Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2022 Armstrong World Industries Inc Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker, Ms. Theresa Womble, Director of Investor Relations. Please go ahead.

Thank you, Sheri, and welcome to everyone on the call this morning. Today, we’ll have Vic Grizzle, our CEO; and Brian MacNeal, our CFO, discuss Armstrong World Industries’ first quarter 2022 results as well as our outlook for the rest of the year. Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of the SEC Regulation G. A reconciliation of these measures with comparable GAAP measures is included in the earnings press release and in the appendix of the presentation we issued this morning. Both are available on our Investor Relations website. As a reminder, during this call, we will be making forward-looking statements that represent the best view of the company of our financial and operational performance as of today’s date, April 26, 2022. These statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of the risks and uncertainties in our SEC filings, including the 10-Q filed earlier this morning. We take no obligation to update any forward-looking statement beyond what is required by applicable securities law. Now for those of you following along with our presentation, please turn to Slide 4, as I turn the call to Vic.

Thank you, Theresa, and good morning, everyone, and thank you for joining our call today to discuss our first quarter 2022 results. As we reported in our earnings release today, we delivered year-over-year top-line growth of 12% and adjusted EBITDA growth of 3% versus the first quarter of 2021. These consolidated results represent a very strong quarter for our Architectural Specialties segment and muted performance for our Mineral Fiber segment, due to distributor inventory adjustments that I will discuss in more detail in a few moments. There continues to be a growing number of positive indicators pointing to a continuation of the market recovery. This combined with the strength of our Architectural Specialties performance this quarter and increasing traction of our growth initiatives, supports our confidence in maintaining our full year guidance for sales and EBITDA growth for 2022. First, let’s look at the performance for Architectural Specialties. First quarter sales of $79 million, a 24% increase year-over-year, was a single quarter record for this segment. The increase was aided by shipments for projects delayed in the second half of 2021 as well as a continuation of share gains and the recovery in the commercial construction market. We were encouraged to see shipments for architectural specialty projects across various verticals, including office, education, transportation and hospitality. What I wanted to highlight is this new Irving Institute building at Dartmouth College. This 55,000 square foot building will be home to the college’s sustainability office and their center for energy, sustainability and innovation. It has been designed to be the highest performing building on the campus from an energy efficiency and overall sustainability perspective. The design team specified our metal, radiant ceiling panels as part of the holistic solution to achieving their sustainability goals while maintaining health and comfort for the occupants.…

Thanks, Vic. Good morning to everyone on the call. Today, I’ll be reviewing our first quarter 2022 results as well as our updated 2022 guidance. Before I begin as a friendly reminder, I’ll be referring to the slides available on our website. And Slide 3 details our basis of presentation. On Slide 5, we begin with our consolidated first quarter results. Net sales of $283 million were up 12% versus prior year. Adjusted EBITDA grew 3% and adjusted EBITDA margin contracted 270 basis points. Adjusted diluted earnings per share of $1.2 cents improved 7% versus the prior period and adjusted free cash flow declined 13%. We continue to have a strong balance sheet that allows us the flexibility to execute on all our capital allocation priorities. One of those priorities is returning cash to shareholders. In the quarter, we repurchased $30 million of shares or about 300,000 shares at an average price of roughly a $100 per share. Since the inception of the share program in 2016, we’ve repurchased 10.8 million shares for a total cost of $716.2 million or an average price of $66.27 cents per share. As of the end of Q1 2022, we currently have $484 million remaining under our repurchase program, which runs through December 2023. Continuing to look at Slide 5, you’ll see our adjusted EBITDA bridge versus the prior year. The $2 million gain was driven by favorable AUV of $19 million, primarily due to favorable like-for-like pricing and volume of $2 million driven by growth in the Architectural Specialties or AS segment. AS growth was able to more than offset the mineral fiber headwind in the quarter and I’ll touch on that in a minute. Offsetting these gains were increased SG&A expenses, higher input costs and lower equity earnings from our WAVE joint…

Yes. Thanks, Brian. And before we get to your questions, I’d like to share a few thoughts on the longer-term growth outlook for Armstrong. I know many of you on the call attended our Investor Day back in early March, where we laid out our vision for growth over the next five years. This vision is grounded in our belief and the ability of the company to do the following two things, drive increasing value from our investments and our Architectural Specialty segment through top line growth and margin expansion, and two to deliver Mineral Fiber volume growth at attractive margins through both the market recovery and the execution of our healthy spaces and digital growth initiatives. As we’ve outlined today, we are pleased with how the Architectural Specialty segment is performing and making great progress on both the top line growth and EBITDA margin expansion targets. It’s encouraging to see how our expanded portfolio of unique, high design, highly innovative products is enabling us to sell more products into more commercial buildings. Improving the trajectory of Mineral Fiber volume growth is work in progress based on both a promising recovery and commercial construction activity and scaling the positive impact of our investments in our healthy spaces and digital initiatives. We continue to gain momentum with our healthy spaces initiative. Sales of these products are growing. Since the end of June in 2021, we have more than doubled the number of projects for healthy spaces being worked on by our team. And in the quarter, we closed our largest VidaShield project to date for a school district in the Southwest. Interest in the complete healthy spaces portfolio out in the field is increasing. And we attribute this to strengthening to the growing appreciation for the broader definition of a healthy…

Thank you. [Operator Instructions] Our first question will come from Keith Hughes with Truist. Please go ahead.

Thank you. Thank you for all the detail specifically on the mineral fiber volume particularly around the sellout from your distributors. I guess, my question is in your inventory, your inventory’s up and could bit faster than sales are in the first quarter to get your inventory line, you’re going to have to slow your mineral fiber production down as we head into the second quarter.

Yes. Keith, if I understand your question, it’s our internal inventory levels in our plants, for example, our own warehouses. Yes. We flow into that inventory as well as our customer’s inventory levels and we flex our product mix accordingly. And we were able to do that. And one of the things about that this quarter flexing into that – kind of that abnormal demand cycle that we had in the first quarter, serving our distributors inventories, we were able to maintain productivity in the plants. And that was very helpful for us to offset some of the shortfall in the mineral fiber volume. So this is kind of – it’s kind of business as usual for us in terms of monitoring our production with different inventory levels. And we’ve maintained our inventory level at a healthy level in the first quarter as a result of that.

So no change in production rates in the second quarter to kind of bring this back down.

Normal seasonality will be increasing actually as we would normally do in a second and third quarter seasonality pattern, so no big changes there.

Okay. And I guess final question, the same topic. Given that there seems to be this building backlog, as you referred to your comments on non-residents demand, particularly for mineral fiber all products. Is there a chance distributors have pulled these down too far and to get back to a sorted situation, if demand potentially take that faster than what the channel is expecting and how would you address that?

Well, certainly we have the ability with sprint capacity in our plants to respond to a meaningful uptick in the marketplace. We’ve looked at scenarios with double digit increases in demand, for example, on a volume basis. We have plenty of flex capacity, we could respond to in the event that they did take their inventory levels down to lower levels. We required to service an uptick in demand, we could respond. So we’re not worried about that. I think we’re in constant contact with our distribution partners, balancing out in different branches, as you know, Keith, it’s not just one or two distributors, right? There’s 300 branches and getting the inventory levels, right. All of those branches is really the conversations that we’re having on a day to day basis with our distributors. So again, plenty of sprint capacity and ability for us to serve if we saw an uptake in the second and third quarter.

Okay. Thank you.

Yes. Thank you.

Thank you. Our next question will come from Philip Ng with Jefferies. Please go ahead.

Hey, good morning.

Hey, Phil.

Hey, good morning. Your full year 1% to 2% mineral fiber volume guidance implies a 3% to 5% growth profile the rest of the year, so a nice step up. How do you kind of see that building through the year since it sounds like there’s still probably a little hangover effect and 2Q from that distributor inventory draw down and how much line of sight do you have?

Yes, I think – well, our line of sight hasn’t really changed really other than looking at the triangulation of indicators, right. Of course, sentiment from our distribution channel, which remains very, very positive. I think the seasonality pattern is going to rule the day here. I think second quarter is going to step up and be stronger and with positive volumes growth. And then third quarter, as you know is our strongest quarter of the year. And we expect our strongest growth to be in the third quarter. So I would say the seasonality pattern is going to really drive that step up in volume to get us to that 1% to 3% outlook that we have.

Okay. That’s helpful. And Vic, I mean, outside of like the slower start on volume, it sounds like your outlook seems a little more upbeat, certainly that sellout commentary for me to assure was pretty encouraging. The reason why I ask is like the last quarter, maybe even a quarter before that you were talking about how activity was still pretty choppy. Any color on the R&R side, how that’s kind of playing out. And I was pretty encouraged to hear that within your guidance for mineral fiber, you upsize your growth initiative contribution by 100 basis points, any color on some of those initiatives? Where you’re seeing some of the wins and just confidence in securing that demand backdrop?

Yes. I think that was an important thing you can imagine, right? Phil, when you see this kind of downdraft right on demand signals from the distribution channel, it’s really important to understand where that’s coming from, right? And again, it was really important for us to understand. But also I think for everybody to understand that this was not a demand signal that distributors were seeing from the market. In fact, I spoke directly to our two largest distributors and both of them said that the market is improving and the activity is strong and robust, and they expect that to continue for the year. So in separate conversations, they’re both seeing a more robust market. This inventory drawdown was merely a function of where they ended the year. And of course, a little bit more of a buy head from our price increase that we moved from February to January that moved a lot of that buy head volume into the fourth quarter. So that was important, right, for us to understand that this was not connected to demand or response to demand they were seeing in the marketplace. And so, when we look at all these indicators and your reference to my positivity here, there were more indicators this quarter that are showing positive signs. And we try to highlight as many of those. So that plus the growth initiatives that you’re referencing in both digital and healthy spaces that continue to get traction and contribute real volume. I think that’s a source of maintaining our guidance and keeping our outlook intact for the rest of the year.

Okay. Thanks a lot.

Thank you. Our next question will come from Kathryn Thompson with Thompson Research. Please go ahead.

Hi. Thank you for taking my questions. Just on a follow-up on inventory destocking. Did WAVE see a similar move in terms of destocking, because we’ve seen – we have heard that from the steel framing industry in general? And then part and parcel with that. How are your distribution partners thinking strategically going forward in terms of inventory stocking levels, particularly as we shift from just in case versus just in time. Thank you.

Yes. Yes. That’s a – yes, I think there’s some opportunity right for that. But first on the WAVE question, Kathryn it was definitely – what WAVE saw and what we saw as a resulting equity earnings from WAVE was exactly the result of inventory drawdowns. And in fact, maybe to even a greater extent, because as you know, steel prices were escalating dramatically last year, we had nine price increases last year. So the buy ahead and trying to stay stocked with the potential threat of steel shortages out there probably drove even higher levels of grid products in the distribution channel than ceiling tile products. So clearly that’s a direct – they saw a direct impact from that inventory reduction. So Kathryn, your second question around philosophical or a different business approach to managing inventory, I did not get the flavor in my discussions with them that they were changing their approach necessarily. I think they had a desire to get back to more normalized levels, especially when it comes to Armstrong products because they can’t, right? Our service levels, we demonstrated all through 2021 that we weren’t going to disrupt their service expectations or their jobs. We had material available. We were shipping on time. And we were meeting all their needs. This is an area where they can take the opportunity to move not to just in time necessarily, but they could certainly get out of the just in case mode and get to more normalized levels. And that was the discussion I’ve had with them that, that’s their desire is to get down to more normalized levels. Our service levels, we demonstrated all through 2021 that we weren’t going to disrupt their service expectations and their jobs. We had material available. We were shipping on time. And we were meeting all their needs. This is an area where they can take the opportunity to move not to just in time necessarily, but they could certainly get out of the just in case mode and get to more normalized levels. And that was the discussion I’ve had with them that, that’s their desire is to get down to more normalized levels. Our service levels, we demonstrated all through 2021 that we weren’t going to disrupt their service expectations and their jobs. We had material available. We were shipping on time. And we were meeting all their needs. This is an area where they can take the opportunity to move not to just in time necessarily, but they could certainly get out of the just in case mode and get to more normalized levels. And that was the discussion I’ve had with them that, that’s their desire is to get down to more normalized levels.

Okay. Great. And then a follow-up question, understanding that you’re essentially North American business. What, if any, impacts are you seeing from either unintended consequence impact from the Ukrainian-Russian conflict and/or the shutdown at Shanghai? Thank you.

Kathryn, we’re monitoring that very closely. And I can tell you that the impact for us is minimal at best at the point right now or at worst at the point right now. But we’re watching for ripple effects, right, that could be influencing a feed stream that influences another feed stream influences us eventually. But right now, the impact on us is minimal. Outside of some small things that we may get from Asia here or there. But again, we’re going to continue to monitor very closely, but minimal impact so far.

Okay, great. Thank you.

You bet.

Thank you. Our next question will come from Garik Shmois with Loop Capital. Please go ahead.

Hi, thank you. I was wondering how much of the $5 million increase in SG&A was driven by increased compensation versus the increase in growth investments? And just more broadly, how should we think about the impact of growth investments going forward through the rest of the year?

Go ahead, Brian.

Yes. Garik, it’s Brian. So the incentive fees was just over $1 million. So most of that increase was driven by the investments in the growth initiatives.

Okay. And should we expect something like a $4 million per quarter run rate and growth investments in the rest of the year?

Yes, we’ll be monitoring that rate and pace of that investment as they continue to gain traction, and we’re wrapping some of the investments we made last year. So it might not quite be as high as you indicated, but it’s in that couple of million dollars a quarter range.

Got it. And just a follow-up question to an earlier comment that you made, Vic. I think I’ve heard you correctly, you expect volumes to be positive in 2Q in Mineral Fiber. I just wanted to confirm that, considering at least a tough percentage growth comp in the year ago period, and I think you still are facing a little bit of inventory destocking distribution, at least in the early part of the second quarter?

Yes. That’s – again, we’re not guiding to quarterly outlooks, but I would expect us to get back to our seasonal pattern on volume growth outside of this inventory reduction headwind, if you will. And so let me just leave it at that for now because I expect us to – we’ll see where we end up versus our base compare, but we should be bouncing back to more positive levels off of this first quarter drawdown.

Got it. Okay, thank you very much.

You bet. Thank you.

Thank you. Our next question will come from Susan Maklari with Goldman Sachs. Please go ahead.

Thank you. Good morning everyone. My next question is going back to the inventory situation in Mineral Fiber. You have noted that some of that related to the change in the cadence of the pricing that you’ve put through. Does it, in any way, impact how you think about the go forward in terms of pricing? Is there may be more willingness to kind of stick with your historical cadence as opposed to kind of being as reactionary to inflation as it does change over the course of time? Or anything else that we should be aware of as you kind of look forward and learn from this experience?

Yes, Susan. I really don’t think there’s going to be a major shift on how our distributors handle our price increases or the timing of our price increases. We really are looking at the inflationary environment and timing and the magnitude as well as the timing of these price increases accordingly to that. I think what we are experiencing in the first quarter really is a confluence of factors that was happening against unprecedented conditions in 2021 many distributors building products we’re facing. So, I think it’s more a confluence of that than a change in a philosophical approach or business approach to inventory management.

Okay. Okay. That’s helpful. And then my second question is, over the last couple of quarters, we’ve been talking about various end markets that have been maybe recovering a little bit faster or some that have been lagging whatever it is, one relative to the other. As you sort of look at where you stand today and thinking about the improvements that you’re talking about as we go through the balance of the year and comments from distributors, would you say that there are certain end markets where you’re really seeing more of a substantial pickup or it feels like we’re getting past some of the COVID headwinds and the other things that have been impacting those end markets or geographies and are finally really coming together.

Yeah. You know, I’m watching all of the verticals. And the activity continues to be strong against all of those verticals. In fact, all segments, all verticals were positive in the first quarter in terms of bidding activity. What we’re seeing is and watching very closely Susan as the office segment in particular, although it continues to improve sequentially quarter-over-quarter, we’re listening and watching for the tenant improvement part of that marketplace, which as people get back to the office and they’re doing their renovation activities, that’s a key driver of the office segment that we’re paying close attention to. And it’s anecdotal information right now because we really don’t have data around that. But the anecdotal information we’re hearing from contractors and distributors in the field is that, that’s improving. And the outlook for that continues to improve. And I think that’s a positive signal we had against the backdrop of really solid bidding activity. And I started reporting on this in the second quarter of last year. So we’ve had really four quarters in a row now where we’ve had greater than 20% growth in activity. And it’s really been brought based across all the verticals.

Yeah. Okay. That’s good to hear. Thank you. And good luck with everything.

Yeah. Thank you.

Thank you. Our next question will come from Adam Baumgarten with Zelman. Please go ahead.

Hey, good morning, everyone. Just curious if you could give us some color on the monthly volume trends you saw as you moved through the quarter and into April, did I guess what I’m trying to get at is did you see a Mineral Fiber some level of improvement as we moved through the quarter and into April?

Yeah, I think the monthly cadence was really was indeterminate, frankly, because of some of the draw down inactivity that was going on month-to-month. So there wasn’t a lot of insight from the month-to-month activity. So it’d be tough to comment on that and to provide any insight for you on that. It was pretty even throughout the quarter, to be honest with you and lacked any kind of direction based on different distributors, drawing down a different rates across the quarter. Wish I could give you something better than that, but I don’t think that I could be helpful with any insight from that. I didn’t really get any insight from the month-to-month activity.

Okay. Got it. And then just on the channel mix headwinds that you guys had, do you expect those to, sounds like they should get better as we move through the year, but it’s starting in the second quarter, should that kind of reverse given the hopefully high level of distributor demand?

Yeah. It’s expected to get better and improve. Of course, as we get. This is our highest margin, our highest AUV channel. So as it starts to mirror more of what we see in the marketplace in terms of demand, we should right size that mix, that mix headwind that we saw in the first quarter.

Got it. Thanks a lot.

Thank you. Our next question will come from Stephen Kim with Evercore ISI. Please go ahead.

Hey guys. Yeah. Apologies. Like I just did want to just sort of follow up on that one more time. So the quarterly cadence was in the quarter, you said, I think indeterminate sounds like at the time of your call in late February, you hadn’t seen something there that would’ve for you connected the dots to say, okay, this is something going to draw down the volumes. Here we are in late April. And I guess I just wanted to get clarity. Are you actually, at this point now actually seeing the turn carved, or is it through your conversations with the distributors that you have confidence that a couple of months from now you will have seen it materialized, but you actually aren’t exactly seeing it yet, which of the two is a closer representation of what you’re trying to communicate?

Yeah. Let me be clear. Stephen, on the February reference that you made. Sitting in February, we were expecting some inventory drawdown in our conversations with distributors. Based on, again, the price increase moving from February to January and some buy had in late December ahead of that price increase. Again, normal activity, we would expect it to see the draw down in January and affecting even into February. So that was kind of going as expected. I think it got elongated from there. And that’s where as I was saying in my prepared remarks, that it was greater than what we expected. It’s continued into – it continued into March. We have one particular distributor whose end of year closing is April and we will continue and has continued their inventory management up until their closing. And we’ve felt that and we’ve seen that. And so – but in our conversations, all of them are saying they’re at or approaching these normalized levels that they plan to be at this moment of this call. Does that help answer the question you had?

Yes.

Okay.

Yes. That is very helpful. So thanks very much for that. Second question is, last quarter I believe you mentioned something about education budgets not having been spent. I don’t have – I didn’t have details around that. I was curious if you could refresh us on that. Has that situation changed and maybe if you could give us some sense for the magnitude of that?

Yes. Our understanding back in February, when we talked about this was there a large amount of the ESSER [ph] funds had not been spent yet and were yet to be spent and therefore some opportunities for us. I’m sure they’re spending them as we go now that that’s the intent. They have two years to spend all of that money now. So we believe they’re actively in the market spending the money. In fact, we seized on some of that in a school district down the Southwest with a very large order. We’re very pleased with that. I couldn’t give you actual where they are in terms of the spending on the ESSER funds now, but we still believe there’s a good amount of that – those funds that are still available for us and we’re actively pursuing them.

Okay, great. Thanks very much, guys.

You bet.

Thank you. Our next question will come from John Lovallo with UBS. Please go ahead.

Good morning, guys. Thank you for taking my questions. The first one on the WAVE earnings, it seems you guys were pretty clear that they were negatively impacted by the lower volumes and the inventory levels at the distributors. Are you expecting that to sort of normalize in tandem with the mineral fiber volumes and how should we think about sort of the equity earnings for the full year?

Yes, John, we are expecting that. We’re again, the sell through rate that we’re seeing both tile and grid is drawing these inventories down and the distribution channel. So we see these kind of normalizing hand to hand our service through the WAVE drive venture is equally as excellent as our tile service through Armstrong. So we believe that they’re – these are moving in tandem and should normalize together. On the outlook question, Brian, do you want take that?

Yes, sure. Yes. So we continue to see WAVE implement pricing ahead of inflation or above inflation. So we expect positive equity earnings for the full year. Much like we guided back in February, there’s no change there.

Got it. Okay. That’s helpful. And then on the architectural specialty, new order growth, I mean, that was pretty impressive. And it seems like it was pretty broad based, but can you maybe just give a little bit more color on some of the end channel mix there?

On the channel mix more about that…

I am sorry. Sorry. A little bit more of how it was dispersed among the customers?

Okay. Across the verticals that are very different, sorry. Yes. Yes.

Correct.

Yes. Yes. Upper education was very active. So colleges and universities we highlighted one of the projects, but they seemed to have good money right now. So we’re following that very closely and there’s some good projects and activity that part of the education segment in particular as well as hospitality. We have some exciting new products for open plenum design. And John, you remember, we talked a lot about this two or three years ago. It’s a headwind to mineral fiber volume growth. But the fastest growing part of the architectural specialty business was our felt business and felt is primarily used in fixing open plan of designs that need acoustical solutions. So want the open look, but they need – they need products in the space to provide acoustical performance and so that was the fastest growing part of the business overall. And our felt team is doing a terrific job. Our new acquisitions in that area are doing a terrific job and yes, we’re really glad to have them right now.

Thanks guys.

Thank you. Our next question will come from Ken Zener with KeyBanc. Please go ahead.

Good morning everybody.

Hey, Ken.

Good morning.

The 12%, obviously there’s a lot of inflation everywhere and you are guiding to unit growth. Is it reasonable to assume that your assets, I’m just thinking about the total project cost, right? When someone does the ceiling when they remove walls or they reposition stuff, you’ll tend to get a whole re-furb in the office environment. Could you maybe give us again context for input cost that you grid the ceiling tile relative to a project, just so we can have a sense of what that is? Will that result in demand destruction? Just give us a little context there? And then have a follow up to that as well.

Yes. Typically we’ve reported this externally. Somewhere around the total – of the total project cost ceilings represented around 3% to 5% of an installed cost, so relatively small. And when you look at the rate of inflation across the building product spectrum, things like drywall and insulation and steel studs are up much more than ceiling tiles are up. And you look – just look at the size and the increases that they’re implementing in the marketplace. Now, partly that’s due can, as you know, some of our inputs – more of our inputs are less volatile and less commodity like with the exception of our grid business that that uses steel. But our mineral fiber tile business has less volatile inputs and allows us to; I would say drive price increases at a more moderate rate relative to other building products. So I’d say we’re still in that 3% to 5%. I don’t think that’s been that, that proportionality has been changed by the inflationary environment.

Good. Appreciate that context. I mean, obviously with architecture you’re going to continue to go after share or opportunity that are out there. But maybe when we saw 09 – 08, 09 which obviously COVID is different, but we did have a little kickback, but then we saw a rise last year in volume. I understand you’re clearly outlining inventory issues in the first quarter, but is there, it’s to me it always goes to the market share of mineral wall. I do think you’re obviously picking up revenue in architectural specialties as well as your price. But there has your view changed about the market share in terms of square footage of the ceiling house and it’s just – it’s just that each peak seems to be a little lower than the prior [indiscernible]. I’m trying to tie that off, because you’re obviously generating positive revenue and positive EBIT growth similar to perhaps heavy materials like rocks, because the industry structure is so favorable. But I’m just wondering if that volume size, if you can see it really kind of stabilizing? Thank you.

Yes. I think that you’re asking about the category share, I believe. And first of all there’s nothing that that tells me the category share of mineral fiber has changed materially and I still believe it’s driven by renovation rates and renovation activities since 70%, 75% of demand for mineral fiber comes from renovating existing spaces. So we still – that that pie of mineral fiber opportunities can flex depend on these renovation rates. And I believe we’re coming into a more, an accelerated renovation rate opportunity given COVID, the need for healthy spaces, sustainability. Some of the macro drivers we believe will be favorable to renovation rates. The other part of your question kind of hinted around the architectural specialty growth versus mineral fiber volume growth. And I want to make this point again to be clear that there’s no cannibalization going on here between Architectural Specialties growth and Mineral Fiber volume growth. The price points are 10x different. And so spaces that are going to use Mineral Fiber are not going to use Architectural Specialties and vice versa. They’re just in different places within the same building. And so it’s one of the, I think, synergistic values of this adjacency is that they’re very complementary and not cannibalizing each other. So again, kind of a long-winded answer for you, Ken, but I think there’s nothing that’s changed on my expectations around the category share in Mineral Fiber.

Excellent. I appreciate that I – respective. Thank you.

Yes, Ken.

Thank you. Our next question will come from Dan Oppenheim with Credit Suisse. Please go ahead.

Thanks very much. And I think it’s primarily been addressed here, which is the inventory – talk to this one distributor where there’s an April fiscal year-end really then is basically what you’re seeing orders coming in now for sales in May than our step up in activity, sort of confidence that we’ve fully worked through that inventory [indiscernible] ?

Again, there’s a couple of distributors. So it’s not one answer for all of those, Dan. I think, generally speaking, the majority of this inventory correction is behind us. And we’re on to the increase in seasonality for the second quarter.

Yes. Okay. Thanks very much.

Okay, thanks Dan.

Thank you. Our next question will come from Rafe Jadrosich with Bank of America. Please go ahead.

Hi, good morning. Thanks for taking my question. Can you talk about your outlook for cost inflation in 2022? And then maybe how does that compare to last quarter? What you’re expecting? And specifically natural gas prices have surged. So can you just talk about your exposure there?

Yes.

Yes.

Over to you, Brian.

Yes. So great question. When we provided guidance in February, we said that inflation would stay elevated around 5%. We’re now seeing that in the 7% to 8% range. As you pointed out, we’re seeing increases in energy, specifically on the natural gas. Raw materials, very specifically waste paper there. And then, of course, freight. So we’ve updated the total cost of goods sold bucket inflation outlook into that 7% to 8% range.

Thank you. That’s helpful. And then just following up on some of the AUV comments from earlier, I think AUV is sort of flattish sequentially, but you’ve announced a lot of pricing. Can you just talk about the channel mix impact to the quarter? And then maybe how do we think about the cadence of price realization through the year? Thank you.

Yes, Ray, it was – the channel mix headwind was smaller than normal, I’d say. So most of that AUV 12% increase in the quarter was driven by like-for-like pricing. We don’t typically break down that AUV performance into its specific components, but fair to say that a very significant portion of that 12% was driven by a little bit higher pricing realization, offset slightly by that – by some channel mix headwind. As we look forward, we haven’t disclosed yet the rate or timing of our next price increase. Typically, that’s in August. But we’ll continue to monitor this increase in inflation and put a rate and a timing accordingly.

Okay, thank you.

Thank you. I’m showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Vic Grizzle for any closing remarks.

Yes. Thank you, and thank you all for joining again. I’ve been with the company 11 years, and we’ve never had to talk about distributor inventory corrections like we’ve experienced in the first quarter. So it truly is an anomaly. And I think it’s a reflection of the unprecedented market conditions and times that we’re in. With that being said, we’re very comfortable that this is not a market signal, that the market is continuing to – in line with our expectations and continue to improve. And the second part of that is that our teams here at Armstrong continue to execute very well. There’s no execution issues on this – in these results. We’ve executed very well as a team, and we expect to continue that throughout the rest of the year. So thanks again for joining, and everybody, have a nice day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.