Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2024 Armstrong World Industries, Inc.'s Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Theresa Womble, Vice President of Investor Relations and Corporate Communications. You may begin.

Thank you, Bailey, and welcome everyone to our call this morning. On today's call, we have Vic Grizzle, our CEO; and Chris Calzaretta, our CFO to discuss Armstrong World Industries' third quarter results and rest of year outlook. We have provided a presentation to accompany these results that is available on the Investors section of our company 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, October 29, 2024. These statements involve risks and uncertainties that may differ materially from those expected or implied. We do provide a detailed discussion of the risks and uncertainties in our SEC filings, including the 10-Q filed earlier this morning. We take no obligation to update any forward-looking statements beyond what is required by applicable securities law. With that housekeeping done, I will now turn the call over to Vic.

Thank you, Theresa, and good morning, everyone. Thank you for joining our call. As reported today, Armstrong achieved another quarter of strong results with record third quarter sales and significant earnings growth, allowing us to again raise our earnings guidance for the full year 2024. Like last quarter, our teams performed well across all areas despite facing challenging market conditions and the impacts of two significant hurricanes. We extend our heartfelt wishes for a quick recovery to our customers and communities affected by Hurricanes Helene and Milton. I also want to thank our teams in Pensacola, Florida, and Macon, Georgia, along with our entire supply chain group, for effectively managing through these storms with minimal disruptions to our operations and our customers. This showcases our agility and commitment to customer service and operational excellence. I am proud of the efforts of our 3,500 employees who demonstrate this dedication to our customers daily. Looking closer at our third quarter results, total company sales and adjusted EBITDA reached record levels, each up 11% from the previous year, while adjusted diluted earnings per share rose 13%. These robust results were fueled by contributions from our recent Architectural Specialty acquisitions, 3form and BOK Modern, both of which are performing well, alongside solid AUV performance and effective price realization in our Mineral Fiber segment. Strong manufacturing productivity and contributions from our WAVE joint venture also positively impacted the quarter. This collective performance slightly exceeded our expectations and contributed to our improved full-year 2024 outlook, which Chris will elaborate on shortly. Our Mineral Fiber segment continued to perform well this quarter despite mixed market conditions across key verticals. Mineral Fiber net sales grew 3% due to solid AUV performance, more than offsetting a modest decline in sales volumes. Our commercial teams performed admirably, achieving strong like-for-like pricing and gaining market share in our retail channel. Together with our digital growth initiatives, Canopy and Project Works, we largely mitigated overall market softness. Mineral Fiber adjusted EBITDA increased 8% this quarter, and the adjusted EBITDA margin reached nearly 44%, reflecting the seventh consecutive quarter of year-over-year margin expansion and marking the strongest third quarter margin performance since 2019. These results highlight our ongoing ability to deliver strong AUV performance driven by consistent pricing and productivity gains in our Mineral Fiber plants while remaining focused on quality and service. Our plants exceeded service level targets, with metrics such as our perfect order measure and fill rates reflecting elevated performance. As I have mentioned previously, these key performance indicators are essential to our industry-leading value proposition to our customers. Providing high-quality products and exceptional service enhances our market position and supports our pricing strategy. The contribution from our plants complements the differentiation efforts of our commercial teams and is foundational to our competitive advantage. Our Architectural Specialty segment also reported a strong quarter, with net sales up 32%, driven by the addition of 3form from April and contributions from BOK Modern acquired in late 2023. On an organic basis, the segment experienced a 7% net sales growth, a notable improvement from the first half of the year, supported by strong performance across our portfolio and increasing activity in transportation, particularly with large airport projects I've previously mentioned. I'm pleased to report our teams are effectively managing the complexities involved in these larger projects, encompassing supply chain coordination, construction, and service quality. I'm also excited to share that our award activity has increased, with six additional airport projects secured this quarter across the country, and we continue to anticipate the federal funding for these projects will yield multi-year opportunities for Armstrong. The Architectural Specialty segment's adjusted EBITDA grew 27%, with margins surpassing 20%, including 3form's impact. Importantly, the organic EBITDA margins in this segment have expanded each quarter in 2024, demonstrating that we are taking the right steps toward achieving our goal of maintaining at least a 20% adjusted EBITDA margin annually. Overall, market conditions are stabilizing, with positive activity observed in education, healthcare, and transportation sectors, along with data centers. Office activity appears to have steadied, with tenant improvement work gradually resuming in certain regions. While uncertainties remain, we are optimistic about the developments across our verticals. Through navigating the post-COVID demand fluctuations, the advantages of our diverse end markets, the resilience of our business model, and our organization’s reliable execution have enabled us to achieve net sales and adjusted EBITDA growth every year since 2020. Let me pause now and allow Chris to share additional details 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 slide three, which details our basis of presentation. Beginning on slide six, we discuss our third quarter Mineral Fiber segment results. Mineral Fiber sales were up 3% in the quarter, driven by favorable AUV of 4%, partially offset by modestly lower sales volumes. The increase in AUV was driven by strong like-for-like pricing with flat mix on a very strong prior year comparison. Market conditions continued to stabilize in the quarter and our initiatives, along with higher volumes in our retail channel, partially offset market softness. Mineral Fiber segment adjusted EBITDA grew by 8% with adjusted EBITDA margin expanding 200 basis points to 44% despite modestly softer volumes. Adjusted EBITDA margin expansion was primarily driven by the fall through of AUV, gains from improved manufacturing productivity, and higher equity earnings from our WAVE joint venture. Manufacturing productivity in the quarter was ahead of our target and WAVE equity earnings were driven by favorable price cost, partially offset by lower volumes. These benefits more than offset an increase in SG&A, which was driven primarily by higher incentive compensation. I'm pleased with how our team executed in the quarter and their commitment to drive profitable Mineral Fiber growth with a focus on consistent margin expansion despite muted market conditions. On slide seven, we discuss our Architectural Specialties or AS segment results. Robust sales growth of 32% in the quarter was driven primarily by an increase from our recent acquisitions of 3form and BOK Modern as well as organic sales growth, primarily driven by some larger transportation projects. Including the acquisitions of 3form and BOK, third quarter total AS adjusted EBITDA margin was 20%. And as we noted on our last call, we expected to see the top line growth of the organic AS business accelerate and continue to expand margins in the back half of the year. We're encouraged that our third quarter results reflect that and expect sequential top line improvement in the fourth quarter. We are on track to deliver the approximately 18% adjusted EBITDA margin for the full-year 2024 that we had outlooked for the total AS segment in April and July. We're also pleased with the performance of our recent 3form acquisition. The integration plan is on track as we continue to leverage and scale the business on the Armstrong platform while delivering innovative solutions and best-in-class service levels to our customers. As Vic noted, we're also encouraged by the positive momentum on bidding activity and order intake as we close out 2024 and as we continued positive activity in the transportation vertical. Slide eight highlights our third quarter consolidated company metrics in which we delivered double-digit growth for sales and earnings with adjusted EBITDA margins fairly consistent with the prior year. Notably, adjusted diluted net earnings per share grew 13%. The drivers of third quarter adjusted EBITDA growth are consistent with the first nine months of the year. And as we turn to page nine, we present our year-to-date consolidated company metrics, which reflect double-digit sales and earnings growth with total company adjusted EBITDA margin expansion of 100 basis points. 2024 year-to-date performance was driven by our core value drivers, which are foundational to the profitability of our company. Incremental volume from acquisitions and growth initiatives, consistent strong AUV performance, and healthy equity earnings contribution from WAVE drove our adjusted EBITDA growth for the year-to-date period. These benefits more than offset the increase in SG&A, a significant portion of which was driven by recent acquisitions. Slide 10 shows our year-to-date adjusted free cash flow performance versus the prior year. The 9% increase was driven by higher cash earnings and lower capital expenditures, partially offset by unfavorable working capital changes. As we expected and as noted on our last call, adjusted free cash flow generation accelerated in the third quarter with 17% growth versus the prior year. We saw continued strong cash earnings and positive contributions from working capital in the third quarter. We remain confident in delivering double-digit adjusted free cash flow growth for the full-year. Our demonstrated ability to consistently deliver strong adjusted free cash flow allows us to support all of our capital allocation priorities. Recall that our capital allocation priorities are first to reinvest back into the business where we see the highest returns. Second, to execute strategic acquisitions and partnerships to create shareholder value. And third, to return cash to shareholders through dividends and share repurchases. Just last week, we announced a 10% increase to our quarterly dividend, marking the sixth consecutive annual increase since the inception of our dividend program in 2018. This increase reflects our Board of Directors’ continued confidence in our long-term growth strategy and evidences our ability to continue to return cash to shareholders. In the third quarter, we repurchased $15 million of shares and paid $12 million of dividends. As of September 30, 2024, we have $677 million remaining under the existing share repurchase authorization. With a healthy balance sheet and ample available liquidity, our ability and intent to complete additional acquisitions remains unchanged, and we remain committed to advancing all of our capital allocation priorities. Slide 11 shows our updated full-year 2024 guidance. With strong profitability in the third quarter and our improved profitability outlook for the remainder of the year, we are increasing our guidance for adjusted EBITDA and adjusted diluted net earnings per share, as well as modestly increasing our guidance for adjusted free cash flow. We have also tightened the range on our full-year sales outlook. As market conditions stabilize, we continue to expect full-year Mineral Fiber volume to be down about 1%. We also continue to expect full-year Mineral Fiber AUV to be above our historic average. Our sales outlook for the full-year is in the range of 10% to 11% growth. Given solid third quarter performance and improved full-year profitability expectations, we now expect total company adjusted EBITDA growth for the full-year in the 12% to 14% range, an increase from our prior expectations of 10% to 13% growth. There are no material changes to our AS segment assumptions from our July outlook. For the full-year, we expect adjusted free cash flow to grow 10% to 14% and expect adjusted diluted net earnings per share to now grow at 16% to 17% with about half of the increase in the EPS outlook driven by a lower effective tax rate compared to the prior year. Please note that additional assumptions are available in the appendix of this presentation. Our focus on driving profitable growth in light of a challenging market environment remains unchanged, and we expect 2024 will be our fourth consecutive year of net sales and earnings growth. The strong results we've delivered thus far and our robust growth outlook for the full-year gives us confidence that we will finish 2024 strong and enter 2025 with positive momentum. And now, I'll turn it back to Vic before we take your questions.

Thanks, Chris. As Chris summarized, we are well positioned for another record year of double-digit top and bottom line growth in 2024. We have momentum that we expect to carry forward into 2025, and I'm extremely proud of the accomplishments so far this year. Our product innovation remains focused on important attributes and solutions that are responding to current and future market needs. Products like our TEMPLOK energy-saving ceiling products and our low embodied carbon ceilings. With these products, we are directly addressing large macro trends that we believe will be important in driving our business for many years to come. In our recent updates, we have discussed the significant role buildings play in both energy use and carbon emission with buildings contributing about 40% of all carbon emissions generated annually in the U.S. Within this, about 40% of energy consumed by commercial buildings is related to heating and cooling. I'd like to take a moment to elaborate on these trends that are driving the need for greater energy efficiency within these buildings. Now one driver is the rapid expansion of data centers and the increasing adoption of AI technologies, both of which are pressuring the U.S. electrical grid. According to the Electric Power Research Institute, data centers are projected to consume nearly 9% of the nation's electricity by 2030. That's up from 4% in ‘22. As AI is becoming more integrated into everyday technology, energy consumption is and will continue to increase considerably. For example, you may have seen the stat that a simple ChatGPT query uses 10 times the energy of a typical Internet search. Meanwhile, building owners aiming to decarbonize to achieve both energy and emission savings are adding to the strain on the electrical grid as they look to shift from natural gas to electric heating systems. The aging electrical power grid will struggle to keep up with this unprecedented increase in energy demand, raising serious concerns about the reliability and sustainability of electricity supply. So addressing the energy demands of buildings is a critical area of focus in order to lower the strain on the grid, while redirecting energy to support newer applications like data centers and AI. We believe Armstrong has an important role to play here. Our TEMPLOK energy-saving ceiling products provide up to 15% reduction in energy usage for heating and cooling of buildings, which is a significant cost saving for building operators. These products contribute to lowering the building's carbon emissions while maintaining thermal comfort for occupants and they are the first ceilings on the market that pay for themselves over time. Taking this one step further, heating and cooling of buildings is also a main driver of peak electricity demand that has forced utility providers to build expensive grid capacity to handle these spikes in usage. TEMPLOK's thermal storage can be leveraged during these peak hours, moderating demand and providing relief to electrical infrastructure when it's needed most. As utilities and grid operators seek solutions for grid stability, this kind of demand flexibility is becoming more critical for a more resilient energy system. Also in support of building energy savings is a regulatory driver for increased energy efficiency through new building codes and standards. One example is currently gaining momentum across the country are enhanced building performance standards that are being introduced by state local governments that mandate specific building level energy use and emission reductions. 13 cities in the U.S. have implemented laws on these standards as of 2024, including New York City, Boston, St. Louis, and Seattle to name a few. There are another 30 cities planning on launching similar laws by 2026. Now over time, we believe these standards will contribute to an acceleration of retrofitting older buildings, particularly Class B and Class C buildings. In order to comply, but also to become more competitive. This is because new tenants know that buildings meeting these standards will be more economical to operate. The energy-saving products we have launched are well positioned to help building owners reach these standards and will contribute to a renovation tailwind for years to come. Now before turning to your questions, I would like to go back to a point I made earlier. So far in 2024, Armstrong has continued to demonstrate resilience in a challenging environment and is delivering consistent profitable growth. While it's too early to provide a detailed outlook for 2025, we do expect the foundational components of our growth algorithm to persist. And these include steady consistent Mineral Fiber AUV growth supported by like-for-like pricing and market-driven product innovation, growth initiatives to drive Mineral Fiber sales volume above market level growth rates. Growth from our Architectural Specialties through market penetration and acquisitions that are scaled on the Armstrong platform. Manufacturing productivity improvements that offset inflation and expand margins. As we continue to successfully execute our growth strategy, we are confident in our ability to generate strong and consistent free cash flow to fund future growth and provide an attractive return to shareholders through our dividend and share repurchase program. These are the hallmarks of Armstrong's business model that continue to drive consistent results through all parts of the economic cycle. With this proven framework, again, we are confident in our ability to navigate a dynamic market backdrop, capitalize on the opportunities we see and deliver strong growth and profitability for years to come. With that, we'll be happy to take your questions.

Your first question comes from the line of Susan Maklari with Goldman Sachs. Your line is open.

Thank you. Good morning, everyone.

Good morning, Susan.

Vic, my first question is thinking about Mineral Fiber volume growth, given the backdrop that you outlined and some of these stabilizing factors or some of the green shoots that you're starting to see across some of the end markets in the different verticals? How are you thinking about the potential to get back to that longer-term volume outlook in Mineral Fiber? Any thoughts on the trajectory there? And maybe how that could start to come through over the next several quarters?

The market you mentioned has been stabilizing and moving sideways over the past few quarters. The bidding activity we've tracked has remained within a narrow range recently, which suggests we have established a new base to build upon. Regarding the outlook, the fundamentals support a volume range of 2% to 4%. Now that we have stabilized, there's potential for recovery back to pre-pandemic volume levels from 2019, which serves as a significant foundation for that 2% to 4% target. Initially, we expect growth to be led by new construction, with renovations following. Additionally, our growth initiatives have been yielding volume gains of about 1% or more, helping to mitigate recent market weaknesses. The introduction of energy-saving ceiling tiles is also an exciting growth opportunity, reinforcing our outlook. Overall, I am optimistic about the mid-term outlook, though we need to monitor how market uncertainties resolve and how quickly discretionary work can return.

Yes. Okay. You're right on that, but I appreciate the color and that commentary in there. And then maybe turning to margins, you saw some really nice tailwinds from the productivity initiatives that you've been pursuing in the last couple of quarters. I guess as you look out, can you talk to the opportunity that's still out there? And any thoughts on how some of that may come through over time?

Yes. We've actually established a multi-year history now, right, providing greater than 3% productivity. And it's really the approach that our teams are taking on the fundamentals of a lean methodology and we take that multi-year look at driving a pipeline of productivity programs, so that each and every year, almost irrespective of what volume is doing, we're able to implement programs around scrap reduction, around uptime on our equipment and so forth. We have a pipeline. So when I think about going forward, that pipeline is intact. It's still very healthy. And therefore, our confidence along with our expectation of continued greater than 3% productivity gains is intact and we expect that to be part of the business model going forward.

Okay. Thank you for the color, Vic, and good luck with everything.

Yes, thank you.

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

Thank you. Input costs have been a tailwind for the whole year, it is pretty small here in the third quarter. Can you talk about what you're looking at for the fourth quarter and early next year, and, again, this is in Mineral Fiber?

Yes. Hi, Keith, it's Chris. Yes. So, yes, exactly, for the fourth quarter, you know, just to break down the components of our inputs, you know, about 10% of our inputs are energy, pretty even split between electricity and gas, about 10% is freight and 35% is, is raw material related. So in the quarter, in the third quarter, we were seeing input costs in the low single-digit deflation level with, call it mid-single-digit deflation on freight, double-digit deflation on energy, and low single-digit inflation on raws. So I think for the fourth quarter, we're largely going to see a continuation of that as we finish out the end of the year. When I look forward to 2025, just to take a step back and think about our raw material inputs, for example, about two-thirds of our spend is on contracted raws, and some of those span multiple years and have some inflation tied to them. So I expect, you know, in '25, a modest level of inflation heading into the New Year. But again, we don't see a lot of variability and volatility on our raw material inputs. The freight and energy components of our inputs can fluctuate from time to time. Too early to call yet what 2025 holds. That is some of the work we'll do as we finish the year and start modeling out 2025. So hopefully that helps give you a little bit of context for the end of the year and looking into next year.

Thank you for the detailed information. I have another question regarding the growth we saw in Architectural Specialties, particularly in transportation. Is this a significant portion of AS sales, or was this growth specific to this time frame due to favorable conditions in the end-user market?

Keith, it's definitely a contributor. Some of these projects are quite large, and we've highlighted several significant projects that are playing a role. However, I don't want to overstate that the organic growth is exclusively linked to airport projects. They are a notable contributor, but we are also experiencing widespread activity across our various business sectors that are driving this organic growth. This ranges from some of the smaller locations we've added in recent years to the major metal and wood components of our business. I'm encouraged to see that the increase is really widespread. However, these large airport projects are indeed making a positive impact. When I consider our backlog, they are helping to create a healthy backlog that gives us confidence for the upcoming years.

Okay. Thank you.

Thanks, Keith.

Your next question comes from the line of Adam Baumgarten with Zelman & Associates. Your line is open.

Hi, good morning, guys. Just on the topic of AUV.

Good morning.

On the topic of AUV, considering the August price increase that appears to have gone well, do you expect AUV to possibly accelerate a bit year-over-year in the fourth quarter to meet the guidance you've provided?

Yes, we've had some nice realization really both in our February and our August price increases throughout the year. As you remember, we got back to some normalization with our price increases and the size of our price increases and the realization again has been really good. The teams have done a nice job on that. You know, what we didn't have in the third quarter was a strong positive mix component of AUV. In fact, it was flat, as Chris mentioned. So what we expect in the fourth quarter is more contribution from the mix side as the channel mix kind of normalizes out and to your point, should be a bit of an acceleration on AUV in the fourth quarter versus our third quarter performance. Similar like-for-like pricing, but a little bit more contribution on the mix side.

Okay, great. Regarding SG&A in Mineral Fiber, it has been a challenge year-over-year for the last couple of years, but it seems to be improving slightly. How do you anticipate that will trend into the fourth quarter and potentially into 2025?

I'm sorry, what was the first part of that, Adam?

Regarding Mineral Fiber SG&A, it has been a year-over-year challenge for the last couple of years. Is that starting to ease? It appears to have declined slightly in the third quarter. How should we approach that for the fourth quarter and into next year?

Yes, Adam. In the fourth quarter, I would say we experienced a slight moderation compared to Q3. Looking ahead to 2025, we have set a foundational level for our growth investments, and the incremental growth has been relatively small. When I adjust for certain factors we've discussed in recent quarters, such as incentive compensation, I see that we will continue to aim for SG&A as a percentage of sales to drop below 20% and focus on leveraging our investments to achieve that operating leverage. I believe the fourth quarter will be somewhat similar to Q3, perhaps slightly better. As we move into the New Year, we are determined to gain leverage from our investment base and continue driving profitable growth.

Great. Thanks. Best of luck.

Thank you.

Thank you.

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

Hi, good morning. Thanks for taking my questions. For the fourth quarter, I think you said that for AS segment, you would have quarter-over-quarter revenue growth, which does imply like a pretty big acceleration. So first, the first question on this like is what's driving that? And then what does that imply for Mineral Fiber volume and what are kind of the puts and takes there?

Yes. Hi, Rafe, it's Chris. So let me start with the second part first. So with Mineral Fiber volume, kind of expecting a flattish fourth quarter on that particular side of the business, just to help frame that. You know, again, Vic outlined the AUV component. So AUV, a bit of a step up from Q3, but with flattish volumes in Q4. On the AS side, you know, speaking specifically, I think you're referring to the organic component of the business and the top line growth that we're referring to there. So we do expect to see top line acceleration sequentially in the fourth quarter on the organic side of the business. And again, continued EBITDA margin expansion as we finish out the year organically. So hopefully, that helps frame that a bit for you.

That's helpful on the components. And then just following up on an earlier question just on the SG&A cycle. If I go back four or five years, like the SG&A as a percent of sales is up quite a bit. You've made really significant investments in like, you know, Canopy and Project Works. Can you talk about like the return you've seen on those investments, where you are in those like the investment cycle for those? And then how do we think about that going forward?

Yes, Rafe, let me take that. The investments that we started really back in 2019 on these growth initiatives, the two of which you've mentioned. And we continued through the pandemic, right? And that's the SG&A step-up that you've been referencing there. Those were some foundational investments, because these were some real white space in which we were investing in. As we have talked about, we're kind of past the foundational investment levels for those initiatives and we are seeking the operational leverage, which we started in ‘23 to get and we've continued in '24 to get good operating leverage on those initiatives. In fact, I've been reporting that we've been EBITDA positive from those initiatives. That's going to continue. I don't think those investments, the way we look at those particular platforms of initiatives going forward as needing the foundational level of investments going forward. So we're confident that we can continue to generate the operating leverage and get higher and higher returns on those initiatives. So we feel good about where we are with those. And again, I feel like now looking back, I'm glad that we continued those investments through the pandemic instead of cutting them or pairing them back because they're really materializing and helping us offset this continued weakness that's lingered on in the commercial markets. And so yes, I think going forward, we should continue to generate greater and greater operating leverage on those initiatives.

That's really helpful. Thank you.

You bet. Thank you.

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

Hi, this is Aatish on for Steve. Thanks for taking my question. You touched on this a little bit in the script. For Mineral Fiber in the quarter, can you talk about which markets outperformed and underperformed? And then kind of looking forward, do you see any kind of shift in this than anything you're seeing right now? Thanks.

On the Mineral Fiber side, the third quarter showed consistency with what we've been discussing in previous quarters regarding the different sectors. Office space remains stable but at a lower level, indicating softer conditions. In contrast, healthcare and education, along with transportation, were positive contributors, and data centers also added to the performance. However, it's important to note that transportation and data centers are relatively small segments. Overall, education and healthcare remained positive, which was offset by ongoing softness in the office market, although we have observed encouraging signs of stabilization in that area.

That's great. Thank you.

Your next question comes from the line of Garik Shmois with Loop Capital. Your line is open.

Hi, thanks. Just on the mix impact in 3Q on AUV, just to be clear, is that mostly a function of the growth you saw in retail? And I guess just to drill in on the retail strength that you commented on, was it primarily a load in or are you seeing point of sale accelerated slow?

Yes, Garik on the mix impact, it was nearly all on the channel mix and driven by retail. One of the things that I want to make sure I highlight is the underlying product mix of the business, which is driven by sales growing faster at the higher end of our portfolio, driven by our specification work, that continues to be a real positive and positive contributor like it has for years, frankly. That's still moving forward this quarter-to-quarter noise we can get sometimes on the retail channel is what we experienced in the third quarter that pushed the mix to flat overall. But what I mentioned in my prepared remarks, we were awarded some additional stores at one of our big box customers, we had earned that business based on really good service and the way that we're handling these accounts. So we're happy to be awarded these accounts and these new stores, which require you to populate the shelves and to load in these new stores. And so that's what we experienced in the third quarter. And again, that is the overwhelming cause of the mix being dampened down in the third quarter.

And maybe, Garik, just a reminder also in terms of full-year AUV, so through nine months, we've seen really strong pricing and positive mix results on our year-to-date AUV performance despite the Q3 impact that Vic mentioned.

Okay. Yes, that makes sense. And then I wanted to follow-up just on a comment you made around manufacturing productivity coming in ahead of your targets. I was wondering if you could maybe expand on that a little bit more, is it related to some of those longer-term initiatives you called out with respect to cycle times and scrappage? Or is there anything that could maybe a little bit more besides those longer-term items that are driving some of the productivity improvements that you saw in the third quarter?

Yes, one of the things I did mention that is very fundamental to your productivity is just running the plants really well, right? And not having a lot of downtime and just being very effective in the runs that we need to make. That was really a big foundational component of our productivity gains in the quarter as the plants were running very well. We had some record plant reliability numbers in some of our plants. So it really starts with that. Fundamentally, you have got to run the plants really well. And then on top of that, with your initiatives around scrap reduction of overall quality, first pass yield on quality, some of the things that can drive costs up in the plant being really good on those fronts was the driver and it's been consistent actually throughout the year how well our plants have run.

Yes, no, that makes sense. I appreciate it. Best of luck.

Yes, thank you.

Thanks, Garik.

Your next question comes from the line of Kathryn Thompson with TRG. Your line is open.

Hi, thank you for taking my question today. Just following up on recent WAVE acquisition in the data center space. Give a little bit more color on this acquisition and also when you think about M&A and growing the Armstrong portfolio, more color in terms of how much you're focused on the data center space versus other areas for growth? Thanks.

Yes, Kathryn thanks for the question. Yes, data centers, we believe is a terrific kind of new and emerging, if you will, vertical. We're very focused on it. There is a lot of opportunity for design and design trends to make them even more efficient, more energy efficient. So we're really excited about that space and what we can bring to it. You know, one of the fundamental things about data center design is the grid system, because more and more is being suspended from the grid system from cable trays to containment for heating and cooling separation. There is a lot of things that hinge on the design of that grid system in the ceiling. And, you know, that's really one of our strengths as a company. So we have a real right to play here that stems from really efficient design of that skeleton if you will in the ceiling. So this acquisition you're referring to is an extension of what we can bring into the ceiling and the ceiling grid system. It's really highly structural, but it's componentry that's going to hang off of that grid system to provide more of the heating and cooling solutions that data centers are looking for. So it's an exciting area. It's a really small acquisition to get us started in this space to build off of our success in the grid system. And again, most of these data centers that we're working on, most of them, the vast majority of them have ceilings in them and this is how they control the environment for heating and cooling. So it's a nice upward opportunity for us. And our WAVE joint venture, this acquisition was in that joint venture, because they are at the point of the spear in terms of how we want to support given the importance of the structural grid system that goes in these data centers. So it's an exciting one. And it's an area of focus for us as a company, but certainly the WAVE joint venture.

How you go after business for data centers is going to be different than some more of what I call traditional end markets, be it hospitality or office. How do you approach the strategy towards gaining growth and gaining sales and gaining mind share specifically in data centers throughout the U.S.?

Well, the good news here, a lot of it is specification driven, right? Architects are designing data centers and they're specifying what materials go in those data centers. They're employing contractors to do the installation, the model is actually quite similar. There are different sets of architects and in some cases, different sets of contractors. But the overall strength of how you win a specification plays right to Armstrong's strength. So yes, that's how we plan to approach it. You know, one of the things that we've done in our ceiling business around ProjectWorks and being able to automate the design, we've been able to incorporate these structural grid components now in ProjectWorks. And so we're using the ProjectWorks tool also to drive automation and productivity for the architects and the contractors for these complex grid systems.

Yes, we're just finding in some of our work that the decision-making processes for data centers have been a big departure from other types of projects and so that was really the driver for that question. Thanks again for your time today. Have a good one.

Appreciate it. Thank you.

Your next question comes from the line of Fiona Shang with Jefferies. Your line is open.

Hi, this is Fiona on for Phil Ng, congrats on a good quarter. You mentioned the market condition continued to stabilize. So just curious about your thoughts in terms of the recovery as we're going into 2025. Should we be expecting some more growth in the second half of 2025 following the rate cuts?

When we analyze the market, particularly in terms of new construction versus renovation, it's clear that new construction activity has been positive throughout 2024. New construction starts, measured in square footage, have consistently outpaced rental activity this year. Looking ahead to 2024, I anticipate a potential boost in activity during the second half of 2025 from these new construction starts. However, a significant portion of our business, approximately 70% of our demand, is driven by renovation activity in the existing market. This segment will depend more heavily on various factors, including interest rates, which will influence consumer confidence and their willingness to engage in discretionary renovations that are currently on hold. As we continue through the year and into our planning for next year, we need to evaluate how much of this renovation activity may return and at what rate, as it will impact the overall demand profile for 2025. Overall, I believe there are more opportunities for positive momentum entering 2025 than there are challenges. We'll have a clearer picture by February when we provide our full-year outlook.

Perfect. That's helpful. And then just a quick follow-up. Margin expansion for Mineral Fiber this quarter was pretty good. So how should we think about the cadence for this segment going into 2025? Any colors on margins or revenue will be helpful?

Chris, you want to take this?

Yes, sure. So yes, healthy margins in Mineral Fiber. And again, you can see the performance relative to our best quarterly performance since 2019 for the third quarter. The way we think about margins in Mineral Fiber is just kind of going back to the building blocks and core value drivers that Vic outlined earlier continued pricing execution. And again, we look at all of the inputs and components in order to determine our pricing for the year and really at a minimum to offset inflation. It's the continued ability to drive manufacturing productivity in our plants, again to drive that margin expansion. And then again, all of the pull together of all of the execution in terms of controlling our costs, making disciplined investment decisions to get those returns should yield future and ongoing margin expansion. So that's how we look at the algorithm. That's how we look at the fundamentals of the business. And that's how we run the business is to continue to drive profitable growth with ongoing margin expansion.

Okay, thank you.

Thank you.

You're welcome.

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

Good morning, guys. Thanks for taking my questions as well. The first one is just on, I think, Vic, you characterized the Mineral Fiber volumes as sort of stabilizing, moving sideways. You know, in the context of the slight decline in volume from Mineral Fiber that you guys posted in the quarter, where did the market or how did the market perform? And how much would you say are you outperforming? And as we move into next year, how do you see that kind of spread between the market and the Armstrong's ability to outperform?

Yes, John, the market overall appeared to be relatively consistent in the third quarter, similar to the previous two or three quarters, reflecting a low single-digit downturn. Our initiatives contributed slightly over 1% in terms of incremental volume, which does not fully offset the market softness but addresses a significant portion of it. This has been a steady trend throughout the year based on the initiatives we've discussed. Looking ahead to next year, I anticipate that our growth initiatives will maintain their trajectory, especially as we introduce new projects like energy-saving ceiling tiles and low embodied carbon products. We are confident that these initiatives can continue to contribute more than 1% to the business, depending on market conditions. For now, we seem to be progressing sideways until this uncertainty is resolved, but I believe the difference between our market performance and our growth initiatives should still be in that 1% range.

Okay, makes sense. And then at the beginning of the call, that you guys mentioned the hurricane impact and it's always a little bit uncomfortable to talk about the rebuild effort and what your role could be in that. But is there any opportunity for Armstrong to participate in the rebuild that will occur there ultimately?

Yes, it's early to tell, John on that with this kind of storm, it usually is later in the cycle versus early in the cycle. So I think to be determined. I think like in similar storms, there has been a little bit, but it's not a big needle mover and material to the overall profile of the business. That's kind of how we're thinking about this one at this point, but it's kind of early to tell.

Understood. Thanks for the color.

Okay. Thank you.

There are no further questions at this time. I will turn it back over to Vic Grizzle, President and CEO for closing remarks.

Thank you all for joining our call today. Again, we're well positioned to finish the year strong, as Chris mentioned, and well positioned for whatever the market conditions happen to be in ‘25. And we're very pleased with the demonstration of really strong execution and the overall resilience of the business model and we think that's going to continue as we go forward into 2025. So look forward to talking to you later. Again, thank you for joining.

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