GlobeNewswire Inc | Jul 28, 2020 06:00AM EDT

July 28, 2020

Key Highlights

-- Net sales of $203.2 million, down 25% versus the prior year quarter -- Operating income of $62.4 million, down 28% versus the prior year quarter -- Adjusted EBITDA down 36% versus the prior year quarter -- FY 2020 Outlook: Revenue down 10%-18% and adjusted Free Cash Flow margin 22%-25% -- Acquired Turf Design, the leading manufacturer of felt ceilings, walls, and barrier solutions

LANCASTER, Pa., July 28, 2020 (GLOBE NEWSWIRE) -- Armstrong World Industries, Inc. (NYSE:AWI), a leader in the design, innovation and manufacture of commercial and residential ceiling, wall and suspension system solutions, today reported financial results for the second quarter of 2020.

Second Quarter Results from Continuing Operations

(Dollar amounts in millions For the Three Months except per-share data) Ended June30, 2020 2019 Change Net sales $ 203.2 $ 272 (25.3 )%Operating income $ 62.4 $ 87.2 (28.4 )%Earnings from continuing $ 49.5 $ 63.7 (22.3 )%operationsDiluted earnings per share $ 1.03 $ 1.28 (19.5 )%

Net sales decreased compared to the prior year quarter, driven by lower volumes in both the Mineral Fiber and Architectural Specialties segments as a result of lower market demand due to COVID-19, as well as unfavorable Mineral Fiber AUV. The unfavorable AUV was driven by mix primarily due to regional weakness in major metropolitan areas impacted by COVID-19. Like for like price was positive in the quarter.

Operating income decreased from the prior year quarter, driven primarily by lower volume in the Mineral Fiber segment and lower earnings from our WAVE joint venture, partially offset by lower SG&A expenses and improved manufacturing productivity. The second quarter of 2020 also benefitted from a $14 million gain on the sale of our idled mineral fiber plant in China, which was reported as a component of our Unallocated Corporate segment.

The second quarter of 2020 was unprecedented in many ways, and created numerous challenges for our teams and partners. I am pleased that the Armstrong team found ways to operate safely, prioritize the needs of our customers, and quickly pivot our focus to the products and solutions that will be needed as the economy reopens. We are seeing sequential improvement in the quarter and are focused on a future that will demand safer interior environments in schools, offices, healthcare facilities and other spaces, said Vic Grizzle, President and CEO of AWI. Im also very pleased to announce our acquisition of Chicago-based Turf Design. Turf is the leader in the fast growing specialty category of felt ceilings, walls and screening systems. This is an exciting acquisition for AWI, which further strengthens our leading position in specialty ceiling and wall solutions, and enhances our design and go-to-market capabilities and capacities. Lastly, in a demonstration of confidence in our continued cash flow generation, our Board of Directors has authorized an increase in our share repurchase program from $700 million to $1.2 billion and extended the term until 2023.

Additional (non-GAAP*) Financial Metrics from Continuing Operations

(Dollar amounts in millions For the Three Months except per-share data) Ended June30, 2020 2019 Change Adjusted EBITDA $ 69 $ 108 (36.3 )%Adjusted net income $ 36 $ 63 (42.7 )%Adjusted diluted earnings per $ 0.75 $ 1.27 (40.6 )%shareAdjusted free cash flow $ 63 $ 55 14.6 %

* The Company uses the above non-GAAP adjusted measures in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. The Company also believes that the adjustments help users of our financial information understand the effect of those adjusted items on our selected reported results and provide useful alternative measurements of performance. See Supplemental Reconciliations of GAAP to non-GAAP results (below) for a breakdown of the adjustments and a reconciliation of the selected reported results to these non-GAAP measures.

(Dollar amounts in For the Three Months Ended millions) June30, 2020 2019 Change Adjusted EBITDA Mineral Fiber $ 62 $ 96 (34.8 )%Architectural Specialties 6 12 (47.9 )%Consolidated Adjusted $ 69 $ 108 (36.3 )%EBITDA

Consolidated adjusted EBITDA declined 36% in the second quarter when compared to the same prior year period, driven primarily by lower volumes, partially offset by lower SG&A expenses and improved manufacturing productivity.

Second Quarter Segment Highlights

Mineral Fiber

(Dollar amounts in For the Three Months Ended millions) June30, 2020 2019 Change Net sales (as reported) $ 157.9 $ 214.1 (26.2 )%Operating income (as $ 45.6 $ 79.4 (42.6 )%reported)Adjusted EBITDA $ 62 $ 96 (34.8 )%

Mineral Fiber net sales decreased due to lower volume and unfavorable AUV. The unfavorable AUV was driven by mix due primarily to regional weakness in major metropolitan areas impacted by COVID-19. Like for like price was positive in the quarter.

Operating income decreased in the second quarter primarily due to the negative impact of lower volumes, lower WAVE earnings and the impact of unfavorable AUV, partially offset by improved manufacturing productivity, higher Transition Service Agreement cost reimbursements, and a reduction in incentive compensation expenses.

Architectural Specialties

(Dollar amounts in For the Three Months Ended millions) June30, 2020 2019 Change Net sales (as reported) $ 45.3 $ 57.9 (21.8 )%Operating income (as $ 4.3 $ 9.5 (54.7 )%reported)Adjusted EBITDA $ 6 $ 12 (47.9 )%

Net sales in Architectural Specialties declined due to a reduction in demand across almost all product categories and geographies as a result of the COVID-19 pandemic.

Operating income decreased due to the negative impact of lower sales volume, as well as additional amortization expense related to acquisitions made in 2019.

Unallocated Corporate

Unallocated corporate income of $13 million compared to $2 million of expense in the prior year quarter, primarily due to the $14 million gain on the sale of our idled mineral fiber plant in China.

Year to Date Results from Continuing Operations

(Dollar amounts in For the Six Months Ended millions) June30, 2020 2019 Change Net sales (as reported) $ 451.9 $ 514.1 (12.1 )%Operating income (as $ 138.4 $ 141.9 (2.5 )%reported)Adjusted EBITDA $ 166 $ 200 (17.3 )%

Net sales decreased driven mainly by lower volumes in both the Mineral Fiber and Architectural Specialties segments and unfavorable AUV in the Mineral Fiber segment.

Operating income decreased from the prior year period, primarily due to decreased sales as a result of the COVID-19 pandemic, partially offset by the gain on sale of the idled China plant, lower SG&A expenses and improved manufacturing productivity.

Market and 2020 Outlook

Market conditions have been improving since April as more cities and states reopen construction sites. However, we continue to see variability in regional demand and, accordingly, have decided not to reinitiate our customary financial guidance for 2020 at this time. As we currently outlook the remainder of the year, assuming sequential market improvement and no second wave of market shutdowns, we expect sales for the full year to be down 10%-18% and adjusted EBITDA margins to be greater than 35%. We also continue to expect to generate a free cash flow margin of 25%, said Brian MacNeal, CFO of AWI. Our balance sheet, liquidity, and ability to generate cash remain strong, and we are keeping a close eye on key economic indicators to help gauge the duration and severity of COVID-19s impact on the economy.

Earnings Webcast

Management will host a live internet broadcast beginning at 11:00 a.m. eastern time today, to discuss second quarter 2020 results. This event will be broadcast live on the Company's website. To access the call and accompanying slide presentation, go to www.armstrongceilings.comand click Investors. The replay of this event will also be available on the Company's website for up to one year after the date of the call.

Uncertainties Affecting Forward-Looking Statements

Disclosures in this release, including without limitation, those relating to future financial results, market conditions and guidance, and in our other public documents and comments, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements provide our future expectations or forecasts and can be identified by our use of words such as anticipate, estimate, expect, project, intend, plan, believe, outlook, target, predict, may, will, would, could, should, seek, and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements, by their nature, address matters that are uncertain and involve risks because they relate to events and depend on circumstances that may or may not occur in the future. As a result, our actual results may differ materially from our expected results and from those expressed in our forward-looking statements. A more detailed discussion of the risks and uncertainties that could cause our actual results to differ materially from those projected, anticipated or implied is included in the Risk Factors and Managements Discussion and Analysis section of our report on Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission (SEC). Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements beyond what is required under applicable securities law.

About Armstrong and Additional Information

More details on the Companys performance can be found in its quarterly report on Form 10-Q for the quarter ended June30, 2020 that the Company expects to file with the SEC today.

Armstrong World Industries, Inc. (AWI) is a leader in the design and manufacture of innovative commercial and residential ceiling, wall and suspension system solutions in the Americas. With over $1 billion in revenue in 2019, AWI has approximately 2,500 employees and a manufacturing network of 13 facilities, plus five facilities dedicated to its WAVE joint venture.

Additional forward looking non-GAAP metrics are available on the Companys website at www.armstrongceilings.comunder the Investors tab. The website is not part of this release and references to our website address in this release are intended to be inactive textual references only.

As Reported Financial Highlights

FINANCIAL HIGHLIGHTSArmstrong World Industries, Inc. and Subsidiaries(Amounts in millions, except for per-share amounts, quarterly data is unaudited)

For the Three Months For the Six Months Ended Ended June30, June30, 2020 2019 2020 2019 Net sales $ 203.2 $ 272 $ 451.9 $ 514.1 Cost of goods 135.4 168.6 292.8 319.3 soldGross profit 67.8 103.4 159.1 194.8 Selling,general and 33 37.4 67.8 93 administrativeexpensesGain on sale offixed and (14.1 ) - (14.1 ) - intangibleassetsEquity earningsfrom joint (13.5 ) (21.2 ) (33.0 ) (40.1 )ventureOperating 62.4 87.2 138.4 141.9 incomeInterest 5.9 9.5 12.6 19.9 expenseOthernon-operating (4.4 ) (5.4 ) 365 (10.9 )(income)expense, netEarnings (Loss)from continuingoperations 60.9 83.1 (239.2 ) 132.9 before incometaxesIncome taxexpense 11.4 19.4 (66.1 ) 32.8 (benefit)Earnings (Loss)from continuing 49.5 63.7 (173.1 ) 100.1 operationsNet gain (loss)from 0.8 (6.9 ) (2.8 ) (4.7 )discontinuedoperationsNet earnings $ 50.3 $ 54.5 $ (175.9 ) $ 93.6 (loss) Earnings (Loss)per dilutedshare of common $ 1.03 $ 1.28 $ (3.61 ) $ 2.01 stock,continuingoperations: Earnings (Loss)per dilutedshare of common $ 0.02 $ (0.19 ) $ (0.06 ) $ (0.13 )stock,discontinuedoperations: Net earnings(loss) per $ 1.05 $ 1.09 $ (3.67 ) $ 1.88 diluted shareof common stock Average numberof diluted 48 49.8 47.9 49.6 common sharesoutstanding:

SEGMENT RESULTSArmstrong World Industries, Inc. and Subsidiaries(Amounts in millions)(Unaudited)

Three Months Ended Six Months Ended June30, June30, 2020 2019 2020 2019 Net Sales Mineral Fiber $ 157.9 $ 214.1 $ 355.6 $ 410.8 Architectural 45.3 57.9 96.3 103.3 SpecialtiesTotal net sales $ 203.2 $ 272 $ 451.9 $ 514.1 Three Months Ended Six Months Ended June30, June30, 2020 2019 2020 2019 Segment operating income (loss)Mineral Fiber $ 45.6 $ 79.4 $ 115.6 $ 127 Architectural 4.3 9.5 11.8 18.7 SpecialtiesUnallocated 12.5 (1.7 ) 11 (3.8 )CorporateTotal consolidated $ 62.4 $ 87.2 $ 138.4 $ 141.9 operating income

Selected Balance Sheet Information(Amounts in millions)

June30, December31, 2019 2020Assets Current assets $ 320 $ 244.4 Property, plant and equipment, net 514.9 524.6 Other noncurrent assets 709.4 724.3 Total assets $ 1,544.30 $ 1,493.30 Liabilities and shareholders? equity Current liabilities $ 156.9 $ 155.2 Noncurrent liabilities 984.5 973.2 Equity 402.9 364.9 Total liabilities and shareholders? $ 1,544.30 $ 1,493.30 equity

Selected Cash Flow Information(Amounts in millions)(Unaudited)

For the Six Months Ended June30, 2020 2019 Net (loss) earnings $ (175.9 ) $ 93.6 Other adjustments to reconcile net (loss)earnings to net cash provided by operating 278.7 11.8 activitiesChanges in operating assets and liabilities, (24.1 ) (58.4 )netNet cash provided by operating activities 78.7 47 Net cash provided by(used for) investing 10.3 (31.6 )activitiesNet cash (used for) financing activities (16.7 ) (102.6 )Effect of exchange rate changes on cash and (0.5 ) 1.8 cash equivalentsNet increase (decrease) in cash and cash 71.8 (85.4 )equivalentsCash and cash equivalents at beginning of year 45.3 335.7 Cash and cash equivalents at end of period $ 117.1 $ 250.3

Supplemental Reconciliations of GAAP to non-GAAP Results (unaudited)(Amounts in millions, except per share data)

To supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (GAAP), the Company provides additional measures of performance adjusted to exclude the impact of certain discrete expenses and income. Investors should not consider non-GAAP measures as a substitute for GAAP measures. Examples of excluded items include plant closures, restructuring charges and related costs, impairments, separation costs, environmental site expenses and related insurance recoveries, and certain other gains and losses. The Company also excludes income/expense from its U.S. Retirement Income Plan (RIP) in the non-GAAP results as it represents the actuarial net periodic benefit credit/cost recorded as a component of operating income. For all periods presented, the Company was not required and did not make cash contributions to the RIP based on guidelines established by the Pension Benefit Guaranty Corporation, nor does the Company expect to make cash contributions to the plan in 2020. Adjusted free cash flow is defined as cash from operating and investing activities, adjusted to remove the impact of cash used or proceeds received for acquisitions and divestitures, legacy environmental matters and litigation. The Company believes adjusted free cash flow is useful because it provides insight into the amount of cash that the Company generates for discretionary uses, after expenditures for capital investments and adjustments for acquisitions and divestitures. The Company uses these adjusted performance measures in managing the business, including communications with its Board of Directors and employees, and believes that they provide users of this financial information with meaningful comparisons of operating performance between current results and results in prior periods. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance, as well as prospects for its future performance. The Company also uses adjusted EBITDA and adjusted free cash flow as factors in determining at-risk compensation for senior management. These non-GAAP measures may not be defined and calculated the same as similar measures used by other companies. A reconciliation of these adjustments to the most directly comparable GAAP measures is included in this release and on the Companys website. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.

In the following charts, numbers may not sum due to rounding.

Consolidated Results From Continuing Operations Adjusted EBITDA

For the Three Months For the Six Months Ended June30, Ended June30, 2020 2019 2020 2019 Earnings (Loss) fromcontinuing operations, $ 50 $ 64 $ (173 ) $ 100 ReportedAdd: Income tax expense 11 19 (66 ) 33 (benefit), as reportedEarnings (Loss) before $ 61 $ 83 $ (239 ) $ 133 tax, ReportedAdd: Interest/other 2 4 378 9 income and expense, netOperating Income, $ 62 $ 87 $ 138 $ 142 ReportedAdd: RIP Cost (1) 1 1 3 2 Add: WAVE Pension - 1 - 1 Settlement (2)Add: Litigation Expense - - - 20 (3)Add: Net Environmental - - 1 - ExpensesLess: Gain on Sale ofIdled China Plant (14 ) - (14 ) - FacilityOperating Income, $ 49 $ 89 $ 128 $ 165 AdjustedAdd: D&A 20 19 38 35 Adjusted EBITDA $ 69 $ 108 $ 166 $ 200

(1) U.S. pension expense represents only the service cost related to the RIP that is recorded within Operating Income. For all periods presented, we were not required and did not make cash contributions to our RIP.(2) WAVE settled a portion of their pension plan, resulting in a non-cash accounting charge.(3) Represents Rockfon litigation costs and settlement.

Mineral Fiber

For the Three Months For the Six Months Ended Ended June30, June30, 2020 2019 2020 2019 Operating Income, $ 46 $ 79 $ 116 $ 127 ReportedAdd: WAVE Pension - 1 - 1 Settlement (1)Add: Litigation - - - 20 Expense (2)Add: NetEnvironmental - - 1 - ExpensesOperating Income, $ 45 $ 80 $ 116 $ 148 AdjustedAdd: D&A 17 15 33 30 Adjusted EBITDA $ 62 $ 96 $ 149 $ 178

(1) WAVE settled a portion of their pension plan, resulting in a non-cash accounting charge.(2) Represents Rockfon litigation costs and settlement.

Architectural Specialties

For the Three Months Ended For the Six Months June30, Ended June30, 2020 2019 2020 2019 Operating $ 4 $ 10 $ 12 $ 19 Income, ReportedAdd: D&A 2 3 4 4 Adjusted EBITDA $ 6 $ 12 $ 16 $ 22

Unallocated Corporate

For the Three Months For the Six Months Ended June30, Ended June30, 2020 2019 2020 2019 Operating Income $ 13 $ (2 ) $ 11 $ (4 )(Loss), ReportedAdd: RIP Cost (1) 1 1 3 2 Less: Gain on Sale ofIdled China Plant (14 ) - (14 ) - FacilityOperating (Loss), $ (0 ) $ (1 ) $ (0 ) $ (1 )AdjustedAdd: D&A - 1 0 1 Adjusted EBITDA $ - $ - $ - $ -

(1) U.S. pension expense represents only the service cost related to the U.S. pension plan that is recorded within Operating Income. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income Plan.

Adjusted Free Cash Flow

For the Three For the Six Months Months Ended Ended June30, June30, 2020 2019 2020 2019 Net cash provided by $ 53 $ 32 $ 79 $ 47 operationsNet cash provided by (used $ - 6 $ 10 (32 )for) investing activitiesAdd/(Less): Acquisitions, net - - - 43 Add: Litigation, net - 17 - 20 Add/(Less): Environmental - - 1 (5 )Payments (Recoveries), netAdd: Net Payments to WAVE forPortion of Proceeds from Sale 10 - 10 - of International BusinessesAdjusted Free Cash Flow $ 63 $ 55 $ 100 $ 74

Consolidated Results From Continuing Operations Adjusted Diluted Earnings Per Share

For the Three Months Ended June30, For the Six Months Ended June30, 2020 2019 2020 2019 Per Per Per Per Total Diluted Total Diluted Total Diluted Total Diluted Share Share Share ShareEarnings(Loss) fromcontinuing $ 50 $ 1.03 $ 64 $ 1.28 $ (173 ) $ (3.61 ) $ 100 $ 2.01 operations,As ReportedAdd/(Less):Income taxexpense 11 19 (66 ) 33 (benefit), asreportedEarnings(Loss) fromcontinuingoperations $ 61 $ 83 $ (239 ) $ 133 before incometaxes, AsReportedAdd/(Less):RIP Expense (2 ) (2 ) 370 (4 ) (Credit) (1)Add: WAVEPension - 1 - 1 Settlement(2)Add:Litigation - - - 20 Expense (3)Add: NetEnvironmental - - 1 - ExpensesLess: Gain onSale of Qing (14 ) - (14 ) - Pu FacilityAdjustedearnings fromcontinuingoperations $ 45 $ 82 $ 117 $ 150 beforeincometaxes(Less):Adjusted (8 ) (19 ) (32 ) (37 ) Income taxexpense (4)Adjusted net $ 36 $ 0.75 $ 63 $ 1.27 $ 85 $ 1.76 $ 113 $ 2.28 incomeAdjusted EPSChange versus -41% -23% Prior Year DilutedShares 48 49.8 48.4 49.6 Outstanding(5)As Reported 19% 23% 28% 25% Tax Rate

(1) RIP expense (credit) represents the entire actuarial net periodic pension expense (credit) recorded as a component of earnings from continuing operations. For all periods presented, we were not required and did not make cash contributions to our RIP.(2) WAVE settled a portion of their pension plan, resulting in a non-cash accounting charge. (3) Represents Rockfon litigation costs and settlement.(4) Adjusted income tax expense is calculated using the as reported tax rate multiplied by the adjusted earnings from continuing operations before income taxes.(5) 2020 Dilutive shares outstanding for the six months ended June 30, 2020 include anti-dilutive common stock equivalents which are excluded from U.S. GAAP accounting. Dilutive shares outstanding for the three months ended June 30, 2020 and for the three and six months ended June 30, 2019 are as-reported.