Armstrong World Industries, Inc. (AWI) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Armstrong World Industries Incorporated Q3 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will host a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Mr. Tom Waters, Vice President, Treasury and Investor Relations. Sir, you may begin. Thomas J. Waters - Vice President-Treasury & Investor Relations: Thanks, Trisha. Good morning and welcome. Please note that members of the media have been invited to listen to this call and the call is being broadcast live on our website at armstrong.com. With me today are Matt Espe, our President and CEO; Dave Schulz, our CFO; Don Maier, CEO of our Worldwide Floor Businesses; and Vic Grizzle, CEO of our Worldwide Ceilings Business. Hopefully, you have seen our press release this morning and both the release and the presentation Dave Schulz will reference during this call are posted on our website in the Investor Relations section. I advise you that during this call we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect Armstrong, please review our SEC filings, including the 10-Q filed this morning. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law. In addition, our discussion of operating 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 press release and in the appendix of the presentation. Both are available on our website. With that, I'll turn the call over to Matt. Matthew J. Espe - President, Chief Executive Officer & Director: Thanks, Tom. Good morning, everyone. On our call today, I'll provide an overview of our quarterly and year-to-date results and update our guidance. I'll also discuss our initial Form-10 filing for the flooring business, and then Dave will give you a detailed discussion of our results and help bridge the financial information in the Form-10 through our historical segment results. For the third quarter, reported sales of $659 million are down $20 million or 3% from the prior year. The decline is entirely due to foreign exchange movements. On a comparable dollar basis, sales are actually up just over 1%. On this basis, all geographies grew sales, adjusted EBITDA of $128 million is up $6 million from the prior year. And note in the quarter, our North American ceilings business delivered record bottom line results with EBITDA of over $100 million for the first time ever. Price over inflation, productivity and mix improvements continue to drive the bottom line in the Americas. This is the second consecutive record third quarter earnings results for the Americas ceilings team to continue to raise the bar. Year-to-date reported sales of $1.843 billion are down $85 million or 4% from the first nine months of 2014. Again, foreign exchange had a significant impact. On a comparable foreign exchange basis, sales are down less than 1% year-to-date. The sales decline is attributable to the wood segment and ceilings in Europe. All other segments and geographies have higher year-to-date sales on a comparable exchange basis. Adjusted EBITDA for the first nine months of 2015 of $315 million is up $6 million versus last year, driven by the improved profitability of the third quarter. Sales for the quarter were slightly below our expectations due to engineered wood product availability here in North America, and softness in the China office sector impacting our ceilings business. We anticipate these trends will continue into the fourth quarter. Overall, North American ceilings sales were more or less where we expected. Volume was up in the U.S. but Canadian volume was down leading to a less than 1% decline versus last year. This represents a sequential improvement from the first half. Elsewhere sales of ceilings in India, VCT in the Americas and Architectural Specialties globally continued to be bright spots. EBITDA performance in the quarter was better than we expected due to realized and anticipated lumber cost declines. Dave will get into this in more detail, as he discusses the wood results. Based on third quarter results and our outlook for the fourth quarter, we are trimming the top end of our sales guidance range by $50 million, but we're raising the midpoint of our earnings guidance by $10 million. Now, with regards to the separation process, we passed a significant milestone in the quarter when we filed our initial draft of the Armstrong Flooring, Inc. Form 10 on October 8. This filing intentionally contain several sections that are incomplete at this time, things like the effect of data separation, capital structure, dividend policy, full listing of management and boards of directors and others. Now, this is typical for an initial submission, as we continue to make decisions regarding these topics, they'll be reflected in subsequent amended filings. This filing also summarizes several key agreements that will define how the separation transaction will be concluded. AWI and AFI will enter into and finalize these agreements prior to separation. The Form 10 also presents the flooring business's historical financial results on a carve-out basis. And Dave will explain how this was done and what it means. So with that, let me turn the call over to Dave. David S. Schulz - Chief Financial Officer & Senior Vice President: Thanks, Matt, and good morning to everyone on the call. In reviewing our third quarter results, I'll be referring to the slides available on our website, starting with slide 4, key metrics. As Tom Waters already covered slide 2 and slide 3 is an explanation of our standard basis of presentation. Sales in the quarter of $679 million are up 1% versus 2014 on a comparable foreign exchange basis. Operating income and EBITDA are both up 5%. EPS is lower due to a $14 million non-cash charge related to the revaluation of the intercompany loans we have in place to fund our Russian and Chinese investments, which negatively impacted EPS versus the prior year by $0.12. As the ruble and to a lesser extent the RMB devalued, we had to write down the U.S. dollar carrying value of these loans. In the quarter, our free cash flow was up slightly from 2014. Net debt was down $138 million, driven by our cash generation over the past year. Return on invested capital was down due to a lower as reported profitability in the trailing 12 months, including the higher non-cash pension expense and separation costs. Slide 5 details the adjustments we made to EBITDA and provides a reconciliation to our reported net income of $30 million in the quarter. As with prior quarters, we exclude the impact of our non-cash U.S. pension expense of $6 million and costs associated with the flooring separation process of $7 million from our adjusted numbers. The $6 million cost reduction charge in 2014 was largely related to expenses associated with exiting our Kunshan, China engineered wood facility, and Thomastown, Australia vinyl tile plant. The interest/other line is the result of the non-cash intercompany foreign exchange loss that I just mentioned. The third quarter tax expense was similar to 2014. Moving to slide 6, this illustrates our sales and adjusted EBITDA by segment for the quarter. I'll talk through the businesses on the next few slides, but want to note here that corporate segment expenses were up in the quarter, driven by the timing of IT spend, but are down on a year-to-date basis. Slide 7 provides additional color on the Building Products segment results. Ceiling sales were up 2% on an equivalent foreign exchange basis, with price and mix gains in all geographies offsetting volume declines. Sales in emerging markets were down year-over-year, led by declines in China and Russia. Sales to India continue to very strong versus the prior year. As Matt mentioned, North American commercial sales improved sequentially from the first half of the year, despite continuing weakness in the healthcare vertical as well as constrained repair and remodel activity across most end markets. Regionally, the Northeast and Northwest were down, as the Northwest is facing a tough comparison. The South Central and West Central regions showed strong growth versus the prior year quarter. Building Products EBITDA was up $6 million in the quarter. Price gains offset volume declines and transactional foreign exchange headwinds. The record performance in the Americas that Matt mentioned drove the improvement as profitability in Europe and the Pacific Rim was essentially flat with 2014. Americas EBITDA margins in the quarter expanded more than 100 basis points versus the prior year as the impact of lower volume was more than offset by the benefits of price, mix, productivity and slightly lower energy costs. Slide 8 illustrates our Resilient segment results. Excluding the impact of foreign exchange, Resilient Flooring sales are up 3% as gains in North American VCT and the Pacific Rim offset continued weakness in residential products. Price and mix are down as we reduced prices to stem the residential share losses in 2014. Additionally, mix was negatively impacted as VCT volumes were up disproportionately versus higher price products. Resilient profitability was down $1 million. Increased spending on displays and other selling tools, as well as costs associated with the start-up of the LVT plant offset VCT sales increases and lower raw material costs in the quarter. Page 9 lays out our wood segment results. Wood sales are down $5 million as price and volume declines more than offset continued mix gains. Volume gains in solid wood were more than offset by declines in engineered wood due to continued capacity issues we are working through at our Somerset engineered wood facility. Progress is being made, but it will be 2016 before we restore engineered wood to our desired service levels. Wood adjusted EBITDA was up $5 million as a result of lower input costs. Note that the benefit of lower lumber costs far exceeds the year-over-year impact of pricing. Recall, we initiated several pricing actions in the second half of 2014 to be competitive with other industry leaders across multiple channels. With lumber prices declining in 2015, we continue to monitor our position relative to competition and evaluate it within the context of our strategy to drive profitable volume and improved mix across our portfolio. Additionally, given the high inventory levels required in the solid wood business, LIFO tends to accelerate the impact of both rising and falling lumber prices and this year, we are benefiting from significantly lower lumber costs. We anticipate this will continue in the fourth quarter, but not likely in 2016. Slide 10 shows the building blocks of adjusted EBITDA for the consolidated company from the third quarter of 2014 to our current results. As mentioned, we benefited from lower input costs, primarily in the flooring segments. Price and mix were down with lower selling prices in our residential flooring businesses, offsetting mix gains in the wood segment, and price improvements in the ceilings business. Manufacturing costs were slightly higher as a result of our challenges at Somerset, the LVT plant startup, and the expansion of operations at our Vicksburg, Mississippi engineered wood facility. The SG&A increases are primarily the continuation of our investments in the flooring business. Turning now to slide 11, you can see our free cash flow for the quarter versus last year. Working capital improvements and reduced capital spending offset lower cash earnings and other timing items. As we have mentioned in the past, quarterly cash flow can be volatile, but unusual items tend to even out over time, and as you will see in a few slides, our year-to-date other cash items are minor. Slides 12 and 13 depict our key metrics and our sales and adjusted EBITDA by segment for the first nine months of 2015. These slides are self explanatory, so I'll move on to our year-to-date bridge on slide 14. As you can see for the year, adjusted EBITDA is up $6 million. Input costs continue to provide significant tailwinds, and selling prices have only dropped modestly. We continue to see lower volumes year-on-year, primarily in wood and ceilings in Europe and the Americas. Lower volumes year-to-date in the America ceilings business are reflective of our results for the first six months of the year. The $21 million increase in SG&A is largely driven by our residential flooring investments. Slide 15 shows year-to-date cash flow versus the prior year. Working capital improvements and the significant decline in capital spending more than offset the drop in earnings. Slide 16 shows our guidance for 2015. As Matt mentioned, we have reduced the top end of our sales outlook for the year by $50 million, due to foreign exchange and engineered wood volumes. The ranges for operating income, EBITDA, and EPS have all been raised and tightened from previous guidance, largely due to lumber costs. Slide 17 provides more details on our outlook for the year and you can see that we have reduced sales in both businesses at the top end. The earnings range for ceilings was reduced slightly at the top end, while the flooring earnings range was raised. Corporate expenses and cash taxes are unchanged from prior guidance, while the capital spending and transaction cost ranges have been narrowed. Lastly, I want to spend a minute on the financial results for Armstrong Flooring Incorporated represented in the Form 10 that was filed earlier this month. We utilized certain allocation methods to assign a portion of the expenses, historically reported in the corporate unallocated segment to the Resilient and Wood Flooring businesses. These allocations were largely derived by head count, sales, or other relevant operational metrics by function. Slide 18 bridges 2014 adjusted EBITDA that we reported last year to the Form 10 as reported operating income for 2014. You can see the impact of the corporate allocations and other items. While these assumptions are appropriate for the Form 10 financials. They are not necessarily good indicators of the future cost of the businesses. We will provide an outlook for 2016 expectations for AWI and AFI prior to the separation. The other adjustments reflect differences, largely driven by lower materiality threshold being applied to the $1.2 billion floor company, versus the $2.5 billion consolidated Armstrong. Other assumptions made in creating this view of historical results involve allocating a portion of the Armstrong U.S. pension plan expense to AFI. As noted in the Form 10, we anticipate allocating a smaller pension liability to AFI upon separation and historically represented in the Form 10 financials. The flooring company has also assumed to hold no cash, rendering the cash flow statement something of an intellectual exercise and not necessarily an indication of historical cash generation or usage. With that, I'll turn it back over to Matt. Matthew J. Espe - President, Chief Executive Officer & Director: Thanks, Dave. Finally, I want to talk about a couple of items of note on our flooring investments and product development. Last quarter, I mentioned that we placed 2,500 of a planned 5,000 displays with our retail partners. Through September, we placed more than 4,000 displays and the remaining units will be deployed before year end. More importantly, feedback from our channel partners on the effectiveness of these sales tools has been favorable and we've seen it in our results. For example, FasTak LVT, which is a differentiated and innovative product and is prominently featured in the new displays has experienced the 3x growth in monthly sales compared to the period prior to the display placement. These displays are a foundational element of our strategy to reinvest in and grow our business with independent retailers. As we move into 2016, this will also involve consumer demand generation, training, additional merchandising, market development and promotional programs all geared to increase the number of aligned retail partners that Armstrong has as a preferred choice for hard-surface flooring products and solutions. Last quarter, I also mentioned that we would begin shipping the residential LVT products to our customers in the fourth quarter. We remain on target and we'll begin taking orders in November. There is still more to do with the LVT plant and we look forward to launching our commercial product line early next year. We're making meaningful progress in the LVT segment, and our strategic investments are beginning to show encouraging results. Finally, on the ceiling side, you may have seen our launch earlier this month of the Total Acoustics platform, which is aimed at addressing the challenges of noise in office, hospitality, healthcare and education facilities. Noise can impede concentration, healing and learning. Total Acoustics ceiling panels feature both sound absorption and sound blocking, thus providing complete noise control and design flexibility for our architectural and honored customers. Armstrong's Total Acoustics product offering allows our customers to choose the ceiling that's right for their space. There is a lot more information on this launch in our North American commercial ceilings website. And so with that, we'd be happy to take questions.

Thank you. Our first question comes from the line of Stephen Kim with Barclays. Your line is now open.

Thanks very much, guys. First, I wanted to – thanks for all the color by the way. I wanted to see if we could chat a little bit about the ceilings business. One of your competitors recently talked about pricing in that segment being a little challenged, down year-over-year and I was wondering, we didn't really see as much in your results. So, I wanted to see if you could help us understand if there was any difference regionally and would you say that you – if you did see any increased competitiveness in ceilings on the pricing side that you would characterize it primarily at the lower end of the market or would you describe it somewhat differently? Matthew J. Espe - President, Chief Executive Officer & Director: Hey, Stephen. I'm going to let Vic answer that. Vic?

Yeah. Hey, Stephen. Yeah. We did earn positive pricing in the quarter, which I was really pleased to see. We continue to earn the price on the back of our service and our quality levels. We don't mention this much but we have really put a big effort on improving our service levels especially on specials and customs, which are less price elastic, if you will. Our quality levels were at really all-time levels right now. And so, these are the kind of things that we continue to focus on. They allow us to go out and earn the pricing. And with lower inflation, we're continuing to exceed our price over inflation numbers that allow us to expand the margins that you're seeing. So, I'm very pleased with that. There was some increased price competitiveness and it was really kind of in pockets and regions around the country. I would say, it was mostly on the fringes and we did see it in the commodity segment in particular, but again it was in pockets and not necessarily broad-based.

Okay. I assume from that you meant pockets geographically?

Yeah.

Okay. Thanks. My second question relates to the flooring business. I guess in particular you mentioned some of the increased focus on glass-back vinyl and obviously there is the LVT expansion. And I was curious if you are finding that your increased focus in those areas of glass-back vinyl and LVT in particular, having any negative impact on pricing in those categories. And then also whether or not you've seen an increased focus from one of your competitors in the VCT area a renewed focus there having any impact? Matthew J. Espe - President, Chief Executive Officer & Director: Thanks, Steve. I'm going to – I'll ask Don to try that one. Don?

Hi, Steve. Yeah, I think there is two questions in there to respond to. First of all, on pricing. Obviously, we're very focused on improving our share position in LVT, and as such, we have been very responsive to market pricing to be able to drive that. And thus far, we've been pleased with our momentum that we're seeing there. But we are responding to a very competitive and challenging cost environment as you're well aware, every other supplier, manufacturer out there is focused on this segment. In regards to the second part of your question, was the – refresh my memory. Yeah, on the VCT, sorry about that. On the VCT portion, we have had, certainly in the quarter, a nice benefit in some service issues from one of our competitors. We believe that that has really benefited us by really connecting with customers that historically have been doing business with others. And that's given them an opportunity to experience the service levels as well as the quality of our products. And so, we're very encouraged by the response that we've seen there. Having said that, we do believe our competitor will resolve that service issue. And so, that's not something that necessarily will repeat itself into 2016.

Thank you. And our next question comes from the line of Keith Hughes with SunTrust. Your line is now open.

Yeah. A couple questions. First, within ceilings in the United States, can you give us a number what price mix was up in the quarter and whether there was more price or mix contributing to the results? Matthew J. Espe - President, Chief Executive Officer & Director: Dave? David S. Schulz - Chief Financial Officer & Senior Vice President: Yeah. Hi, Keith. This is Dave Schulz. So, thank you for your question. So, within ceilings, I would say that the overall price mix was about balance within ceilings business across the world.

And regarding volume, I know you said volume was down. What was sort of the tone of business in the quarter on that and any kind of things you could tell us into October? Matthew J. Espe - President, Chief Executive Officer & Director: Vic?

Yeah. Let me take that, Keith. I think overall volume – and I think your question is very specific to the U.S., is that correct?

Much larger, yes.

Okay. Yeah, let me – so broadly speaking, let me just start there at the global level, our volumes were off globally versus prior year really driven by, I think, what Dave and Matt both mentioned are emerging markets. Both China and Russia were high-single digit contractionary in terms of volume, and that was a big headwind for us globally. We saw some positive in both Continental Europe and the UK. So, there is some mixed positive signals out there globally. India, as Matt mentioned, was up high double digits. So, we had a mixed bag outside the U.S. Inside the U.S., again, we continue to see what we talked about at the end of the second quarter, which is very uneven, regional performance in terms of new projects, mix versus R&R. So regional differences, and then the rate of improvement and we did see sequential rates of improvement in the first quarter to the second quarter and then into the third quarter. But even the rates of improvement across the regions vary. So, it's a very uneven and inconsistent recovery as we see it in the demand profile.

Okay. And final question, there's been a lot of controversy in laminate flooring given the allegation and things going on here at Lumber Liquidators around formaldehyde and it's use on the product. Could you just review for everyone what – and I know you do a little bit of laminate, you primarily source it, can you kind of review for everyone what you've done in testing and any changes you made in testing in the last six months given the news has come out? Matthew J. Espe - President, Chief Executive Officer & Director: Thanks, Keith. Don, do you want to take that one?

Yeah. Great question. We've always done significant testing on our products to ensure that they meet our specifications, but since this China source issue really hit back in March, we've expanded that comprehensive testing program to ensure that Armstrong products meet or exceed all of our industry standards. Since June, we've received the results of over 150 independent raw core and core deconstruction tests. And based on these tests, our strict certifications or specification requirements, we remain very confident that our laminate flooring products are safe, and as I said, meet or exceed all applicable standards really just as they always have.

And to be clear, that is even with the deconstructive test, is that correct?

That is correct.

All right. Thank you.

Thank you. And our next question comes from the line of Michael Rehaut with JPMorgan. Your line is now open.

Good morning. It's actually Jason (27:12) in for Mike. Matthew J. Espe - President, Chief Executive Officer & Director: Good morning.

First question is on the Wood Flooring. I was hoping you could provide a little bit more detail on the engineered wood availability challenges that you're seeing. How much of that you think specifically impacted sales during the quarter, and how do you see that part playing out through the rest of the year? And then on the margin front, I mean obviously lower lumber costs was a big driver of the improvement that you saw. So as you entered the fourth quarter where were you from a price cost standpoint? David S. Schulz - Chief Financial Officer & Senior Vice President: Yeah, great. So, first of all, the capacity constraints that we've been experiencing on the engineered side have been rather significant for the year. We have made three major focuses to address that. One is working on our Somerset facility and getting their throughput rates to a much higher level and we've made significant progress on that front and are very encouraged by the improvements that have been made there. Number two is, we reinstated our Vicksburg, Mississippi facility and brought that plant up in the quarter. And actually, I was proud to see that plant actually come on line about a month earlier than we had anticipated. And we have – on a much smaller degree have also done some selective sourcing with some domestic suppliers. So all of those have come together. As Matt mentioned in his comments, we do expect to see the capacity constraints to continue through the fourth quarter, however, let's say, we expect ourselves to be in pretty good shape as we enter into 2016. So nice improvement, I think as we progress through Q4. As it relates to the profitability piece, we have seen declining lumber prices that we haven't had to fully price back. And this has really been the key driver to our efforts – to our results. As well, though, we continue to focus our efforts on the higher end products, as well as the independent retailers and we're seeing that pay off as we continue to drive the mix improvement within the segment. We don't provide wood specific guidance and we haven't guided yet towards 2016 and we certainly can't control lumber costs, but we are focused on disciplined pricing in the marketplace, while maintaining our share position. We're also remaining focused on our strategy of driving higher mix of products and improving our plant operations.

Thank you.

Thank you. And our next question comes from the line of Nishu Sood with Deutsche Bank. Your line is now open.

Thanks. First question is for Vic, on the ceiling volume outlook, particularly I'm thinking about the U.S. The challenge in terms of understanding volume drivers for the last couple of years has been that repair and remodeling hasn't seemed to keep up with the pace of improvement in the new commercial construction. And now, it seems as though the levels of new starts have peaked as well and are coming down that activity. So, how should we think about things going forward? Is it going to continue to be on a lagged basis in your view or is this just the case that this cycle will never really get any legs behind it for repair and remodeling?

Hi, Nishu. Yeah, I think this market recovery has been very different in a lot of ways. And as we talked about and continue to see, it's been very uneven not just geographically, but across the segments. So, we talk a lot about the new construction office and that's certainly been a very bright spot and a great driver of the demand that we're seeing. But healthcare remains anemic really. Education was positive in the summer, but overall, it doesn't have the broad base to continue out of its seasonal periods. So, it's a very uneven profile as we see it right now. And then to your point around how those new projects and new construction projects were flowing through versus R&R activity, again, it continues to be very uneven. Until we get a broad based economic recovery in the U.S., the R&R activity is going to continue to be spotty and that's how we view it. And as we've outlooked, we need pretty healthy GDP level to be broad based enough to drive the R&R activity across all those segments, again, not just the office segments. So, again, it's a – just in summary, I think we're experiencing a very uneven recovery and therefore, a very uneven demand profile.

Okay, thanks. Appreciate your thoughts. And then, a question for...

Thank you. And our next question comes from the line of Mike Wood with Macquarie Capital. Your line is now open. Mike Wood - Macquarie Capital (USA), Inc.: Hi. Thanks for taking my question. Just another question on ceilings. Year-to-date, if we look at your volume numbers, it would appear that you have ceded shares in the Americas. And I'm saying particularly, if we exclude the growth that you're getting in decorative architectural. Is that – are you attributing that or would you say that's due to pricing strategy and are you planning to react to hold or regain share?

Well, let me first start with saying, I'm not sure I would agree with the premise on the share comment. I mean, with the structure of this industry and the way this market is structured around a very large installed base, share movement between quarters is really impossible to measure. And anybody concluding share movement across a quarter, even a couple of quarters, isn't likely to come up with the right conclusion. So, I would just say that is context, but again, I think we continue to manage and maintain our share aggressively where we're faced with price competitiveness. And we plan to continue to do that, frankly. So, I think that our pricing policies are really geared around, as I was mentioning earlier, the things that we do to drive value for the customer, especially around our service and quality initiatives, and increasing the performance levels of our products overall like we launched earlier this week, the Total Acoustics product line. We're very excited about what that brings to the marketplace in terms of a high performance, Total Acoustics, both absorbing, high absorbing and high sound blocking characteristics, which is a high performance and a very new performance characteristic for architects to be able to choose from. So, those are the things we're going to continue to do to drive again the value creation in the market with the support of our customer base.

Thank you. And our next question comes from the line of Bob Wetenhall with RBC Capital Markets. Your line is now open.

Hey, guys. Good morning and nice to see a lot of underlying things are trending in the right direction after you strip out the FX. I know you guys are getting ready for the spin and that creates a little noise, but I was hoping to – hope Vic and Don would just talk for a minute about how they're measuring performance in the business, is it based on EBITDA growth, is it based on segment EBIT or using a return on invested capital framework? Can you give us some help as investors in thinking about how you're evaluating performance of each of your businesses? Matthew J. Espe - President, Chief Executive Officer & Director: Let me – Bob, it's Matt. Thank you for the kind words upfront. We haven't – before I pass it over to Vic and Don to comment, we haven't declared the long-term incentive plan, measurements or metrics for 2016 yet. That'll certainly be part of the announcement we make in the earnings call in February. But they can comment on how we're measuring the businesses today through the end of the year. Vic, we'll let you go first and actually, it's the same for both businesses, so – but any comments you guys want to make?

Yeah. I mean, beyond the financial metrics, which are very clear and we talk about these every quarter and there is no reason why the focus on these financial metrics won't continue to be the same ones. But underlying that, the innovation that we're driving in the business around new product development to bring higher value, higher performance products to the market, like I was just mentioning on Total Acoustics is what we're going to continue to drive and maybe even get even more laser focused on those kinds of things, make sure that we're driving the price over inflation and the metrics around that and mix up. I don't see those changing. In fact, we're going to continue to do the things inside the business, connected to our customer, they were going to help us maintain those. Matthew J. Espe - President, Chief Executive Officer & Director: Don, anything to add?

Yeah, great. Same as Vic, really, ROIC is our long-term metric today. Internally, we incent short-term on EBITDA and obviously have a keen eye towards free cash flow. The softer side, we've really been focused on three areas as we prepare for the separation. One is really developing our growth strategy to get momentum build on our top line. Number two, getting our culture orientation focus more externally on to the consumer and the customer. And lastly, rebuilding our distributor and ASA channels presentation, which is really what drives our top line growth and that's what we've really been focused on as getting the top line momentum established. Matthew J. Espe - President, Chief Executive Officer & Director: Just an additional comment on the long-term incentive plan. Our board in particular our comp committee has been very engaged and very involved in the development and the review of our thoughts around long-term incentive plans and measurements. And I would just say that we will continue to focus on identifying and driving the business a way that optimizes our alignment with our shareholder base. So that continues to be the guiding principles as we think about 2016, we look forward to sharing that with you in the earnings call in the first quarter. Thanks, Bob.

Got you.

Thank you. And our next question comes from the line of Nishu Sood with Deutsche Bank. Your line is now open.

Thanks. I wanted to ask a question for Don, on the residential side of things, particularly on repair and remodeling. Obviously, there are some concerns out there about pace of deliveries of new construction. And as you look across, I guess principally, your wood business and to a lesser extent in your resi business, your repair and remodeling trends have been good. So, if you split out the effect, for example, of the engineered wood availability, are you seeing that in your business and is your portfolio products is out there, you feel you're well positioned to capture that going forward?

Thank you, Nishu. And sorry for the operator cutting you off there. I can tell you we're coming in with the second question there. So, I'll speak to wood. Sales are down largely due to the availability of our engineered wood products. However, sales of our solid wood products are actually up year-on-year and has been driven by the dynamics that you discussed. So, really as we are starting to see that, obviously, I guess it's below where I would like it to see it and very disappointed in the service levels on the engineered side, and look forward to getting that issue resolved here in the quarter so that we can really come back to the market in full force in 2016.

Thank you. And our next question comes from the line of Scott Rednor with Zelman & Associates. Your line is now open. Scott Rednor - Zelman & Associates: Hi. Good morning. And this question is for Don on Wood Flooring. Previously, if you looked historically, double-digit EBITDA margins for this business was not out of question, it was probably pretty consistently you guys are printing (40:02) margins in that arena, and realizing this is just one quarter, but you're already back there with the volume challenges that you're having, understand there is a lot of moving pieces, and you guys are not going to give specific guidance. But, Don, as you look at this business going forward, now you've been at the helm there for a few quarters, is that an unrealistic expectation if you're able to get volume back there?

So I guess I would limit my comments to really – we're sticking with the strategy we articulated, which is we do want to gain share back but we're being very selective on where we get that share gain back and so we're trying to drive that into those channels and product segments where we can see the kind of returns that you're referencing. So that unfortunately is something that evolves over time and is a pretty significant ground game for us. But I think that is the right strategy for our business and we are working that from all angles including our relationship with our distributors, with the national accounts as well as with our new product introductions.

Thank you. And our next question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is now open.

Hi. Thanks for taking my questions today. The first question is really more broadly on the cycle more than anything else, and using ceilings as the touch point for which to talk about the non-res cycle. In your earlier – your prepared commentary, you had said that North American sales had improved sequentially in the beginning of the year. Could you quantify on a volume basis what sales were up – sales volumes were up for ceilings, say, in the very beginning of the year and what type of trends were you seeing as the quarter came to a close? And then the second leg to this question is, in your opinion, where do you think we are in terms of non-res cycle at least in North America? Thank you. Matthew J. Espe - President, Chief Executive Officer & Director: Go ahead, Vic.

Okay. Matthew J. Espe - President, Chief Executive Officer & Director: Yeah.

Hi, Kathryn. Yes, yeah, sequentially starting in the first quarter, and there is some seasonality to these numbers too, I know you know this from your experience from into the second quarter, third quarter being the seasonally strongest quarter of the year. We have seen sequential improvement. I mean all of the Dodge start data that everybody sees and has been reading about really since 2014 and the construction put in place numbers that really spiked in 2014. I think a lot of those lag periods now are coming – are expiring and a lot of those projects are starting to bleed through with a need for a ceiling. And so, as long as the R&R stays relatively soft, I think the demand profile for us is really going to come from that new construction segment. So, I don't think that you can draw conclusion about the overall cycle as a result of that. And we certainly aren't able to, and nobody has been able to call this recovery cycle very well so far. So, we wouldn't want to speculate on that. But it clearly has been improving as we see more of the new construction starts coming through in need of a ceiling. I hope that's helpful.

Thank you. And our next question comes from the line of Ken Zener with KeyBanc. Your line is now open.

Good morning, gentlemen. Matthew J. Espe - President, Chief Executive Officer & Director: Good morning.

Vic, I wonder and, Matt, given what happened in flooring with luxury vinyl tile where a very high market share structure that you had was dis-intermediated. You guys obviously have been addressing that. I wonder, when I'm thinking about ceiling tiles, because this really different end markets, so when you guys talk about the connection to the architect, I think that's obviously a very important and defensible position. But I wonder when it moves towards more perhaps commodity type applications. So, if it's for schools that are going to be lower price per tile or not necessarily healthcare, but maybe at the state level, right, to some other building. I assume, could you walk through how your relationship is more applicable in some verticals, because as you know, it's really the state educate – it's the state – the education and the healthcare that's been the weaker categories versus retail and office. So, is there something that you could point to that would say your relationship with the architect is just as strong or is it really that they have Armstrong in that school and they're just going to order the same tile again? Thank you very much. Matthew J. Espe - President, Chief Executive Officer & Director: Hey, great question. This is Matt. Our relationship and the involvement with the architect and the design community, first of all, their involvement is significant across all four major commercial segments that we serve. You point to healthcare and education as two that have been a bit of a drag in the last year or two. But they both have very high specification requirements for either noise abatement, noise attenuation or absorption. So, performance still matters in both of those applications and continued development, and continued introduction of new product, in our case, is a differentiator. So, we spent a tremendous amount of time with the architects involved across all four market segments. And we think we are uniquely positioned in our industry to hold onto those relationships as they go forward. Clearly, having a large installed base particularly in education affords us a robust flow of products and it's a great annuity, and that in itself is a significant competitive advantage. But we spent a tremendous amount of time with architects across all four commercial market segments. We think that's a differentiator, demand creation still occurs there. And at the same time, we continue to differentiate ourselves with new products.

Thank you. And our next question comes from the line of Will Randow with Citi. Your line is now open.

Hi. Good morning. This is Scott Schrier in for Will. Can you talk about your free cash flow generation? It looks like you've been doing a good job with that managing your working capital. Is there anything that's going on there? Is that more of a function of, like you said, just the lumpiness? David S. Schulz - Chief Financial Officer & Senior Vice President: Yeah. Hi, Scott, it's Dave Schulz. Thank you for your question. Overall, I mean we are very focused on maintaining a suitable working capital for both of our businesses. So, it is a focus area, free cash flow generation is something that we track and measure very religiously as do most companies. So, I would say that for the quarter, we did have some lumpiness as it relates to some of those other items in the base period and in the current quarter. But if you take a look at our year-to-date cash flow, you can see that that evens out pretty well. So what I would say is that, we are very focused on getting our working capital investments down where we measure the days very closely as I already mentioned, and then obviously from a key – free cash flow basis, we're also getting the benefit of lower capital spending relative to the investments that we had made for plants primarily within Russia and with the LVT facility versus the prior year.

Thank you. And our next question comes from the line of John Baugh with Stifel. Your line is now open. John Baugh - Stifel, Nicolaus & Co., Inc.: Thanks. I just had a quick question on WAVE. I believe you mentioned that was a contributor to earnings. What are the volumes doing at WAVE, is it different from ceilings? And are we benefiting from input cost there, steel down or any color? Thank you.

Yeah. WAVE was a positive contributor on earnings. This quarter, they had a very strong performance. As you know, the steel costs are coming down and that is helping margin expansion, but they also had – along with the U.S. market, they also had positive volume growth. So very good strong performance by that team in the quarter.

Thank you. And our next question comes from the line of Bob Wetenhall with RBC Capital Markets. Your line is now open.

Hey. Just a follow-up and I think someone touched earlier on kind of like repair and remodel not being very engaged. I'm not looking for numerical guidance on EBITDA or anything, but I was hoping you guys could give a more defined characterization of demand trends on an underlying basis in North America. But do you feel like the commercial demand is choppy, or do you feel like it's just grinding slowly higher and we should think about unit volumes tracking at mid single-digit or low single-digit. I was hoping we can get some color on that both in flooring and in ceilings? Matthew J. Espe - President, Chief Executive Officer & Director: Hey, Bob, I'm going to ask Vic to make a comment on commercial and then maybe Don to share some thoughts on residential. Before I do that, I want to offer the same apology to you that I think Don offered to Nishu in terms of – it seemed like you got cut off and as you were asking a question. So apologies for that but...

No worries. Matthew J. Espe - President, Chief Executive Officer & Director: Do you want to comment on commercial, Vic?

Yeah. I think the – you mentioned the sequential improvement. Again, I think it goes back to the new Dodge starts that we've all been tracking since late 2013 and 2014 when we've continued to see positive growth in new construction starts. And so again, there is a pretty good lag period as we've talked about between a new construction start, to when they actually need the ceiling. And again, I think as we see positive year-over-year Dodge new construction starts and construction put in place numbers, that should – and that's what's been bleeding through here. I think that's driving the sequential improvement in addition to some of the seasonality that you normally get. So, yeah, the repair and remodel has again been very uneven and very spotty across the regions, and I don't think we can point to that to say that has been a volume driver across the overall U.S. market. It's been really the new construction and in particular office as we've mentioned before. Don? Matthew J. Espe - President, Chief Executive Officer & Director: Don, any thoughts on residential?

Yeah. Similar themes, really new has been, I think, the primary driver behind the markets. Obviously, we were encouraged with a pretty strong Q1 and into Q2 as we discussed. I would say things have leveled off and as has been described is a bit lumpy from month-to-month. I would say, overall the markets are performing as we have outlooked and that continues for us in the month of October, which is pretty much behind us as well, so see a continuation of that as we enter into Q4.

Okay.

Thank you. And our next question comes from the line of David MacGregor with Longbow Research. Your line is now open.

Hi, guys. This is Conor (51:36) on for David. I just wanted to explore the LVT business and obviously there's been an uptick in demand for LVT. Where would you see LVT as a percentage of the North American market and where that goes from here and also where does Armstrong fit in with that? Matthew J. Espe - President, Chief Executive Officer & Director: Don, do you want to talk?

Yeah. So, LVT is the segment within the hard flooring surface world that is really growing quite significantly both in commercial and residential applications. And so it is obviously strategically for us a key area of focus. We believe that we are, in both of our businesses, seeing either at or above market growth rates and what we've brought to market thus far and obviously are encouraged to – with bringing our new plant on line here in Q4.

Thank you. And our next question comes from the line of Jim Barrett with C.L. King & Associates. Your line is now open. Jim R. Barrett - C.L. King & Associates, Inc.: Good morning, everyone. Matthew J. Espe - President, Chief Executive Officer & Director: Good morning. Jim R. Barrett - C.L. King & Associates, Inc.: Dave, this is a question for you. Your hardwood costs, did they continue to decline throughout the quarter and can you give us as of quarter end or as of today where your average hardwood costs stand relative before the large inflation in that input? David S. Schulz - Chief Financial Officer & Senior Vice President: Sure, Jim, just bear with me one second. So, overall, what we've been seeing throughout the year here is, as we mentioned earlier, some relatively significant declines in overall hardwood. I would say that right now what we're seeing on the green oak flooring grade is probably in the range of $530 to $535 per 1,000 board feet. So, obviously, we have been able to benefit from the deflationary impact of both the lumber cost, but then as we mentioned earlier, we are seeing some acceleration in the margins primarily because of our inventory valuations that go along with that.

Thank you. And our next question comes from the line of Justin Bergner with Gabelli. Your line is now open. Justin Laurence Bergner - Gabelli & Company: Good morning, everyone. Matthew J. Espe - President, Chief Executive Officer & Director: Good morning. David S. Schulz - Chief Financial Officer & Senior Vice President: Good morning. Justin Laurence Bergner - Gabelli & Company: My first question relates to the general market backdrop for remodel and renovation spend in the ceilings business. Has Armstrong done any work internally to gauge whether the spending on lighting renovation is crowding out some of the spending on ceiling renovation, and if so, what have your findings been?

I'll take that. Matthew J. Espe - President, Chief Executive Officer & Director: Yeah, go ahead.

Yeah, so, the channel that gets influenced most by the dynamic that you're referring to is a channel that's actually growing faster for us than some of the other channels. And the incident rates on some of the lower level maintenance type activity in our data says that that activity is up. And so, I would say that's not or wouldn't be our conclusion that more spending on lighting has crowded out remodel or renovation expenditures for our products. It might even be the contrary to that based on the data that we're seeing. I hope that's helpful.

Thank you. And our next question comes from the line of George Staphos with Bank of America Merrill Lynch. Your line is now open.

Hi. It's actually Alax Wang sitting in for George. Thanks for all the details. Just a question on ceilings, I know earlier in the commentary, you cited, I think, weakness in healthcare for North America commercial. As we look into fourth quarter into next year, can you just speak a little to the verticals, whether you're expecting the various end markets to be either more favorable or less favorable, the dynamics there? And just on a related point, you've done a really good job pushing price mix higher in ceilings, but just curious to see how much more can prices go up without a corresponding tension maybe on the volume front, particularly given some degree of increased competition, and to your point, Vic, a kind of choppy recovery? Thank you.

Yeah. First on the verticals, again, I would just refer you back to the same thing that I'm sure all of us were looking at, which are the construction put in place numbers by vertical and the new construction starts that Dodge publishes. Healthcare continues to be a very low level new construction year-over-year activity sector. So, I think you have to draw your conclusions based on those numbers and similarly for education. So as long as those leading indicators are anemic, I think that's what – we can all draw our conclusions on what we think the activity is going to be on those two sectors. So, as far as the pricing and the overall mix, again the market is trying to use the ceiling plane for higher acoustical performance and better aesthetics. And we're just working very closely with the customer base to make sure that we've got the right solutions and the right level of innovation to help them accomplish what they're trying to accomplish and again, we're committed to doing that, and we're – again, we're launching this total acoustics package over 60 different products to allow customers to not to have to choose between sound absorption or sound blocking. They can have both now for the first time. And we're very pleased about giving our customers this design flexibility and then the occupants of the building the flexibility to reuse, repurpose that space because they have a total acoustic solution. And that's the kind of innovation, that's the kind of a value creation that we want to push in a marketplace by meeting what customers really need in their end use markets. So, that's how I think – we focus and we think about price and again, coupled with good service, high quality, that's how we think we can continue to move to higher places.

Thank you. And our next question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is now open.

Thanks. How much of the choppiness or lumpiness that you're seeing do you think is tied to the type of projects we're seeing this cycle and/or bottlenecks in the channel such as particularly what we've seen in terms of labor shortage? And also follow-up, any change in order backlogs, I was just trying to sneak in my last question, any changes you're seeing in terms of orders in the quarter? Thank you. Matthew J. Espe - President, Chief Executive Officer & Director: Thanks, Kathryn. Yeah, we'll give you that second question as well. We'll have Vic respond.

Yeah. Kathryn, it's really fundamentals in the marketplace that is driving – regional fundamentals that it's driving some of this unevenness and choppiness we believe, especially on the R&R. We also have done some research that would indicate the type of commercial projects, which are larger, are driving some different spike levels, if you will, or volatility region to region in some of the demand profiles. So it's a little bit of both, but I would really bring this back to, it's the fundamentals, regional fundamental differences that are driving some of the choppiness that we see. Matthew J. Espe - President, Chief Executive Officer & Director: Good. Thank you. Thanks, Vic. Matthew J. Espe - President, Chief Executive Officer & Director: Thanks, everyone, for your interest this morning in your questions. I wanted to just take a second here to acknowledge Don and Vic's significant contribution on the call this morning. I think you can see why we're very excited to have them as the future CEOs of AWI and AFI. So with that, have a great afternoon.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's call. You may all disconnect. Everyone, have a great day.