $105 million and a margin of nearly 42% [7][16] - Architectural Specialties segment achieved record sales and adjusted EBITDA growth of 30%, with adjusted EBITDA exceeding $20 million and margins expanding to over 20% [11][18] Market Data and Key Metrics Changes - Overall market activity in the Architectural Specialties segment showed positive quoting activity, although some new orders experienced delays [12] - Demand in the office vertical remains pressured, but there are signs of stabilization in other sectors such as education and healthcare [24][25] Company Strategy and Development Direction - The company is focused on growth initiatives, particularly through the Canopy platform, which has doubled sales year-over-year and contributed positively to EBITDA growth [8][9] - Investments in expanding capacity and capabilities within the Architectural Specialties metal category are expected to enhance production efficiency and reduce lead times [14] Management's Comments on Operating Environment and Future Outlook - Management noted that market demand has stabilized at lower levels, with ongoing uncertainty in discretionary spending, particularly in the office sector [23][24] - The company remains optimistic about achieving long-term growth targets, with expectations of returning to 2019 volume levels in the Mineral Fiber segment [66] Other Important Information - The company repurchased $40 million of shares in the third quarter and announced a 10% increase in its quarterly dividend [21] - Full-year guidance has been improved based on better-than-expected market conditions, with increased midpoints for adjusted EBITDA and free cash flow [22] Q&A Session Summary Question: Demand and Project Delays - Management acknowledged ongoing uncertainty in the market, particularly affecting discretionary renovation work, and noted that project delays are common in the Architectural Specialties business [28][30] Question: Sustainability of Margin Improvements - Management expressed confidence in the sustainability of margin improvements due to operational efficiencies and effective management of SG&A expenses [31][32] Question: Volume Trends in Mineral Fiber - Management indicated that the home center channel did not experience the expected destocking, and they anticipate more volume growth from growth initiatives like Canopy [34][36][39] Question: Fourth Quarter Guidance - Management provided insights into expected volume declines in the fourth quarter, driven by retail home center volume and higher SG&A expenses [41][42] Question: Inventory Revaluation Impact - Management discussed the positive impact of inventory revaluation in the third quarter and its anticipated benefits for the fourth quarter [53][56] Question: Market Mix and Growth Initiatives - Management highlighted the ability to shift end market mix effectively due to strong relationships with architects and ongoing innovation in product offerings [60][63]

FORM 10-Q General Information [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section provides a standard disclaimer that forward-looking statements are subject to various risks and uncertainties, potentially causing actual results to differ materially from expectations - Forward-looking statements are subject to **various risks and uncertainties**, including expectations concerning markets, economic conditions, dividends, and the ability to increase revenues and earnings[12](index=12&type=chunk) - **Key risk categories** include changes in customer relationships, availability and costs of manufacturing inputs, labor, joint venture financial contribution, ESG objectives, digitalization, strategic transactions, tax consequences, indebtedness, liquidity, legal/regulatory matters, economic conditions, construction activity, market competition, and cybersecurity breaches[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk) PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including earnings, balance sheets, equity, and cash flows, highlighting strong financial performance with increased net sales, operating income, and net earnings [Condensed Consolidated Statements of Earnings and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Income) Consolidated Statements of Earnings and Comprehensive Income Highlights | Metric | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Sales | $347.3 | $325.0 | $982.9 | $928.6 | | Gross Profit | $141.4 | $117.5 | $377.5 | $337.6 | | Operating Income | $100.2 | $73.3 | $257.4 | $208.1 | | Net Earnings | $69.5 | $57.5 | $177.0 | $154.1 | | Diluted EPS (Continuing Ops) ($) | $1.56 | $1.18 | $3.93 | $3.23 | | Diluted EPS (Net Earnings) ($) | $1.56 | $1.25 | $3.93 | $3.29 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights | Metric | Sep 30, 2023 (millions) | Dec 31, 2022 (millions) | | :--------------------------------- | :---------------------- | :---------------------- | | Total Assets | $1,713.8 | $1,687.2 | | Total Current Assets | $350.1 | $356.5 | | Total Current Liabilities | $185.8 | $182.7 | | Long-term Debt (less current) | $604.8 | $651.1 | | Total Shareholders' Equity | $585.5 | $535.0 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' Equity Changes (9 Months Ended Sep 30, 2023) | Metric | Amount (millions) | | :--------------------------------- | :------------------ | | Total Shareholders' Equity (Dec 31, 2022) | $535.0 | | Net Earnings | $177.0 | | Acquisition of Treasury Stock | $(98.0) | | Cash Dividends | $(34.7) | | Total Shareholders' Equity (Sep 30, 2023) | $585.5 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Highlights (9 Months Ended Sep 30) | Metric | 2023 (millions) | 2022 (millions) | | :--------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities | $176.4 | $119.2 | | Net cash (used for) provided by investing activities | $(10.6) | $8.1 | | Net cash (used for) financing activities | $(175.1) | $(137.6) | | Net (decrease) in cash and cash equivalents | $(9.4) | $(11.3) | | Cash and cash equivalents at end of period | $96.6 | $86.8 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1. BUSINESS AND BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) - **Armstrong World Industries, Inc. (AWI)** is a Pennsylvania corporation incorporated in 1891[36](index=36&type=chunk) - In **July 2023**, AWI acquired **BOK Modern, LLC**, a designer of metal facade architectural solutions, integrating its operations into the **Architectural Specialties segment**[39](index=39&type=chunk) - In **November 2022**, AWI acquired **GC Products, Inc.**, a designer and manufacturer of glass-reinforced-gypsum, glass-reinforced-cement, molded ceiling, and specialty wall products, also integrated into the **Architectural Specialties segment**[39](index=39&type=chunk) [NOTE 2. SEGMENT RESULTS](index=9&type=section&id=NOTE%202.%20SEGMENT%20RESULTS) Segment Net Sales (in millions) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Mineral Fiber | $249.7 | $233.7 | $712.1 | $671.4 | | Architectural Specialties | $97.6 | $91.3 | $270.8 | $257.2 | | Total Net Sales | $347.3 | $325.0 | $982.9 | $928.6 | Segment Operating Income (in millions) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Mineral Fiber | $85.5 | $70.8 | $224.8 | $199.8 | | Architectural Specialties | $15.5 | $3.4 | $34.9 | $11.0 | | Unallocated Corporate | $(0.8) | $(0.9) | $(2.3) | $(2.7) | | Total Consolidated Operating Income | $100.2 | $73.3 | $257.4 | $208.1 | [NOTE 3. REVENUE](index=10&type=section&id=NOTE%203.%20REVENUE) - Revenue is disaggregated by product-based segments (**Mineral Fiber** and **Architectural Specialties**) and major customer channels (**Distributors**, **Home centers**, **Direct customers**, **Other**)[45](index=45&type=chunk)[46](index=46&type=chunk) Mineral Fiber Net Sales by Customer Channel (in millions) | Customer Channel | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Distributors | $182.0 | $173.8 | $516.4 | $495.0 | | Home centers | $25.5 | $24.0 | $80.0 | $75.6 | | Direct customers | $15.7 | $16.1 | $45.6 | $46.6 | | Other | $26.5 | $19.8 | $70.1 | $54.2 | | Total | $249.7 | $233.7 | $712.1 | $671.4 | Architectural Specialties Net Sales by Customer Channel (in millions) | Customer Channel | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Distributors | $57.4 | $44.7 | $142.5 | $129.4 | | Direct customers | $36.4 | $45.3 | $122.8 | $125.0 | | Other | $3.8 | $1.3 | $5.5 | $2.8 | | Total | $97.6 | $91.3 | $270.8 | $257.2 | [NOTE 4. ACQUISITIONS](index=11&type=section&id=NOTE%204.%20ACQUISITIONS) - On **July 17, 2023**, AWI acquired **BOK Modern, LLC** for a purchase price of **$13.8 million cash** and additional contingent consideration not to exceed **$3.3 million**, with an estimated fair value of **$0.8 million**[52](index=52&type=chunk) - In **May 2023**, AWI acquired a co-ownership interest in certain software-related intellectual property for a total purchase price of **$11.0 million**[53](index=53&type=chunk) - On **November 4, 2022**, AWI acquired the business and assets of **GC Products, Inc.** for **$2.8 million cash**[54](index=54&type=chunk) [NOTE 5. DISCONTINUED OPERATIONS](index=11&type=section&id=NOTE%205.%20DISCONTINUED%20OPERATIONS) - During the three and nine months ended **September 30, 2022**, AWI recorded a **$1.0 million tax benefit** related to federal tax statute of limitation closures for the separation of Armstrong Flooring, Inc[55](index=55&type=chunk) - During the three and nine months ended **September 30, 2022**, AWI recorded a **$2.0 million tax benefit** related to federal tax statute of limitation closures for the sale of EMEA and Pacific Rim businesses[57](index=57&type=chunk) Net Earnings from Discontinued Operations (in millions) | Metric | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net earnings from discontinued operations | $3.0 | $3.0 | [NOTE 6. ACCOUNTS AND NOTES RECEIVABLE](index=12&type=section&id=NOTE%206.%20ACCOUNTS%20AND%20NOTES%20RECEIVABLE) Accounts and Notes Receivable, Net (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Customer receivables | $112.8 | $107.4 | | Miscellaneous receivables | $7.0 | $8.2 | | Less allowance for warranties, discounts and losses | $(3.1) | $(3.2) | | Accounts and notes receivable, net | $116.7 | $112.4 | - All outstanding **Employee Retention Credit (ERC) receivables** of **$4.8 million** as of **December 31, 2022**, were collected during the **first quarter of 2023**[59](index=59&type=chunk) [NOTE 7. INVENTORIES](index=12&type=section&id=NOTE%207.%20INVENTORIES) Inventories, Net (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Finished goods | $58.8 | $60.9 | | Goods in process | $4.5 | $6.5 | | Raw materials and supplies | $68.1 | $63.0 | | Less LIFO reserves | $(24.2) | $(20.4) | | Total inventories, net | $107.2 | $110.0 | [NOTE 8. OTHER CURRENT ASSETS](index=12&type=section&id=NOTE%208.%20OTHER%20CURRENT%20ASSETS) Other Current Assets (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Prepaid expenses | $15.1 | $16.6 | | Assets held for sale | $6.6 | $4.6 | | Fair value of derivative assets | $3.2 | $3.7 | | Other | $2.7 | $1.4 | | Total other current assets | $27.6 | $26.3 | - Assets held for sale as of **September 30, 2023**, included the idled **Mineral Fiber plant in St. Helens, Oregon**, and an **Architectural Specialties design center in Chicago, Illinois**[60](index=60&type=chunk) [NOTE 9. EQUITY INVESTMENT](index=13&type=section&id=NOTE%209.%20EQUITY%20INVESTMENT) - The investment in **WAVE joint venture** is a **50% equity interest** reflected within the **Mineral Fiber segment**[62](index=62&type=chunk) WAVE Joint Venture Financial Data (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $117.8 | $116.9 | $343.4 | $356.3 | | Gross profit | $68.5 | $64.0 | $200.9 | $180.1 | | Net earnings | $49.1 | $46.7 | $144.5 | $130.0 | [NOTE 10. LEASES](index=13&type=section&id=NOTE%2010.%20LEASES) - During **Q1 2023**, AWI entered a new operating lease for a manufacturing facility, recognizing an initial ROU asset and lease liability of **$13.0 million**[64](index=64&type=chunk) - During **Q3 2023**, AWI modified a lease for an existing manufacturing facility, recognizing an additional ROU asset and lease liability of **$8.6 million**[64](index=64&type=chunk) Weighted-Average Discount Rate for Leases | Metric | Sep 30, 2023 (%) | Dec 31, 2022 (%) | | :--------------------------------- | :--------------- | :--------------- | | Operating leases | 4.9% | 3.8% | | Finance leases | 4.6% | 3.7% | [NOTE 11. GOODWILL AND INTANGIBLE ASSETS](index=14&type=section&id=NOTE%2011.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill and Intangible Assets (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Goodwill | $174.8 | $167.3 | | Total intangible assets | $658.2 | $640.9 | | Amortization expense (9 months) | $11.0 | $12.8 | - The increase in goodwill as of **September 30, 2023**, resulted from the **acquisition of BOK**[70](index=70&type=chunk) [NOTE 12. OTHER NON-CURRENT ASSETS](index=14&type=section&id=NOTE%2012.%20OTHER%20NON-CURRENT%20ASSETS) Other Non-Current Assets (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Cash surrender value of company-owned life insurance policies | $40.7 | $42.8 | | Investment in employee deferred compensation plans | $7.8 | $7.7 | | Fair value of derivative assets | $3.0 | $7.7 | | Other | $1.0 | $1.2 | | Total other non-current assets | $52.5 | $59.4 | [NOTE 13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=15&type=section&id=NOTE%2013.%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) Accounts Payable and Accrued Expenses (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Payables, trade and other | $95.3 | $105.0 | | Employment costs | $20.8 | $20.0 | | Current portion of pension and postretirement liabilities | $9.9 | $9.9 | | Acquisition-related contingent consideration | $0 | $15.2 | | Other | $24.3 | $22.4 | | Total accounts payable and accrued expenses | $150.3 | $172.5 | [NOTE 14. INCOME TAX EXPENSE](index=15&type=section&id=NOTE%2014.%20INCOME%20TAX%20EXPENSE) Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Earnings from continuing operations before income taxes | $93.7 | $67.7 | $237.6 | $194.3 | | Income tax expense | $24.2 | $13.2 | $60.6 | $43.2 | | Effective tax rate (%) | 25.8% | 19.5% | 25.5% | 22.2% | - The effective tax rate for both the three and nine months ended **September 30, 2023**, was **higher** primarily due to the benefits recognized from federal and state statute closures and the reduction in valuation allowance for capital loss carryforwards in the prior year[74](index=74&type=chunk) [NOTE 15. DEBT](index=15&type=section&id=NOTE%2015.%20DEBT) - AWI's long-term debt includes a **$950.0 million** variable rate senior credit facility, comprising a **$500.0 million** revolving credit facility and a **$450.0 million** Term Loan A[76](index=76&type=chunk) Debt Balances (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Principal balance of Term Loan A | $450.0 | $450.0 | | Borrowings outstanding under revolving credit facility | $175.0 | $205.0 | | Long-term debt, less current installments | $604.8 | $651.1 | Letters of Credit Facilities (in millions) | Financing Arrangement | Limit | Sep 30, 2023 Used | Available | | :---------------------- | :---- | :---------------- | :-------- | | Bi-lateral facility | $25.0 | $7.7 | $17.3 | | Revolving credit facility | $150.0 | $0 | $150.0 | | Total | $175.0 | $7.7 | $167.3 | [NOTE 16. PENSIONS AND OTHER BENEFIT PROGRAMS](index=16&type=section&id=NOTE%2016.%20PENSIONS%20AND%20OTHER%20BENEFIT%20PROGRAMS) Net Periodic Benefit Costs (Credits) (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net periodic pension credit | $0 | $0 | $0 | $0 | | Net periodic postretirement credit | $(0.8) | $(0.4) | $(2.4) | $(1.2) | [NOTE 17. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION](index=16&type=section&id=NOTE%2017.%20FINANCIAL%20INSTRUMENTS%20AND%20CONTINGENT%20CONSIDERATION) Fair Values of Financial Instruments and Contingent Consideration (in millions) | Metric | Sep 30, 2023 Carrying Amount | Sep 30, 2023 Estimated Fair Value | Dec 31, 2022 Carrying Amount | Dec 31, 2022 Estimated Fair Value | | :--------------------------------- | :----------------------------- | :-------------------------------- | :----------------------------- | :-------------------------------- | | Total long-term debt, including current portion | $(621.7) | $(616.2) | $(651.1) | $(645.3) | | Interest rate swap contracts | $6.2 | $6.2 | $11.4 | $11.4 | | Acquisition-related contingent consideration | $(0.8) | $(0.8) | $(15.2) | $(15.2) | - Acquisition-related contingent consideration of **$15.2 million** related to the Turf acquisition was paid in **Q1 2023**[91](index=91&type=chunk) - The remaining acquisition-related contingent consideration of **$0.8 million** as of **September 30, 2023**, relates to the BOK acquisition, measured at fair value using a Monte Carlo simulation[87](index=87&type=chunk)[88](index=88&type=chunk) [NOTE 18. DERIVATIVE FINANCIAL INSTRUMENTS](index=18&type=section&id=NOTE%2018.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) - AWI uses **interest rate swaps** as **cash flow hedges** to manage exposure to interest rate volatility on variable rate debt[94](index=94&type=chunk) - In **March 2023**, interest rate swaps were amended to change the hedged interest rate from **LIBOR** to the **Secured Overnight Financing Rate (SOFR)**[94](index=94&type=chunk)[176](index=176&type=chunk) - As of **September 30, 2023**, **$6.3 million** of existing gains in **Accumulated Other Comprehensive Income (AOCI)** are expected to be recognized in net earnings over the next twelve months[103](index=103&type=chunk) [NOTE 19. SHAREHOLDERS' EQUITY](index=19&type=section&id=NOTE%2019.%20SHAREHOLDERS'%20EQUITY) - During the three months ended **September 30, 2023**, AWI repurchased **0.5 million shares** for **$40.0 million** (average price **$74.80 per share**)[106](index=106&type=chunk) - During the nine months ended **September 30, 2023**, AWI repurchased **1.3 million shares** for **$97.0 million** (average price **$72.09 per share**)[106](index=106&type=chunk) - As of **September 30, 2023**, **$751.8 million** remained under the Board's share repurchase authorization[104](index=104&type=chunk) - On **October 18, 2023**, the Board declared a **$0.28 per share** quarterly dividend, an **increase** from the previous **$0.254 per share**[108](index=108&type=chunk) [NOTE 20. OTHER LONG-TERM LIABILITIES](index=21&type=section&id=NOTE%2020.%20OTHER%20LONG-TERM%20LIABILITIES) Other Long-Term Liabilities (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Long-term deferred compensation arrangements | $17.0 | $15.4 | | Environmental insurance recoveries received in excess of cumulative expenses incurred | $2.7 | $3.5 | | Acquisition-related contingent consideration | $0.8 | $0 | | Other | $7.9 | $6.9 | | Total other long-term liabilities | $28.4 | $25.8 | [NOTE 21. LITIGATION AND RELATED MATTERS](index=21&type=section&id=NOTE%2021.%20LITIGATION%20AND%20RELATED%20MATTERS) - AWI is actively involved in the investigation and remediation of existing or potential environmental contamination at **two domestically owned Superfund sites: Macon, GA, and Elizabeth City, NC**[116](index=116&type=chunk) - Total environmental liabilities recorded were **$0.8 million** as of **September 30, 2023**, and **$0.5 million** as of **December 31, 2022**, reflected within other long-term liabilities[127](index=127&type=chunk) - Insurance recoveries in excess of cumulative expenses were **$2.7 million** as of **September 30, 2023**, and **$3.5 million** as of **December 31, 2022**[119](index=119&type=chunk) [NOTE 22. NET EARNINGS PER SHARE](index=25&type=section&id=NOTE%2022.%20NET%20EARNINGS%20PER%20SHARE) Net Earnings Per Share (Continuing Operations) | Metric | 3 Months Ended Sep 30, 2023 ($) | 3 Months Ended Sep 30, 2022 ($) | 9 Months Ended Sep 30, 2023 ($) | 9 Months Ended Sep 30, 2022 ($) | | :--------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Basic EPS | $1.56 | $1.18 | $3.93 | $3.24 | | Diluted EPS | $1.56 | $1.18 | $3.93 | $3.23 | | Basic Shares Outstanding (millions) | 44.5 | 46.1 | 45.0 | 46.6 | | Diluted Shares Outstanding (millions) | 44.6 | 46.1 | 45.0 | 46.7 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting strong consolidated net sales and operating income growth driven by favorable average unit value and increased sales volumes across key segments, alongside cash flow and liquidity [Overview](index=26&type=section&id=Overview) - AWI is a **leader** in the design, innovation, and manufacture of ceiling and wall solutions in the Americas[137](index=137&type=chunk) - The company operates **16 manufacturing plants** (**14 in the U.S., 2 in Canada**) and manufactures ceiling suspension systems through the WAVE joint venture[138](index=138&type=chunk)[139](index=139&type=chunk) - Reportable segments include **Mineral Fiber**, **Architectural Specialties**, and **Unallocated Corporate**. Recent acquisitions of **BOK Modern (July 2023)** and **GC Products (November 2022)** are included in the Architectural Specialties segment[138](index=138&type=chunk)[140](index=140&type=chunk) [Factors Affecting Revenues](index=27&type=section&id=Factors%20Affecting%20Revenues) - Consolidated net sales for the three and nine months ended **September 30, 2023**, **increased** by approximately **$20 million** and **$43 million**, respectively, due to favorable Average Unit Value (AUV)[146](index=146&type=chunk) - Sales volumes **increased** by **$2 million** (three months) and **$11 million** (nine months), partly driven by contributions from the acquisitions of GC Products and BOK[145](index=145&type=chunk) - **Price increases** were implemented on Mineral Fiber ceiling products and grid products during the first half and third quarter of 2023[147](index=147&type=chunk) - Sales are historically **stronger** in the second and third quarters due to favorable weather, customer business cycles, and timing of renovation/new construction projects[147](index=147&type=chunk) [Factors Affecting Operating Costs](index=27&type=section&id=Factors%20Affecting%20Operating%20Costs) - In the three months ended **September 30, 2023**, operating income **benefited** by **$2 million** from lower energy costs, which more than offset higher raw material costs[149](index=149&type=chunk) - For the nine months ended **September 30, 2023**, operating income was **negatively impacted** by **$4 million** from higher raw material costs, partially offset by lower energy costs[149](index=149&type=chunk) Acquisition-Related Expenses and Losses (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Loss related to change in fair value of contingent consideration | $0 | $7.1 | $0 | $13.3 | | Deferred cash and restricted stock expenses | $1.4 | $1.9 | $4.1 | $5.9 | | Net negative impact to operating income | $1.4 | $9.0 | $4.1 | $19.2 | - The **decrease** in acquisition-related expenses is primarily due to the completion of the contingent consideration earn-out period for the Turf acquisition on **December 31, 2022**[152](index=152&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Consolidated Results (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (%) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :--------------------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Total consolidated net sales | $347.3 | $325.0 | 6.9% | $982.9 | $928.6 | 5.8% | | Operating income | $100.2 | $73.3 | 36.7% | $257.4 | $208.1 | 23.7% | - Cost of goods sold as a percentage of net sales **decreased** to **59.3%** in **Q3 2023** (from **63.8%** in Q3 2022) and to **61.6%** for the nine months (from **63.6%** in 9 months 2022), driven by favorable AUV margin, lower input costs, and improved manufacturing productivity[157](index=157&type=chunk)[158](index=158&type=chunk) - Equity earnings from the WAVE joint venture **increased** to **$23.4 million** in **Q3 2023** (from **$22.2 million**) and to **$69.1 million** for the nine months (from **$61.7 million**), primarily due to lower steel costs and higher volumes[160](index=160&type=chunk) - Interest expense **increased** due to higher interest rates on floating rate debt, partially offset by lower average debt balances[161](index=161&type=chunk) - The effective tax rate **increased** to **25.8%** in **Q3 2023** (from **19.5%**) and to **25.5%** for the nine months (from **22.2%**), primarily due to the absence of prior-year tax benefits from federal and state statute closures and valuation allowance reductions[162](index=162&type=chunk) [Financial Condition and Liquidity](index=31&type=section&id=Financial%20Condition%20and%20Liquidity) - Net cash provided by operating activities **significantly increased** to **$176.4 million** for the first nine months of **2023**, up from **$119.2 million** in the prior-year period, driven by favorable working capital changes[172](index=172&type=chunk) - Net cash used in investing activities was **$10.6 million** for the first nine months of **2023**, a **shift** from **$8.1 million provided** in the prior year, primarily due to cash paid for acquisitions and increased capital expenditures[172](index=172&type=chunk) - Net cash used for financing activities **increased** to **$175.1 million** for the first nine months of **2023**, compared to **$137.6 million** in the prior year, mainly due to lower proceeds from revolving credit facility borrowings[173](index=173&type=chunk) - AWI has a **$950.0 million** variable rate senior credit facility, including a **$500.0 million** revolving credit facility and a **$450.0 million** Term Loan A[174](index=174&type=chunk) - As of **September 30, 2023**, AWI had **$96.6 million** in cash and cash equivalents and **$325.0 million** available under its revolving credit facility, and was **in compliance** with all debt covenants[175](index=175&type=chunk)[181](index=181&type=chunk) [Critical Accounting Estimates](index=32&type=section&id=Critical%20Accounting%20Estimates) - There have been **no material changes** to the critical accounting estimates disclosed in the Annual Report on Form 10-K for the year ended **December 31, 2022**[182](index=182&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers readers to the company's Annual Report on Form 10-K for a comprehensive discussion of its exposure to various market risks - For information regarding exposure to certain market risks, refer to **Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk,'** in the Annual Report on Form 10-K for the year ended **December 31, 2022**[183](index=183&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive officer and chief financial officer, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023. No material changes in internal control over financial reporting occurred during the fiscal quarter - Disclosure controls and procedures were **effective** as of **September 30, 2023**, based on management's evaluation with the participation of the principal executive officer and chief financial officer[184](index=184&type=chunk) - There have been **no material changes** in internal control over financial reporting during the fiscal quarter ended **September 30, 2023**[184](index=184&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 21 of the Condensed Consolidated Financial Statements for detailed information regarding legal proceedings, primarily focusing on environmental matters - Information regarding legal proceedings is incorporated by reference from **Note 21** to the Condensed Consolidated Financial Statements[186](index=186&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been **no material changes** to the risk factors disclosed in the Annual Report on Form 10-K for the year ended **December 31, 2022**[186](index=186&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company continued its share repurchase program, acquiring 0.5 million shares for $40.0 million during the third quarter of 2023. A significant authorization amount remains for future repurchases - During the three months ended **September 30, 2023**, AWI repurchased **534,736 shares** under its program for a total cost of **$40.0 million**, at an average price of **$74.80 per share**[187](index=187&type=chunk)[189](index=189&type=chunk) - As of **September 30, 2023**, **$751.8 million** remained under the Board's share repurchase authorization, which extends through **December 31, 2026**[187](index=187&type=chunk)[188](index=188&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were **no defaults** upon senior securities[190](index=190&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is **not applicable**[190](index=190&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) This section discloses that the President and CEO, Victor D. Grizzle, entered into a new 10b5-1 plan for the exercise and sale of stock options in December 2023 - On **August 31, 2023**, CEO **Victor D. Grizzle** entered into a new **10b5-1 plan** for the exercise and sale of **22,914 stock options** at market price on **December 28, 2023**[191](index=191&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, primarily consisting of Inline XBRL documents and certifications - The exhibits include **Inline XBRL Instance Document**, **Taxonomy Extension Schema**, **Calculation Linkbase**, **Definition Linkbase**, **Label Linkbase**, and **Presentation Linkbase**[192](index=192&type=chunk) Signatures [Signatures](index=36&type=section&id=Signatures) The report was duly signed on behalf of Armstrong World Industries, Inc. by its Senior Vice President and Chief Financial Officer, and its Vice President and Controller - The report was signed by **Christopher P. Calzaretta**, Senior Vice President and Chief Financial Officer, and **James T. Burge**, Vice President and Controller, on **October 24, 2023**[195](index=195&type=chunk)

Financial Data and Key Metrics Changes - The company achieved a 10% year-over-year adjusted EBITDA growth on 1% net sales growth in Q2 2023, despite challenging market conditions [5] - Year-to-date adjusted free cash flow reached $103 million, a 60% increase from 2022 [5][19] - Adjusted diluted net earnings per share increased by 7% compared to the prior year [19] - Consolidated adjusted EBITDA margin expanded by 260 basis points, with adjusted EBITDA up 10% [19] Business Line Data and Key Metrics Changes - **Mineral Fiber Segment**: Sales were essentially flat compared to 2022, with a 7% increase in average unit value (AUV) offset by lower sales volumes [6][14] - **Architectural Specialties Segment**: Sales increased by 6% from a strong 2022 level, with order intake reaching a historical high [10][18] - Mineral Fiber adjusted EBITDA grew by $6 million or 7%, with adjusted EBITDA margin expanding by 260 basis points [15] Market Data and Key Metrics Changes - Mixed indicators for primary sectors in Q2, with Dodge bidding activity softening and ABI declining but remaining positive [6] - Office vacancies continued to rise, but commercial leasing activity improved for the first time in four quarters [6] - The office vertical, which represents about 30% of sales, is expected to remain soft in the second half of the year [36] Company Strategy and Development Direction - The company is focused on leveraging its diverse verticals to cushion against cyclical swings, with a strong emphasis on operational excellence and productivity gains [7][9] - The acquisition of BOK Modern aims to enhance the company's capabilities in architectural metal solutions, extending its reach into exterior building applications [28][79] - The company is committed to investing in high-return opportunities and strategic acquisitions while maintaining a robust share repurchase program [21][66] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the second half of 2023, noting improved visibility and removing worst-case market downturn scenarios from expectations [22][24] - The company anticipates continued inflationary pressures on raw materials, with a forecast of high single-digit inflation on raw materials for the year [34] - Management highlighted the positive trends supporting the healthy spaces growth initiative, particularly in light of new regulatory proposals [25][26] Other Important Information - The company reported a significant increase in sales through its online marketplace, Canopy, which doubled from 2022 levels [8] - The company has increased its share repurchase authorization by an additional $500 million, reflecting confidence in its cash flow generation capabilities [21][27] Q&A Session Summary Question: Input costs outlook for the second half of the year - Management indicated flat total input costs in Q2, with continued inflation on raw materials and deflationary benefits from energy and freight expected [34] Question: Demand trends in the office vertical - Management expects the office segment to remain softer in the second half, influenced by rising vacancy rates and economic uncertainty [36][40] Question: Pricing strategy moving forward - Management expressed confidence in maintaining pricing power, with expectations to price ahead of inflation despite market softness [44] Question: Guidance for Mineral Fiber volumes - Management anticipates high mid-single-digit declines in Mineral Fiber volumes for the second half, with caution due to macroeconomic uncertainties [47] Question: Architectural Specialties segment growth sustainability - Management is optimistic about achieving a world-class EBITDA margin of over 20% in the Architectural Specialties segment, driven by operating leverage and larger project opportunities [62] Question: M&A pipeline and capital allocation - Management remains active in pursuing acquisitions to enhance capabilities, with a balanced approach to capital allocation between investments, acquisitions, and share repurchases [66]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.01 par value per share AWI New York Stock Exchange FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission ...

Financial Data and Key Metrics Changes - Consolidated net sales increased by 10% year-over-year, adjusted EBITDA grew by 9%, and adjusted free cash flow increased by more than 50% [5][22][23] - Adjusted diluted net earnings per share increased by 10% compared to the prior year [22] Business Line Data and Key Metrics Changes - Mineral Fiber segment sales growth was 12%, driven by 9% volume growth and 3% average unit value (AUV) growth [16][18] - Architectural Specialties segment experienced a slower start with 3% year-over-year sales growth and a $1 million decline in adjusted EBITDA [7][21] Market Data and Key Metrics Changes - The first quarter saw a recovery in sales following a challenging first quarter of 2022, with a return to more normal inventory levels [6][10] - Bidding activity turned positive across all verticals, with notable strength in transportation and healthcare markets [10][26] Company Strategy and Development Direction - The company remains focused on executing strategic initiatives and controlling costs amid economic uncertainty [5][11] - Continued investment in digital initiatives and product innovation, including the expansion of the automated design service, Project Works [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed caution for the remainder of the year, anticipating a mild recession in the second half and challenges in the commercial construction market [9][10] - The company expects to maintain its full-year guidance, projecting sales growth of 2% to 6% and adjusted EBITDA growth of 3% to 9% [24] Other Important Information - The company has returned over $1 billion in dividends and share repurchases since 2016, with a commitment to return excess cash to shareholders [30] - The company has hedged about 50% of its natural gas exposure to stabilize its cost structure [20][55] Q&A Session Summary Question: Clarification on volume growth and end markets - Management confirmed that the 9% volume growth was supported by growth initiatives and an extra shipping day, with overall market conditions stable compared to the previous quarter [33][34][35] Question: Impact of destocking normalization - Management believes destocking has normalized, with no additional downturn observed [37] Question: Pricing strategy and inflation - Management is on track with regular price increases and expects to continue addressing inflation through pricing initiatives [41] Question: Geographic differences in office market activity - Management noted that all regions experienced growth, with variations based on back-to-office activity levels [45][46] Question: Impact of natural gas hedging - Management hedged about half of its natural gas exposure, which is expected to provide stability but not significantly alter cost guidance [55][86] Question: Volume outlook for the remainder of the year - Management anticipates negative volume growth in the second quarter, with a continued deceleration expected for the rest of the year [57] Question: AUV dynamics and mix impact - Management does not expect a significant trade-down in mix, maintaining a positive outlook for AUV growth driven by innovation and product offerings [64][66]