Armstrong World Industries, Inc. Stock

Hello, and thank you for standing by. My name is Marina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Armstrong World Industries Third Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Theresa Womble, Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, and welcome, everyone, to our call this morning. On today's call, Mark Hershey, our CEO; and Chris Calzaretta, our CFO, will discuss Armstrong World Industries Third Quarter 2026 results and rest of year 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 includes 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 we issued this morning.

Both are available on our Investor Relations website. During this call, we will be making forward-looking statements, that represent the view we have of our financial and operational performance and our expectations as of today's date, October 27, 2026. These statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of these risks and uncertainties in our SEC filings, including those related to market conditions, inflationary pastures and tariffs.

We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law.

Now I will turn the call over to Mark.

Thank you, Theresa. Good morning, everyone, and thank you for joining us. We delivered another solid quarter at Armstrong, demonstrating the resilience of our businesses and continued progress in our growth platforms. I was particularly impressed by how our people across a broad range of roles and responsibilities united to respond to a rapidly changing cost environment while continuing to serve our customers and advance our growth initiatives. .

In the quarter, we delivered record third quarter sales and double-digit growth in both adjusted EBITDA and adjusted diluted EPS. Net sales increased 12%. Adjusted EBITDA increased 11% and adjusted diluted EPS increased 10%. This is strong revenue growth against a largely flat overall market. And importantly, both of our operating segments contributed to that performance and expanded adjusted EBITDA margins year-over-year.

I believe these results demonstrate 2 things clearly. Our growth strategy is working and the underlying value creation model that has distinguished Armstrong for many years, remains firmly intact. Mineral Fiber delivered solid AUV and positive volume growth, while Architectural Specialties produced exceptional organic growth across a broad range of offerings and product categories. At the same time, input costs accelerated rapidly during the quarter, particularly freight and raw materials. We also saw timing-related mix pressure in mineral fiber, as can occur from time to time in some of our lower AUV channels.

Together, those factors dampened the margin expansion we would otherwise have expected from this level of revenue growth. Accordingly, we responded to the recent cost headwinds with the same discipline that has served Armstrong well through previous inflationary cycles, enhanced productivity, swift strolls, optimized transportation and market-based pricing. Some of those benefits take time to flow through, particularly in our custom project-based Architectural Specialties businesses.

We expect the impact of these dynamics to moderate as timing-related mix pressure normalizes and are mitigating actions take full or effect. Our updated guidance now reflects these impacts. Taken together of our businesses, underlying strength of demand and the continued traction of our strategic growth initiatives as we enter the final quarter of the year.

Turning first to Mineral Fiber. Net sales increased 7%. And AUV was the primary contributor to growth, driven principally by price, together with a positive volume contribution. Notably, this was our third consecutive quarter of mineral fiber volume growth and the fifth of the past 6 quarters. While demand for our higher-value SWAT products remained healthy and again outpaced other product categories, volume was particularly strong in several of our lower AUV channels, most notably in Canada, where customers accelerated purchases ahead of anticipated tariff actions affecting grid pricing.

Because we sell a complete ceiling system, that grid activity in Canada also pulled through additional mineral fiber volume. Wave benefited from that timing-related grid activity in the quarter as well as from strong data center growth to deliver a solid earnings performance. While at the same time, responding appropriately to continued steel and tariff cost headwinds. Overall, we view the lower AUV channel strength in the quarter as a timing-related mix dynamic that reduced the margin benefit we would normally expect from this level of sales growth.

That said, even with the unusual mix dynamic and the swift rise in freight and raw material costs Mineral Fiber delivered 8% adjusted EBITDA growth and expanded adjusted EBITDA margin by 40 basis points to 44%. I want to emphasize that point. In the face of the highest input cost inflation we've experienced since 2022, Mineral Fiber delivered a 44% adjusted EBITDA margin and expanded margin year-over-year. That is strong evidence of the durability of this business and the ability of our teams to respond to escalating inflation through productivity, cost controls and other near-term mitigation actions.

Our mineral fiber manufacturing teams were part of that effort and continued to execute well this quarter, setting an all-time record in plant reliability for the network and topping their record Q2 performance while also keeping our perfect order fulfillment measure at high levels. Plant reliability, product quality and dependable customer service are key enablers of our commercial performance and meaningful differentiators for Armstrong in the market as we strive to support our loyal distributor and contractor customers with exceptional quality and service.

Turning to Architectural Specialties. Net sales increased 22% and including impressive organic growth of 16%, the highest quarterly organic growth rate in the segment's history. Growth was broad-based across the AS portfolio, supported by multiple consecutive quarters of healthy demand and strong project activity in transportation, health care, education and other commercial applications. I continue to be encouraged by our quoting and order intake rates. And by the ability of our commercial teams to drive penetration broadly across the Architectural Specialties categories.

Order intake in the quarter again increased at a double-digit rate reflecting recent strong bidding activity and providing a healthy foundation as we finish 2026 and move into 2027. Adjusted EBITDA in this segment increased 25% and adjusted EBITDA margin expanded 60 basis points to 19.4%. That's a strong result given the rapid acceleration of freight costs during the quarter, together with heightened aluminum and steel inflation, and tariffs affecting portions of the AS portfolio.

As a reminder, particularly with respect to our custom Architectural Specialties work, project pricing remains in place until quotes expire or price escalators take effect. This can create a mitigation lag when inflation and input cost pressures accelerate rapidly. Across the AS portfolio, as we have done across the enterprise. Disciplined mitigation measures are in place to reflect the new cost environment, including pricing and cost control actions initiated earlier this year. These efforts helped to support the record organic growth and margin expansion achieved this quarter. And this performance gives us even greater confidence in the segment's earnings potential as our actions become more fully reflected in the economics of recently quoted and future projects.

Recent acquisitions also contributed to revenue growth in the quarter. We remain focused on accelerating commercial adoption, realizing integration benefits and using the Armstrong platform to help these businesses scale. The strategic rationale remains compelling. Each portfolio addition expands the range of materials and capabilities we can bring to a project. increases the number of specifications we can pursue and allows us to capture more value by solving a broader set of customer needs. And we continue to see a clear path toward our 20% Architectural Specialties adjusted EBITDA margin target as we further integrate and scale these recent acquisitions.

The performance of Architectural Specialties this quarter also illustrates the broader evolution underway at Armstrong. We are increasingly bringing Mineral Fiber, metal, wood, felt, structural systems and design capabilities together to help architect designers and contractors execute more complex projects. That breadth matters. It allows us to engage earlier, compete for more specifications and offer customers a more integrated solution from design through installation, especially in a market where complexity, schedule certainty and execution matter.

Our combination of portfolio breadth, technical expertise, project management and service is increasingly differentiated within our industry. Our recently completed work at Seattle-Tacoma International Airport Terminal C showcases our expanding ability to bring complex, high design spaces to life. Working hand-in-hand with the architects over several years our design team helped realize a striking timber-clad Kanopi and column structure inspired by Pacific Northwest forests, anchoring a 4-story marketplace and grand staircase. The tree at Terminal C which is pictured on the cover page of our earnings presentation today, combines 4 distinct wood products with metal ceiling and mineral fiber solutions and demonstrates how our broad portfolio and collaborative design expertise uniquely position Armstrong to deliver on ambitious architectural visions.

This is exactly the kind of opportunity our expanded portfolio is creating. We are not simply participating in more categories. We're helping customers solve more of the ceiling and wall scope through 1 trusted partner. With that, I will turn the call over to Chris for a closer look at our financial results and updated full year outlook.

Thanks, Mark, 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 please note that Slide 3 details our basis of presentation. We begin on Slide 6 with our Mineral Fiber segment results for the third quarter. Mineral Fiber net sales increased 7% in the quarter, driven by AUV growth of 6% and an increase in volumes. The increase in AUV was primarily driven by favorable like-for-like pricing, along with a positive contribution from mix. The increase in volumes was driven by timing-related demand from our Canadian customers, as Mark discussed, as well as benefits from our growth initiatives. Mineral Fiber segment adjusted EBITDA grew by 8% in the quarter with adjusted EBITDA margin expanding 40 basis points to 44%.

Adjusted EBITDA growth was primarily driven by the fall-through of AUV although at a lower rate than expected due to the mix impact of higher sales volumes to lower AUV channels. Additional items contributing to Mineral Fiber adjusted EBITDA growth in the quarter included a solid contribution from our WAVE joint venture, as well as lower mineral fiber SG&A expenses primarily driven by higher incentive compensation expense in the prior year quarter. These benefits were partially offset by higher input costs, reflecting a sequential acceleration in freight and raw material inflation.

While our pricing actions are designed to offset inflation over time, periods of rapid inflation can create timing lags between higher input costs and our full price realization, and this dynamic was a factor during the quarter. Despite elevated input cost inflation, the Mineral Fiber adjusted EBITDA margin of 44% represents the strongest third quarter adjusted EBITDA margin result in the segment since 2019. This level of financial performance, even in a challenging environment, underscores our mineral fiber value creation drivers, including AUV growth, annual productivity gains and positive contributions from our WAVE joint venture, along with our disciplined focus on cost control.

On Slide 7, we discuss our Architectural Specialties or AS segment results, where we highlight net sales growth of 22%. This increase was driven by broad-based organic growth across most of our specialty product categories, along with contributions from the February acquisition of Eventscape and the 2025 acquisitions of parallel and geometric. We are pleased with an organic growth rate of 16% in the quarter, which represents the highest quarterly organic growth rate on record. AS segment adjusted EBITDA increased 25% versus the prior year with adjusted EBITDA margin expanding 60 basis points to 19.4%, which includes the dilutive impact of our recent acquisitions.

On an organic basis, we achieved a greater than 20% adjusted EBITDA margin despite the negative impact of lower project margins related to elevated metal costs and freight. The improvement in adjusted EBITDA was primarily driven by a $12 million benefit from higher net sales, of which $3 million was inorganic. This benefit was partially offset by a $2 million increase in manufacturing costs due primarily to our recent acquisitions and a $3 million increase in SG&A expenses, of which approximately half was from our recent acquisitions.

We are particularly pleased with the segment's $12 million sales benefit to adjusted EBITDA in the quarter despite the impact of elevated metal costs. On Slide 8, we highlight our third quarter consolidated company metrics. Net sales grew 12% and adjusted EBITDA increased 11%. Additionally, adjusted diluted net earnings per share grew 10%. Incremental volume from both segments, solid AUV performance and positive equity earnings from WAVE drove adjusted EBITDA growth in the quarter.

These benefits were partially offset by higher input costs, primarily driven by freight and raw material inflation in addition to higher manufacturing costs, which were largely driven by our recent acquisitions. SG&A expenses were essentially flat in the quarter as increased organic selling investments and an inorganic increase from our recent acquisitions were offset by higher incentive compensation expense in the prior year quarter.

Excluding the impact of our recent acquisitions, total company organic adjusted EBITDA margin was 35.1%, representing 40 basis points of organic adjusted EBITDA margin expansion. Slide 9 summarizes our year-to-date consolidated company results, which reflect 10% net sales growth and 7% adjusted EBITDA growth. Adjusted EBITDA growth in the first 9 months of 2026 was driven by both incremental volume and the fall-through impact of solid Mineral Fiber AUV as well as positive WAVE equity earnings. Higher manufacturing costs were largely driven by our recent acquisitions and first quarter costs in the AS organic business.

The increase in input costs was driven primarily by freight and raw material inflation. SG&A increased primarily due to continued investments to support growth, including higher people costs, and the inorganic impact from recent acquisitions, partially offset by higher incentive compensation costs in the prior year period. Adjusted diluted net earnings per share grew 9% and driven primarily by higher net earnings and partially due to a lower share count resulting from increased share repurchases.

On Slide 10, we present our year-to-date adjusted free cash flow performance versus the prior year. The 2% decrease was driven primarily by unfavorable timing-related working capital flows driven by accounts receivable. Higher income tax payments in the current quarter primarily due to the favorable timing of a portion of our third quarter federal tax payment in the prior year period and higher capital expenditures. Partially offsetting these headwinds was a year-to-date increase in dividends from our WAVE joint venture.

We remain confident in our ability to deliver solid double-digit adjusted free cash flow growth in 2026 to support all of our capital allocation priorities. Turning to capital deployment. Our year-to-date activity reflects continued execution on our capital allocation priorities, which are investing back into the business through CapEx pursuing strategic acquisitions like the first quarter acquisition of Eventscape and returning value to our shareholders through our dividend and share repurchases.

Last week, we announced a 10% increase to our quarterly dividend marking the eighth consecutive annual increase since the inception of our dividend program in 2018. This increase reflects our Board of Directors' continued confidence growth strategy and ability to generate. Additionally, in the third quarter, we paid $15 million of dividends to our shareholders and repurchased $75 million of shares, bringing our year-to-date dividends paid to $45 million our year-to-date share repurchases to $210 million. As of September 30, 2026, we have over $1 billion remaining under the existing share repurchase authorization. Our balance sheet is healthy with low leverage and ample available liquidity, we remain well positioned to execute on our strategy.

Turning to Slide 11. We present our updated 2026 guidance metrics. We now expect total company net sales growth of 10% to 11%, up slightly from the previous range of 9% to 11%. This increase is driven by the continued robust performance of our AS organic business. where we now expect net sales growth in the low teens range, up from our previous assumption of growth in the high single digits. Partially offsetting this increase are lower-than-expected contributions from our recent acquisitions as we continue to scale these businesses onto the Armstrong platform.

This brings our full year net sales outlook for the AS segment, up to 18% to 19% growth an increase from our previous outlook of 15% to 17% growth. For the Mineral Fiber segment, we have slightly lowered our full year net sales growth assumption to approximately 6.5%. With about 1 point of volume growth and AUV growth of approximately 5.5%. We now expect more price due to higher inflation and softer mix versus our prior expectations.

Additionally, we are modestly lowering the midpoint of our total company adjusted EBITDA guidance and now expect growth of 8% to 10% for the full year, down from our prior guide of 9% to 12%. This adjustment incorporates elevated input cost inflation and the ongoing impact of tariffs and reflects the timing of our mitigation actions across the business as well as lower-than-expected contributions from our recent acquisitions in AS. In the Mineral Fiber segment, we now expect the full year adjusted EBITDA margin result to be approximately flat to the prior year, largely reflecting the impact of mix headwinds.

Recall that in Mineral Fiber, the 2025 adjusted EBITDA margin result of 43.5% was a record full year result, surpassing the previous high watermark of 2019. Within the AS segment, we continue to expect full year adjusted EBITDA margin expansion with an adjusted EBITDA margin of approximately 19%. And on an organic basis, we continue to expect a full year adjusted EBITDA margin of approximately 20%. We have also slightly lowered the midpoints of both our total company adjusted diluted net earnings per share and adjusted free cash flow guidance, given the decrease in our total company adjusted EBITDA guidance.

We now expect total adjusted diluted net earnings per share growth in the range of 12% to 13%, down from our prior guide of 12% to 15% and now expect adjusted free cash flow growth of 10% to 13% compared to our prior guide of 10% to 14%. Please note that additional assumptions are available in the appendix of this presentation. Our updated full year guidance reflects our current view of the business. and we remain well positioned to deliver another year of profitable top line growth. And now I'll turn it over to Mark for further commentary.

Thanks, Chris. The outlook Chris just summarized reflects the market conditions and on the ground sentiment we are seeing today. Broadly, underlying market conditions remain generally muted, consistent with what we described last quarter and have experienced more or less throughout 2026. As a reminder, we benefit from a broad mix of end markets and balanced exposure across new construction, renovation and repair and replacement activity. providing resilience across changing market conditions, such as those we are seeing today. We continue to see steady activity across a diverse range of verticals with strength in areas such as transportation, health care and data centers.

And within those verticals, we are encouraged by the trend we are seeing toward high-value experiential infrastructure for airports, stadiums, arenas and other hospitality environments. Ongoing modernization, capacity investments and a greater emphasis on the passenger and experience are driving more architecturally differentiated premium spaces. This plays well across both Mineral Fiber and Architectural Specialties. Importantly, that can be not just more square footage, but greater design intensity per square foot with more emphasis on acoustics, aesthetics and differentiated solutions.

At the same time, we are closely monitoring elevated inflation, geopolitical uncertainty and signs of more cautious sentiment across the industry. While on the ground, sentiment and bidding activity remains stable, we are working closely with our customers, particularly our commercial distribution partners to monitor for signs of project delays and capture opportunities as they emerge. In this type of environment, our strong relationships with distribution partners, architects and contractors together with continued investment in our growth platforms remain critical to expanding our addressable market and driving growth ahead of the market.

Within our growth initiatives, our e-commerce platform, Canopy continues to demonstrate solid growth with double-digit revenue and mineral fiber volume growth year-to-date and meaningful EBITDA improvement while increasingly extending its digital capabilities beyond mineral fiber into grid and Architectural Specialties. Similarly, Project Works, our automated design platform also continues to grow adding incremental mineral fiber volume growth while also assisting designers and contractors in the design and preconstruction project phases, helping save time and money with complete, accurate and dependable solutions drawings and builds of the material.

In data centers, we are applying Armstrong's established strength in specification, systems, technical support and installation efficiency to an attractive growing vertical. As we shared last quarter, our broader solution set has positioned us to serve demand from hyperscalers, co-locators and enterprise customers more effectively. Our complete set of structural grid, containment and integrated mineral fiber solutions can improve building efficiency and installation speed, and we're seeing encouraging signs of progress. Through the third quarter, both our ceiling and DynaMax structural grid data center sales have exceeded our full year revenue plans. We are also seeing increased applications for these solutions in mission-critical advanced manufacturing environments.

A recent win at an advanced manufacturing research facility shows how our expanding go-to-market approach and our technical expertise are improving our access and win rate. By engaging earlier in the design and bid process, our close collaboration directly with the owner helped realign project requirements to use our recently introduced SKYLO walkable ceiling system. By validating performance with an on-site demonstration return to specification gap into a confirmed order for our solution.

That project spans almost 500,000 square feet and represents a multimillion dollar order demonstrating our ability to win large, complex projects with our tailored solutions and approach. We will use this and other recent wins to strengthen Armstrong's position as a trusted, experienced partner and build references for similar customers. This is a highly competitive market, and our presence continues to expand. With the combination of strong market growth across this vertical a broader portfolio and growing customer engagement gives us confidence the data centers and other mission-critical buildings can become a consistent growth platform for us over time.

We are also encouraged by the progress we are making with TEMPLOK energy saving ceilings, particularly in specification activity. Building on the pipeline growth we discussed last quarter, our specification teams and established sales relationships are helping us introduce TEMPLOK earlier in the design process and earn consideration on a growing range of projects. That's an important step in building demand for a new solution whose value proposition includes energy performance, occupant comfort and building economics.

Specification activity is an encouraging measure of progress. It reinforces our confidence that Armstrong's long-standing strengths with architects, designers and contractors can help us build this new market. By expanding the pipeline of projects in which TEMPLOK can be evaluated, selected and ultimately converted into commercial demand. We're also seeing compelling real-world validations of our TEMPLOK technology.

A recent case study at a pediatric therapy facility in Charlotte demonstrates how TEMPLOK ceilings are creating a quieter, cooler environment for the children and families the facility serves. This is exactly what excites us about TEMPLOK. We're taking a familiar building surface and giving it an entirely new performance capability, creating tangible value for building owners and occupants. Overall, we remain encouraged by our growth initiatives. They are further differentiating Armstrong with customers, expanding the markets we can serve and contributing tangible growth today, including up to 150 basis points of above-market mineral fiber volume growth for the full year.

In closing, this was a quarter that demonstrated the durability of the Armstrong value creation model and the progress we are making against our growth strategy. We delivered record third quarter sales and margin expansion in both segments, even as input costs accelerated rapidly. We responded with urgency and discipline and we are confident in the actions underway to address those pressures. At the same time, we are strengthening our established businesses, expanding the Armstrong portfolio and building growth platforms that increase the value we can deliver for customers.

None of that happens without the commitment and hard work of our people. I want to thank our teams across Armstrong for the way they continue to serve our customers and respond to changing conditions. We move forward into the fourth quarter and look ahead to 2027 with confidence, focused on delivering profitable growth and creating long-term value for our shareholders. With that, operator, we are ready to take your questions.

[Operator Instructions] Your first question comes from the line of Susan Maklari with Goldman Sachs.

My first question is building on the last comments that you gave us on some of the projects and the initiatives that you have in there. I think it's encouraging to hear that the order intake in AS was up double digits the macro pressures that we've seen. Can you talk about how you are communicating with your customers, the architect designer community, making sure that they really understand the initiatives that you've put through in the last couple of years, the value proposition of the product. And maybe with that, just how are you monitoring the channel in demand and any potential changes from the macro? .

Great. Susan, thank you very much. Yes, we're really pleased with the intake and also the consistency of the intake. We are compounding and stacking multiple quarters of double-digit intake and I think that's a testament to our teams and good commercial execution but also to what you're talking about, which is awareness of the broader portfolio and the value proposition that comes with it. Last quarter, we talked about the NeoCon event in June. And frankly, that event and how we presented ourselves to the market, was what we're trying to do with all of our customers, the architect design community for sure. And we've also optimized our selling organization around that very purpose.

So we are going to market and equipping our commercial organization with the full range of that portfolio. And that puts them in a position with design experts and design professionals to have a conversation, to have a partnership and a relationship where we can share the complete breadth of the portfolio and help them achieve their design intent. And that's really what the breadth of the portfolio is all about is giving the market options to meet their design objectives regardless of what material or substrate or objective they're trying to accomplish.

It could be aesthetics, it could be performative. It could be acoustics. It could be energy with TEMPLOK. So we're really giving them that voice and that platform, that pallet, I said we talk about it, to be able to make their design choices. And then we're promoting it. Frankly, you heard me mention in my remarks the incredible project at [indiscernible] this quarter. We will market those projects. We will keep them in front of the design community and we'll stay very close to that design community.

Your point on kind of monitoring what's going on in the market, that happens with our commercial organization with our A&D customers. It happens with our distribution partners. It happens with our contractor customers. And that's where we glean all of our kind of market insights around bidding activity and on the ground activity. So we're sharing projects. We're monitoring their activities, and we're supporting them in the process.

Okay. That's great color. And then maybe shifting to some of the channel dynamics that you mentioned in the quarter. Can you just talk to when you expect that to normalize? How we should think about the -- any potential ramifications into the end of this year and maybe even into early 2027? .

Yes. Thanks for the question. So on mix, generally, this is one of those episodes that we -- that does happen from time to time. We just saw relatively stronger volume performance in Mineral Fiber and concentration in our lower AUV channels. We've had this in the past, occasionally, we've talked about this before. When we get -- we refer to it sometimes is lumpier demand in some of those channels and we saw that this quarter. What was really unusual this quarter and it happened in this quarter was this was a Canadian dynamic, as I mentioned in my remarks. And the triggering event for that dynamic was really tariffs.

This was brought on and really manifested itself in late summer when the 338 tariffs went into effect and then Canada sort of retaliated in response, that put additional heightened tariffs on to grid flowing into Canada that triggered additional buying activity to get ahead of potential tariffs and surcharges and you had the pull-through of additional volume. So a very interesting dynamic there in Canada. And so we had outsized, if you will, concentrated volume growth in that lower AUV channel. We view this as really very much a timing dynamic that will flow through, and we expect to moderate by the end of the year.

Your next question comes from the line of Tom icono with JPMorgan. .

Mark, you've noted intake has remained consistently strong. Faster high level, are higher rates and higher costs impacting customer investment behavior, like are you seeing more project defers or spec changes? And where is that like showing up in your orders and volumes by end market, please? .

Yes. I think that's always a consideration, Tomo. We're not seeing outsized or material changes affecting our intake this quarter. It's something we watch very closely. But no, we think the project values continue to be high. And I think one of the kind of big picture demand environment points that is worth calling out, which we continue to see, while project counts and new start counts are somewhat muted other than maybe data centers. The value of new starts and the value of the bidding activity we're seeing continues to remain high.

We still think there is high demand for a premium solution set, which really plays well to our strengths. So it's always a competitive environment, and we're competing on our innovation and our service and quality, but that has not dampened our intake. And I think that makes the intake even more impressive is the consistency of it and the double-digit nature of it.

And just one follow-up, rather than the timing of price cost, I want to ask better price [ sickness ]. How have reacted to recent pricing actions and surcharges. Like where are you seeing any pushback by channels or products and that's the competitive environment raise any concern about holding? .

Yes. Thank you, Tomo. So we take a very disciplined approach as we have for frankly, decades. We've got a very strong pricing center of excellence, an incredible team that manages our pricing activity. We talk about market-based pricing. We talk about pricing that's proportionate to the inflation and correlated to the inflation that we see in the backdrop. So on its face, some of the pricing numbers may seem dramatic, but they do correlate to what we're seeing in the market. And it's that discipline that responsible pricing that we're committed to maintain.

So I think, look, the analysis that we do, the data gathering that we do, the calibration to the rapid rise of inflation. And frankly, just to put it in perspective, this quarter, was the most significant inflationary period that we've experienced since mid-'22. The rate and pace of that inflation, and it is evident in the data was simply dramatic through the period and especially so in areas like freight, which we talked about in our prepared remarks. So we prepare our pricing. We put pricing on the street, we believe is responsible and correlated and that's where our credibility comes from is kind of that foundation.

Your next question comes from the line of Adam Baumgarten with Vertical Research Partners.

Just sticking on mineral fiber AUV, it seems like you're implying a similar about 6% AUV in 4Q as you saw in 3Q. I guess -- and I think you sort of touched on this earlier, but are you assuming those mix pressures continue to some degree into 4Q that you saw in 3Q and then maybe as you exit the year, you get it through it? That's my first question.

Yes. Adam. Yes. So just to unpack AUV kind of progression, if you will, outlooking a full year of 5.5% and what we're seeing there is a little bit stronger price than we previously expected due to the pressures that impacted us here in the third quarter and the continued pressure into the fourth quarter, but a little bit softer mix on the mix dynamics that we outlooked in our prepared remarks. So 5.5% for the full year, still expecting positive mix but a little bit stronger pricing, again, in response to the ongoing inflationary pressures.

I'll just say on top of that, we got good price realization in the quarter. We're expecting good price realization again next quarter. So there's no change in our confidence there around our ability to realize price. We've got this somewhat timing-related mix dynamic, and that's really what you're seeing play through. .

Okay. Got it. And then just maybe thinking about if you look into next year, just given all the inflation you've seen in your typical pricing cadence and sort of the 1Q and 3Q. Should we think that price realization that part of the story that you have more control on could be higher next year given all the inflation you're facing?

Yes. We're still in the sort of design and construction phase, the modeling phase right now, Adam, for our 2027 budget. So we're not going to begin to try to guide our 2027 outlook. But I think it's fair to say that we are setting ourselves up to be in a strong position to continue to realize strong pricing in 2027 with the actions we've taken. Each of our businesses has had additional price increases in 2026 that are beyond our normal cadence. So beyond our normal February, August cadence. Fiber business just announced another price increase that's effective in November. The AS business had a price increase off cycle in June as well as November. The WAVE business had additional price increase in June as well as November.

And when we make those kinds of decisions, they are, as I said before, correlated to what we're seeing in terms of input cost inflation and market dynamics but they are -- we are considering the outlook and the inflationary environment we expect over the near and medium term.

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

We've talked a lot about cost pressure. I assume that's going to get a little worse in the fourth quarter in Mineral Fiber. Is that correct? And would you expect maybe more sequential increases to come in the first quarter of '27.

Yes. Keith. So sequentially heading into the fourth quarter, for sure, we believe that the inflationary pressure is still elevated, especially on the freight side. Fuel continues to pressure this area with diesel pricing above $6 a gallon. So certainly on the mineral fiber side there on freight. And then on the AS side, continued pressure on the freight front as well as continued pressure on metal costs heading into the fourth quarter. That being said, the pricing algorithm and our ability to continue to realize price hasn't changed for the business.

Sometimes, we get caught up in a bit of a lag effect and are able to catch up in subsequent quarters as our pricing is fully realized. So again, it's a temporary impact that we saw here certainly in the third quarter as it pertained to the impact on the margin in both segments. But no change in our algorithm and the value creation driver of AUV and pricing for the company.

Okay. And just switching to AS real quick again on costs. It doesn't seem like it's facing as much cost pressure. Is that correct? Or is that something you hadn't in the numbers?

Yes. It's still -- we're still facing the cost pressures there again on the metal cost and freight front and then, again, responding to those accordingly through our actions and the pricing cadence that Mark mentioned previously. So still a pressure point for us there in that segment.

Maybe one thing to add there, too, Keith, is -- and I agree, Chris, is the pricing for AS is different. And I think that lag effect that Chris is talking about, it's important to point out. In AS, we price largely the bulk of the portfolio on a project basis. So that lag effect is very natural because we're putting quotes out on the street that have a duration to them that is longer than, let's say, a Mineral Fiber sale -- a standard SKU basis, right? So there is a lag effect there. It's why we use escalators, it's why we use quote expirations, but that lag effect for custom projects, for example, is sort of inherent to the nature of that project business and it moves through.

But the actions we've taken, and they go beyond pricing, but the actions we've taken across the enterprise and particularly in AS, give us that confidence to see improvements. And we're outlooking margin improvement in the fourth quarter, both year-on-year and sequentially in AS as a result of those actions. So we're confident in where that's headed.

Your next question comes from the line of Garik Shmois with D.A. Davidson.

I was wondering if you could quantify at all the pull-forward effect from the shipments in Canada and what you're assuming for, I guess, the expected destocking in the fourth quarter.

Yes. So Garik, it's a bit of a timing-related dynamic. I can tell you that as we're continuing to look forward to our overall volume for the year in Mineral Fiber, we're still out looking at one point of volume growth for the year with continued volume growth in the fourth quarter. Just remember that we're comping a bit of a soft volume quarter in Q4 of last year. But again, there is a timing dynamic here but haven't certainly sized precisely what that is.

Okay. That's fair. Follow-up question is just on SG&A and Mineral Fiber. You had, I guess, lower incentive comp and drove a lower SG&A in the quarter. I was just wondering if you could help us think through what underlying SG&A inflation is in that segment and any additional levers that you have to keep controlling costs.

Yes. No, thanks for the question. So on performance in the quarter, SG&A performance in the quarter, at the total company level, we were essentially flat versus the prior year. Let me unpack kind of both segments, Garik, here to provide a little bit more color on each. Mineral Fiber was favorable by $3 million, and that was precisely what you had noted there, the higher compensation expense in Q3 of last year and it's at a more normalized level here in the current year quarter.

On the AS side of the business, we had higher SG&A of about $3 million, where half of that increase was organic, where we continue to invest for growth and the other half was inorganically related primarily on the acquisition of Eventscape. We're taking a very disciplined approach to SG&A costs in light of the broader cost pressure on the business, and we've been focusing on discretionary cost controls in response to answer your question. I'd say overall, I'm pleased with our SG&A margin of approximately 19% in the quarter and are really driving for that, I've mentioned this before, sub-20% SG&A as a percentage of sales for the full year. as we finish 2026.

Again, what remains important to us is the rate and pace of spend, and that continues to be a focus given the inflationary backdrop that we've been talking about this morning.

Your next question comes from the line of Rafe Jadrosich with BofA.

Can you -- can you just provide us with an update for the inflation outlook for the year and then the key components? I think you were previously expecting mid-single digit. What are you now expecting?

On the total input costs for the full year, we're at the higher end of mid-single digits, and that change is largely driven by higher freight which is about 20% inflationary compared to the prior year. Energy is still in that low single-digit range. Raw is still in that low single-digit range. So sequentially, as we head into Q4 a little more pressure expected as we finish the year. And just to highlight again how we've responded to these inflationary pressures with the price increase in November as well as the other cost control actions.

Got it. That's really helpful. And then on the AS segment, looking at the inorganic side, I think earlier this year, you had highlighted some lower margins related to investments. And then this quarter, again, and then you mentioned that it's coming in a little bit lower than expected. Can you just give some specifics on what's happening there? Like what's coming in lower than expectations and then how do we think about that run rate on investment on the inorganic side that like what continues into next year versus what's onetime?

Thank you. Happy to take that. I think if I step back from the 3 recent acquisitions, I think it's still fair to characterize them as all still in the early stages of integration. We're still working them on to our platform -- we're certainly encouraged by the demand, the orders, the backlog we're developing across the business. The commercial reception to all 3 of them has been very positive. Customer feedback has been positive allowing us to capture more specifications, get into design early. So the strategic rationale behind all 3 is proving out.

I'd say that 2 of those 3 are performing about as we had expected, both the top and bottom line, the smaller of the 3, the parallel business is the one that's not meeting our expectations and ramping frankly, more slowly than we had expected. Again, it's not on the commercial side. It's on more of the operational side and us being able to get the operating leverage, the throughput and sort of the operational excellence up to our expectations to get the fall-through we want out of that business. That's what's been slower than expected. But the other 2 largely on track, and we do expect this to improve. It's been improving every quarter. We do expect this to improve in the near term.

Your next question comes from the line of Stephen Ko with Evercore ISI.

There's been a lot of talk about the costs and the sort of the mitigating actions, but I would have to say that on balance, aside from the site miss in 3Q, your 4Q outlook is pretty much in line with where we are looking with a little bit little bit worse in Mineral Fiber, but offset by a little bit better in our expect. So with that in mind, I just wanted to look at the mineral fiber a little bit more. You talked about the mix. You had good price, actual like-for-like price, but mix was weaker and you attributed that to the Canadian sales, but if we look at the Canadian sales in 3Q -- I'm sorry, if you look at your sales overall in Mineral Fiber in 3Q, you didn't materially beat our expectations.

So it seems like, sure, certainly some stronger sales in Canada could have been an effect, but it did seem like maybe there was something that was a little bit -- maybe some lower sales in higher AUV channels. But you talked about a lot of good things related to some of your higher AUV products. So I'm just trying to understand, was there something that happened in 3Q outside of Canada or like with some softness in your higher AUV channels or products or customer mix or something that you can talk to. And it looks like you're expecting this to go away to be mitigated in 4Q.

And so I just wanted to clarify what happened in 3Q aside from Canada. If you could provide some of that color.

Sure, Stephen. Happy to provide some color. I think what made the quarter unusual from our point of view is that for the most part, all of our higher -- or all of our lower AUV channels showed relative strength this period. Our strongest highest AUV channel was slightly softer than we expected, but not materially. It was the outperform and the concentration in not just Canada, but all of our lower AUV channels all at one time. So it was that combination and the slighter softer performance in our U.S. commercial, if you will, again, not material, but relative to the outsized growth we saw in the other channels.

That combination is what created the mix impact, and they just sort of all lined up that same way. We do not view that as correlated at all to the strength of, let's say, our ability to mix up the Mineral Fiber category. And that's why I mentioned in my remarks, again, this quarter, we saw the high end of our portfolio from a product standpoint, the growth in our SWAT category outpaced the lower end of our portfolio. So this is more about the channels and markets in terms of where the distribution of the Mineral Fiber volume was happening and less so about good product strength or support for the innovation that's behind our Mineral Fiber SWAT products.

Got you. That does help a lot. Yes. If I could look at the AS side of the business, you had mentioned that the pricing actions take a little bit longer to come through, which makes perfect sense. You got custom project-based products with a longer cycle timing. So that all makes sense. And you mentioned that there's a price increase coming that went through in June and November. It looks like your guidance for the AS business envisions your incremental margin, which is sort of inclusive of price and a bunch of things. It's sort of bouncing back, it looks like in 4Q based on what your full year guidance is calling for.

And so you had made a comment earlier that you expect the -- this lag effect or whatever to moderate by year-end but your guidance seems to imply that the incremental margin will rebound in 4Q, so that it will actually not be that much of a headwind really throughout the quarter as a whole, not just sort of getting there by year end. So I just wanted to see if you could clarify that for us? Are you, in fact, looking for this lagged effect of price to be basically not really much of an issue in 4Q? Or should we be thinking about it differently?

Chris and I will both take that one. First, I want to clarify, I want to comment, which is the moderate by the end of the year was a comment I made attributable to the Canadian mix dynamic. So that's first clarification. We're going to continue to expect to see, as Chris said earlier, some of this continuing inflation and pressure in AS, but we are expecting margin improvements sequentially into Q4. So I think you're interpreting that correctly, and we're set up for that margin expansion. So just to frame that. We'll continue to see because of the nature of the AS portfolio you should think of that custom portfolio as a blend of short, mid- and longer term -- longer duration project time line.

So that will move through steadily. But we think our actions are well positioning us to offset that as it moves through. That's what we're focused on as we study the backlog and its composition.

And that's contributing, Stephen, to the margin expansion and the sequential margin improvement that you're highlighting at the total segment level sequentially Q3 into Q4.

Your next question comes from John Lovallo with UBS. .

I guess my first question is just on the WAVE equity earnings, up about $4 million year-over-year in the third quarter, but the fourth quarter outlook seems to be more flattish. I mean is that steel timing? And I know you put a price increase in October or November, but do you anticipate additional pricing actions being needed in the first quarter?

Yes, John, thanks. The strong performance in WAVE in the quarter. You noted the equity earnings contribution of $4 million to the Mineral Fiber segment. Waste benefited from higher volume in the quarter with strength in the commercial business and also Canada. So as Mark mentioned in his remarks, that strength in Canada also on the WAVE side, was ahead of some anticipated tariffs, so timing there.

The other thing to note also is that data centers were also a contributor to WAVE's top line growth in the quarter, and we're really pleased with the momentum there. So yes, a little bit of some timing there that will likely come back in the fourth quarter on WAVE volume specific to the Canadian dynamics.

And we're expecting to continue to see steel and input inflation there, but we think we're well positioned. As I said before, the pricing actions we're taking this year, we do so with our longer-term outlook in mind, but we're not ready to yet guide in terms of what we're expecting to price early in '27.

Okay. Yes. Understood. And then correct me if I'm wrong here, but it looks like acquisitions were about a $2 million drag in the third quarter. I mean, is that -- if that's right, is that integration costs that are going to go away? Or -- are these just acquired margins below plan? .

Yes, I think it's fair to say it's a combination of both of those, John. .

Your next question comes from the line of Phil Ng with Jefferies.

Interest rates have obviously got up. Mark, can you remind us what part of your business is perhaps a little more sensitive to rates. It sounds like quoting and bidding activity has remained pretty steady, but any incremental color that you could share from what you're hearing from distributors and customers at large?

Yes. So it's something we're watching very closely. The on-the-ground sentiment does not suggest that we're seeing a material change in the steadiness of that bidding activity. So not yet. We see maybe some elongation in the cycle time between, let's say, bidding and awards and orders, but not yet to a meaningful level that has tripped our radar of concern, not yet. But that is something we watch very closely. Bidding activity has stayed steady contractor backlogs have remained solid and work is continuing to progress. So that's what we're watching. .

Mark, any color on which part of your portfolio is perhaps more sensitive rates in general? .

I wouldn't distinguish the 2, Phil. I think it's an observation I'd make broadly about our portfolio. We don't think of them as we go to market, we don't think of them in terms of projects as 2 separate businesses. We're helping a singular construction project. So that project is either going to happen or not or be delayed or not. So project activity generally, which would support both businesses because we go to market as an integrated offering would be consistent in the same.

Okay. Super. From an M&A standpoint, maybe even organic investments, just given how you go-to-market strategies perhaps is changing and evolving particularly AS, some of the strength you're seeing in structural grid as well. Any white space that stands out in terms of M&A from a portfolio standpoint? And then with the momentum you're seeing in data centers and I think even manufacturing, do you have enough capacity on a structural grid? Is that an area that you need to deploy more CapEx to kind of grow that business?

Yes. Thanks, Phil. Well, first, on the M&A question, the way we think about it is adding differentiated capabilities. So we're not constraining ourselves by, let's say, white space, as you're talking about it. We're looking to, as we've done, continue to add capabilities that distinguish us in the market. And they could be design capabilities. They could be manufacturing capabilities or to your point, they could allow us to access the market incrementally through a different channel and go-to-market capabilities. And so we look at all of those fronts in terms of the demand and the customers that we're trying to reach. .

But no real pivot there. That's been consistent with how we thought about M&A for some time. And yes, on the data center front, we could see additional capital investments. We'll take those, as we always do in the normal course. But we're really pleased with the intake in the growth of data centers. And so at the way of joint venture level, investing for that growth and capacity, we're doing that today, quite frankly and some of the investments we've made this past year have positioned us really well to capture this growth, and we'll continue to do that as we see that market continue to grow.

Your next question comes from the line of Brian Biros with TRG.

I'll try to be quick here. On Architectural Specialties, organic growth, great acceleration higher than the past few quarters. You've talked about great double-digit order intake for the past few quarters. I think you've mentioned visibility into next year. Can you maybe frame up how much of that growth here is winning maybe a greater number of projects versus winning the same share of projects, but having more of your products involved that you kind of cross-sell the portfolio? It feels like probably a mix of both maybe. But just a reminder of how that's kind of trended as you've enhanced the portfolio offerings in the AS segment would be appreciated. .

Yes. Thank you, Brian. We don't track it that way, just to say it. But directionally, I think your point is valid. And especially when -- for a number of quarters now, we look at Dodge Data, for example, when project count numbers are down, but project values and bidding values are up, I think there's something to your point. And I think that reinforces our strategy, quite frankly, we are winning more on every job. And that's what we're -- that's absolutely what we're trying to do. Nothing that's outsized or disproportionate in any way. We've talked to transportation for a number of quarters, which is a vertical that continues to be strong for us. And we're continuing to win at an outsized rate there, I believe.

And when we win projects like that, we are winning more share of that wallet or that project opportunity. So penetrating a project is absolutely part of the strategy. But I think it's still both, quite frankly. AS is growing at a rate that is obviously clearly above market growth rates. So we are earning and penetrating categories I'd say, at both a project count basis and a total value basis.

Understood. Appreciate it. And then on just with cost pressures and then there's the pricing lag that you probably will eventually get, but there's a time between there. You also have the 3% roughly per year, I think productivity gains you typically point to, to help offset and kind of drive margins when you can. Can you kind of talk about what actions you're currently included in that productivity category? And if there's anything new compared to what you might have been doing a few years ago?

Yes. Brian, thanks for making the point because I think it's a hallmark of the company, and it's a hallmark of the business is the consistency to generate that roughly 3% productivity and we saw that again this quarter. And frankly, the team sprung into action to try to accelerate some of those productivity actions. You see that in the plants that's kind of been the hallmark of the business for a real time where we have operational excellence. We're finding ways to reduce downtime or ways to reduce scrap really drive our service level performance. When I talk about a statistic like plant reliability, that directly yields productivity in the plants because our output and our scrap are both optimized when we're performing at that level.

So you see it in the manufacturing fabric of this company for a really long time. And what we're starting to see is an extension of that, that offsetting pushing back inflation to extend more broadly at an enterprise level. It's not just the Mineral Fiber business. The AS operations teams do this very effectively as well, and that mindset extends all the way to [indiscernible] SG&A. So unequivocally, there's no change in the importance of that value creation driver to the business. Productivity is very important to us, and it was there right behind the scenes this quarter.

There are no further questions at this time. I will now turn the call over to Mark Hershey for closing remarks.

Well, thank you, everybody, for joining us today and for the questions. We appreciate all of the interest and your support of Armstrong. Have a great day. .

This concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and thank you for standing by. My name is Pete and I will be your conference operator today. At this time, I would like to welcome everyone to the Armstrong World Industries Second Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Theresa Womble, Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, and welcome, everyone, to our call this morning. On today's call, Mark Hershey, our CEO; and Chris Calzaretta, our CFO, will discuss Armstrong World Industries Second Quarter 2026 results and the rest of year 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. Both are available on our Investor Relations 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 28, 2026. These statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of risks and uncertainties in our SEC filings, including the 10-Q filed earlier this morning. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law.

With that, I will now turn the call over to Mark.

Good morning, and thank you for joining our call. Today, we reported second quarter results featuring record net sales and adjusted EBITDA with solid contributions from both our Mineral Fiber and Architectural Specialties segments. On a total company basis, net sales increased 11% and adjusted EBITDA increased 8% versus the prior year, while adjusted diluted earnings per share increased 13%. These results were modestly ahead of our expectations and reflect strong execution despite continued flattish market conditions, which were similar to what we experienced in the first quarter.

Our ability to achieve these results in a muted market environment is a testament to the focused execution of our teams and the power of the value creation building blocks at Armstrong. These building blocks include earning consistent mineral fiber average unit value, or AUV growth, driving operational productivity in our manufacturing plants, and delivering profitable growth in our expanding Architectural Specialties portfolio.

Looking first at Mineral Fiber results. We posted an 8% increase in net sales driven by AUV growth of 6% and volume growth of 2%. Both price and mix contributed meaningfully to our AUV result this quarter with mixed performance driven by continued increased demand for products at the higher end of our portfolio, namely for our smooth, white acoustical tiles, what we call our SWAT products. Our ability to meet evolving customer needs with innovative, high-value products that meet a range of functional and design requirements continues to be an Armstrong hallmark.

Turning to Mineral Fiber volume. This quarter marked the fourth quarter out of the last 5 in which we generated volume growth, represented the highest quarterly growth rate since early 2023. A combination of consistent commercial execution by our selling, marketing, service and support teams and ongoing incremental benefits from our growth initiatives drove the healthy increase in volume. These sales results highlight the strength of our commercial organization and their long-standing relationships within our markets, relationships with distributors and other channel partners.

And importantly, with the architects, designers and contractors that specify and install our products. Those established relationships are supported directly by our broad market coverage and teams uniquely focused on sealing solutions. Coupled with our proven track record for product quality and customer service from seamless ordering to reliable delivery, we are well positioned to sustain success across variable market conditions. Mineral Fiber adjusted EBITDA performance was strong this quarter with 7% year-over-year growth and an adjusted EBITDA margin approaching 45%, even as we continued our SG&A investments for growth, and experienced some input cost inflation. Our manufacturing plants supported that performance by running well. With the quality and perfect order fulfillment measures we discussed last quarter remaining at very strong levels.

Consistent operational execution, coupled with focused productivity initiatives at the plant level remain critical enablers of our impressive margin performance in Mineral Fiber. We are well positioned to achieve our full year 2026 adjusted EBITDA margin guidance of approximately 44%, which would represent a record performance for this segment and the fourth consecutive year of Mineral Fiber margin expansion. Importantly, our Mineral Fiber results in the quarter were well supported by our growth initiatives, which remain squarely focused on delivering Mineral Fiber AUV along with volume growth ahead of market through leading innovation and differentiated services.

These include our strengthening digital initiatives, namely our Kanopi online selling platform and PROJECTWORKS, our automated design service, along with our more recent product innovation focused on energy efficiency and data center solutions. Within the digital initiatives, both Kanopi and PROJECTWORKS continue to gain traction and deliver value for the company. Kanopi has continued to strategically evolve both in terms of the breadth of products available on the platform and the types of customers it serves. Put simply, the core premise of Kanopi is proving out that latent demand exists for a specific portion of the installed ceilings base which can be reached by a tailored and efficient path to purchase.

Kanopi offers a digital channel that is highly engaging and easy to use for this underserved part of the market. In addition to supporting small business owners, we are finding that companies with multiple facilities across a wide geography can use Kanopi to provide their locations or branches with a consistent and reliable means of refreshing their space. with materials preapproved by their central design or procurement teams, reliably fulfilled through our trusted distribution network. And as we've scaled and optimized Kanopi, we are increasingly pleased with its profitability performance.

PROJECTWORKS also continues to deliver value by strengthening our project specifications and win rates and further differentiating our market position with our customers. Both quoted values and fulfilled projects processed through PROJECTWORKS continue to grow, supporting our AUV and sales volume. As we are frequently reminded by architects, designers and contractors, ceilings are complex, and they are becoming more complicated as the design community pursues a broader range of visuals and integrated solutions. Particularly as demand for skilled installation labor remains constrained and project time lines remain compressed, PROJECTWORKS directly addresses the efficiency and accuracy needs of our customers.

Similarly, our product innovation continues to center on the most immediate megatrends within the built environment, namely the demand for energy-efficient building solutions and the expansion of data center infrastructure. Innovations like our TEMPLOK Energy Savings ceiling tiles and our expanded data center product portfolio, deliver customer value, driving both AUV and volume growth. With our TEMPLOK offering, we remain focused on raising awareness of its multiple value propositions from energy savings to thermal comfort for occupants to eligibility for tax incentives.

To that end, we are expanding and scaling our go-to-market platform and supporting those resources with energy modeling capabilities, project case studies and testimonials to influence building owners and energy savings companies that drive this decision-making. These efforts are helping to secure specifications and in the process, build a pipeline with more project opportunities, which more than doubled since the end of the first quarter. These are encouraging and confidence building signs for this important initiative and our commercial teams, reflecting not only our sales and marketing efforts but also the market need for more solutions to meet the rapidly expanding demand for energy-efficient buildings as electricity costs continue to rise and the focus on grid reliability increases.

Similarly, as we discussed last quarter, the data center market represents another focus area for growth. While we have served data centers with fueling products for years, mainly in the front office portion of those facilities, we have expanded into structural grid and containment offerings to capture more share within these projects. With a broader solution set for data centers, we are positioned to more effectively serve demand from hyperscalers co-locators and enterprise customers. And we're seeing healthy growth in both our project quoting and intake pipelines with wins year-to-date in 2026, increasing more than 50% compared to last year. This is a growing vertical that we will continue to serve as it evolves with both our ceiling tile and acoustical grid solutions as we have in the past as well as with an expanded set of structural and containment solutions from our WAVE joint venture.

For context, as we have noted in the past, it's important to remember that Mineral Fiber ceiling tile and standard grid applications in data centers represent a smaller percentage of project spend compared to typical commercial buildings. But this is a growing and addressable vertical for those solutions and for our expanded structural offerings that we expect to serve for years to come. Collectively, we are encouraged with how these initiatives are progressing further differentiating Armstrong with customers and contributing incremental AUV as well as up to 150 basis points of above-market Mineral Fiber volume growth for the full year.

Turning to Architectural Specialties. We posted strong top line growth this quarter, driven by healthy organic sales growth of 9%, stemming from broad-based demand across our portfolio. This performance, coupled with contributions from our recent acquisitions, lifted AS net sales 17% above prior year results. On the bottom line, we are also pleased with the adjusted EBITDA margin performance of the business coming in above our full year goal of 20% on both a total segment and an organic basis and reflecting solid sequential improvement consistent with the expectations we shared last quarter.

These results reflect improved SG&A leverage and solid execution in our AS plants, along with price actions and disciplined cost control as we work to address rising costs on certain substrates. Second quarter order intake for this segment was strong and continued at a double-digit rate, supporting our full year outlook and giving us early visibility to our 2027 backlog. Like last quarter, our strong quoting and ordering activity levels were fueled by projects across a range of verticals, led by transportation and education. And looking specifically at transportation, we continue to serve and win more projects by leveraging our industry-leading portfolio of solutions.

In addition to expanded intake at JFK, SFO and LAX airports. We added new project wins this quarter at the San Antonio International Airport and with the Ohio Department of Transportation. Our success within the transportation vertical demonstrates the power of our broad portfolio. our deep technical expertise and our dedicated project management, design assistance and installation support service offerings. These are all intentionally designed to serve architects, contractors and airport authorities as they navigate challenging specifications and phased construction schedules by reducing risk and improving project outcomes.

With that, I'll turn the call to Chris to discuss our financial results in more detail.

Thanks, Mark, 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 please note that Slide 3 details our basis of presentation. We begin on Slide 6 with our Mineral Fiber segment results for the second quarter. Mineral Fiber net sales increased 8% in the quarter, driven primarily by favorable AUV of 6% and an increase in volumes.

AUV growth reflected both favorable like-for-like price and mix, driven by continued demand at the high end of the product portfolio, while higher volumes were driven primarily by strong commercial execution and benefits from our growth initiatives. Mineral Fiber segment adjusted EBITDA grew 7% with an adjusted EBITDA margin of 44.7%. Adjusted EBITDA growth was primarily driven by the fall-through of AUV, a margin benefit from higher sales volumes and a positive contribution from our WAVE joint venture. These benefits were partially offset by higher input costs, reflecting freight and raw material inflation as well as increased SG&A expenses, primarily driven by investments to support growth.

We are pleased with the current quarter's Mineral Fiber adjusted EBITDA margin result of 44.7%, which was similar to 2019 levels. The modest margin compression was against a strong prior year comp period with an adjusted EBITDA margin of 45.2%. The segment's core value creation drivers of AUV growth, ongoing productivity gains and WAVE equity earnings each contributed to another quarter of strong profitability.

On Slide 7, we discuss our Architectural Specialties or AS segment results, where we highlight net sales growth of 17%. This increase was driven by broad-based organic growth across most of our specialty product categories, along with contributions from the February acquisition of Eventscape and the 2025 acquisitions of Parallel and Geometrik. We are pleased with the organic growth rate of 9% in the quarter, especially as we lap a robust prior year result of 15% organic growth in the segment. The broad-based nature of this growth reflects strong execution across the business and continued market penetration within our expanding specialty product portfolio.

AS segment adjusted EBITDA increased 10% versus the prior year, with an adjusted EBITDA margin of 20.4%, a meaningful sequential improvement over the first quarter results, as we expected, with strong operating leverage in the business. The improvement in adjusted EBITDA was primarily driven by a $5 million benefit from higher organic net sales which includes the impact of higher steel and aluminum costs and $4 million related to our recent acquisitions. Partially offsetting these benefits was a $4 million increase in SG&A expenses of which approximately half were driven by our recent acquisitions as well as a $2 million increase in manufacturing costs, inclusive of a $2 million benefit from IEEPA tariff refunds.

On an organic basis, the AS segment achieved an adjusted EBITDA margin of 21.4%, which was essentially flat as compared to the prior year quarter. This organic AS adjusted EBITDA margin result in the second quarter is a meaningful step up sequentially from the first quarter.

Turning to our recent acquisitions. Our integration efforts are progressing as is typical for recent acquisitions and as previously shared, these businesses will be dilutive to total AS segment adjusted EBITDA margin for the full year. We continue to realize the benefits of these acquisitions as we scale them onto the Armstrong platform. Our goal of a 20% or greater adjusted EBITDA margin on a full year basis for the total AS segment remains unchanged.

On Slide 8, we highlight our second quarter consolidated company metrics. Net sales grew 11% and adjusted EBITDA increased 8%. Incremental volume from both segments strong AUV performance and incremental equity earnings from WAVE drove adjusted EBITDA growth in the quarter. These benefits more than offset an increase in input costs driven by freight and raw material inflation. In addition to higher SG&A expenses, which were primarily driven by investments to support growth as well as an inorganic increase. Adjusted diluted net earnings per share increased 13%, driven by both higher adjusted net earnings and a lower share count resulting primarily from an increased pace of share repurchases.

Excluding the impact of our recent acquisitions, total company organic adjusted EBITDA margin was 35.9%, representing strong profitability as we continue to invest back into the business for growth.

Slide 9 summarizes our first half consolidated company metrics, which reflects 9% sales growth and 4% adjusted EBITDA growth. Adjusted EBITDA growth in the first half of 2026 was primarily driven by both incremental volume and the fall-through impact of strong Mineral Fiber AUV as well as positive WAVE equity earnings. Higher manufacturing was largely driven by first quarter costs in the AS segment. The increase in input costs was driven by freight, raw materials and energy inflation. SG&A increased primarily due to continued investments to support growth and the inorganic impact from recent acquisitions.

Adjusted diluted net earnings per share grew 8% driven by both higher net earnings and a lower share count resulting from increased share repurchases.

On Slide 10, we present our year-to-date adjusted free cash flow performance versus the prior year. The 9% increase was driven primarily by higher cash earnings and dividends from our WAVE joint venture. We also present our year-to-date capital deployment where we have demonstrated the execution of and our commitment to our capital allocation priorities, which are investing back into the business, pursuing strategic acquisitions and returning value to shareholders. And as you can see, we are executing on all of these fronts in 2026.

In the second quarter, we paid $15 million of dividends to our shareholders and repurchased $75 million of shares bringing our year-to-date dividends paid to $30 million and our year-to-date share repurchases to $135 million. Additionally, just last week, our Board approved and we announced an increase to our existing share repurchase program adding an additional $800 million of authorization and extending the program through 2029. This reflects the fundamental strength of and our confidence in our business model and its ability to consistently generate strong adjusted free cash flow.

Turning to Slide 11. Given our solid financial performance, we are raising our full year guidance midpoints across all key metrics. We now expect total company net sales growth of 9% to 11%, up from the previous range of 8% to 10%. We have slightly raised our full year Mineral Fiber net sales growth assumption to approximately 7% and with about 1 point of volume growth, driven by strong execution and benefits from growth initiatives, along with AUV growth of approximately 6%.

In the AS segment, we are slightly raising our full year net sales growth assumption to 15% to 17%. We are also increasing the midpoint of our total company adjusted EBITDA guidance and now expect growth of 9% to 12% for the full year, up from our prior guide of 8% to 12%. We continue to expect adjusted EBITDA margin expansion in both segments for the full year.

In Mineral Fiber, we expect an adjusted EBITDA margin of approximately 44%. In AS, we expect an adjusted EBITDA margin of approximately 19% and on an organic basis, we now expect an AS adjusted EBITDA margin of approximately 20%, which is a slight increase from our prior assumption. Additionally, we are increasing our guidance for adjusted diluted net earnings per share growth to a range of 12% to 15%, up from our prior guide of 10% to 14%. We are also increasing our guidance for adjusted free cash flow growth to a range of 10% to 14%, up from 9% to 14%.

Please note that additional assumptions are available in the appendix of this presentation. We are pleased with our performance through the first half of the year, and we remain well positioned to continue to deliver profitable growth and create value for our shareholders.

And now I'll turn it over to Mark for further commentary.

Thanks, Chris. As Chris shared, we are pleased with the results we delivered so far in 2026. The consistent market conditions we're experiencing and the momentum we're building with our growth initiatives. Looking forward to the second half of the year, we're hearing on the ground commentary from our customers regarding bidding activity and demand trends that's consistent with what we heard in the first quarter. While underlying market conditions have improved slightly from 2025, they remain muted, in part due to ongoing macroeconomic uncertainty.

That said, within the verticals we serve, there are clear pockets of strength in transportation, data centers and health care. And the diversity of our end market verticals and project types, including new construction, major renovation and repair and replacement support the resilience of our business as these areas really move all in the same direction at the same time. Our consistent ability to grow profitably goes beyond the diversity of our end markets, operational execution and our legacy position within the ceilings category is also driven by our proven track record of acquiring companies to strengthen and expand our Architectural Specialties portfolio of products and capabilities.

With the Eventscape acquisition earlier this year, we've completed 15 AS acquisitions and expanded our addressable market well beyond the traditional ceiling plane and commercial buildings.

To illustrate that point, I would like to call out a recent event that highlights how we are maximizing the power of our portfolio. Each June, architects and designers from around the world gather at the Mart in Chicago for NeoCon, the leading event for the commercial interior design industry. We have participated for several years at this event through some of our AS brands, such as Turf and Arktura. This year, for the first time, we created an Armstrong branded showroom showcasing the full range of both mineral fiber and AS ceilings, specialty wall and architectural solutions. This space demonstrated how our industry-leading breadth of products supports the increasing complexity of modern design by balancing intricate aesthetics, multifunctional performance and sustainability attributes.

NeoCon provided an energizing platform for us to engage directly with thousands of architects and designers, reinforcing and, in some cases, introducing the Armstrong brand at the forefront of interior architectural solutions. From the beginning of our journey to expand into specialties, we believe our leadership in mineral fiber ceilings gave us a strong platform from which to expand and generate consistent profitable growth. With our leading portfolio and enhanced capabilities, we now compete for more specifications and win more projects in more spaces within every commercial building.

I personally attended NeoCon this year, together with dozens of leaders from across our enterprise to see the range of our offerings prominently on display and to celebrate several best of new account awards including innovation and business impact awards for TEMPLOk. In the process, I also saw the power of our people coming together to unite, collaborate and elevate how we show up for our customers and in the industry. It was an inspiring experience and 1 that the entire Armstrong organization and should be proud of. With our talented organization energized, focused and executing and with our resilient business model and consistent growth strategy, we are well positioned for a strong second half of 2026 and to continue creating value for our shareholders.

Underscoring that point, as Chris noted in following the review and approval of our strategic plan last week, our Board of Directors approved an expansion and extension of our share repurchase program, reflecting both the consistency in our capital allocation priorities, and continued confidence in our strategic direction.

Now the operator will begin the Q&A session.

[Operator Instructions] Your first question comes from the line of Susan Maklari with Goldman Sachs.

I want to start with the comment about the strength in the order rates that you're continuing to see coming through the business. Can you give us some more details on that? How are you thinking about it across the various verticals? And how -- what that means for the second half of the year and then maybe even just looking further out. .

Happy to, Susan. Thanks for the question. So my comment was focused specifically on AS. So intake where we've got very clear visibility into projects and the pipeline there. So the double-digit intake again this quarter reinforces what we've seen over the last several quarters, which is now roughly our fourth consecutive quarter of double-digit intake in AS. That's supporting the pipeline, that's supporting our outlook for the second half and really starting to give us some visibility into 2027 as well.

That pipeline is broad-based, and it reflects both new construction projects. It reflects renovation projects, and it's also across both a wide range of verticals, particularly we mentioned transportation in our prepared remarks, but also office -- office also health care, also education. And importantly, it's across all of our categories. We talk about AS categories and whether that's metal or felt or would it's broad-based there. We're not over concentrated, I would say, in any one particular AS category. So recent intake has been very strong. We track that also on a trailing 12-month basis, and we believe it's very supportive of our outlook for the back half.

Okay. That's great. That's very helpful. And then my follow-up question is, it's great to hear the traction that you saw at NeoCon this year with your Armstrong-branded showroom. Can you talk a bit more just about some of feedback that you got from clients and maybe even other people that toward the showroom? And how we should think about that contributing to the business and being a part of this longer-term growth initiative that you have? And what it means not just in terms of AS but also perhaps for Mineral fiber and the volume flow there? .

Yes, thanks for that. It's a really important point because it was not just a specialty showcase. The portfolio, when we talk about the power of the portfolio, we're talking about the collective enterprise at Armstrong, and we think of our enterprise as one business squarely focused on ceiling wall solutions. And that's really what we were trying to put on display at NeoCon this year. And I think the number 1 consistent theme we heard from the thousands of folks who went through our spaces was impressed by the breadth and the diversity of the offerings and the capabilities whether that's in materials or performance aesthetics, that sort of broad-based solution set, and we like to think of it really as a pallet for architects and designers to work from and in some ways, that showcase was really our strategy on display, if you think about it.

I mean AS has been built and developed over the years as a complement to the Mineral Fiber business and the [indiscernible] two of them work well together. We win more jobs, and we win more spaces whenever we have Mineral Fiber and AS on a project. And that's what was being showcased there. And I think what you're seeing in our recent results, what you're seeing in these kind of larger projects, we talk a lot about transportation is really reflective of that. You bring the portfolio and the power of it through our channels, through our access to markets and that's how the 2 complement each other.

Your next question comes from the line of Tomo Sano with JPMorgan.

On Mineral Fiber, your fiscal year assumptions implying 1% volume growth. Given the volumes were out [indiscernible] first quarter and second quarter, would you expect the volumes to accelerate or decelerate of what is in the second half? And if you could give us more color on end market channel inventories and market share perspective in the back half, please? .

Thank you, Tomo. Yes, we're out looking at fairly consistent volume performance. As we talked earlier in the year, we were talking about a positive first half, positive second half. We think we're well on track for that with the performance in the last 2 quarters. And frankly, 4 out of the last 5 quarters, we've demonstrated positive volume growth, and that's our outlook for the back half.

So consistent volume growth across the portfolio driven primarily by, I'd say, our commercial distribution channel, which is really where we're showing a lot of traction. I think the portfolio breadth and the product strength, particularly at the high end, like I mentioned in my remarks, the SWAT portfolio is playing really well to the verticals that are in play there, and we're serving that demand very effectively. So a consistent volume performance for the year and consistent volume is a priority for us, as we've mentioned, and we expect to continue to demonstrate that.

Follow-up on recent acquisitions, including Eventscape. What is the strategic power of bringing these businesses into the AWI platform commercial like pull-through was back in with the architects and designers and channel access. Could you talk about the key synergy levers in integration KPI, if you could?

Yes. And you mentioned Eventscape, Tomo. I'm going to expand that a bit and extend it to companies like Zahner as well who have these unique design capabilities. They have access to projects and they have access at the sort of design assistance stage of a project that is earlier than our traditional access to projects. So one of our key KPIs as we integrate them is focusing on the transfer function that can happen between those businesses when they have their early access and the rest of our portfolio to give insights into project activity to make connections with designers to introduce the broader part of the portfolio. And again, sort of as I was commenting about NeoCon, open up the rest of the portfolio as a solution set for that designer at that earlier stage.

And we're seeing that. I'll give you an example from this past quarter, we actually highlighted a project with our Board where a fairly prominent project high-profile project. And the first awareness we had of that project came from Zahner and they actually had a toehold on an interior metal application, and that was ahead of the entire rest of our portfolio. And as a result of that toehold, we were able to pull through 5 other solution sets, including Mineral Fiber, Grid Solutions and other parts of the AS portfolio that's an advantage to Zahner having been in early. And we see that same advantage in what Eventscape does with their design capabilities. And so we're going to try to harness the power of that access and then transfer it into the rest of the portfolio to win more share.

The only thing I'd add Tomo too on the metric side is we have robust business case financials that we put together as part of our investing decisions. And so we continue to monitor those on a monthly basis and performance opposite those business case financials as part of that metric that Mark mentioned as well.

Your next question comes from the line of Adam Baumgarten with Vertical Research Partners.

Just kind of talking about demand, and you highlighted kind of some of the higher end or SWAT products as being strong. Is that consistent across all the end markets where you're seeing strength at the high end is outperforming.

It is. That's a fair point. We are seeing it consistently across our markets, consistently across our verticals. We think it's the -- it's on trend. Frankly, the aesthetics and the performance in those products is attractive across all of those. So that's not isolated from a market point of view or a vertical point of view.

Okay. Great. And then just in the back half, do you expect any additional hyper refunds?

Nothing material. No, we're not. .

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

Question really you talked more about data centers on this call that we've heard in a while with some growing backlogs. Can you talk specifically what products work best in data centers? Is it just Grid or is it Mineral Fiber or is it a specific Mineral Fiber you sell into that occupancy?

Sure, Keith. Happy to take that. So it's not just Grid, to answer your question directly. The way we think about it is grid and tile have been going to data centers for a long time. We sort of bifurcate the structure of the data center into front of house and back of house, back of house being the compute side of the data center. Front of house, mineral fiber and traditional acoustical grid, we'll refer to it that way, has been servicing that need for a long time. So we'll continue to see that. And that varies by product application. It could be our SWAT products. It could be our mid-tier products on the tile side supported by a traditional acoustical grid. In the back of house, you get much more variation and much more demand for a more structural solution.

So not the traditional acoustical grid, but some of the heavier duty structural solutions that we've launched just recently out of the WAVE Venture, products like the DynaMax branded line of structural grid solutions, containment solutions there. And when there is a tile application in the back of house, then there can be tile applications. It's often a product that has acoustical, not so much in acoustic but an air management attribute to it. So a gasketed tile -- and again, it could be a variety of our mineral fiber products serving that tile need. It could also be our new data zone tailored product offering, which was created specifically for data center applications and has a slightly higher AUV to it. So it's varied key across, and it's really dependent on the specifier, largely the owner in a lot of cases.

Okay. The final question on this. Is there any interest in that occupancy on TEMPLOK given that cooling those facilities down a major deal for them. .

There is interest in it. In fact, our commercial teams have been doing a really good job of introducing TEMPLOK to data center applications. and selling, frankly, everything I just mentioned to you as a solution with TEMPLOK as a key component of it. So we do believe there's an application for it there. And TEMPLOK carries multiple value propositions energy savings, there's thermal dynamics to it. There's tax eligibility for incentives. So we've got a value proposition that we are pitching there, absolutely. .

Your next question comes from the line of Rafe Jadrosich with Bank of America.

I was wondering if you could talk a little bit more about the drivers to the revenue guidance increases, how much came in just the second quarter being better versus the second half? And if you could just give some specifics on -- are you seeing better end market trends? Are you gaining more share? And then what's driving that?

Yes. Thanks for the question, and I'll take that, and then I'll hand it over to Chris as well. I think the overarching message is the increase in our guide is largely as a result of the second quarter performance. and we're seeing a consistent back half to what we expected. So carrying forward, we're going to expect market conditions to be consistent with what we've seen in the first half, and we expect our commercial execution. We expect our growth initiatives to continue to perform and deliver that outcome.

Yes. And maybe just to unpack that top line change a little bit more. That $20 million increase in sales at the midpoint, about 2/3 of that is really driven by AS performance and about 1/3 for Mineral Fiber. And as Mark mentioned, again, bolt-on second quarter performance versus our expectations. The fall-through versus our typical margin profile that we see has pressured a little bit due to some ongoing investments in SG&A and the freight inflation that I commented on in my prepared remarks.

Great. That's really helpful. And then just following up on the SG&A. How much -- is that -- what are the drivers there? Is that higher incentive comp just because you're beating internal plans? Or is that opportunistic investment? Can you just talk about there's anything that have to do with like that expansion at NeoCon. Just trying to get an understanding of what's changing there?

Yes. So maybe I can start with SG&A performance in the quarter. And in Mineral Fiber, as I stated in my prepared remarks, that the increase in SG&A was driven by investments to support growth of both the selling side of the house as well as innovation. And as you mentioned, an increase in incentive comp. And AS about half of that SG&A increase was driven by our recent acquisitions, while the remainder was driven by investments back into the business and resources on the selling side to support growth as we scale.

On a full year basis, Rafe, we expect leverage on the SG&A line and SG&A and SG&A margin of about 20%, which is in line with our initial expectations at the beginning of the year for the company in total. And as a reminder, we want to be in that sub-20% range at the total company level, but recognize that acquisitions could initially pressure that as we continue to integrate them and deliver against the business cases there. But we're going to continue to be mindful of our rate and pace of SG&A for the remainder of the year, just given the overall context of the broader macro.

And Rafe, I'll add to that. Just as I think about the SG&A investments, I think of them as squarely tailored to the growth initiatives that we're talking about. So you should think about commercial selling support resources in support of the energy savings initiative, data center sales and some R&D to support both of those initiatives as well. .

Your next question comes from the line of Brian Biros with Thompson Research Group.

You talked about the strength of the higher end of your portfolio, I think in your prepared remarks and in some of the call questions earlier. I think as a theme you kind of touched on last quarter as well. I think you mentioned kind of the number of projects across the industry. It was down a little bit, but the value was up, and that's a trend that plays well for your product set. I guess do you view that dynamic as short term, maybe another quarter or 2? Or does that trend kind of more like a multiyear trend that you've continued to benefit from? How are you thinking about that?

Yes. Well, that trend -- thanks for the question, Brian. That trend certainly continued in the quarter. I didn't mention it in my remarks, but last quarter, we talked about 12 consecutive quarters of that dynamic where the high end of our Mineral Fiber portfolio is outperforming the lower end. This past quarter was the 13th consecutive. So this has been running for a couple of years now, and we expect it to continue. It is too early to project how far out -- but I think it's part of the dynamic about the bidding activity that you mentioned and the starts activity that you mentioned that gets consistent with that.

We're continuing to see, and we saw it again this quarter the counter projects being down, but the value -- and this is true across all verticals for that matter. The value of the project is up. And I think -- we think it's consistent with the trend towards quality, the flight to quality, if you will, in commercial spaces, looking to distinguish those spaces. We also think it has really well to the portfolio breadth theme that we were talking about earlier today, but definitely to the high end of the Mineral Fiber product category.

Got it. And then a follow-up. I guess, you talked about data center products you offer, you mentioned structural grid and containment. Can you just talk a little bit more about the sales process for those products today for you? And I guess, remind us -- are those -- do those get spec-ed in? Do you work with the GC or maybe directly with the hyperscaler. I guess just more details on the go-to-market for those would be appreciated.

You got it. Very appropriate question, given it's a dynamic and different go-to-market motion than traditional, let's say, construction, building construction spaces because you've got different influencers and you listed them. The hyperscalers as owners will set their own specifications. They'll use architects, They'll use GCs, of course, but they will have an outsized or overweight influence on the design of the spaces.

Similar dynamic with co-locators all versus traditional enterprise data center sponsors, which might look more like our traditional architect-led spec-led motion. So some of the SG&A that we're talking about in support of data centers is specifically designed to give us a more diverse approach in our go-to-market. So we can go direct to those owners. We can go direct to those co-locators, hyperscalers and give them a tailored packaged, reliable and consistent solution, almost bundled solution, if you will, for the range of products that we're now offering. So it is different. And we are leveraging a very strong national accounts program that we've had at the company for a really long time to leverage the relationships we have with many of those companies who are sponsors of these data centers. So that's our approach, and it's sort of a broad-based approach and requires it, given how data centers are designed.

Your next question comes from the line of Stephen Kim with Evercore ISI.

Yes. Appreciate all the color so far. I wanted to lean in on the new products a little bit. In particular, I'm curious as to whether or not the success and the focus on the new the various new product initiatives that you have is increasing your index -- indexing to new construction versus R&R. How you sort of think about that on a go-forward basis?

And then last time I asked you about the life span of some of these newer products. And I just want to double-click on that a little bit. As I just from a layman's perspective, as I think about gasketed products, where I think of gaskets may be drying out over time or an impeding performance? Or I think the face change materials, there's a certain number of thermal cycles that they're designed around. I mean I just wanted to sort of follow up on whether or not you think that there is a reason to believe that the replacement cycle for some of these products should be shorter than maybe some of your more generic historical products.

Thanks for the question. First, on the indexing. We don't feel that way. We don't believe we're over-indexing to either new or R&R I think what we're doing, honestly, is continuing to innovate as we've done for decades. This just happens to be the next chapter of innovation around the ceiling platform. There have been step changes in fire and seismic and acoustical performance and structural performance and we're adding a new dimension to this. And we think it plays in both new and renovation applications, both -- just like it has, we've had that experience for decades in serving both of those demand sources. So I think it's consistent with that.

We've not framed any change in lifespan or duration, durability or even warranty for that matter. We've continued to warrant these products consistent consistently with how we've warranted them in the past. So we're certainly not signaling and we're certainly not expecting the quality or deterioration to be any different. It's a question we get, frankly, around some of our new nations, but we're standing behind those products for the life of the products just like it, just like the products that we had before. And we think that's important because that standard of quality, we are not compromising in our products and with our new innovation.

Okay. Got you. Perfect. Okay. Second question relates to WAVE. Obviously, we're looking for some strengthening results there. I was wondering if you could provide a little bit more color as to the strength that you're seeing there. Is this -- should we be thinking about this as momentum building that is likely to carry over or beyond just this year? Or is there any lumpiness that we're benefiting from here? Maybe just give us a little bit of insight into what's driving the anticipated growth in WAVE?

Yes. But we're still on track for our outlook to mid-single digits of equity earnings growth. We're pleased with our performance. We think it correlates well with our mineral fiber performance overall. And at the same time, they're continuing to innovate themselves and are bringing new products to the market along the way. So we're pleased with their performance, and we expect it to continue into the second half. Chris, do you want to add some color to.

Yes. I was going to say, Stephen, on the steel cost front, the markets continue to face some inflationary headwinds there in the quarter. We saw the impact of higher steel flowing through the P&L, which pressured margins ahead of our announced August pricing actions, along with the ramp-up of some of the data center initiatives there that Mark mentioned. So turning to the back half of the year, we expect a step up in the equity earnings contribution to the Mineral Fiber segment as these price/cost benefits offset the rising steel cost exposure there.

Your next question comes from the line of John Lovallo with UBS.

The first one is within Mineral Fiber, the home center channel was strong again this quarter. I think it was up 9% year-over-year, pretty similar to the first quarter. The question is how much of this was driven by stronger discretionary or flow business like we saw in the first quarter? And if so, I mean, what was the impact on Mineral Fiber volume and AUV in the quarter?

Yes. So I'll start, and Chris, you can comment. I think our flow business in the quarter, we talked a little bit about this in Q1 and in Q2, fairly consistent. It's the part of the market we don't have as great a visibility to. So we do kind of triangulate that based on home centers, maybe a little bit on what we see in Kanopi and also we gather from sort of on-the-ground activity. So that flow TI, smaller R&R work continued to be consistent in the quarter. And I think that bodes well. It's a nice stable source of volume for us in the quarter and certainly something that we're hoping continues in the near term. It reflects some confidence and a willingness to use that discretionary spend in support of volume.

Yes. And really, John, nothing to call out there in terms of atypical activity, that channel can be lumpy, and we saw a little bit of lumpiness here in the second quarter.

Got you. And then considering the $800 million step-up in the share buyback authorization, and I think there's $2.5 billion authorized through December of 2029. Just curious if you guys would consider large share repo, maybe even an ASR, I mean is that something that's on your radar?

Yes. So let me put the repurchase program into some context here. First of all, this is the time of year we just had our Board meeting last week. It is our annual strategic planning cycle. So we had a robust and rigorous planning cycle and a great review and discussion and approval by our board of a strategic plan. That came first. And then on the heels of that strategic plan approval, the Board supported this authorization, which is an authorization. And the way we think about it is its confidence in that strategic plan. It's confidence in our strategic direction, its confidence in the cash flow generation that comes from that plan. But we're not signaling any change in our capital allocation priorities, as Chris talked about in his remarks.

We will be opportunistic as we've been. We were opportunistic in the second quarter, as you saw and over the life of the program, we'll continue to be opportunistic. That said, it's our third capital allocation priority and no change there. And we continue to believe we've got a compelling pipeline of both investing back into the business at an attractive ROIC as we've done and also a healthy M&A pipeline to run at. So it's a balanced approach to capital deployment that's served us well for years, and this should not signal any change in approach there.

Your next question comes from the line of Phil Ng with Jefferies.

Congrats on a strong quarter. Chris, I guess for a housekeeping question first. Can you give us an update on how you're thinking about inflation for your major buckets? If I heard you correctly, you're not expecting EPA refunds in the back half, but anything to call out as it relates to some of the changes in news around Section 301 and 338.

Thanks, Phil. Yes, you're correct. Nothing expected here on the IEEPA front for the back -- IEEPA refund front for the back half of the year. In my prepared remarks, I mentioned in the quarter, higher input cost inflation in the areas of freight and raw materials in Mineral Fiber. Let me just, again, frame up input costs as a percentage of COGS in the Mineral Fiber segment. So just as a reminder, freight is about 10% of COGS energy is about 10% and raw material is about 35%. And what we experienced in the quarter was higher-than-expected freight inflation due to pressure on carrier rates, and that's largely driven by some of the labor shortages and some industry consolidation there.

Raw material inflation came in a little better than we expected, but that wasn't a real needle mover in the quarter. But we saw strong AUV in the quarter and strong like-for-like pricing, which really contributed to that healthy EBITDA fall-through rate. On a full year basis, on the input side front, let me just break down the pieces. We expect energy inflation to be in that low single-digit range for the year. we're outlooking freight inflation to be in that mid-teens range for the whole year. And again, that's driven by the dynamics that I just mentioned on the carrier rate side and the tight capacity there. And we expect raws to be in that low single-digit percentage range. So all of all-in, input costs are expected to be inflationary in that mid-single-digit range for the full year.

Chris, was there any big movement from what you gave us last quarter. I go back to my notes, but I wasn't sure if there was any big moving pieces there, which you had last quarter?

Yes, not on the total -- yes, good question. Thanks. On the total input line in total? No, but the pieces did shift and most notably on the freight front.

Okay. Helpful. A question for you, Mark. Obviously, a lot of momentum in your 2 growth factors, whether it's transportation on the data center side. Certainly, your broader product offering investments you're making is having a real impact here. But I was curious, you had an unbundled transportation versus the data center piece. Are you winning on some of the product differentiation, which has always been the hallmark for you guys on transportation and data centers. I just wasn't sure if the offering was very different like you have in the rest of the portfolio, particularly on the data center side.

Yes. So are we winning on transportation for differentiation? No question. Are we scaling on data centers as we raise awareness to the fact that Armstrong can be a player, a meaningful player and a value-add player on the data center side, that's ramping now. And that's what a lot of our commercial investments or about is raising aware. And I think Armstrong has been recognized as a traditional ceiling player in those spaces for a long time. We've talked about serving those spaces. But now we're driving awareness to say we've got a much broader portfolio and we can serve the structural, we can serve the containment and the broader solution set. And we do think we have differentiation in those products, and that's what this awareness having is all about.

Is your competitive landscape different too on the -- sorry, go ahead, Chris.

Yes. I was just going to add a little more color on the freight piece before your follow-up, which is really the change there is a little more pressure on the back half of the year as I outlooked that range for full year.

The data center competitors, it is different. It is different because in that back of house and that compute side of the data center there is such a diversity of applications and needs and structural solution sets that is much broader and different and you can solve your data center performance needs with structures and solutions on the floor, in the ceiling in a variety of different ways. So it is a broader, more fragmented competitive set.

There are no further questions at this time. I will now turn the call back to Mark Hershey for closing remarks.

Thanks, everybody, for joining the call today and for the questions. We appreciate it. We're pleased with a solid quarter. It's a good opportunity for me to thank our teams for that performance. As we reflect on the quarter, we're really proud of outperforming the market in a dynamic environment. We've seen inflationary pressures, as we talked about today. There's still uncertainty and not a lot of market stimulate and tailwind behind us, but really good execution, and that's what we'll stay focused on to continue to create value. So thank you for your time today, and we'll talk to you soon. .

And this will conclude our call today. Thank you all for joining. You may now disconnect.

Hello, and thank you for standing by. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Armstrong World Industries First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Theresa Womble, Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, Sarah, and welcome to everyone joining our call today. On today's call, we have Mark Hershey, our CEO; Chris Calzaretta, our CFO, and they will be discussing Armstrong World Industries First Quarter 2026 results [indiscernible] outlook. We have provided a presentation to accompany these results that are available on the Investors section of the Armstrong website. Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC regulations. A reconciliation of these measures with the most directly comparable GAAP measures is included in the earnings press release and in the appendix of our presentation issued this morning. Again, both are available on the Investor Relations website.

Now 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, April 28, 2026. These statements involve risks and uncertainties that may differ materially from those expected or implied. We provided a detailed discussion of risks and uncertainties in our SEC filings, including the 10-Q we filed early this morning. We undertake no obligation to update any forward-looking statement beyond what is required to applicable securities law.

And now I will turn the call to Mark.

Good morning, everyone, and thank you for joining us. As many of you know, this is my first earnings call as CEO of Armstrong. I step into this role with deep respect for the remarkable legacy of our company and culture that has defined it for well over a century, one built on integrity, innovation and enduring relationships across the building ecosystem. For generations, our success has been rooted in our people and the long-standing relationships we have built in our industry. their loyalty, work ethic and dedication to our values have been crucial to sustaining growth and our unwavering commitment to our customers to consistently deliver the highest quality, most innovative products and best-in-class service levels that earn their trust and enable their success. This commitment to our distribution partners, the A&D community, the contractor community and to building owners and operators, and the strength of those relationships are a meaningful competitive advantage for Armstrong, and they must remain at the center of how we work.

As I shared in February, our strategy will remain consistent. Building on our strong and proven foundation, I envision an even more innovative and productive Armstrong and an enterprise that is squarely focused on driving AWI's earnings power through consistent mineral fiber growth based on both AUV and volume as well as healthy margins in our Architectural Specialties or AS segment. Through our growth initiatives, we strive to grow volumes ahead of market rates supported by our advantaged market position, strong channel partnerships and importantly, market-driven innovation that expands the value we deliver.

In addition to our digital growth initiatives, Kanopi and PROJECTWORKS, our TEMPLOK energy saving ceilings products and our recently launched data center solutions are great examples of this innovation. This industry-leading innovation differentiates Armstrong, creates new demand vectors and positions us at the center of key macro trends that support AUV and volume growth in the coming years. I'm confident that we are over the right targets with these initiatives. and we'll share more on our progress later in the call.

Expanding and scaling our AS segment is another part of our strategy. With acquisitions and organic investments over the last decade, we have enhanced our ability to win more on every commercial construction project, leveraging our commercial reach and thereby efficiently expanding our wallet share. And because of the complementary nature of our segments and the brand equity, relationships and influencer access, we have earned over time, we've consistently proven that when both AS and Mineral Fiber Solutions are specified on a project, our win rate meaningfully increases.

Our goal with AS continues to be outsized organic growth, coupled with sustainable attractive margins. driven by our portfolio and capability breadth and scaling new companies on the platform. Acquisitions will continue to be a key enabler of that strategy. With M&A, we look for opportunities that reinforce a differentiated market position in commercial construction, expand our capabilities and enhance our ability to support customers across all stages of the project life cycle.

As we've expanded our portfolio, we are now able to serve more complex design-driven projects while reinforcing the value of Armstrong as a total solutions partner. That advantage is evident in our acquisition of [ Zener ] and more recently, [ eventscape ], through which we've significantly enhanced our design and engineering expertise. Both companies enable us to collaborate with a broader network of architects, designers, engineers and contractors, allowing Armstrong to engage earlier especially when design concepts and technical requirements are still being shaped.

As a result, we're not only increasing our project participation, but also connecting with a wider array of key stakeholders, enhancing the visibility and the influence of the Armstrong brand and platform. The strategic imperatives I've outlined are designed to further solidify the resilience of our business, and further support our attractive cash generation profile. With profitable growth and strong cash generation, we can invest in each of our capital allocation priorities, which remain unchanged.

While I've already discussed M&A, our first capital allocation priority is reinvesting back into our business where we see the strongest returns. These investments focus on both productivity enhancement, and capacity expansion for growth areas of our portfolio that generate higher AUV, including TEMPLOK and our [ Smooth White acoustical tile or SWAT ] mineral fiber products. And finally, we'll continue returning value to shareholders through dividends and share buyback, which Chris will detail in his comments shortly.

Turning to the quarter. While we faced a few discrete headwinds, the foundational building block of value creation that we've historically demonstrated are fully intact and remain strong, as is our confidence in our outlook. Total company sales in the first quarter increased by 7% with top line growth in both segments remaining solid. In the Middle Fiber segment, sales increased 5% with solid AUV growth and a modest increase in sales volumes. Notably, we've grown mineral fiber sales volumes 3 of the last 4 quarters on a year-over-year basis. As expected, we saw some recovery in sales to federal government customers along with strong commercial execution and continued benefits from our growth initiatives. Also, as expected, market conditions remained flattish, similar to how we exited 2025.

Our Mineral Fiber segment continued to demonstrate strong profitability with an adjusted EBITDA margin greater than 42%. This result was driven by strong AUV along with productivity gains in our plants, and equity earnings contributions from our [ WAVE ] joint venture.

Turning to AS. Sales increased 11%, driven by 7% organic growth and contributions from our 2025 and 2026 acquisitions, adding another 4 points to prior year results. We are pleased to see broad-based demand across most of our product portfolio with organic growth improving sequentially, which has also continued steadily into April. Adjusted EBITDA for this segment declined in the quarter primarily due to a onetime tariff adjustment relating to duties on aluminum as well as targeted investments for growth in connection with growing demand.

Looking forward in the AS segment, [ quoting ] activity has remained strong, and our order intake levels have increased in the low double-digit range, both in the quarter and over the last 12 months. supporting our full year outlook and giving us some visibility early into 2027 as well. With an improvement in sales and lower cost headwinds, we expect AS segment adjusted EBITDA margin to significantly improve in the second quarter and that we will continue to make meaningful progress and expand margin toward our goal of 20% or greater EBITDA margin on a full year basis.

In support of that growth, our team continues to actively bid and win the transportation and airport projects at a high rate. Year-to-date, we have already surpassed our entire 2025 order intake total for transportation projects. These large complex projects often feature both high design and standard elements with multiple AS product categories as well as mineral fiber solutions. With our industry-leading portfolio, we are uniquely positioned to serve them. In addition to project wins at [ JFK and LAX ] mentioned on our last call, we have also won new projects at the San Antonio San Francisco and Dallas-Fort Worth airports.

Before turning the call to Chris, I want to highlight 2 operational items within our plant network across both segments. First, on a total company basis. we had a strong safety quarter with our total recordable incident rate well below 1 and well below industry average. This is a testament to the strong safety culture we have built across the enterprise, including our acquired companies. Among our greatest responsibilities is to protect the health and well-being of our employees throughout their Workday.

I'd also like to thank and congratulate our mineral fiber plants for successfully navigating a series of winter storms while maintaining strong quality and service levels for our customers. In fact, our perfect order measure for the first quarter exceeded our targets, and reached a record for the month of February. As we have shared, this measure captures the full customer experience by assessing whether orders are shipped completely, delivered on time, priced and billed accurately and received without damage. By holding ourselves a [indiscernible] across every step of the order life cycle, the perfect order measure reinforces our ability our focus on reliability, operational discipline and customer trust, ensuring what we do, what we say we will do every time. Success with this metric is among the key factors contributing to our ability to win in our markets and supports our consistent AUV performance.

Now I will turn the call to Chris for a more detailed review of the financials.

Thanks, Mark, 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 please note that Slide 3 details our basis of presentation. We begin on Slide 6 with our Mineral Fiber segment results for the first quarter. Mineral Fiber net sales increased 5% in the quarter, driven primarily by favorable AUV of 4% and a modest increase in volumes. AUV growth was primarily due to favorable like-for-like pricing, while volume growth was driven by solid commercial execution and growth initiatives with overall flattish market conditions in the quarter.

Mineral Fiber segment adjusted EBITDA grew 4% with an adjusted EBITDA margin of 42.4%. Mineral Fiber adjusted EBITDA growth was primarily driven by the fall-through of AUV, positive contributions from our WAVE joint venture and slightly higher mineral fiber volume versus the prior year. These benefits were partially offset by higher input costs, driven primarily by raw materials and energy inflation as well as unfavorable inventory valuation impacts and an increase in SG&A expenses, primarily due to higher gains in the prior year from deferred compensation.

Achieving a consistently strong adjusted EBITDA margin reflects the continued resilience of the Mineral Fiber business, fueled by our value creation drivers of AUV growth, annual productivity gains and contributions from our WAVE joint venture. As we look ahead to the second quarter, recall that last year's Mineral Fiber adjusted EBITDA margin performance of greater than 45% was a record high for the segment. We still expect strong performance next quarter even as we invest in our growth initiatives.

On Slide 7, we discuss our Architectural Specialties or AS segment results. Net sales increased 11% in the quarter driven by solid organic growth, along with contributions from our recent acquisition of [ Avenscape ] and the 2025 acquisitions of parallel and Geometric. AS segment adjusted EBITDA decreased approximately $3 million or 12% versus the prior year. This decrease was primarily driven by higher manufacturing costs, which included a $2 million nonrecurring tariff adjustment and incremental $2 million of costs of recent acquisitions and approximately $1 million related to plant investments to support growth.

The SG&A increase was primarily driven by $2 million of selling investments in support of top-line growth and $1 million of incremental expense from our recent acquisitions. I want to take the opportunity to further discuss the performance of the AS segment in the quarter on both an organic and inorganic basis. For reference, the organic adjusted EBITDA reconciliation for this segment is included in the appendix of this presentation. On an organic basis, net sales grew 7%, driven primarily by broad-based growth led by our metal and wood categories. Organic AS adjusted EBITDA declined by 9% year-over-year. primarily driven by -- by the nonrecurring $2 million tariff-related adjustment previously noted, along with a total of $3 million of both higher selling expenses and manufacturing investments to support growth. all of which pressured segment operating leverage.

On an inorganic basis, our recent acquisitions delivered $5 million of net sales in the quarter and were slightly dilutive to adjusted EBITDA. This anticipated short-term dilution was largely driven by the integration ramp that we experienced from time to time with some acquisitions as we incorporate and scale these businesses onto the Armstrong platform.

At the segment level, I'd like to note here that we expect the adjusted EBITDA margin for Architectural Specialties to significantly improve sequentially in Q2 and resume year-over-year adjusted EBITDA growth in the back half of 2026. I'll speak more on the second half outlook for both segments shortly.

On Slide 8, we highlight our first quarter consolidated company metrics. Net sales grew 7% and adjusted EBITDA increased 1%. Our consistent building blocks of solid AUV performance, incremental volume from both segments and positive wave contributions were largely offset by higher manufacturing and input costs and higher SG&A expenses. Adjusted diluted net earnings per share increased 2%, primarily due to a lower share count in the quarter, reflecting an increase in the pace of share repurchases.

Slide 9 summarizes our first quarter adjusted free cash flow performance versus the prior year. The 1% decrease was primarily driven by timing-related working capital and cash taxes, partially offset by higher dividends from our WAVE joint venture. We remain confident in our ability to deliver strong adjusted free cash flow growth in 2026 to support all of our capital allocation priorities.

During the first quarter, we continued to create value for shareholders through disciplined capital deployment. We paid $15 million of dividends to our shareholders and repurchased $60 million of shares representing an accelerated pace of repurchases as compared to recent quarters. As of March 31, 2026, we have $473 million remaining under the existing share repurchase authorization. In addition to shareholder returns, we continue to deploy capital in support of our growth strategy in the first quarter, including the February [ Evenscape ] acquisition as well as continued capital expenditures to support manufacturing productivity, innovation and future growth initiatives across the business. With a healthy balance sheet that includes low leverage and ample liquidity, we remain well positioned to execute and advance our strategy.

Turning to Slide 10. We are reaffirming our full year guidance for net sales, adjusted EBITDA and adjusted free cash flow. Given the accelerated pace of share repurchases in the first quarter, we are modestly raising our adjusted diluted EPS guidance to a range of 10% to 14% growth versus the prior year. We have also slightly revised our adjusted EBITDA margin assumptions, primarily driven by our first quarter results. We continue to expect margin expansion in both segments for the full year, with Mineral Fiber adjusted EBITDA margin of approximately 44% and AS adjusted EBITDA margin of approximately 19%. On an organic basis, we expect AS adjusted EBITDA margin to be between 19% and 20%. Please note that additional assumptions are available in the appendix of this presentation.

We continue to monitor geopolitical developments and their potential impacts on our business, including rising carrier fuel costs that have picked up in recent weeks, we have responded accordingly by implementing a fuel surcharge that took effect in late March. This is an example of our strong track record of mitigating inflationary headwinds as they arise.

Before turning it back to Mark, I'd like to comment on our expectations for the second half of the year. We expect improved net sales and adjusted EBITDA growth in the second half of the year as compared to the first half in both segments as well as improved adjusted EBITDA margin performance. In Mineral Fiber, we anticipate an acceleration in AUV growth, productivity gains and wave contributions in the back half to support full year adjusted EBITDA margin expansion in this segment. In AS, we expect organic net sales growth to accelerate in the second half of the year, supported by strong order intake and healthy backlogs. We also expect higher inorganic contributions from our recent acquisitions.

We remain confident in our outlook for 2026 and are well positioned to deliver strong results for the remainder of the year as we demonstrate the resilience of our business model. We remain committed to driving profitable top line growth, margin expansion in both segments and strong adjusted free cash flow to further our strategy and create value for our shareholders.

And now I'll turn it over to Mark for further commentary.

Thanks, Chris. As Chris outlined in his remarks, our view of the market remains consistent with how we began 2026 as we expect modest improvement for the year overall even with the current uptick in uncertainty related to the geopolitical climate. This view reflects our current consideration of multiple macro, industry, economic and on-the-ground inputs. Verticals like data centers, transportation and health care are performing well. From a bidding perspective, we remain encouraged by the recent and consistent increase in overall project values as reported in Dodge data for both new construction and major renovation projects.

With our robust portfolio, we are well positioned to serve that market environment. While we are also pleased to see some early signs of better discretionary demand, given elevated levels of uncertainty, it remains too early to shift our views on underlying market trends in construction. We will remain focused on driving our growth initiatives to gain traction and contribute incremental sales, giving us confidence in our ability to generate up to 1.5 percentage points of volume growth ahead of market-driven demand in 2026. These initiatives include PROJECTWORKS and Kanopi along with our energy efficiency and data center specific solutions.

First, looking at PROJECTWORKS and Kanopi. Both are designed to improve sales volumes and AUV over time and further differentiate Armstrong with our customers. PROJECTWORKS continues to scale as we add more products from our portfolio to the platform. including most recently from our 2024 acquisition, [indiscernible]. The number of project design completions with the PROJECTWORKS service continues to grow, along with the speed, design accuracy and cost predictability when using this tool.

And importantly, our specification win rate increases almost 20% and when projects go through this complementary automated design service. Kanopi also continues to reach new customers and improve from a revenue and profitability standpoint, more than tripling its EBITDA contribution in the first quarter. We are also pleased to see continued return customer growth along with healthy AUVs nicely above our average AUV level for Mineral Fiber.

Our newer product introductions that I mentioned earlier in the call are also gaining momentum. As we shared last quarter, our next-generation TEMPLOK energy-saving sealing products are now part of our sustained portfolio and meet the highest industry standards for sustainability. This makes TEMPLOK even more attractive for building owners, seeking standards that can increase their lead 5 credits and differentiate their buildings from an energy efficiency standpoint. This innovation with growing awareness of eligibility for tax credit incentives and validation by more real-world case studies is driving growing interest, specifications and adoption.

Our TEMPLOK pipeline continues to grow through heightened awareness, marketing and commercial execution. These projects encompass a diverse set of verticals and project types. In February, we mentioned a couple of financial institutions in New York that are installing TEMPLOK in new office construction projects. More recently, we've won projects that include a new health care facility in the Southwest, a Pennsylvania school district and a small business office renovation in Pittsburgh for an owner seeking the benefits of both the energy saving and the available tax credits for the product, the grid and the installation.

These, among others, are important points of validation for what we believe will be a meaningful driver for Mineral Fiber volume and AUV growth in the future. Our confidence in this outlook is bolstered by the urgent need for energy efficiency and grid stability as demands from AI, cloud computing and data centers, pressure grid systems. In addition, local and state regulations introduced over the last several years present real challenges for building compliance with carbon and energy reduction mandates.

With few new solutions coming to market to tackle these challenges, TEMPLOK is appealing for building owners facing these new regulations and even utilities looking for ways to protect the grid during peak usage hours. We believe this is a multiyear macro-driven opportunity for Armstrong, and are pleased with the market development progress we're making so far this year.

Data centers also represent a multiyear macro-driven opportunity, supported by many of the same long-term trends tied to AI and the growing need for energy efficient and resilient digital infrastructure. Over the past year, we've increased our capabilities and our market presence with expanded design-for-purpose offerings. The Armstrong portfolio anchored by systems such as [ Dynamex, Dynamex LT ] structural grid, data zone ceiling panels and containment build on the core strengths of both Armstrong and our WAVE joint venture in manufacturing, specification-driven selling and systems-based solutions for complex environments.

Looking ahead to 2026. We see sustained activity across hyperscale, colocation and enterprise data centers with customers increasingly focused on airflow management, support for higher power densities and improved energy efficiency. We view data centers as a vertical market that [indiscernible] well with our capabilities and our disciplined approach to growth. Year-to-date, our pipeline for projects expected to ship in 2026 is more than 50% ahead of 2025 levels. These indicators of traction demonstrate we are well positioned to capitalize on both current and emerging market opportunities. We fully expect these efforts to not only contribute to our 2026 results but also lay the foundation for future growth.

With our dedicated employees serving our customers, our growth initiatives and continued contributions from our core value creation drivers we remain confident in achieving our 2026 outlook and in our ability to generate above-market growth, robust returns and enduring value for our stakeholders as we move forward.

With that, we'll be pleased to take your questions.

[Operator Instructions] Our first question comes from Susan Maklari with Goldman Sachs.

My first question is, can you talk a bit about just the bidding activity that you're seeing out there, given the macro and obviously, the start of the conflict in the Middle East during the quarter, has that had any impact on the level of activity that you're seeing? And I guess within that as well, can you talk about the new products and platforms and how that's perhaps driving some relative elasticity for you relative to the broader market?

Thank you for the question, Susan. First, on bidding activity, I think the best characterization of that would be that it's fairly stable overall. We have not seen a dramatic impact from the geopolitical backdrop. Both in the Dodge data that we use on bidding activity and from an on-the-ground standpoint, we feel pretty good about the bidding activity. we've talked previously about bidding activity with project counts being down but project values being up. That continues. We continue to see that. That's a good thing for us.

We continue to believe that, that plays [indiscernible] well to our strengths, these larger, higher-value products, and by the way, values that are up well above inflation for that matter. So bidding contains -- continues to hang in there. And we made some in our prepared remarks, some comments on our pipeline and our intakes continue to be very strong, double-digit intakes and good project visibility out into '26 and beyond for that matter.

On the new products, we mentioned in the prepared remarks, we continue to feel like we are absolutely over the right target on both energy savings and on data centers. As I mentioned, pipelines continue to build dramatically. We're seeing very good commercial execution from our sales teams on those projects. And it's giving us confidence in reiterating [indiscernible] basis points of [indiscernible] volume growth ahead of market growth in the period. So we're -- in both cases, with data centers and energy savings. We're developing the market. We are, as Chris mentioned, adding selling resources, we're investing into these initiatives for growth. We're having more conversations, reaching more influencers and feel really good about the traction of both of those initiatives.

Okay. That's very helpful color. And then appreciating that you outlined a lot of your initiatives and areas of focus as you step into the CEO role, given the world that we're in today, can you talk about some of the things that you're focused on in the near term? And how we should think about them coming through in the next several quarters relative to some of the longer-term initiatives and things we should be watching for over time?

Yes, I'd say consistency there. What you've seen from us over the last several years, we call it our winning formula, our building blocks for growth -- so first and foremost, execution around our building prop blocks for growth. So certainly, AUV, certainly, our product development focus on the innovation side and bringing new products to the market. certainly, across the enterprise, and I mentioned this in my opening remarks, productivity. Productivity from operations has been a hallmark of our Mineral Fiber business for a very long time, extending that productivity mindset I think it extends certainly into the acquisitions we acquire and just gaining operating leverage on the platform that we've built in Architectural Specialties over time.

We know we'll go through cycles where we're adding on acquisitions. If you think about the last 6 months, we acquired 3 companies, a couple of smaller companies. There's a necessary ramp with those companies, but integrating them well, getting them up and running on our platform and then getting the scale and the momentum behind those new additions is really important. You'll see that in the near term. and we'll continue to be active on M&A and continue to build an active M&A pipeline because that's also part of our strategy moving ahead.

Okay. Great. Good luck with the quarter. .

Our next question comes from Tomohiko Sano with JPMorgan.

On a Mineral Fiber volumes turn modestly positive, but in a flat market environment, you highlighted commercial execution to push up 100 basis points. Has your view on volume trends for the second quarter and the full year changed compared to 3 months ago? We would appreciate any updated perspective on the drivers behind your outlook?

Yes. Thanks for the question. So overall, our view hasn't changed in terms of our Mineral Fiber volume outlook. We continue to be confident in that outlook. Just a couple of comments on Mineral Fiber volume in the quarter. I mentioned in my remarks, we did see the federal government volume come through. We also saw, in addition to the commercial execution I mentioned, we saw some flow business in the quarter, and that flow or discretionary business that we get from [indiscernible] volume is an important signal for us. It comes through our distribution partners and that also contributed in the quarter.

So across the board. We continue to grow AUV, but that flow business does tend to carry a lower AUV. But the higher end of our portfolio performed very well in Mineral Fiber volume as well. That's swat part of the category, and so we're pleased with that. And that helped with our initiatives, gives us confidence in that outlook, Tomo.

And maybe, Tom, just to add on the volume, still expecting a modest step-up in volume in the back half of the year and continued strong like-for-like performance and positive mix as part of that AUV of about 6% for the year.

And Chris just follow up on margins in 2Q you talked about the significant improvement in 2Q. But could you please elaborate on the expected magnitude or level of this improvement? Any additional color on how you define significant? And what we should anticipate in terms of margin recovery would be appreciated.

Thanks, Toma. Chris, I'll take a shot at that, and then you can add on. I think the way we're thinking about it is that the headwinds that we're seeing in the first quarter are largely short term in nature, and we don't expect them to continue throughout the rest of the year. So I think a fairly consistent margin performance through the rest of the year is how we're thinking about it without pinning it on a number. Obviously, you can see our guide and our outlook for margins overall for the year. And I think we're looking for a more consistent performance across all 3 of those quarters. Chris?

Nothing to add. Again, pointing to still expect margin expansion for the full year in AS segment level.

Yes. I'll get on to that, Chris. If you think about it, we are out looking margin expansion organically. Our confidence stems in part from what we're seeing in our pipeline and the headwinds kind of stepping away. But also, we've expanded margins in AS organically for 4 consecutive years. And we believe we got the building blocks in place to continue to do that and that this will be our fifth year of organic margin expansion for AS.

Our next question comes from Keith Hughes with Truist.

I wanted to ask about this tariff issue more. Can you give us a little more detail of what this is about? And is this going to be a continuing cost in quarters in '26?

Thank you, Keith. The short answer is no. We do not expect it to be a continuing cost and happy to provide some color on it. Look, the tariffs that I think we've all seen a rapidly kind of evolving area. There's been a lot of fluidity around the guidance, the application, frankly, the calculation of duties. And I want to applaud our team this year for constantly reevaluating that guidance and staying current on that. So we proactively this quarter in our reevaluation decide to make a reconciliation, if you will, of our duty rates on -- I mentioned in my remarks, aluminum, these are finished goods that contain aluminum that are imports into the U.S.

And so we made that reconciliation. It's a onetime event. And with it, we also deployed a series of mitigation measures so that we don't have this as a go-forward run rate. And I think over the years, we've proven our ability to do so to mitigate those headwinds through a series of actions that could include supply chain changes, manufacturing changes, pricing if needed, so that we can mitigate that headwind. So we don't expect it to continue throughout the rest of the year.

Okay. And one other question on AS. You talked about the manufacturing cost impact in the quarter. Was that primarily on the last acquisition you did? And is it just required some extra investment as you get in to expand that or exactly where does that come from?

Yes. Keith, it's a little bit of both. It's the costs associated with the manufacturing related to our recent acquisitions. as well as some investments back into the organic side of the AS business within our plants.

Our next question comes from Rafe Jadrosich with Bank of America.

First, I just wanted to start with -- can you just update us on the inflation outlook for the year? I think coming into the year, you're expecting mid-single digit with energy up low doubles and then low single digit on raws. Like where is that tracking today?

Yes. Thanks, [indiscernible]. So just to reground on COGS inflation, raws are about 35% or COGS energy is about 10% with a fairly even split between electricity and nat gas and then freight is about 10%. So for total input cost inflation for the year, no change to our mid-single-digit outlook that I shared in February, but a slight [indiscernible] components. So let me walk through them here quickly.

On the raw side, we expect mid-single-digit inflation versus prior year. freight, given the uptick -- a little bit of uptick in the pricing of fuel, we're in that mid-single-digit inflationary range on energy in that 10% range for the full year. So all in, no change to the total input cost inflation assumption of mid-single digits, but a little bit of shifting kind of between the categories.

Great. That's really helpful. And then just the AUV acceleration in the second half of the year, I think, 4% in the first quarter and then 6% for the full year. Was there any mix headwind in the first quarter that will reverse later in the year? Just can you just talk about the components of like what's going to actually drive that acceleration as we get later in the year?

Sure. Happy to take that. We probably saw a little bit of product mix and that does product mix, as you know, quarter-to-quarter based on the kind of basket of products we're selling in our channels in a given quarter. There's probably a little bit of that in the quarter, and we expect that to even out the rest of the year. Our initiatives our ability to continue to mix up will continue throughout the rest of the year. So we don't view that as a headwind going forward.

And just stepping back, if 5% overall sales top line growth for Mineral Fiber, we feel really good about. From an AUV perspective, we've got good pricing traction in the period. We got very good AUV fall-through in the quarter well over our expected run rate there. So in terms of from an AUV perspective, overall, we're confident in that roughly 6% for the year.

Our next question comes from Brian Biro with TRG.

On the Mineral Fiber EBITDA margin outlook, even though Q1 was down a little bit year-over-year, it had some pressures, still very good performance. It looks like you raised the full year to 4% instead of 43.5%. So clearly, a good sense of being able to overcome kind of whatever happened in Q1, even though it was still very good. and perform even better in the rest of the year than, I guess, you had thought 3 months ago. So I guess, what is driving that increased confidence in margin for the rest of the year? It sounds like it's even better AUV traction, but more clarification on that would be great.

Yes. So thanks for the question, Brian. No, I mean, overall, the margin expectation for the full year in Mineral Fiber is largely unchanged. We're at about 44% we were out looking a little bit north of 43.5%. So really no change there overall. And as you stated, really expect a modest uptick in the volume in the back half of the year and then kind of an increase in AUV in the back half of the year based on Mark's comments associated with product mix. still strong AUV fall-through still strong productivity and again, really good contribution from our WAVE joint venture gives us confidence in that margin and our ability to expand margins at the segment level on a full year basis.

Got it. And then on the raising the EPS guidance, I guess, from higher share repurchases. I was curious if you're more on the thought behind that and kind of when you guys decided that was the right approach, kind of was it looking at the stock pressure itself and looking at the demand outlook for the year, and just kind of seeing that disconnect, but just be curious more about kind of what figured the decision to execute more on the buyback or execute on quicker?

Yes. in Mark's prepared comments, no change to our capital allocation priorities. We have a high-return business and we seek to invest back there first. Secondly, we seek to grow inorganically, and you can see kind of our track record there and share repurchases has kind of been our flex option. We take into account and we look at a multitude of different things in contemplation of that. And the uptick in EPS or the raise in the guide was really based on our share repurchases in the first quarter, took advantage of some opportunistic buying there. But now the full year guide is reflective of that kind of that step-up that we saw in the first quarter in terms of repo.

It continues to be our flex option again as we go forward as well. But it's, again, an examination and a look at a whole host of different factors as part of our capital allocation.

And I'll just add, we'll continue to be opportunistic. I think that's the right word for this. I think implicit in that is a confidence in our free cash flow outlook as well as what Chris described there.

Our next question comes from Garik Shmois with Loop Capital Markets.

On the improvement that you talked about in the flow, I guess, the discretionary part of the business. I'm just hoping you can talk a little bit more on that, what verticals are seeing improvement and any sense as to how sustainable the growth is there?

Sure. So that's the one part of the portfolio. We've got a little less visibility to. By its nature, discretionary. It shows up through our distribution partners. So it's a nice stable volume flow. Our ability to trace it back to specific verticals is limited. But I wouldn't say it would be vertical specific. It would be more broad-based just based on what we're seeing overall in the markets as well as projects, and the same would be true for geographic.

So it's still an uncertain environment, and I think that's what weighs on the ability for that to be a more consistent part of our mineral fiber volume flow, if you will, or volume outlook, but it's a good sign. And it's one of the signs that we look at very closely every quarter as an indicator of future activity. So I'd say the flow business we saw this quarter coupled with the pipeline, that's what gives us confidence in our outlook overall.

And just a follow-up on Mineral Fiber margins. You talked to the 44% for the full year, but you also did mention the second quarter, you I guess, a difficult comparison. Just wondering if you could frame 2Q EBITDA margins in Mineral Fiber, a little bit more. Do you -- would you expect margins to be up in the second quarter? Any additional color would be great.

Yes. Thanks for the question, Garik. I stop short of guiding to the quarter there. But again, we are lapping a strong base period it's probably going to be close there. But again, I think thinking about just the overall building blocks that have been a true testament to that business will still be on display in the second quarter. So again, really strong AUV contribution, strong pricing within that productivity and again, a disciplined approach to cost control kind of balanced with opportunistically investing back into the business for growth.

Our next question comes from John Lovallo with UBS.

On the Architectural Specialties side, organic sales, I think, were up about 5%. And year-over-year in the fourth quarter, up about 7% in the first quarter. How are you sort of thinking about the cadence of organic growth into the second half? And then -- can you also give us an update on -- I think there were 4 or 5 big projects that got pushed out last quarter. Any update there would be helpful.

So thanks, John, for the questions. I think we continue to be confident in that high single-digit range of organic growth for AS pleased with 7% in the first quarter, and I'd expect more of the same throughout the rest of the year, the high single digits throughout the rest of the year. We did follow through on all 5 of those projects. One of those projects that we were talking about last quarter actually shipped and closed in the quarter. And the other remaining projects we expect in the first half of Q2. So -- that's consistent with what we were expecting is that they flow through in the first half of the year. And so we were on track for those.

Got it. Okay. That's helpful. And then you guys slightly outperformed a flat market in the first quarter for Mineral Fiber with volume up about 1%. And I mean, is there any particular vertical that you could point to where that may have been the driver? Or was it sort of broad-based?

It was broad-based. But when we say that, look, in terms of vertical by vertical, transportation continues to be strong for us. Health care continues to be positive. We've talked a lot about data centers contributing and office in spots contributed although uneven. So the verticals overall, it's one of the reasons why we're fortunate to be, have a strong presence in a diverse mix of verticals. So overall, it kind of balances out. when some are up and some are down, and that was the case here in this quarter, but not overly concentrated in one particular vertical.

And John, sorry, as you model the organic top line in AS, just be thinking about a pretty sizable step up in the back half of the year compared to the front half top line.

[Operator Instructions] Our next question comes from Stephen Kim with Evercore ISI.

Yes. Appreciate all the color so far. I guess my question, I wanted to focus on the data center vertical for a second. I guess I'm curious, first of all, what you think the -- what are the features that really matter the most within the data centers? I understand that the [indiscernible] I get you need it, obviously, in a very robust grid system. But I'm curious about the -- in addition to the tiles. Am I right in thinking that perhaps maybe gasketed products might be more important in order to really minimize the air flow. I'm curious if there's something else? And do some of these products have a quicker replacement cycle that you can anticipate? That's my first question.

Okay, Stephen, thank you. Happy to talk data centers a little bit. I think you're over the right target there. Arlo management is part of the value proposition. But before you even get down to a specific kind of product attributes like gaskets or airflow management, I think what's winning is speed and labor efficiency and labor savings. So trust, relationships, the ability to support lead times and a complete system that is capable of being installed on time. quickly with minimal labor or rework. That seems to be a priority value proposition right now.

And so that's what we've done with our system is kind of a complete connected holistically designed system. So not just the [indiscernible] not just the suspension. We talked about walkable platforms before we talk about containment. That's really what we're aiming for. And then to bring the Armstrong power of go-to-market and service and distribution to that equation to really give contractors and the other inventors who are really prevalent in the data center space that confidence. So it's repeatable, it's reliable and they can get data center up and running as fast as possible. So that's our priority.

Yes. No, that's very helpful. And actually, it's a good segue to the other question that I had about the data centers, which is as we know, the data center, the starts around any announcements around construction of data centers was obviously very robust. but that may be starting to slow a little bit in light of the practical realities of actually getting these things out of the ground. And so my question is, do you anticipate perhaps that completions of data centers, which I'd assume matters most for you might actually have a little bit of a hiccup sometime in '26 '27 after the initial surge. Is that realistic? Is that something that you believe?

And then longer term, -- what percent of sales do you think data centers could ultimately represent either if we're talking like in 2 to 3 years or maybe even longer than that.

On your first point, point well taken, it's very tough to crystal ball what that will look like in the future. there's been public opposition to data centers in different communities as well, and we've been monitoring that. So we've got our eye on that. We haven't seen kind of the demand wane. I mentioned the number of wins we've had -- so I think the opportunity in the near term is real.

And frankly, just on that point, we think with some of our solutions, energy efficiency, in particular, acoustical solutions exterior solutions that we've got a value proposition for data center construction that is kind of commute friendly, so to speak, and we're focused on that. But could we see that kind of wane in the long term? We'll see -- we'll see it probably too early to call.

Your second question was on sizing of this. Still difficult for us to do. We haven't obviously set this out as a separate discrete vertical. It doesn't rise in our view, to the level of, let's say, our transportation or our retail vertical. But to my point earlier about having a diverse set of verticals, it's a good thing. And there's a strong tailwind in it, and we're going to take advantage of it and pursue our -- we believe to be our fair share of that work while it's here. and we reflect that positivity inside our office vertical as we presented. So it's a positive factor overall in our vertical mix.

That's great, Mark. Just to clarify though, could you comment on the replacement cycle on some of the products that go in particularly the tiles, would there be any reason to think that the replacement cycle might be quicker?

Not that we've seen yet. And maybe it's too early to tell on that as well because retrofitting, we're starting a lot of new demand right now, obviously, with data centers and not a lot of major retrofit demand at this moment. So as that time comes, we'll have a better sense for the cycle and if there's a comparable to, I'd say, tenant improvement, is there a data center tenant improvement comparable. We just don't know that yet and haven't seen that yet.

Our next question comes from Phil Ng with Jefferies.

Question for you, Mark. Some of these growth factors you've called out, whether it's transportation, I think, particularly in AS data centers and TEMPLOK would be a little different approach, more smaller customer base. How should we think about pricing, margins and mix broadly?

So we'll start with pricing. So pricing and AUV generally is favorable to our standard, that's how you should think about it for [indiscernible] for our data zone, tiles and data centers that's certainly true. And as we mix up the portfolio, generally, we're trying to drive the high end of our portfolio. As we ramp these solutions, and we're still in ramp mode, we're still in ramp mode for TEMPLOK for sure, and we're still in ramp-up to a degree for data centers. will build and gain leverage over time. And I think it's fair to say that for this year, we're still in that ramp mode for TEMPLOK as we generate momentum and create the demand overall.

What about transportation?

Transportation is sorry about that. So transportation is very favorable because of the mix and because of the broad solution set that we see there. So if you take the typical airport job like I was describing in my remarks, we see projects that are a blend of high AUV mineral fiber, very high AUV architectural solutions and the power of our portfolio really comes into play there, and our margins reflect that as well on transportation projects. So we do really well with that portfolio effect.

Okay. That's great. And to kind of tie it all together, you guys are winning here, right, Mark. So when you who do you compete with? Is it your typical competitors on mineral fiber to have more of a commodity product, AS is probably a little more nuanced. But just give us a sense for some of these larger complex projects, who are you competing with? It does feel like you have an advantage here and even on the TEMPLOK side as well?

Yes. I appreciate the question. For that reason, 2 years ago, we organized a specific transportation vertical-focused team, a very cross-functional team from multiple parts of our business. These projects are complex. They're multi-year. The wins that we announced this quarter, we've been working -- our sales team has been on these for several years to try to win them. You're dealing with different influencers. There's a regulatory dimension to this.

There are different authorities involved. So it is a complex, sophisticated long-term sale. And I think 1 of the most compelling value propositions we bring relative to competition is the breadth. -- because these airports have a wide array of needs. There's a wide array of spaces in them from lounges to con courses to the exterior facade for that matter. And I think this is really where you see the power of our portfolio and the brand coming to play, and it can be served through our distribution partners very reliably. So that's a powerful combination when you put it all together.

Okay. And then one last one for me for Chris. EBITDA for was a little weaker than we would have expected for 1Q. It sounds like you're expecting that to improve nicely into 2Q. -- you called a few things that were temporary in nature, the $2 million tariffs. Were the investments in the business and M&A lumpier nature in 1Q that will kind of say, -- just kind of help us think through why things get better perhaps in 2Q? And do you have enough levers there for EBITDA will be up year-over-year in 2Q?

Yes. Thanks for the question. So yes, a little bit of lumpiness. The way I would think about it in terms of the overall confidence is that we absolutely believe that we're going to be able to not only expect to grow but not only that but expand margins on a full year basis. And so I'd be thinking about some of the nonrecurring impacts that we saw in Q1 on the tariff front is largely the impact that will carry through for the full year. Other than that, we really feel good about the order intake, our backlogs, as we mentioned, and are very confident in our ability to deliver the outlook that we have here for the year.

This concludes the question-and-answer session. I'll turn the call to Mark Hershey for closing remarks.

I want to thank everybody for joining the call today. Thank you for your interest in Armstrong and we look forward to speaking with you soon. Have a great day.

And this will conclude our call today. Thank you for joining. You may now disconnect.

Hello, and thank you for standing by. My name is Ms. Regina, and I will be your conference greater today. At this time, I would like to welcome everyone to the Armstrong World Industries, Inc.

I would now like to turn the conference over to Theresa Womble, Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, Regina, and welcome, everyone, to our call this morning. Today, we have Vic Grizzle, our CEO; Chris Calzaretta, our CFO; along with Mark Hershey, our Chief Operating Officer, who will discuss Armstrong World Industries fourth quarter 2020 results and our outlook for 2026.

We have provided a presentation to accompany these comments that is available on the Investor Relations 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, both available on our Investor Relations 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, February 24, 2026. These statements involve risks and uncertainties and that may differ materially from those expected or implied. We provide a detailed discussion of the risks and uncertainties in our SEC filings, including our 10-K filed earlier this morning. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law.

With that, I will now turn the call to Vic.

Thank you, Theresa, and good morning, and thank you for joining our call today. As many of you know, this will be my last Armstrong's earnings call as CEO, as I'll be moving into the executive Chairman position on April 1. And as previously announced, Mark Hershey currently our Chief Operating Officer, will be taking the helm as President and CEO effective at that time. It has been both a privilege and an honor to have led this great company for the past 10 years.

Throughout my 15 years here at Armstrong, Mark has served alongside me in various key leadership roles. His extensive experience and track record of delivering results, combined with his strong dedication to our values and our culture of operational excellence, make him both well equipped and ready to lead this organization. We will hear from Mark later in the call today to discuss our recent acquisition of Eventscape and some advancements in our new product innovations.

So let me begin with our record-setting 2025 results. 2025 represented another year of strong execution and a full demonstration of our resilient business model that delivered profitable growth despite persistently challenging market conditions. It was our team's continued execution at the highest level across the enterprise that enabled us to deliver another record setting double-digit growth year across all key metrics, again, even as market conditions remained unfavorable.

At the total company level for the full year, our net sales increased 12% from the prior year and our adjusted EBITDA grew 14% with our adjusted EBITDA margin expanding 70 basis points. As noted in our press release that we issued earlier, 2025 was our second consecutive year of double-digit growth, where the core values of Armstrong were on full display, such as strong mineral fiber average unit value growth, robust productivity across our operations and double-digit top line growth in our Architectural Specialties segment.

Our 2025 results also marked the fifth consecutive year of net sales and earnings growth. And also notable, this is the third consecutive year we have reported year-over-year adjusted EBITDA margin expansion. These strong and consistent results reflect our team's ability to steadily execute across the enterprise in all parts of the cycle.

So before getting to our quarterly results, I want to take a moment and recognize and express my gratitude to our team of nearly 4,000 employees. Their commitment and their passion for what we do, and dedication to serving our customers are not only impressive, but they're unique and a key driver of our continued success. So thank you to the entire Armstrong team.

Now turning to our fourth quarter results. In the quarter, we finished with softer results than expected, even though we had solid AUV growth in Mineral Fiber with favorable like-for-like pricing, strong productivity more than offsetting inflation and continued double-digit top line growth and Architectural Specialties. Softer results on the top line in Mineral Fiber mainly came from the impact of the extended government shutdown that disrupted maintenance and repair activity for government buildings across the U.S. In addition, we did not see the normal bounce back after reopening, which impacted mineral fiber volumes in notable areas like our Washington, D.C. territory, and with our MRO customers serving the repair and maintenance activity and government buildings.

Softer-than-expected results in the quarter also occurred in the Architectural Specialty segment, primarily driven by key project delays. This created a cost in balance in the quarter, temporarily compressing margins in the AS segment. Together, these drivers formed an air pocket of sorts for the total company results that we expect to work through in the coming quarters. As I mentioned in the quarter, average unit value, or AUV in our Mineral Fiber segment increased 6% on strong like-for-like price performance and positive impact positive product mix driven by our innovative products.

Despite short-term pressures created by these temporary market events, Mineral Fiber EBITDA increased 15% to a record fourth quarter result and a record fourth quarter EBITDA margin of 42.1%. Architectural Specialties delivered 11% top line growth with solid inorganic and organic contributions despite the project delays. And importantly, order intake growth continued to be strong at double-digit levels year-over-year in the fourth quarter, sustaining a momentum heading into 2026.

We continue to see strength in the transportation vertical for our broad portfolio of AS products, and we continue to win large airport projects with recent wins at LAX and Salt Lake City International Airport. We continue to expect the transportation vertical to provide a tailwind for several years to come. Both the Mineral Fiber and Architectural Specialty segments contributed to our record results in 2025, with our strong focus on operation -- operational execution being a key contributor to our sustained leadership position and our growth initiatives providing above-market growth rates.

Operational excellence enabled now by technology is critical both in terms of profitability as well as from the eyes of our customer in terms of quality and service. And this was an outstanding year in both areas with our teams delivering a record high result for our perfect order measure. This measure I've described before, tracks our performance across multiple metrics that are critical for maintaining our best-in-class customer service levels, things like on-time delivery, product defects, billing accuracy. Executing at high levels across these areas not only drives customer satisfaction but it also supports our pricing performance in competitive markets and reinforces the strength of our market position. After a few years, a foundational investment in our growth initiatives, they continue to scale and are contributing to our business model and are creating value as a competitive differentiator for the company.

On the digital front, the use of PROJECTWORKS, our automated design platform continues to grow and generate higher win rates on projects when the service was used, reinforcing its value again as a competitive differentiator. Kanopi also continued to perform well and contribute nicely to our growth in 2025, providing an easy way for otherwise underserved customers to assess a broad range of products. Through a simple online selling platform, we are pleased to see record revenue and EBITDA results for Canopy in 2025, with each quarter providing a positive EBITDA contribution.

Now in addition to these successful digital growth initiatives, with growing opportunities in data centers and energy saving ceilings, total contributions from our growth initiatives are positioned to further accelerate in 2026 and beyond. And Mark is going to cover these 2 key growth opportunities here in a moment. All in all, these results, together with our growth initiatives, were another demonstration of how our business model and our strategy can deliver growth above the market and do so profitably through our pricing discipline, operational excellence and strong operating leverage.

Now I'll turn the call over to Chris for more details on our financial results. 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 please note that Slide 3 details our basis of presentation.

On Slide 8, we begin with our Mineral Fiber segment results for the fourth quarter. Mineral Fiber sales grew 3% in the quarter, driven by AUV growth of 6% partially offset by lower sales volumes. The increase in AUV was primarily driven by favorable like-for-like pricing, along with a positive contribution from mix. Volumes in the quarter were softer than we expected, primarily due to short-term headwinds from the indirect impact of the federal government shutdown as well as softer home center demand.

Mineral Fiber segment adjusted EBITDA grew by 15% in the quarter with adjusted EBITDA margin expanding 460 basis points to 42.1% despite lower volumes. As Vic mentioned, Mineral Fiber's adjusted EBITDA margin of 42.1% in the quarter marked the best Q4 margin performance in the segment since 2016. Adjusted EBITDA margin expansion was primarily driven by the fall-through of AUV, which benefited from strong like-for-like price benefit and a favorable claims adjustment in the quarter, higher equity earnings from our WAVE joint venture, favorable SG&A expenses and lower input costs. From a full year perspective, Mineral Fiber adjusted EBITDA margin finished at a record-setting 43.5%, surpassing the high watermark of 2019. This level of financial performance underscores our Mineral Fiber value creation drivers, including consistent AUV growth, annual productivity gains and positive contributions from our WAVE joint venture, along with our disciplined focus on cost control.

On Slide 9, we discuss our Architectural Specialties or AS segment results. Double-digit sales growth of 11% in the quarter was driven primarily by contributions from our 2024 acquisitions of 3form and Zahner as well as organic growth. As a reminder, the fourth quarter compares to a very strong prior year period that delivered 15% sales growth, largely driven by several large transportation projects in the fourth quarter of 2024.

Importantly, full year organic AS sales grew 9%, which was consistent with our expectations of high single-digit growth. AS segment adjusted EBITDA decreased 3% in the quarter with adjusted EBITDA margin negatively impacted by softer organic top line performance, resulting in less favorable operating leverage due to the timing of custom projects. Higher manufacturing costs were driven primarily by the recent acquisitions and our organic business, which increased in part due to capacity investments in support of future growth, while higher SG&A expenses were primarily due to recent acquisitions. Partially offsetting these increases in costs was a benefit from higher sales volumes.

For the full year 2025, adjusted EBITDA margin for the AS segment was approximately 18%, representing 50 basis points of margin expansion, but below our 19% margin guidance due to fourth quarter headwinds from project timing. Overall, we are pleased that on an organic basis, AS adjusted EBITDA margin was approximately 19%, and that in 2025, we delivered 2 quarters of AS organic adjusted EBITDA margin of 20% or greater. This performance demonstrates that the underlying AS business fundamentals are strong and that we have the right building blocks in place to deliver at or above our 20% target level as project timing normalizes. We expect continued progress in profitability and margin improvement as we integrate our recent acquisitions, drive operational efficiencies and scale these businesses on the Armstrong platform. And we remain committed to delivering our targeted 20% adjusted EBITDA margin for the AS segment.

On Slide 10, we highlight our fourth quarter consolidated company metrics. We delivered solid sales growth with double-digit adjusted EBITDA growth and total company adjusted EBITDA margin expanded 160 basis points. Excluding recent acquisitions, total company adjusted EBITDA margin expanded 230 basis points. Adjusted EBITDA growth in the quarter was primarily driven by the fall-through impact of strong AUV, positive WAVE equity earnings, lower input costs and benefits from manufacturing productivity. These impacts were partially offset by increased manufacturing costs within the AS segment.

Turning to Page 11. Full year sales increased 12%, and full year adjusted EBITDA increased 14%, resulting in 70 basis points of margin expansion. We also saw double-digit growth in adjusted diluted net earnings per share, up 17%; and adjusted free cash flow up 16%. These robust results reflect the power of our financial performance drivers. incremental growth from AS acquisitions, market penetration in the AS segment and the benefits from our growth initiatives, consistent strong AUV performance, manufacturing productivity gains across our plant network and healthy wage equity earnings. These benefits more than offset increases in SG&A and manufacturing costs driven by our recent acquisitions as well as a modest increase in manufacturing costs in our organic AS business.

Slide 12 shows our full year adjusted free cash flow performance versus the prior year. The 16% increase was primarily driven by higher cash earnings and an increase in dividends from our WAVE joint venture, partially offset by higher capital expenditures. The $26 million step-up in capital expenditures reflects our continued strategic priority of reinvesting back into the business. During the year, we deployed capital to further enhance manufacturing productivity across our plant network, expanded capabilities at one of our Mineral Fiber facilities to support the growth of our TEMPLOK energy saving ceiling offering and advanced several key IT and digital initiatives. Targeted investments like these reinforce our commitment to advancing our growth strategy while maintaining a disciplined capital allocation approach.

The strong adjusted free cash flow profile of our business allows us to execute on all of our capital allocation priorities. And as a reminder, our first priority is to reinvest back into the business where we see the highest returns such as the investments I just outlined.

Our second capital allocation priority is to execute strategic acquisitions and partnerships to create shareholder value. In the fourth quarter of 2025, we acquired the issued and outstanding shares of Parallel Architectural Products, -- and just last week, we announced the acquisition of Eventscape. In 2025, Eventscape generated approximately $30 million in revenue, and we expect that this acquisition will be a positive contributor in 2026. Mark will be covering this in more detail in a moment.

Our third capital allocation priority is returning cash to shareholders through dividends and share repurchases. In the fourth quarter, we paid $15 million of dividends to our shareholders, and we repurchased $50 million of shares, representing a meaningful step up from the pace of repurchases in the prior 3 quarters. As of December 31, 2025, we have $533 million remaining under the existing share repurchase authorization which runs through the end of 2026. We entered 2026 with a strong balance sheet and ample available liquidity, and we remain committed to delivering on all of our capital allocation priorities.

Slide 13 presents our guidance for 2026. With slightly improving market conditions, we expect Mineral Fiber volume flat to up 1% for the full year, including contributions from our growth initiatives. We also expect Mineral Fiber AUV growth above our historical average at approximately 6%. Additionally, we expect high single-digit AS organic growth reflecting continued traction as we penetrate a highly fragmented market. Inorganic contributions from Geometric will be incremental through the first 8 months of the year and results from both parallel and [indiscernible] acquisitions will be incremental throughout the full year. We expect these acquisitions together to drive approximately half of the AS segment sales growth. This results in total company net sales growth of 8% to 10%.

Moving to adjusted EBITDA. We expect adjusted EBITDA growth of 8% to 12%, with adjusted EBITDA margin expansion in both segments for the full year. We expect Mineral Fiber AUV growth to be more than offset -- to more than offset input cost inflation. In addition, growth in the AS segment, the benefits from WAVE and our continued focus on execution throughout the organization will contribute to earnings growth. While we expect SG&A to increase modestly as we continue to strategically invest in the business, we also expect SG&A as a percentage of net sales to improve as compared to 2025.

For the full year, we expect adjusted diluted net earnings per share and adjusted free cash flow to grow at rates largely similar to adjusted EBITDA. Please note that additional assumptions are available in the appendix of this presentation. It's also worth noting that our first quarter is typically a seasonally impacted quarter with Q2 and Q3, representing our stronger sales quarters in Mineral Fiber due to favorable weather conditions and the typical timing of renovation and new construction activity.

While we don't guide to individual quarters, we expect a more muted start to 2026, reflecting both seasonality and the choppiness we've seen in the broader market, coupled with significant weather -- winter weather events across multiple regions in the U.S. Accordingly, we anticipate Mineral Fiber volume in the first half of the year to be slightly softer than the back half as a result of these dynamics.

In closing, despite challenging market conditions, we delivered record mineral fiber profitability, strong AS growth with continued progress on margins and robust adjusted free cash flow growth that enables us to continue to execute on all of our capital allocation priorities. As we enter 2026, our disciplined strategy for growth and proven value creation model position us well to deliver another year of profitable growth.

And now I'll turn it over to Mark for further commentary. Mark?

Thank you, Chris, and good morning, everyone. First, I'd like to start by expressing how honored and proud I am to have the opportunity to serve as the next CEO of Armstrong World industries, particularly at this exciting time in our history. Armstrong has a rich legacy of innovation in ceilings and specialty walls, and that legacy remains fully intact today, and it provides an exceptional platform for continued success. I look forward with confidence to working alongside our executive leadership team, our dedicated employees and our trusted partners as we together write the company's next chapter.

Vic, you are leaving the business stronger and more resilient than it's ever been and perhaps most importantly, well positioned for continued growth. On behalf of the entire organization, thank you for your dedicated and outstanding service to our company and the strong foundation you will leave behind.

As Vic and Chris have noted, 2025 represented another record year and a multiyear period of profitable growth. Those results were driven by our resilient business model and our consistent focus on AUV growth, productivity, innovation and expansion of our Architectural Specialties business. Over the last decade through innovation and acquisitions, we've successfully expanded the company's reach beyond traditional Mineral Fiber ceilings to a broader set of solutions, including specialty ceilings and walls with a growing platform for design-centric solutions for more and more spaces within the built environment. And now we are expanding our solutions for energy-efficient buildings and for data centers, 2 of the most durable and accelerating growth markets in construction today.

Throughout 2025, we continue to pursue and prioritize innovation aligned with both of those powerful macro trends. First, the increasing need to reduce energy consumption as power demand accelerates and power costs rise. And second, the rapid global build-out of data centers driven by cloud computing and AI. These are long-term structural shifts, and they are reshaping how buildings are designed and operate. And the fourth quarter of 2025 marked an important step in our commercialization of innovation in these 2 key areas.

On the energy efficiency front, we introduced an upgraded TEMPLOK energy-saving sealing solution within our sustained portfolio. This new solution enhances passive heating and cooling performance, improves fire rating and thermal comfort and gives architects more design flexibility. As customers from owners to contractors to architects, better understand TEMPLOK's multiple value propositions and economic benefits supported by tax credit incentives and real-world validation through case studies, we are seeing interest and adoption grow.

For example, we are currently shipping TEMPLOK for office renovation projects with 2 major financial services firms in New York City. And we were recently awarded TEMPLOK specifications for higher education projects on both the East and West Coast. We expect much more to come on this exciting opportunity as we develop the market for this multidimensional new ceiling solution.

In data centers, the fastest-growing vertical in commercial construction, our opportunity extends beyond ceilings to engineered infrastructure. In Q4, we launched DATAZONE panels and DYNAMAX LT Structural Grid Solutions designed for mission-critical environments that require higher load capacity, better airflow management and faster installation. We also expanded into other high-performance environments with the launch of [indiscernible], our integrated walkable ceiling system for clean rooms, advanced manufacturing and cold storage.

Taken together, these innovations supported by our digital growth initiatives will enable us to drive volume growth ahead of the market and support our ability to continue to deliver AUV growth. In 2025, our growth initiatives contributed roughly 1 point of growth in a down market. In 2026, with contributions from data centers and energy savings, we expect our growth initiatives to contribute up to an additional 0.5 point of growth.

In addition to innovation, our strategy also involves the expansion of our AS business through greater portfolio breadth and capabilities where we have demonstrated success over the last decade through acquisitions that offer innovative capabilities and materials expertise. By adding these differentiated businesses to our sales and service platforms, we are driving accelerated growth and improving margin performance over time.

Eventscape is another exciting example of this strategy and of how we are boosting our ability to partner with architects, designers and even building owners at the earliest stages of projects. When design intent and technical feasibility remain uncertain and still under development. Eventscape is unique within our Architectural Specialties acquisition because of their remarkable ability to design and fabricate with any material substrate, which is what we mean by material agnostic.

And while their focus includes ceilings, walls and facades, it also includes distinctive and often iconic architectural features that differentiate the occupant experience in or around the space. Some great examples of this include special features in the new JPMorgan Chase headquarters and in the recently completed Pittsburgh International Airport. Notably, these are projects where both Armstrong and Eventscape participated on different and complementary aspects of the overall work.

In summary, we are extremely excited about the potential of our recent innovation activity and our recent acquisitions to strengthen our company for consistent growth. Armstrong is now more uniquely positioned than ever to offer solutions for a wider array of applications in commercial buildings. I look forward to sharing more of our progress in these areas in the future.

And with that, I'll turn the call back to Vic.

Thank you, Mark. And as you can hear from Mark's comments, we have a lot to be excited about here at Armstrong in 2026 and beyond. The recent acquisitions like Parallel and Eventscape expand our sales opportunities within commercial buildings and further strengthen our relationships with architects and designers. The innovation we've highlighted enables our competitiveness in 2 new growth areas of the market, data centers and energy savings, both of which contribute to consistent Mineral Fiber AUV growth, incremental volume growth ahead of the market. These are key building blocks for continued consistent profitable growth.

Now looking ahead to our market outlook, we are encouraged with some improvement in visibility. However, high levels of uncertainty around policy around interest rates, potential geopolitical events still exist. In 2026, we expect underlying market conditions to be steady and slightly improved versus what we experienced in 2025. Within this outlook, we expect transportation to remain an area of growth, along with data centers and the gradual healing of the office vertical.

As we experienced in 2025, we also expect to have near-term opportunities from new construction starts in the healthcare and education verticals from projects that were initiated in the past 24 to 30 months. Now while the office vertical does appear to have bottomed and we see green shoots of opportunity emerging, we haven't yet seen a significant return of broad tenant improvement work at this point. It is worth noting that even as a full recovery in office has yet to materialize, we are seeing in the bid data, that project bids are at meaningfully higher values, meaning that building owners who are doing tenant improvements are investing more into office spaces to enhance their aesthetics, their functionality and their amenities. Now this is encouraging and represent a prime opportunity for Armstrong to leverage our broad portfolio of products, playing to our strength at the high end of the market.

In closing, I want to thank our employees again for their dedication and solid execution that enabled us to deliver another year of record results in 2025 and really set us up for continued success in 2026. We have executed well on our strategy and enhanced our value-creating building blocks. With our growth initiatives that we've invested through the pandemic, we are now delivering above market performance. And we have made several strategic acquisitions that have expanded our capabilities and our addressable market.

Over the 10-year journey we've had at Armstrong, we have purposely built a highly focused Americas ceilings and architectural specialty company that delivers consistent, profitable growth. By separating from the flooring business, and divesting of our international operations, we have reduced complexity and focused our investments in North American market, which have strengthened our market position, made our business more resilient and improved our returns to shareholders.

Our cash generation has nearly tripled. We have returned over $1.5 billion to shareholders. And through the execution of our strategy, we have significantly increased the value of the company. And today, I am more confident than ever that we are poised to continue on this path in years to come.

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

[Operator Instructions] Our first question comes from the line of Tomohiko Sano with JPMorgan.

Vic, thank you for your leadership and congrats on your transition to Chairman. We look forward to continued execution under Mark's leadership. So my question is for the 6% AUV growth in 2026, what is the price and mix split? And how sustainable is the pricing power in the current competitive environment? And what the customers think about the price versus value delivered, please?

Yes. Our AUV performance was above historical levels, as you've noted at 6%, and normally, and if you look at this over a long period of time like the past 10 years, it ranges about 50-50 or average is about 50-50. In '25, we had a little bit more price than we did mix contribution based on inflationary pressures and that we were pricing into. So the mix was a little bit more biased towards like-for-like pricing than mix.

Going forward, as Chris can outline, we're seeing -- we're anticipating some additional inflation in '26 and our expectations is with our normal cadence on pricing, we're going to continue to price ahead of that inflation and likely to end up with a more positive bias toward like-for-like pricing [indiscernible] in the year. That's kind of how we're thinking about it sitting here today.

And my follow-up is the under Mark's leadership, how should we think about the strategic continuity and top priority over the next 12 months and the key KPIs, please?

I'll let Mark take that.

Yes, happy to take that. Thank you for the question. Obviously, Vic and I and the leadership team have worked very closely together over the last 7 years or more in my different roles on strategy. So you should not expect a pivot in our strategic direction. I'll be focused on and continue to be focused on innovation for sure, will be a priority, our growth initiatives, the initiatives we've had in digital, initiatives I talked about today, so energy savings and data centers and some of the hallmarks of the business productivity as well as inorganic growth, whether M&A or partnerships as well. So the same consistent areas of emphasis, the same consistent overall strategic objective, consistent profitable growth.

Our next question comes from the line of Susan Maklari with Goldman Sachs.

And let me add my congratulations to both Mark and Vic. Looking forward to working with Mark and Vic, enjoy your new time.

So my question is talking a bit about the operating environment. You did mention in your remarks, if you are seeing bids for office that are at least meaningfully higher in value, can you talk about how these products and the platforms that you've launched in the last couple of years are gaining momentum and how they're perhaps coming through even with some of the headwinds that it sounds like you're facing?

Yes. Let me start just with the actual starts of work in the marketplace is fairly flattish, and it kind of, I think, represents what we're feeling in the market overall. And when you look at the office vertical, in particular, yes, the values stand out, and it's well above inflationary numbers, right? You might look at value bidding numbers and say, yes, well, there's a lot of inflation in there. And there are inflation in these numbers, but they're well above inflationary levels. And of course, this also is consistent with what we're seeing in the marketplace and the specifications that we're working on where they're using a lot more architectural specialty-type products in certain areas of the building to create these different fields and amenities to entice employees back to work and to keep them in the office.

So we were anticipating this coming as more and more constraints are on availability of Class A office space and Class B spaces had to be upgraded to compete. We were anticipating this, but I'm calling this out because it's really notable in the bid data to see how the values are meaningfully higher than you would normally expect from inflationary pressures there.

And of course, the answer just to add to that, I would just add that this is where having the breadth of product portfolio that we have, that includes Mineral Fiber where they need to use that. But now a whole host of a pallet of materials that we can allow architects to design with. It's really a one-stop shop advantage that we can bring for all different types of designs and all different types of spaces within these buildings. Now it happens to be more prevalent in office spaces, which is, again, a really good opportunity for us.

Yes. Okay. And that kind of leads to my follow-up question, Vic, which is, can you talk about the integration of the deals that you have done in the last couple of years, where we are in that process? And in your remarks, you also mentioned investments in capacity to support future growth. And so how should we think of the integration and these investments that you're making and the potential for upside over time?

Yes. I think the way I think about the integration of these businesses is it's a continuum of work and we take them step by step. And the objective here is to get them to take advantage of the large platform, Armstrong has to offer them. So mostly on the revenue-generating side, right, some of the biggest synergies we have with these acquisitions as we scale that in their first couple of years on the platform. They're in hundreds of more architect's offices and through our distribution network. So we try to do some of those steps initially as then we bring on more and more productivity and more and more of the operational side of the business and eventually footprint optimization work. So we kind of think about this as a continuing ongoing work.

Again, when you look at -- and I would just point you to the revenue generation in the Architectural Specialty business, with these companies that we're buying, they're certainly not growing at high single-digit levels. And it really comes down to -- we're scaling these through our integration work on the Armstrong platform very successfully. So I'm really pleased with those early stages of integration. And I would just say, as we go, we're going to continue to integrate these businesses on the operational side to drive more operating leverage from the revenue growth but also more productivity in the plants. And that's how we get to the 20% goal that we put out there and how we're going to sustain that over time.

Our next question comes from the line of Keith Hughes with Truist.

Just a couple of detailed questions on '26. What kind of inflation expectation -- [indiscernible] inflation expectation do you have for Mineral Fiber for the year?

Yes. Keith, it's Chris. So for '26 overall inputs at the mid-single-digit inflation range versus prior year on a percentage basis. And just a reminder, our detail of that is about 35% of our COGS is raws, about 10% is freight, 10% energy and 10% labor. So if I break that mid-single-digit inflation down, freight is about flat year-over-year, and we're seeing low single-digit percent inflation in raws. That's really on some of our fiberglass paper and perlite inputs. And then energy inflation in that, call it, low double-digit 10% to 12% range, and that's really a split between electricity and nat gas but a little bit of nat gas pressure here for 2026. So all up all-in mid-single inputs for '26.

Okay. And the -- as you pointed out in the prepared comments, the AUV expectation is a little bit higher than you get, although you could actually, if we look at it in the last several years, it's been close to 6% in many years -- last couple of years. Can you just talk about what's going on in the business that's -- you're just getting a higher number than we have historically?

Yes, I'd say in -- as Vic mentioned earlier about the like-for-like pricing and positive contributions for mix in that AUV, it really goes back to our innovation and our service and our quality dimensions of the business. We continue to get and can see that more price than mix dynamic here, certainly with that inflationary backdrop that I mentioned, but also coupled with our investments back into the business to really drive that innovation part of the equation.

So again, we feel good about that 6% for 2026. And if I look at it on a first half, back half kind of split dynamic, it's relatively even first half to be about the same as the back half. But again, as we think about the investments back into the business, that's a really big core value creation driver for us and one that we're very excited about in 2026 and beyond.

Okay. And finally, my congratulations to you as well, Vic. It's been a tremendous run since you took over the company. So a job well done.

Our next question will come from the line of Adam Baumgarten with Vertical Research Partners.

Just starting on the Mineral Fiber EBITDA guide for '26. I know it's fairly open-ended, above 35.5% or 43.5%, I should say, but that's despite 6% to 7% revenue growth. So is there anything offsetting that from a cost perspective? I know you talked about AUV covering inflation, maybe getting some SG&A leverage. Is it just conservatism? Just because it's a pretty solid top line decline, and it seems like price cost will be favorable?

Yes. No, Adam, it is a good question. No. I mean I'd say, I'd point really back to the value creation drivers that we've been talking about solid AUV growth. What we haven't talked about is the manufacturing productivity that we get year in and year out. I mentioned in my prepared remarks kind of the overall investments back into the business on CapEx and a lot of what we see manifest themselves and that productivity is really investing back into that pipeline to continue to get those productivity gains.

So no, I mean, overall, you hit on SG&A, and I talked about SG&A in terms of how we're thinking about getting that leverage. But we will be investing in SG&A for our growth initiatives in 2026. But are pleased with the fact that we're outlooking another year of overall EBITDA margin expansion given those solid value creation drivers that I mentioned.

Okay. Got it. And then just on the government channel that was weak given the shutdown and it seems a bit slower to come back. Are you seeing any positive signs there? And is any kind of recovery from that weakness late last year built into the outlook in '26?

Yes, this is Vic. Yes, we did see a bounce back in January. We certainly would have expected this in November and December. But with the holidays around that, it was -- it did not bounce back as robustly as we thought it would be. But we did see it in January and we would expect a lot of this to be filtering back in over the next several months. The second part of your question is that we've already kind of factored this into our outlook for the year.

Our next question will come from the line of Rafe Jadrosich with Bank of America.

This is actually Sean [indiscernible] on for Rafe. So first, the Architectural Specialties organic growth has slowed over the last 2 quarters, but you're expecting it to return to high single-digit growth in 2026. What are you seeing in the pipeline that gives you the confidence that, that growth picks up? And did you see any delays in projects in the second half that are going to benefit 2026?

Yes, I'll take that. In the Architectural Specialties segment, we had a really strong back half of '24. So a little bit of that deceleration you're referencing, it's more of a base peer comparison versus the actual run rate of the business. We've actually been generating a backlog growth with our order intake in double-digit levels. So it's this kind of where we are currently with our backlog and the way it's been growing throughout 2025, for '26 and actually beyond into '27 already, that gives us really, I think, the confidence that we need for returning to high single-digit levels of growth.

And remember, there's some large projects in here, and they can ebb and flow quarter-to-quarter. Certainly, as we saw at the end of the year, they can actually move out of the year and impact on a quarterly basis. But as the year goes, I think we'll benefit from those, and those are factored into, again, factored into our guidance for 2026. We feel really good about where we are with our order rates and how we're winning in the marketplace with our breadth of portfolio in this space.

Okay. Great. And then it sounded like you're expecting Mineral Fiber volumes down in the first half but up in the second half. Can you talk about what gives you the confidence that you'll see growth in the second half and if there's any specific verticals that you expect to outperform versus underperform?

Yes, I'll take the first part of that question, yes. So we expect growth for the year flat to up 1% with a stronger back half than front half of the year on the weather dynamics and the seasonality that I mentioned in my prepared remarks. So positive for the year, but a little bit stronger in the back half than the front half with, as you can imagine, given the weather -- winter weather impacts we've seen here in the first quarter, a more muted start in Q1.

Vic, did you want to talk about the vertical component of that?

Vertical of office?

Yes.

Yes. The -- I think as we've talked about with the office vertical, we're not expecting an inflection where it just turns on and then here we go. I think it's a very gradual and it's going to be an uneven recovery across the U.S. So I think it's going to build if we have some of this uncertainty continue to clear up as we go in through the year, it could build into the second half. I think the other thing, as Mark talked about, the excitement around data centers and energy savings. These are 2 new early-stage growth initiatives. Each quarter as we go, we should be continuing to build contributions from those initiatives that are additive to our base growth initiatives in digital. So a lot of those things kind of adding up that gives us the outlook of a stronger back half.

Our next question comes from the line of John Lovallo with UBS.

The first one on Architectural Specialty organic EBITDA margins 18.7% for the year that was -- you talked about was slightly below that 20% outlook. But I'm curious if you could help us kind of bucket the drivers between the lower organic revenue some of the project timing and maybe any other factors that played in there?

Yes, John, if you're asking about the project delays that impacted that cost imbalance, I can give a little more color there. But let me finish there, but start with we continue to make good progress on our stated goal of getting this Architectural segment to 20%. Again, this is the fourth year in a row of margin expansion in that business on our way to '27. So I feel like we have the right levers. We know what the right building blocks are for us to deliver that. In fact, we had 2 quarters in 25, where we were north of 20%. So again, I think we know what to do. We know how to get there.

We really didn't have the operating leverage in the fourth quarter based on these project pushouts. We had the cost in place. There were 5 good-sized projects. And in fact, they were all delayed in December. And so normally, and we experienced project delays all the time in this architectural specialty segments. We've talked about this. Normally, they're picked up in the same reporting period. So in this case, they not only fell out of the quarter, they fell out of the year because they were in December. And they were primarily education and health care projects. And so because they were sizable, that just created this imbalance of cost and therefore, the margin compression. This will work its way out. I think, again, we're back -- we know with the right levers, the right building blocks are to deliver a 20% EBITDA segment in Architectural Specialties.

Did that get to your question, John?

Yes. That's helpful. And then I guess just on the mineral fiber growth piece, the 0% to 1% this year. I mean I know that the longer-term outlook is sort of 2% to 4%. Help us kind of think about the path towards that 2% to 4%, what do we need to see in terms of the market and just internal execution? And what, if any timing guidelines you guys have around that?

Yes, good question. I mean we're moving that direction, right? When you look at -- it's been a while since we've outlooked positive Mineral Fiber volume growth, right, in the year. So we're moving in that direction. Remember, the 2% to 4% had 2 components to it. It was a market recovery of 1 to 2 points of growth from the market recovery off of the -- getting us back to 2019 levels. And then there was 1 to 2 points of contribution from our growth initiatives.

So as Mark outlined, we're moving in that direction of the 1 to 2 on our growth initiatives, which is what we can control and with a little bit of the healing going on that we're expecting in '26 and we'll see if that continues into '27 and '28. But that's how you get to that 2% to 4% range. I still believe that, that's a good midterm type outlook for Mineral Fiber volume growth.

Our next question will come from the line of Garik Shmois with Loop Capital.

On the data centers and energy saving projects, I wonder if you could speak to just how large your overall portfolio to these projects represent -- just in the context of the 0.5 point of growth growth. you're expecting them to contribute this year? And then also, maybe can you speak to any mix impact these projects have on margins?

Mark, I'll take this and if you want to add any color. The -- let me just start with on the AUV side, these -- both of these initiatives are accretive to our AUV. So we really like selling more of these products in terms of that financial metric of growing our AUV. They're really consistent with the innovation that we're bringing to market is support of that continuation of the AUV growth. On the margin side and contribution of that, I think the data center tile in particular, is further down the road in terms of scaling in terms of the -- getting the operating leverage and the margins up. And energy savings is still in the early stages of getting really good operating leverage on the $10 million investment that we made down to one of our plants that we talked about in '25.

So we do expect both of these to be consistent with our 60% incremental contribution to EBITDA as they grow over time. So again, I think these are really 2 high-value applications for us to continue to innovate and build our portfolio on.

I'm not sure I got all of your question but Mark do you want to add anything to that?

Yes, Vic. And obviously, and I mentioned this in my remarks, the data center category is growing, and we've got an opportunity to penetrate that category further. Energy savings plays across all of our verticals, frankly. And early days, we've seen a high level of interest in office and education that plays really well across all our verticals. And there were both -- both of these initiatives are supported by macro trends. So we are on trend with our value propositions in both of these spaces and a lot of energy behind both of them.

That's helpful. Follow-up question is just on the home center softness you saw in Q4. Was that destocking by chance or just the general sluggishness in that channel?

Yes, it's kind of more of the same of what we've seen quarter-to-quarter then moving some of their inventory levels around. So primarily destocking again in the fourth quarter. And again, this is a dynamic they can sell down from their inventories and then build up back up very unevenly. So fourth quarter was more of the same. To a lesser degree, of course, than some of the other things we mentioned though.

Our next question comes from the line of Brian Biros with TRG.

Vic and Mark, congratulations on the new roles. On the Mineral Fiber volumes, can you maybe just compare today's level to like pre-COVID? Because while volumes have been down, you've been able to perform very well. So I think it's kind of congratulations. I think it's important to understand what you've been able to do at this lower volume level and kind of how we keep that in mind for when and if volumes do return?

Yes, that's a good question. 2019 levels, we're still about 14% -- as we finish '25, we're 14% still below 2019 volume levels. So yes, I mean, getting back to one of the earlier questions on market contribution to that 2% to 4% volume range. We have quite a bit of ways to go to get back to 2019 levels. And we believe that as long as the market verticals heal back to where they were, and there's nothing structurally in their way to doing that. we should be able to get back to 2019 level. So that really is a flywheel opportunity.

When you look at the margins that we're back to now we're back to 2019 margin levels without 14% of the volume. So yes, very good opportunity for the company in the future.

Yes. That's a good story at the margin level. And then maybe a follow-up on visibility last year kind of always as choppiness around repair and remodel side, maybe like 6 months plus out then that kind of seemed to come in slightly better than expected at the beginning of the year last year. So how do you view visibility now for 2026 in that lens? I think you touched on it a little bit in the prepared remarks, but maybe just compare and contrast the visibility today versus a year ago?

Yes. I mean we're pretty good at modeling what's going on. There's not a lot of visibility on the renovation, especially some of the lower-level renovation work that doesn't involve say an architect. We've talked about this in the past. We have the least amount of visibility in that part of the Mineral Fiber business kind of just shows up through distribution. So we have to model that based on what drives that by vertical. And what drives it in the office vertical is very different than it drives in the education.

So how we do that is we do a lot of modeling and triangulation. And of course, our ear to the ground with our customers in the marketplace. Again, we're pretty good at it. We don't get it perfectly every quarter, but on a year-to-year basis, our models are pretty good. So that's kind of how we do it. I think going into '26 and beyond. We'll continue to use the technology, the AI modeling capabilities that we have now, they just get better and better at that.

Our next question will come from the line of Stephen Kim with Evercore ISI.

Vic, yes, congratulations, really a job well done and Mark, looking forward to working with you. Mark, I wanted to -- Mark, I wanted to clarify a couple of things you said, there was a lot of talk about with respect to innovation, which is obviously a good thing. PROJECTWORKS, Kanopi, Healthy Spaces, TEMPLO, DYNAMEX, [indiscernible], you talked about the data center initiative and the energy savings initiatives it. So what I wanted to first do is just make sure I understood your terms because you said that the some component of these added 1% of growth in 2025 and you expect an additional 0.5 point in [indiscernible] '26. So what exactly was the 1%? And what exactly is going to be the half point that you're talking about?

And I guess, generally, why would there be a deceleration that would actually be given the momentum that there would be maybe an acceleration in the contribution. So if you could just clarify that for me, it would be great.

Yes, very fair. Happy to clarify. There is an acceleration that is the point I'm trying to make. I was trying to highlight the addition and the emphasis on data centers and energy savings as an accelerant to the other pool of initiatives that you mentioned there. So our initiatives, in general, that we've talked about historically are driving that first point. And with the addition and the ramping of energy savings and data center focus, there's an incremental half point on that initiative progress.

Okay. So does that mean that -- does that mean that in 2026 relative to '25, that the contribution would be 50 basis points? Or are you saying it's 150 basis points? I'm just trying to make sure I'm understanding what you're trying to communicate.

Yes, incremental year-on-year 150.

Okay. That clarifies it. I appreciate that. All right. Great. And then I guess, secondarily, you've talked in the past about PROJECTWORKS and Kanopi as being a real differentiator for your business. And I'm curious if you see AI, the emergence of artificial intelligence as the positive or negative for some of your initiatives, particularly, I guess, with Kanopi. In the sense that I would think that AI might enhance their functionality, but I could also theoretically see it leveling the playing field a bit for your competitors. So wondering if you could talk a little bit about what you see in terms of the impact of AI as a positive or a negative factor for those initiatives?

[indiscernible]?

Yes, happy to take that. So I think on the whole, it's a positive. And in fact, some of our initiatives, broadly speaking, are embedding AI, and it's one of the most prominent places we've got AI utilization in the organization is to enable -- further enable our existing initiatives. And we feel good about that focus, in particular, with specification excellence. We've talked about in the past as really an amplifier to that initiative. And just as we will across the organization, I could see all of our initiatives benefiting from the use. But early days for some of the initiatives, but in particular, spec excellence is the one that I think really is accelerated by [indiscernible].

And Stephen, you know that winning the specification is really, really an important part of our strategy, right? As you -- over the years, you've come to know that's a key part to our pricing model and of course, our renovation. So the fact that we're using [indiscernible] to even strengthen that core strength of ours is pretty exciting.

Our final question will come from the line of Phil Ng with Jefferies.

Vic, congrats, and thanks for the partnership and Mark, looking forward to working with you. I guess to kind of kick things off, Vic, you sound a little more upbeat on the outlook for Mineral Fiber, right? I mean you're calling for a flat to up, which is encouraging. But you also -- I think Chris highlighted it's going to be a softer first half. I don't know if you just trying to signal volume is going to be down in the first half. But you sound more upbeat but slower start to the year. Can you kind of help square that up? And perhaps where is that optimism coming from? Are you hearing from your customers that they're seeing a more robust backlog. What's driving some of that?

Yes. There's still a lot of cautious, I would say, optimism around that. But when you think about the last several years, and so you've called this out [indiscernible]. We've been out looking a potential recession in the back half. And so we've had several years of downturns expected in the back half. I think the improved visibility in '26 is at least talking about that. In fact, I think they're talking about the economy actually strengthening and getting better. And that's always good for renovation work. When the overall economy is doing well, and the uncertainty gets less and less, we see a lot more renovation work. So that's part of the encouragement that we see is that -- there is more visibility. Nobody is calling for a recession. Actually, I think people are out looking more positive economic activity, and that gives us against some market [indiscernible].

But I would say, Phil, the biggest driver to a little bit more upbeat here is the traction we're seeing in our growth initiatives. This is what we can control. This is what we have really good visibility on. We have our target list. We know our customer engagement on that. And as Mark highlighted, getting some acceleration in the contribution from our growth initiatives is also really what we're encouraged by, and it's generating a little bit more confidence to get to a positive volume growth, again, as I said earlier, the first time in a long time.

So what Chris is outlining is, I think, very typical in terms of a seasonal impact in the first half, and now we've had some weather events, and we've had time to digest some of that impact and include that in our guide and how we're sequencing at the guide, too. That's really, I think, what both Chris and I have batted back and forth to make sure that that's helpful and clear for everybody.

And maybe just to add a little more context to the volume in the first half, Phil, positive but a slower start to the year volume-wise in Q1.

Got it. Okay. That's helpful color. And then I guess a follow-up on the WAVE earnings outlook, you're calling for mid-single-digit growth. Pretty healthy growth considering you lap a pretty tough comp in 2025, and it kind of implies that the earnings leverage in WAVE is perhaps even more robust than the overall Mineral Fiber segment. What are some of the building blocks for that momentum in WAVE?

Yes. So as you mentioned, wave equity earnings growth for the year is in that mid-single-digit range. But if I just take a step back, Phil, one of WAVE's value creation drivers is that price/cost algorithm to continue to drive that growth through innovation, quality, service, and it's really to drive that growth through disciplined pricing, and there's no change there to your question. That rate that we're talking about here in 2026 is reflective of some short-term operating leverage headwinds on some of the initiatives there in that business. So as those kind of scale that will improve kind of in the short term, and we'll get more traction.

And I think overall, from a longer term -- mid- to longer-term perspective, we don't see any change in the equity earnings growth trajectory to get back to that high single-digit range in terms of equity earnings for the WAVE venture.

And that concludes our question-and-answer session. I will now hand the call back over to Vic for any closing remarks.

Thank you. And I appreciate the comments on the call. I really appreciate that. Really thank you all for the coverage and the support of AWI over the last 10 years. And I really, again, want to thank our 4,000 employees for just an outstanding job in transforming the company over the last 10 years. It really truly has been an honor for me and a privilege to serve as the CEO of Armstrong. And as I step aside, like I said earlier, I'm more confident than ever that the future is bright here at Armstrong. So again, thank you all, and good luck to Mark.

Thanks, Vic.

This will conclude our call today. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the Third Quarter 2025 Armstrong World Industries, Inc. Earnings Call. [Operator Instructions]

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

Thank you, Nicole, 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 Third Quarter 2025 results and rest of year outlook. We have provided a presentation to accompany these results that is available on the Investors section of the Armstrong World Industries website.

As a reminder, our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of the 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 we issued this morning.

Again, both are available on the Investor Relations 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, October 28, 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 we issued earlier this morning. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law.

Now I will turn the call over to Vic.

Thank you, Theresa, and good morning, everyone, and thank you for joining our call today to discuss our third quarter 2025 results, the progress we are making on our initiatives to deliver consistent, profitable top line growth and our expectations for the remainder of the year.

Today, we announced record-setting third quarter net sales and earnings results with strong mineral fiber average unit value, or AUV, a second consecutive quarter of mineral fiber volume growth and double-digit net sales growth in Architectural Specialties. On a consolidated basis, we delivered year-over-year top line growth of 10%, resulting in record-setting quarterly net sales with robust performance in both our Mineral Fiber and Architectural Specialty segments.

Consolidated company adjusted EBITDA increased 6%, while adjusted net earnings per share increased 13% and along with strong double-digit free cash flow growth in both the quarter and in the year-to-date period, allowing for execution across all our capital allocation priorities. This includes the increase in our quarterly dividend of 10% we announced last week and our latest architectural specialty acquisition of a Canadian wood sealing manufacturer geometric. These results were driven by our differentiated and resilient business model, along with solid operational and commercial execution across our enterprise that once again allowed us to overcome lingering market softness and some timing-related cost headwinds. I want to take this opportunity to thank our teams across the company that continue to execute at the highest level that make these consistently strong results possible.

So thank you. Like the last several quarters, we have remained laser-focused on operational efficiency, commercial execution and our growth initiatives as we continue to navigate a dynamic and uncertain macroeconomic backdrop. These efforts not only contributed to strong top line growth, but also continue to support our industry-leading profit margins even as we dealt with timing-related costs this quarter.

While Chris will discuss these in a bit more detail, it's worth noting, without these timing-related expenses, we would again have expanded EBITDA margin in the Mineral Fiber segment and at the total company level. And we remain poised to deliver margin expansion for the full year on both of these metrics. Despite these timing-related expenses with our consistent underlying execution, the building blocks of Armstrong's formula for profitable growth remains strong and on full display in the third quarter. And as a reminder, what these building blocks are. They include, first, our focus on delivering consistent AUV growth in Mineral Fiber, all driven by the innovation and quality that feeds the category dynamic to mix up and our best-in-class service levels supported by technology that help us earn our pricing in the marketplace. Secondly, our laser focused on achieving consistent annual productivity gains throughout our operations. Thirdly, our investments to expand our product offerings and capabilities to continue our successful penetration in the Architectural Specialties segment. And lastly, our investments in digital growth initiatives like Project Works and Canopy that drive volume, AUV and contribute to margin expansion.

In the third quarter in our Mineral Fiber segment, net sales increased 6% versus 2024 results primarily driven by strong AUV growth and positive contribution from sales volumes. This marks the first time since 2022 that we reported back-to-back quarters of mineral fiber volume growth. This volume result was slightly ahead of our expectations as demand conditions in our markets remain relatively stable compared to our expectation of a modest slowdown expected mostly in the more discretionary type renovation activity. That said, the most notable volume growth driver was strong commercial execution and the contribution from our growth initiatives continuing to gain traction, enabling above-market growth rates as well as positively contributing to our strong AUV performance. Adjusted EBITDA in the Mineral Fiber segment also grew 6%, reaching a third quarter record and a continuation of our strong performance in 2025. On a year-to-date basis through September, Mineral Fiber EBITDA has increased 9% with margins expanding 160 basis points on a year-over-year basis in overall flattish market conditions.

Importantly, we continue to expect strong Mineral Fiber adjusted EBITDA margin performance for the full year of approximately 43% and which would be the highest full year results since our last high watermark in 2019. Now before moving to discuss Architectural Specialties results, I'd like to take a moment to highlight some of the ongoing efforts within our Mineral Fiber plants that contributed to our results as they have all year.

First, we continue to generate solid productivity gains in our operations at a similar rate as in the second quarter, and this helped partially offset the timing-related expenses I mentioned earlier. We also continued our execution at a high level on quality and service. One measure we use to gauge our quality and service to customers at our Mineral Fiber plants is called our perfect order measure that combines 6 different metrics that determine a perfect order in the eyes of our customer. The way it works is if any line item on a customer order misses any of these metrics, it's a 0 on the scale of a 100% perfect order. These metrics include things like accurate order fill rates and on-time delivery and billing quality. It's a tough measure and rightly so, as this is what our customers expect and are willing to pay for. I'm pleased to report that our plant teams delivered a record result in this measure this quarter.

Its service and quality results like these that builds customer trust and loyalty that enables the retention of customers and pricing support for the value that we create. Now moving to the Architectural Specialties segment. Our third quarter net sales in this segment increased 18% and driven by the benefits of both our 2024 acquisitions, Freeform and Ziner along with solid organic growth. Adjusted EBITDA for the segment increased 10% and generating an adjusted EBITDA margin of approximately 19%. On an organic basis, adjusted EBITDA margins for the segment remained in line with our long-term target of 20% and for the second quarter in a row despite these timing-related expenses mentioned earlier. I'm pleased with how we continue to leverage our Architectural Specialties network, and together with our new acquisitions, and the benefits of more architectural specialty products incorporated into our Projectworks platform, we continue to improve our ability to win more projects. And this is most evident in the continuation of double-digit growth in orders and backlog for our architectural specialty products. We're also excited to welcome another acquisition, geometric to our growing portfolio of products and solutions.

Based in British Columbia, Canada, Geometric is a leading designer and manufacturer of wood acoustical ceilings and wall systems that expands the variety of wood species we can offer our customers. with 9 complementary wood species across multiple products, including highly sought after Western Hemlock, this company strengthens our Wood portfolio and adds geographic diversification to our manufacturing footprint. Geometric's on-trend products and design, expand our portfolio with more of the warm wood looks and biophilic designs that are in high demand from architects and owners. The Western Canadian production location also enhances our ability to serve our customers in Canada and on the West Coast. We're excited to welcome the Geometric team to Armstrong's industry-leading specialties platform. Along with our acquisitions, we continue to be delighted by how our digital initiatives are progressing and making a positive contribution to both our segments. I mentioned Projectworks earlier as it continues to gain traction with architects, designers and contractors by quickly providing visualization of complex designs, eliminating the waste and the design process and providing a complete bill of goods for clear and simple ordering.

With increasing demands on limited construction labor availability, Projectworks provides significant productivity value to our customers and strengthens our ability to hold on to project specifications throughout the construction process and ultimately improve our win rates in the market. Again, in both the Mineral Fiber and Architectural Specialty segments. Another one of our digital initiatives contributing nicely in the quarter is Canopy. Canopy like Projectworks benefits both our business segments by providing an easy way for smaller customers to access a wide range of products through an online education and selling platform. And I'm pleased to share that the Canopy platform had both record sales and EBITDA in the quarter and continues to be a key differentiator for Armstrong.

Now I'll pause and turn it over to Chris for more detail on our financial results.

Thanks, Vic, and good morning to everyone on the call. As a reminder, throughout my remarks, I'll be referring to the slides available on our website. And please note that Slide 3 details our basis of presentation. Beginning on Slide 6, we summarize our third quarter Mineral Fiber segment results. Mineral Fiber net sales were up 6% in the quarter, primarily driven by favorable AUV of 6% and a slight increase in volumes. The growth in AUV was primarily due to favorable like-for-like pricing with a modest contribution from mix. The benefits of increased volumes and favorable mix were driven by the strong execution of our commercial sales organization along with benefits from our growth initiatives.

Mineral Fiber segment adjusted EBITDA grew by 6% and adjusted EBITDA margin was 43.6% and Q3 Mineral Fiber EBITDA growth was primarily driven by the fall-through of AUV, contribution from our WAVE joint venture on strong price cost benefits and slightly higher mineral fiber volume versus the prior year. As Vic mentioned, our results were negatively impacted this quarter by some timing-related discrete costs in both segments. In Mineral Fiber, these costs primarily related to an increase in medical claims above our normal run rate which mainly impacted manufacturing costs. In addition, our strong year-to-date financial performance and updated full year outlook resulted in higher incentive compensation in the quarter, which primarily impacted SG&A. We do not expect the third quarter SG&A results to be indicative of our go-forward run rate.

As a result of these in-quarter cost headwinds, Mineral Fiber adjusted EBITDA margin compressed 30 basis points over the prior year. For the Mineral Fiber segment, the total discrete costs in the quarter represented approximately $5 million of an outsized headwind, which is reflected in both manufacturing and SG&A expenses. Excluding this cost headwind, adjusted EBITDA margin in the Mineral Fiber segment would have expanded in the quarter versus the prior year period.

On Slide 7, we discuss our Architectural Specialties or AS segment results, where we highlight net sales growth of 18% and this growth was driven primarily by contributions from our 2024 acquisitions, the Forman Zane, both of which continued to perform better than expected as well as a 6% increase in organic sales driven by growth across most of our specialty product categories. AS segment adjusted EBITDA grew 10% with an adjusted EBITDA margin of approximately 19% which includes the dilutive impact of our recent acquisitions. On an organic basis, we are pleased to have achieved an adjusted EBITDA margin of approximately 20%. Q3 EBITDA growth was driven by the benefit of higher net sales, partially offset by higher manufacturing costs as well as an increase in SG&A expenses.

Higher SG&A expenses were primarily due to our 2024 acquisitions, in addition to an increase in selling expenses driven primarily by higher net sales as well as additional investments in selling capabilities.

Slide 8 highlights our third quarter consolidated company metrics. We delivered 10% sales growth and 6% adjusted EBITDA growth with total company adjusted EBITDA margin compression. Additionally, adjusted diluted net earnings per share grew 13%. Incremental volume from both segments, strong AUV performance and solid equity earnings from WAVE drove our adjusted EBITDA growth in the third quarter versus the prior year period. These benefits more than offset higher SG&A expenses, which were primarily driven by our 2024 acquisitions. As well as the previously mentioned impact of discrete costs in the quarter. At the total company level, the total discrete costs in the quarter were approximately $6 million, which impacted both manufacturing and SG&A expenses. Excluding this cost headwind, adjusted EBITDA margin at the total company level would have expanded slightly in the quarter versus the prior year period.

Turning to Page 9, we highlight our year-to-date consolidated company metrics, which reflect double-digit net sales and adjusted EBITDA growth with margin expansion. Through the first 9 months of the year, with sales up 14% and adjusted EBITDA up 15% margins expanded 20 basis points versus the prior year period, which includes the year-to-date dilutive impact of our 2024 acquisitions. Adjusted diluted net earnings per share increased 21% and and adjusted free cash flow increased 22%. The drivers of year-to-date adjusted EBITDA growth are similar to the previously mentioned third quarter drivers.

Slide 10 shows our year-to-date adjusted free cash flow performance versus the prior year. The 22% increase was driven primarily by higher cash earnings, lower income tax payments and dividends from our WAVE joint venture partially offset by an increase in capital expenditures as we continue to invest back into the business. Our demonstrated ability to consistently deliver strong adjusted free cash flow allows us to execute on all of our capital allocation priorities. As a reminder, these are first to reinvest back into the business with a disciplined focus on opportunities that deliver high returns. Among our year-to-date investments was the enhancement of manufacturing capability at one of our mineral fiber plants to support the growth of our Temp lock energy-saving sealing offering.

Target investments such as these underscore our commitment to executing our growth strategy while maintaining a balanced capital allocation approach. Our second capital allocation priority is to execute strategic acquisitions and partnerships that add unique attributes for capabilities to our business that will create value. Recently, in the third quarter, we acquired the issued and outstanding shares of geometric for a purchase price of $7.5 million, subject to customary post-closing adjustments for working capital and future earn-out potential.

Lastly, our third priority is to provide direct returns to shareholders through dividends and share repurchases. On this front, then as Vic mentioned, last week, we announced a 10% increase to our quarterly dividend, marking the seventh consecutive annual increase since the inception of our dividend program in 2018. This increase reflects our Board of Directors' continued confidence in our growth strategy and ability to consistently generate strong adjusted free cash flow.

Additionally, in the third quarter, we provided a direct return of $40 million comprised of $13 million in dividends and $27 million of repurchased shares. As of September 30, 2025, we have $583 million remaining under the existing share repurchase authorization. With a healthy balance sheet and ample available liquidity we remain well positioned to execute our strategy.

Slide 11 shows our updated full year 2025 guidance. With strong year-to-date net sales and adjusted EBITDA growth and stabilizing market conditions, we are raising our full year guidance across all key metrics. We are pleased with the full year double-digit growth outlook for net sales, adjusted EBITDA, adjusted diluted net earnings per share and adjusted free cash flow. We now expect full year Mineral Fiber volume to be flat to down 1%, an improvement from our prior expectation of flat to down low single digits due to stabilizing market conditions. We expect AUV growth of approximately 6%, modestly lower than prior expectations on slightly stronger big box volume than expected in the third quarter.

Additionally, we expect full year AS sales growth to be approximately 29%, driven by robust contributions from our 2024 acquisitions, coupled with high single-digit AS organic growth. We continue to expect full year margin expansion in both segments with a Mineral Fiber adjusted EBITDA margin of approximately 43% and an AS adjusted EBITDA margin of approximately 19%. The with an organic adjusted EBITDA margin of approximately 20%.

Additionally, we now expect full year adjusted free cash flow growth of $342 million to $352 million or 15% to 18% over the prior year. Our improved outlook for adjusted free cash flow growth is primarily driven by higher expected net cash provided by operating activities excluding an approximately $21 million full year cash tax benefit related to the tax reform bill that was passed in July.

As a reminder, this onetime cash tax benefit relates to unamortized research and development tax credit fully recognizable under the act in 2025 and is excluded from our full year adjusted free cash flow guidance reconciliation, which is a normalized metric. Note that sales, adjusted EBITDA and cash flow contributions from our recent acquisition of Geometric are not expected to be material for the full year. With our strong year-to-date results and robust full year outlook, we are confident that we will finish 2025 strong and enter 2026 with momentum.

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

Thanks, Chris. 2025 is proving to be another strong performance year for Armstrong as we've successfully navigated uncertainty at the macroeconomic level and its ripple effect on our end markets. It's been a challenging year to call in terms of the level of market activity.

As you all recall, in February, we were expecting the market to be softer in the first half of the year given the transition to the new administration and its potential new policies and then a modest pickup in the back half once there was more clarity around what these new policies would be. However, beginning in April and through the second quarter, the macroeconomic outlook became cloudier as the impact of more significant tariffs increased the level of uncertainty, which led us to modestly adjust our volume outlook for the back half of the year.

Now sitting here today, we have not seen the anticipated modestly softer market conditions, but rather more of the same of flattish kind of stabilizing market conditions and we expect these market conditions to continue for the remainder of the year. The Dodge first time bidding activity data in terms of the number of projects continues to be at lower levels.

However, the value of projects being bid overall has increased ahead of inflation and was up nicely in the quarter. I look at actual starts, which reflects how much of this bidding activity turns into actual projects was mostly flat and coincides with the overall market conditions that we're currently experiencing. Looking at specific verticals. Our recent research from JLL provides some positive signs for the office market. After 2 years of stabilization and signs of leasing footprints beginning to expand U.S. office vacancy rates declined in the third quarter for the first time in 7 years. Their research notes that as occupancy of Class A offices increases the need for renovating Class B office space is expected to accelerate. Factors influencing these trends include a continuation of return to office mandates and the potential for lower interest rate environment. While we've discussed that New York and cities across the Sunbelt have been quicker to recover, their research now shows strengthening across more regions in the U.S. And this is encouraging data for the office vertical that represents about 30% of our demand profile.

The transportation vertical remains strong from a bidding and start perspective. An additional tranche of funds was recently released by the federal government, specifically for airport projects, and we continue to expect airports and other transportation hubs to be a multiyear opportunity for Armstrong. Within these stabilizing market conditions, our Architectural Specialties segment is experiencing broad-based strength in quoting and ordering, which in part is driven by Armstrong's ability to provide the broadest portfolio of specialty products with our industry-recognized commitment to service and quality.

In addition, we're continuing to see benefits from the sales and marketing optimization program that I mentioned last quarter. We've strategically realigned the commercial team to drive greater efficiency and unlock selling capacity to better serve both our A&D customers and our distribution partners and more effectively sell our industry-leading product portfolio. These changes alongside our ongoing innovation and growth initiatives are contributing to strong performance, delivering above-market performance. In terms of recent product innovation, we continue to be excited by the opportunity for our TEMPLOK Energy saving sealing products to drive future growth. With TEMPLOK's innovative use of face change materials, these ceiling products help regulate temperature in buildings and can meaningfully reduce the energy used for cooling and heating. We've also completed some successful validation projects, including a pilot project with the Palm Springs Unified School District in California using TEMPLOK. The results were compelling. Classrooms equipped with TEMPLOK experienced a measurable reduction in cooling energy demand and a nearly 2-hour delay before air conditioning was needed. Findings like these across the country and in various verticals, including education, health care and offices, are validating the energy saving potential of our technology and reinforce our belief that TEMPLOK could ultimately become the standard across the ceiling category.

As the innovation leader, we are committed to continue to innovate to make these energy-saving products even better and more cost effective. This month, we launched an upgraded TEMPLOK product line that is now part of our sustained portfolio of products that meets the industry's most stringent sustainability requirements. In addition, the latest version of TEMPLOK has improved passive heating and cooling capacity at a higher fire rating and increased thermal comfort attributes. This makes it even more attractive and specifiable by architects and designers and more compelling for building owners and operators.

In the quarter, as Chris mentioned, we also completed a capital project at our Macon, Georgia plant to expand production capacity for this new upgraded version of the product.

In closing, with the strong results achieved thus far in 2025, we are expecting continued momentum and a strong close to the year. As our financial guidance indicates, we expect 2025 to be another record year with double-digit top and bottom line growth as we once again outperformed the market. Our consistent AUV growth, Architectural Specialties penetration innovation leadership and productivity gains remain our building blocks for profitable growth, and these building blocks, coupled with a healing office vertical and ongoing contributions from our growth initiatives, positions us well for another year of profitable growth in 2026.

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

[Operator Instructions] Your first question comes from the line of Susan Maklari with Goldman Sachs.

Your Nice job on the quarter, Vic. My first question is, can you talk a bit about the benefit that you're seeing from the new products? How that's helping the mix component of that AUV in there? And also how that's coming through in terms of the strength of quoting and bidding activity that you talked to in your comments?

Yes. Susan, on our mix we continue to do very well at the high end of our portfolio. The even recent years, our innovation around a smoother, wider look, our higher acoustical performance and the combination of the look and the higher couscous is really coming through in 2025 again. We're growing at near double digits at the high end of our portfolio. And again, just really confirms that the technology that we're bringing to the marketplace at the high end and where the products are most specified, which is at the high end is where Armstrong continues to do very, very well with our innovation. That's really on the mineral fiber side because that's how we measure mix is at the Mineral Fiber business.

In the Architectural Specialty business, although we don't measure mix the same way there because of the custom nature of that business, the innovation that we're bringing to the marketplace in both metal and wood, our turf, our [ FFELP ] products, they're all making an impact driving what as I reported, double-digit orders and backlog growth in Architectural Specialties. And that's really important. The new products are really important there to make sure that we're winning the large renovations and the new construction projects.

So really pleased with how our innovation is driving mix in both the mineral fiber and the Architectural Specialty business. And again, double-digit growth in our Architectural Specialty business like that, both in orders and backlog is really encouraging because we all know the market is not growing double digits. And so this is a good measure of how well we're penetrating and participating in that market.

Yes. No, absolutely, that's a great. Now that all sounds really good. And I guess building on that rate, Architectural Specialties is getting close to that 20% margin target that you've had out there. Can you talk about the forward trajectory of that as we continue to see these acquisitions coming through? And how we should think about where that can go over the course of the next year? If -- the environment does stay more challenging like it is today?

Yes. Susan, I'm really proud of how our teams have driven the improvements over the last 4 years really in Architectural Specialties every year, making an impact on operating leverage and doing a great job in the marketplace and pricing our products. And organically, even with some of the timing-related headwinds that Chris mentioned, organically, we're at the 20% level. And we expect for this year, for the first time, on this side of the pandemic is to get back to that 20% level organically.

And of course, Susan as the base gets bigger and our Architectural Specialty business, organically, we can offset more and more acquisitions as we add them on. As you know, most of the acquisitions we're buying are dilutive until they get scaled up on our platform and then we're able to drive the operating leverage to the 20% or greater. The forward look on this is we've said very publicly -- we think this is a really good spot for us to be as long as we have double-digit growth opportunities in the marketplace. As long as we're continuing to penetrate the market and take share, we don't want to optimize on margins at the expense of growth.

And so as long as we have that growth curve in front of us, and we do see that ahead of us still for several years. We like greater than 20%, but we don't need to optimize much greater than that at the expense of growth. That's kind of how we're going to run the business.

Your next question comes from the line of Tomohiko Sano with JPMorgan.

My first question is EBITDA margin pressure. So while sales and EPS was strong, both consolidated and segment EBITDA margins declined year-over-year in 2Q. Could you elaborate on the timing-related cost headwinds, such as higher incentive compensation and medical costs and how you expect this to trend in 4Q and into 2026, please?

Yes. Chris, do you want to take that.

Sure, yes. So on the SG&A side, let me just start with just an overarching comment around our mindset around cost control and the continued thinking around employing a cost control mindset, even in more stabilizing market conditions that we mentioned in our prepared remarks, so in the quarter, we had highlighted higher SG&A costs in the Mineral Fiber segment. And that was really driven by higher incentive compensation costs. These are related both to our annual incentive plan and our longer-term incentive plan. And the driver of these costs really relate to our year-to-date financial performance and our updated full year outlook that I commented on in my remarks. And I also said we don't expect this third quarter SG&A results in Mineral Fiber to be indicative of our quarterly run rate moving forward.

Vic mentioned the thinking around continuing to get leverage on our investments, and that certainly is the case. We look to get operating leverage out of our SG&A investment base. We'll continue to be mindful of the rate and pace of our spending again, the compensation. The incentive compensation costs were really timing in nature, and we're an outsized cost in the third quarter.

Let me take the second part of your question next around medical and just take a step back a bit and talk about the higher medical costs that we experienced in the third quarter. We're self-insured from a medical perspective. So when higher medical claims are incurred, they impact the P&L directly. And what we saw was an uptick in several high-cost claims in the third quarter, and these claims were above our normal run rate of medical experience. So while we do experience medical costs in the ordinary course, the number and the magnitude of what we saw in Q3 was atypical and be very unusual to see that level of medical claims in consecutive quarters as well.

Thank you, Chris. And my follow-up is macro and market trends. You talk about office and also transportation mainly. But could you talk about education, health care and data centers in those kind of particle into Q4 and 2026 expectation, please?

Yes. The Education and Healthcare segments continue to be I would say, stabilized as we experienced throughout the year. So no real inflection in health care and education that we're seeing. In fact, health care remains slightly positive, both on the new construction and the renovation forecast that we're seeing. So I would say kind of stabilized activity levels in the health care and education.

Of course, the data center is -- the opportunity continues to be very robust and we're very active in participating in that with our new products. We have a new launch of tile products as well as some of the grid products that that we've been talking to you about. We're also launching some additional structural grid products to go along to target that marketplace.

So it's an exciting opportunity, and it continues to have a lot of growth behind it, in addition to what we're seeing in transportation and the green shoots that I'm talking about in office.

Your next question comes from the line of Keith Hughes with Truist Securities.

So these SG&A expenses is health care related, would those most likely come down over the next quarter or two to something more consistent than what we've seen in the past? Is that the message you're trying to [indiscernible]?

Yes. I think, Keith, it's fair to assume that both on the incentive comp and the medical side that they'd be kind of more at a normal run rate again, very atypical to see the outsized impact that we saw in Medical this quarter. And again, that wasn't tied to a specific operation or events, but yes, to your point, not the expectation going forward.

And what's the outlook for manufacturing costs in the next few periods or is inflation starting to creep in to the inputs?

Yes, I'd say on the manufacturing side, I mean, for sure, we have inflation, but our ability to continue to drive productivity in our plants remains one of the value creation drivers and building blocks of the business. So I'd expect more of a run rate that we saw through the first couple of quarters of this year.

Again, continued strength in both a continued cost control mindset across the enterprise, coupled with our productivity programs and productivity gains.

Okay. Final question for Vic. I hear what you're saying on the office on the Class B moving to Class A. Has that started to occur yet in quantities that are moving the numbers or as offices a [indiscernible] category?

Yes. It seems to be a lot of ground level activity, which -- so it's moved from some of the bidding activity and some of the start activity that we've been tracking into. What I'm hearing in the marketplace from our regional team so that there's more tenant improvement-type projects on the ground there.

So I think we're just beginning to see some of that. So I wouldn't say they're needle movers, it's -- they're real -- it's a stabilized I would say, vertical at this point and with some green shoots in terms of the improvement that could be out there going into 2026.

Your next question comes from the line of Adam Baumgarten with Vertical Research Group.

Question on the AUV just on the home center mix. It sounds like that impacted year-over-year mix benefits in the quarter. I know you said it was positive and maybe less so than it's been in prior quarters. I guess do you expect that mix headwind to abate in the fourth quarter. And then if we think about the August price increase starting to flow through, should you see some level of year-over-year AUV improvement in the fourth quarter?

Yes, you're right, Adam, the -- as you know, the retail business is a limited set of products and lower AUV. So when we get some additional strength in 1 of those -- well, in that channel, you're right, it does drag down the overall mix. I will say, we still -- these are profitable products and they're profitable contributors to our bottom line.

So we like that volume. But you're right, on the AUV line, it can be a drag a bit on our normal AUV run rates. And that's what we experienced in the third quarter. We don't expect that to continue into the fourth quarter. I just will caveat that, that sometimes this is not forecastable in terms of some of their inventory replenishment or even drawdowns as we've reported on in quarters past. But -- we're not expecting that to continue into the fourth quarter at this stage.

And I would just add on to that and say, we still expect a strong AUV quarter in Q4. Again, that was the big box that we mentioned in the third quarter kind of pressured the full year outlook, if you will, but still expecting a strong Q4 and about 6% AUV for the full year.

Got it. Great. And then just switching gears to AS, just given kind of the strong backlog and order commentary that you made and some level of visibility, especially on larger projects, are you still or should we expect growth next year and maybe any kind of additional color in terms of end markets and kind of what's getting you excited about 2026 at this point?

Yes. I mean what's encouraging, Adam, in our order rate and our backlog build is not just for the rest of the year, which it is contributing to the rest of the year and our confidence for the rest of the year, but how it's building for '26. So yes, we would expect to continue to grow in 2026. Again, almost irrespective of what the market is doing because as you know, most of our growth there is really through penetration, really taking share.

So our expectations and the way it's building in our backlog, we would expect growth in '26.

Your next question comes from the line of Rafe Jadrosich with Bank of America.

I wanted to just follow up on some of the comments on office, which has obviously been sort of a headwind for, I think you guys said 7 years. Can you talk about if that comes back or we start to see an improvement? Is there any either ASP or margin tailwinds, like particularly either on the Class A side or anything from a regional perspective? And are you seeing like specific green shoots on like San Francisco or New York, is that meaningful in any way?

Well, I think what the data is showing now, and I mentioned this in my prepared remarks is how it's broadening out beyond some of the major cities and the Sunbelt as we've talked about how the South has been actually an early recovery zone for the office segment.

So in addition to that, what the research says it's actually much broader now. In fact, into 18 regions across the country are starting to see some positive activity there, both on leasing front and of course, that drives the renovation activity in the market. So that's encouraging. I think, as I mentioned earlier, we're still very early into seeing some of this work actually land into the marketplace. But the -- certainly, the signs are encouraging and supported by some of the forecasts that we're looking at as well.

Got it. Okay. And then I understand it like sort of it's tough to give a volume outlook into '26. But wondering if do you have any at least directional visibility on cost inflation, AUV, SG&A, any of those points as we think about trends into next year and just like specific puts and takes?

It's Chris. I'd say at this point, we're still preparing our modeling and and going through assessing the market, et cetera, for 2026. But if I could just take a step back and just talk a little bit about the building blocks of the business and what we've talked about in terms of AUV growth, our ability to continue to drive productivity and really how we're thinking about SG&A investments and margins next year.

I'd say our thinking in the mindset really hasn't changed. I think those value creation drivers are in place. We'll continue to invest and invest back into the business where they are the highest returns and I think we'll absolutely be thinking about EBITDA growth and margin expansion heading into next year. But absent that, too soon to formulate any more details around the specific inputs of those. But I'd be thinking about the -- the value creation drivers of this business on a relatively consistent basis going forward. Vic, I don't know if you want to add anything more.

I think that's well said.

Your next question comes from the line of Brian Biros with Thompson Research Group.

Last quarter, your outlook was for a slightly softer second half kind of driven by that uncertainty with discretionary commercial work you expect to slow a lot of commentary today around market stabilizing here. Can you just help compare the current outlook to your expectations from 3 months ago, kind of what stabilizing really means in the scenario? I guess really just what is driving that kind of positive change from uncertain to stable.

Yes, Brian, thank you for the question. It's a good question because if you remember, the way we talked about some of the smaller, more discretionary type renovation activity is where we have the least amount of visibility in the marketplace, right? It doesn't involve an architect and they tend to be, again, smaller in nature. So it kind of shows up through distribution.

So -- and really full disclosure of that, we don't have great visibility. And we've been using prior models to kind of predict what happens there because we know because it's highly discretionary, it can move to the sidelines very quickly in higher degrees of uncertainty in the marketplace. We saw that. We experienced that in prior years, namely in 2022. And so with the forecast for the back half of lower economic activity, lower GDP and expecting some of that activity overall in the economy to slow down.

We expected that to create some uncertainty -- additional uncertainty that would affect this discretionary renovation activity. As we all know, some of the economic activity has actually been revised upward. And we've not seen the slowdown in that discretionary work as we were expecting. And remember, it was a slightly modest, so it wasn't a significant downturn, but just some softening there. We did not see that. But I'll say, Brian, most encouraging in the quarter was on the volume side was the contribution from our initiatives and our growth initiatives.

Given a little flatter plane here we can really start to see the impact of our growth initiatives above and beyond what is still relatively flattish to softer market conditions. So really pleased by that. And sitting here today, where we are into the fourth quarter, we continue to not see a softening in that discretionary renovation activity pipeline. And so we're basically calling the rest of the year as we've been experiencing all year and this kind of more stabilized flattish market conditions and then executing very well there to expand margins, grow our earnings and our top line double digits.

Good to hear. And then second question, I guess, on the Mineral Fiber margins strong this quarter, even with the discrete expenses, excluding discrete expenses. Can you just help unpack that number a little bit more here that you provided some drivers, but maybe just putting it really in the context around this level of margin you have with this level of volume and kind of just how that compares historically?

Because it's -- I believe it's a good number, a lower volume base. So just any more context around how you guys are thinking about that.

Yes. That's again, another good question. Let me take that, and Chris, I'll let you add some color to this. But I mean, really, when you look at in spite of some of those those unusual and atypical expenses that Chris talked about, we delivered a 44% EBITDA margin in the Mineral Fiber segment. That's really strong. And so when you think about for the rest of the year, we're going to finish at 43%, as I was saying in my prepared remarks. And that's back to the highest watermark that we experienced before the pandemic in 2019.

So we're really encouraged by the way the business underlying is performing. And the building blocks of that again is really making sure we're getting good price realization to more than offset inflation in the marketplace, which we're continuing to do very well. selling a richer mix into the marketplace, which we're doing very well, slightly offset a little bit, as we talked about earlier on the retail channel. And then productivity, continuing to drive meaningful productivity in our plants to help us offset inflationary costs. So that's what leads to really good margin performance in the business. And we expect that to continue.

And Chris, I'll let you add any additional color there.

Yes, absolutely. You hit on all the key building blocks. The only additional item to mention there in terms of mineral fiber EBITDA margins is the contribution from wave equity earnings expected to grow about 6% this year. So again, with that contribution, really pleased with the overall EBITDA margin for the Mineral Fiber segment.

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Your next question comes from the line of Garik Shmois with Luke Capital.

This is Zack Pacheco on for Garik. Maybe just 1 more on the mineral fiber margin over 43%, that pre-pandemic level, do you guys kind of see a natural cap getting over that through maybe just the industry dynamics or your level of investment? Or how do you kind of view taking that next step above that pre-pandemic level?

Yes, it's a common question we get. And honestly, we just keep pointing back to the building blocks, what the drivers of margin. And really, and that's a good measure of the efficiency in how we run the business, right, in terms of making sure we're pricing and getting enough price to cover inflationary dynamics and driving productivity in the plants, innovating to make sure that we're bringing higher-margin products, higher AUV and value products to the marketplace.

Those same building blocks we were just talking about, I think as long as those are present, and we continue to invest behind those, which we're committed to do, we continue to look for greater efficiency and greater margins from here.

Understood. And then just quickly an update on the Geometric acquisition from earlier in the quarter and kind of just the M&A environment in general, as you guys see it.

Yes, the Geometric is a great add for our business, our architectural specialty business and in particular for the wood platform, which is one of the fastest-growing platforms in the Architectural Specialty business. It's -- so an exciting on-trend look and feel that architects and owners are looking for -- and this really adds 2 real dimensions of competitive advantage.

Number one, the extension of the product portfolio to include a greater number of species, really on-trend type species in our wood portfolio. And it gives us a geographic advantage also by being out West. So it's a really great add to the portfolio. And we like these kinds of acquisitions that bring competitive advantage, additional capabilities for us to bring into the architect's offices with the rest of our portfolio.

So it's a good example. It's on the smaller side, but we're open for business in terms of or acquisitions. We have a dedicated team that's getting up every day and working our pipeline. And we believe there's more of these bolt-on type acquisitions out there for our Architectural Specialty business. So more to come on that front as well.

Your next question comes from the line of John Lovallo with UBS.

As well here. I guess the first I guess the first question is just on the Mineral Fiber volumes up slightly in the quarter. How do you think the performance there compared to the underlying market?

Yes, it's really hard to put a very precise number on that. But when the markets are flat, they're anywhere from plus or minus 1, maybe 0.5 point either way. So -- but what we do know is that the growth initiatives and the volume contribution from our growth initiatives really was a nice contributor to the overall upside that you saw that we experienced in the quarter. markets are still relatively soft. So these flattish conditions can actually be reflective of these -- of the market activity at a lower level that we've been experiencing all year.

So I think that's the best way I could describe it, John, in terms of how the overall market is performing.

Okay. Got it. And then sticking on Mineral Fiber, it looks like sales to the distribution channel were actually very strong, up 9% year-over-year. What drove this kind of relative strength compared to the other channels?

Yes. I'd say, John, just to continue to point to our strong commercial execution, really, again, coupled with the initiatives that Vik mentioned. We continue to be pleased with the level of performance there in the quarter and are excited about just the way that we've executed in that particular part of the market.

Your next question comes from the line of Philip Ng with Jefferies.

Question for Chris. Can you give us an update how you're thinking about inflation broadly for the full year, some of the major inputs and whatnot? And the pace in the back half and then in terms of productivity, you sound pretty upbeat about what's still in front of you.

Should we expect a pretty consistent steady dose of productivity that you still have available for 2026 to kind of tap into?

Sure. Yes. Thanks for the question, Phil. Yes, I'll take the second part of that first. In terms of productivity, yes, pleased with our level of productivity in our plants, certainly year-to-date in the quarter and what we're expecting for the full year. And going back to our comments around the value creation drivers in the building blocks of the business, I feel very confident about our ability to continue to get those productivity gains on a go-forward basis.

From an inflation perspective, just a reminder in terms of, call it, the categories of inflation. In Mineral Fiber, about 35% of our inflation of COGS is raw materials and then energy is about 10%. Freight is about 10%. So from a total input cost perspective for the full year, we're out looking low single-digit inflation with freight about flat compared to prior year. raws in that low single-digit inflation range and then energy in that low double-digit inflation range. So hopefully, that gives you a little bit more color around the bits and pieces of how we're thinking about inflation on a percentage basis versus prior year 425.

And Chris, any big nuances between front half versus back half in terms of some of those inflation components if it's moderating or it's been pretty steady all year.

Yes, I'd say slightly moderating a bit in the back half, but not significantly.

Okay. That's helpful. And Vic, AS has been a home run for you guys, really strong growth, strong organic growth. And I think you pointed out in your prepared remarks, orders and backlogs are still growing at a double-digit clip. And I think you mentioned if you could grow at double-digit clip. I mean 20% EBITDA margin is a good way to think about the business in the medium and longer term.

So my question really comes down to, obviously, you have some really tough comps in the first half of '25. What's a good way to think about organic growth in that business when we look out at 2026. Is it double digit is the right way to think about it? Or that's a number that includes M&A? I just want to be mindful of the tougher comps next year.

Yes. On the organic side, we've been running in the high single digits this year. And we'll stop short to forecast what that looks like for next year. But again, with the double-digit growth in our order intake, a lot of that's organic. So I would expect the growth for next year organically to continue to be at a really good clip. What exactly that is relative to this year yet. I think we still have to do our work and our modeling on that to accurately answer that. But I still expect good solid organic growth in that business in addition to the inorganic bolt-on acquisitions, and we expect to continue.

Phil, if I could come back to -- yes, my comment on the moderating versus back half was really around what we expected back in July. So if I were to take a look at the fourth quarter relative to our actual run rate for the first 9 months of the first 3 quarters, a little bit of an uptick in energy and a little bit of an uptick in raws, but it's really not that big. But relative to July, a moderating expectation versus where we were last quarter for the full year.

Your final question comes from the line of Stephen Kim with Evercore ISI.

This is Atish for Steve. Just one quick one for me. You touched on it a little bit in the prepared remarks, but could you talk a little bit more about the digital initiatives and kind of how you've seen that the impact of that grow over time and involve over time, maybe some lessons learned.

Yes. The ones that I called out in my prepared remarks around Project work, let me just start there for a second because I think this is an automated software platform that takes the intelligence of a long time of designing ceilings and automates those design rules and a platform that can help architects really expedite the iterations on different types of designs or iterations of designs. And that's a huge productivity tool that the architects are learning about as we get more and more products onto the platform to meet their needs.

In addition to that, because of this automated platform is based on historical data, we can pump out very accurate bill of materials that allows them to really predict the project costing and also the ordering for the contractor. If you think about these really complex projects, there's a lot of parts and pieces that go into the installation of these on the job site, and we can get really precise with exactly the number of pieces and components that have to go.

And that's really attractive for the contractor community to not have to guess about how much they need of something. So for both of those customer bases, this Projectworks platform, continues to grow every quarter, more and more users and more and more activity. And we're really pleased with, we think when we look at the data, the win rate of projects that go through project works is higher than when they don't because of the value that we're creating with architects and the contractors.

So we continue to be very encouraged by the traction it's getting in the communities that we're operating in. Canopy was the other one that continues to adjust itself and serve the smaller customer that we feel like kind of falls through the cracks that doesn't really know where to go or how to get their sealing repaired or replaced and it leads them through an educational process that gets them to placing an order. It's turning out to be a very effective platform, and we continue to improve it every quarter on making it even better and better of a customer experience. And so I was really pleased with the traction that it's getting, not only at the top line, setting a record top line but really, the profitability of that platform, delivering a record EBITDA level of performance and contributing now to the overall business.

So those 2 digital initiatives I was talking about, I think that's a little bit more color behind them, but we continue to get really good operating leverage on both of those investments.

With no further questions in the queue, I will turn the call back over to Vic Grizzle for closing remarks.

Great. Thank you. Thank you all for joining our call today. Again, we're on track to have another record year in 2025, really pleased with both double-digit top and double-digit bottom and maybe mostly the traction that we're getting with our investments and the way that we're expanding margins in the business.

So we're excited for finishing the year strong and setting up what is going to be another exciting year in 2016. Thank you again for joining our call.

Thank you again for joining us today. This concludes today's conference call. You may now disconnect.