What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-29 compared with 2024-10-29 · 95 added, 149 removed, 111 unchanged (69% of the section changed)

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This discussion should be read in conjunction with the financial statements, the accompanying notes, the cautionary note regarding forward-looking statements and risk factors included in this report and our Annual Report on Form 10-K for the year ended December 31, 2024.

AWI is a leader in the design, innovation and manufacture of ceiling and wall solutions in the Americas.

We manufacture and source products made of numerous materials, including mineral fiber, fiberglass wool, metal, wood, felt, wood fiber, architectural resin and glass, and glass-reinforced-gypsum.

AWI is an Americas leader in the design, innovation and manufacture of interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions.

We manufacture and source products made of numerous materials, including mineral fiber, fiberglass, metal, felt, wood, resin, wood fiber and glass-reinforced-gypsum.

We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Enterprises, Inc.

(“Worthington”) called Worthington Armstrong Venture (“WAVE”).

called Worthington Armstrong Venture (“WAVE”).

Acquisitions and Investments in Unconsolidated Affiliates

In April 2024, we acquired all of the issued and outstanding membership interests in 3form, LLC (“3form”), a subsidiary of Hunter Douglas, Inc.

based in Salt Lake City, Utah.

In December 2024, we acquired all the issued and outstanding stock of A.

Zahner Company (“Zahner”), based in Kansas City, Missouri.

Zahner is a designer and manufacturer of exterior metal architectural solutions.

The operations, assets and liabilities of Zahner are included in our Architectural Specialties segment.

In April 2024, we acquired all of the issued and outstanding membership interests in 3form, LLC (“3form”) based in Salt Lake City, Utah, from Hunter Douglas, Inc.

3form is a designer and manufacturer of architectural resin and glass products used for specialty walls, partitions and ceilings.

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Our investment and equity earnings in Overcast are included in our Unallocated Corporate segment.

In October 2023, we acquired a portion of the business and certain assets of Insolcorp, LLC (“Insolcorp”), based in Albemarle, North Carolina, used to develop, test and manufacture energy saving products deployed in building and roofing installations.

The acquired operations, assets and liabilities of Insolcorp are included in our Mineral Fiber segment.

In July 2023, we acquired all of the issued and outstanding stock of BOK Modern, LLC (“BOK”), based in San Rafael, California.

BOK is a designer of metal facade architectural solutions.

The acquired operations, assets and liabilities of BOK are included in our Architectural Specialties segment.

Manufacturing Plants

As of September 30, 2024, we operated 19 manufacturing plants, including 17 plants located within the U.S.

As of March 31, 2025, we operated 20 manufacturing plants, including 18 plants located within the U.S.

and two plants in Canada.

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Mineral Fiber, Architectural Specialties and Unallocated Corporate.

Mineral Fiber – produces suspended mineral fiber and soft fiber ceiling systems.

Mineral Fiber – produces suspended mineral fiber and fiberglass ceiling systems.

Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, and energy efficiency, along with other health and sustainability features and aesthetic appeal.

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Mineral Fiber segment results reflect those sales transactions.

The Mineral Fiber segment also includes all assets and liabilities not specifically allocated to our Architectural Specialties or Unallocated Corporate segment, including all property and related depreciation associated with our Lancaster, Pennsylvania headquarters.

The Mineral Fiber segment also includes all assets and liabilities not specifically allocated to our Architectural Specialties or Unallocated Corporate, including all property and related depreciation associated with our Lancaster, Pennsylvania headquarters.

Operating results for the Mineral Fiber segment include a significant majority of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

Architectural Specialties – produces, designs and sources ceilings, walls and facades primarily for use in commercial settings.

Products are available in numerous materials, such as metal, wood and felt, in addition to various colors, shapes and designs.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

products offer various performance attributes such as acoustical control, rated fire protection, light and aesthetic appeal.

Architectural Specialties – designs, produces and sources specialty ceilings, walls, and other interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions primarily for use in commercial settings.

Products are available in numerous materials, such as metal, felt, wood, resin and glass, wood fiber and glass-reinforced-gypsum in various colors, shapes and designs.

These products offer a range of design options and performance attributes such as acoustical control, rated fire protection, light, aesthetic appeal, energy conservation and building performance.

We sell standard, premium and customized products, a portion of which are sourced from third-party producers.

Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors.

The majority of this segment’s revenues are project driven, which can lead to more variability in sales patterns.

This segment’s revenues are primarily project driven, which

Management’s Discussion and Analysis of Financial Condition and Results of Operations

can lead to more variability in sales patterns.

Operating results for the Architectural Specialties segment include a portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

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Factors Affecting Revenues

For information on our 2024 net sales by segment, see Notes 2 and 3 to the Condensed Consolidated Financial Statements.

For information on our 2025 and 2024 net sales and disaggregated expenses by segment, see Note 2 to the Condensed Consolidated Financial Statements.

For information on our segments’ 2025 and 2024 net sales disaggregated by major customer groups, see Note 3 to the Condensed Consolidated Financial Statements.

We compete in the building product markets of the Americas.

We closely monitor publicly available macroeconomic data and trends that provide insight into commercial construction market activity, including, but not limited to, gross domestic product, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits, and retail sales.

The Company also continues to monitor the impacts of geopolitical events, none of which had a material direct impact on our financial condition, liquidity or results of operations in the first nine months of 2024 or 2023.

Several factors and trends within our markets affected our business performance during the three and nine months ended September 30, 2024 compared to the same periods in 2023, most notably an increase in net sales due to our April 2024 acquisition of 3form and our July 2023 acquisition of BOK.

For the three months ended September 30, 2024, sales volumes increased $30 million compared to the same period in 2023, with the 3form and BOK acquisitions contributing $25 million to net sales.

For the nine months ended September 30, 2024, sales volumes increased $53 million compared to the same period in 2023 driven primarily by a $48 million increase in net sales from the 3form and BOK acquisitions.

The Company continues to monitor the impacts of recent tariff announcements and geopolitical events, including but not limited to, conflicts in Ukraine and the Middle East, none of which had a material direct impact on our financial condition, liquidity or results of operations in the first three months of 2025 or 2024.

Several factors and trends within our markets affected our business performance during the first quarter of 2025 compared to the first quarter of 2024, most notably a $41 million increase in net sales due to our December 2024 acquisition of Zahner and April 2024 acquisition of 3form.

Also contributing to the increase in net sales was a $10 million increase in organic Architectural Specialties net sales, driven primarily by increased custom project revenues, offset by a $10 million decrease in net sales due to lower sales volumes in our Mineral Fiber segment.

Average Unit Value .

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Within our Mineral Fiber segment, we focus on improving sales dollars per unit sold, or average unit value (“AUV”), as a measure that accounts for the varying assortment of products and like-for-like pricing impacting our revenues.

Favorable AUV increased our total consolidated net sales for the three and nine months ended September 30, 2024 by approximately $9 million and $42 million, respectively, compared to the same periods in 2023.

Our Architectural Specialties segment revenues are primarily generated by individual contracts that include a mix of products, both manufactured by us and sourced from third parties, that varies by project.

As such, we do not track AUV performance for this segment, but rather attribute most changes in net sales to volume.

During the first and third quarters of 2024, we implemented price increases on Mineral Fiber ceiling products.

During the first and second quarters of 2024, WAVE implemented price increases on grid products.

Future pricing actions may be implemented based on numerous factors, including the rate and pace of inflation and its impact on our business.

Favorable AUV contributed approximately $16 million to our total consolidated net sales for the three months ended March 31, 2025 compared to the same period in 2024.

As such, we do not track AUV performance for this segment but rather attribute all changes in net sales to volume, including gross to net sales adjustments.

During the first quarter of 2025, we implemented price increases on Mineral Fiber ceiling products and WAVE implemented price increases on grid products.

Future pricing actions for Mineral Fiber, Architectural Specialties and WAVE products may be implemented based on numerous factors, including the impact of announced tariffs and the rate and pace of inflation and its impact on our business.

Seasonality .

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Operating Expenses.

Our operating expenses are composed of direct production costs (principally raw materials, labor, and energy), manufacturing overhead costs, freight, costs to purchase sourced products and selling, general and administrative (“SG&A”) expenses.

Our operating expenses are comprised of direct production costs (principally raw materials, labor, and energy), manufacturing overhead costs, freight, costs to purchase sourced products, tariffs and selling, general and administrative (“SG&A”) expenses.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our largest raw material expenditures are primarily for fiberglass, perlite, recycled paper, and starch.

Other raw materials include clay, felt, pigment, wood, and wood fiber.

Other raw materials include clays, felt, pigment, resin and glass, wood and wood fiber.

We manufacture substantially all of our mineral wool at one of our manufacturing facilities.

We use aluminum and steel in the production of metal ceilings by us and by WAVE.

Finally, natural gas and packaging materials are also significant input costs.

We use aluminum and steel in the production of metal building products by us and by WAVE.

Finally, natural gas and packaging materials also represent significant input costs.

Fluctuations in the prices of these inputs impact our financial results.

During the three and nine months ended September 30, 2024, lower energy and freight costs were partially offset by higher raw material costs, resulting in a $1 million and $5 million benefit to operating income, respectively, compared to the prior year periods.

Acquisition-Related Expenses and Losses

In connection with our acquisitions of 3form in April 2024, Insolcorp in October 2023, BOK in July 2023 and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses and losses to operating income during the three and nine months ended September 30, 2024 and 2023, summarized as follows (dollar amounts in millions):

Three Months Ended

Nine Months Ended

September 30,

Affected Line Item in the Condensed Consolidated Statements of Earnings and Comprehensive Income

Cost of goods sold

Deferred cash and restricted stock expenses

SG&A expenses

Acquisition costs

SG&A expenses

Loss related to change in fair value of

contingent consideration

Loss related to change in fair value

of contingent consideration

Net negative impact to operating income

The inventory amounts above reflect the post-acquisition expenses associated with recording inventory at fair value as part of purchase accounting for the 3form acquisition.

Expenses related to the deferred cash and restricted stock awards were related to our Arktura acquisition and represented expenses for Arktura’s former owners and employees that were recorded over their respective service periods, as such payments were subject to the awardees’ continued employment with AWI.

The Company and the former owners of Arktura mutually agreed upon the separation of their service effective in the fourth quarter of 2023.

Acquisition costs above reflect certain contingent third-party professional fees incurred due to the 3form acquisition.

The change in fair value of contingent consideration was related to our BOK and Insolcorp acquisitions and is remeasured quarterly during each acquisition's earn-out periods.

See Note 15 to the Condensed Consolidated Financial Statements for further information.

Depreciation of fixed assets acquired and amortization of intangible assets acquired have been excluded from the table above.

As of September 30, 2024 we had approximately 3,500 full-time and part-time employees, compared to 3,100 full-time and part-time employees as of December 31, 2023.

The increase in employees since December 31, 2023 was primarily driven by our April 2024 acquisition of 3form.

In the first quarter of 2025, higher energy and raw material costs negatively impacted operating income by $1 million compared to the same period in 2024.

As of March 31, 2025 and December 31, 2024, we had approximately 3,600 full-time and part-time employees.

RESULTS OF OPERATIONS

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Change is Favorable

Three Months Ended September 30,

Total consolidated net sales

Operating income

Nine Months Ended September 30,

Three Months Ended March 31,

Total consolidated net sales

Operating income

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated net sales for the third quarter of 2024 increased 11.3% over the prior-year period primarily due to higher volumes of $30 million and favorable AUV of $9 million.

Architectural Specialties net sales increased $31 million and Mineral Fiber net sales increased $8 million over the prior-year period.

Architectural Specialties segment net sales improved primarily due to contributions from the acquisitions of 3form and BOK.

The increase in Mineral Fiber net sales was primarily driven by favorable AUV.

Consolidated net sales for the first nine months of 2024 increased 9.7% compared to the prior-year period primarily due to higher volumes of $53 million and favorable AUV of $42 million.

Consolidated net sales for the first quarter of 2025 increased 17.3% over the prior-year period due to higher volumes of $41 million and favorable AUV of $16 million.

Architectural Specialties net sales increased $51 million and Mineral Fiber net sales increased $6 million over the prior-year period.

Architectural Specialties segment net sales improved primarily due to contributions from the acquisitions of 3form and BOK.

Architectural Specialties segment net sales improved primarily due to a $41 million contribution from the acquisitions of Zahner and 3form and increased organic custom project net sales.

The increase in Mineral Fiber net sales was primarily driven by favorable AUV, partially offset by lower sales volumes.

Cost of goods sold in the third quarter of 2024 was 57.6% of net sales, compared to 59.3% for the same period in 2023.

Cost of goods sold in the first nine months of 2024 was 59.4% of sales, compared to 61.6% for the same period in 2023.

The decreases in cost of goods sold as a percent of net sales for the third quarter and first nine months of 2024 compared to the same periods in 2023 were driven primarily by favorable AUV margin benefit, improved manufacturing productivity and lower input costs.

SG&A expenses in the third quarter of 2024 were $77.6 million, or 20.1% of net sales, compared to $64.6 million, or 18.6% of net sales, for the same period in 2023.

The year-over-year increase in SG&A expenses was primarily driven by an $11 million increase related to the acquisitions of 3form and BOK and a $3 million increase in incentive compensation.

SG&A expenses in the first nine months of 2024 were $223.1 million, or 20.7% of net sales, compared to $189.2 million, or 19.2% of net sales, for the same period in 2023.

The year-over-year increase in SG&A expenses was primarily driven by a $20 million increase related to the acquisitions of 3form and BOK, a $6 million increase in incentive compensation, a $3 million increase in deferred compensation related charges, a $2 million increase in selling expenses, as well as a $2 million increase in business development expenses.

Remeasurement losses for changes in the fair value of contingent consideration were $0.2 million and $0.6 million for the three and nine months ended September 30, 2024 and related to our BOK and Insolcorp acquisitions.

See Note 15 to the Condensed Consolidated Financial Statements for further information.

Impairment and gain on sales of fixed assets, net were $0.2 million and $0.3 million for the three and nine months ended September 30, 2024.

During the third quarter of 2024, we recorded a $4.6 million gain on the sale of our idled Mineral Fiber plant in St.

Helens, Oregon.

Also in the third quarter of 2024, we recorded a $4.9 million impairment charge for undeveloped land adjacent to our Corporate headquarters, which represented the expected loss on sale of the property based on an agreement we entered into with a buyer that we anticipate closing within the next twelve months.

Equity earnings from unconsolidated subsidiaries were $25.2 million in the third quarter of 2024, compared to $23.4 million in the third quarter of 2023, and were $78.7 million in the first nine months of 2024 compared to $69.1 million in the same period in 2023.

WAVE equity earnings were $25.5 million in the third quarter of 2024, while Overcast equity losses were $0.3 million.

WAVE equity earnings were $79.4 million in the first nine months of 2024, while Overcast equity losses were $0.7 million.

The year-over-year increase in WAVE equity earnings for the third quarter of 2024 was primarily driven by the benefit from favorable AUV, partially offset by lower sales volumes.

The year-over-year increase in WAVE equity earnings for the first nine months of 2024 was primarily driven by the benefit from favorable AUV and higher sales volumes, partially offset by increased employee compensation and benefits.

Cost of goods sold in the first quarter of 2025 was 60.8% of net sales, compared to 61.9% for the same period in 2024.

The year-over-year decrease in cost of goods sold as a percent of net sales was driven primarily by favorable AUV margin benefit, favorable inventory valuation impacts, improved manufacturing productivity and favorable margin benefits from the acquisition of Zahner and 3form.

SG&A expenses in the first quarter of 2025 were $78.0 million, or 20.4% of net sales, compared to $65.4 million, or 20.0% of net sales, for the same period in 2024.

The increase in SG&A expenses was primarily driven by a $14 million increase related to the acquisitions of Zahner and 3form and a $2 million increase in selling expenses.

These increases were partially offset by a $4 million increase in company-owned officer life insurance gains related to deferred compensation plans.

Equity earnings from unconsolidated subsidiaries were $26.6 million in the first quarter of 2025, compared to $27.2 million in the first quarter of 2024.

WAVE equity earnings were $26.8 million in the first quarter of 2025, compared to $27.4 million in the first quarter of 2024.

The decrease in WAVE equity earnings was primarily driven by the negative impact of lower sales volumes, partially offset by favorable AUV.

See Note 8 to the Condensed Consolidated Financial Statements for further information.

Interest expense was $10.5 million in the third quarter of 2024 compared to $8.8 million in the third quarter of 2023.

Interest expense was $30.6 million in the first nine months of 2024 compared to $26.7 million in the first nine months of 2023.

The increases for the third quarter and first nine months of 2024 in comparison to the same periods in 2023 were primarily due to higher average effective interest rates, partially offset by lower average debt balances.

Other non-operating income, net, was $3.0 million in the third quarter of 2024 compared to $2.3 million in the third quarter of 2023.

Other non-operating income, net, was $9.3 million in the first nine months of 2024 compared to $6.9 million in the first nine months of 2023.

The increases in other non-operating income, net, for the third quarter and first nine months of 2024 in comparison to the same periods in 2023 were primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.

Income tax expense was $26.9 million in the third quarter of 2024 compared to $24.2 million in the third quarter of 2023.

The effective tax rate for the third quarter of 2024 was 25.9% compared to 25.8% for the same period of 2023.

Income tax expense was $68.4 million in the first nine months of 2024 compared to $60.6 million in the first nine months of 2023.

The effective tax rate was 25.2% in the first nine months of 2024 compared to 25.5% in the same period of 2023.

The effective tax rate for the third quarter of 2024 was essentially unchanged from the same period in 2023.

The decrease in the effective tax rate for the first nine months of 2024 in comparison to the same period in 2023 was primarily due to an increase in discrete tax benefits recognized, partially offset by less favorable permanent adjustments.

Interest expense was $8.5 million in the first quarter of 2025 compared to $9.0 million in the first quarter of 2024.

The decrease in interest expense for the first quarter of 2025 in comparison to the same period in 2024 was primarily due to lower average debt balances, partially offset by higher average effective interest rates.

Other non-operating income, net, was $0.7 million in the first quarter of 2025 compared to $3.1 million in the first quarter of 2024.

The decrease in other non-operating income, net, for the first quarter 2025 in comparison to the same period in 2024 was primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.

Income tax expense was $21.6 million in the first quarter of 2025 compared to $20.3 million in the first quarter of 2024.

The effective tax rate for the first quarter of 2025 was 23.8% compared to 25.3% for the same period of 2024.

The decrease in the effective tax rate was primarily due to the benefit of federal investment tax credits, a reduction in our valuation allowance for capital loss carryforwards and other favorable permanent adjustments.

Total Other Comprehensive Loss (“OCL”) was $0.6 million in the first quarter of 2025 compared to $0.9 million in the first quarter of 2024.

The change in OCL in the first quarter of 2025 compared to the first quarter of 2024 was due to pension and postretirement adjustments and foreign currency translation adjustments, partially offset by lower interest rate swap derivative losses in 2025.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Total Other Comprehensive Loss (“OCL”) was $6.4 million in the third quarter of 2024 compared to $2.6 million in the third quarter of 2023.

OCL was $8.2 million in the first nine months of 2024 compared to $4.3 million in the first nine months of 2023.

The change in OCL in the third quarter and first nine months of 2024 compared to the same periods in 2023 were primarily driven by derivative losses, pension and postretirement adjustments and foreign currency translation adjustments.

Derivative losses represent the mark-to-market value fair adjustments for our derivative assets and liabilities, and the recognition of gains and losses previously deferred in Accumulated Other Comprehensive Income.

Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans.

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Foreign currency translation adjustments in 2025 and 2024 were driven primarily by changes in the Canadian dollar.

REPORTABLE SEGMENT RESULTS

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Change is Favorable

Three Months Ended September 30,

Total segment net sales

Operating income

Nine Months Ended September 30,

Three Months Ended March 31,

Total segment net sales

Operating income

Net sales increased 3.3% in the third quarter of 2024 as compared to the prior-year quarter due to $10 million of favorable AUV, partially offset by $1 million of lower sales volumes.

The improvement in AUV was driven by favorable like-for-like price.

For the first nine months of 2024, net sales improved by 5.0% from the prior-year period, primarily due to $42 million of favorable AUV, partially offset by lower sales volumes of $6 million.

The favorable AUV was driven primarily by positive like-for-like pricing, and to a lesser extent, favorable mix.

The decrease in volumes for the first nine months of 2024 was driven primarily within our home center customer channel, most notably prior-year first quarter inventory level increases that did not repeat in the current year period, partially offset by the positive contribution from our growth initiatives compared to the prior-year period.

Third-quarter 2024 operating income increased primarily due to a $6 million benefit from favorable AUV, a $3 million decrease in manufacturing and input costs and a $2 million increase in WAVE equity earnings.

These benefits were partially offset by a $3 million increase in SG&A expenses, primarily driven by higher incentive compensation.

Operating income for the first nine months of 2024 increased primarily due to a $28 million benefit from favorable AUV, a $10 million increase in WAVE equity earnings and a $9 million decrease in manufacturing and input costs, partially offset by a $4 million decrease from lower sales volumes.

Operating income was also negatively impacted by a $15 million increase in SG&A expenses, which was primarily due to increases in incentive compensation, an increase in deferred compensation related charges, an increase in employee costs due to inflationary pressures, higher depreciation and amortization expense and an increase in accruals for environmental remediation matters.

Net sales increased $6 million in the first quarter of 2025 compared to the prior-year quarter due to $16 million of favorable AUV, partially offset by $10 million of lower sales volumes.

The improvement in AUV was driven by favorable like-for-like price and favorable mix.

The decrease in volumes was primarily driven by softer demand from our home center customers, and the impact of one less shipping day compared to the prior year period.

Costs of goods sold during the first quarter of 2025 was $148 million, or 60.4% of net sales, compared to $146 million, or 60.8% of net sales, in the prior year period.

Gross profit increased $3 million, or 3.4%, compared to the prior year period.

The year-over-year increase in gross profit was driven primarily by an $8 million benefit from favorable AUV and a $2 million decrease in manufacturing costs driven primarily by improved productivity, partially offset by higher input costs.

These increases were partially offset by a $7 million negative impact from lower sales volumes.

SG&A expenses during the first quarter of 2025 were $39 million, or 16.1% of net sales, compared to $42 million, or 17.6% of net sales, in the prior year period.

The year-over-year decrease in SG&A expenses was primarily driven by a $4 million increase in company-owned officer life insurance gains related to deferred compensation plans, partially offset by an increase in selling expenses.

Equity earnings from our WAVE joint venture were $26.8 million in the first quarter of 2025, compared to $27.4 million in the prior year period.

The decrease in WAVE earnings was primarily driven by the negative impact of lower sales volumes, partially offset by the benefits of favorable AUV.

Architectural Specialties

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Change is Favorable

Three Months Ended September 30,

Total segment net sales

Operating income

Nine Months Ended September 30,

Three Months Ended March 31,

Total segment net sales

Operating income

Net sales increased $31 million in the third quarter of 2024 compared to the same period in 2023 primarily due to a $25 million increase from the acquisitions of 3form and BOK, in addition to increased custom metal project net sales.

For the first nine months of 2024, net sales improved by $59 million from the prior-year period primarily due to a $48 million contribution from the acquisitions of 3form and BOK, in addition to increased custom metal project net sales.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating income increased in the third quarter of 2024 primarily due to an $18 million margin benefit from increased sales, driven primarily by the acquisitions of 3form and BOK, and partially due to improved custom project margins.

This increase was partially offset by a $10 million increase in SG&A expenses and a $3 million increase in manufacturing costs, both of which were primarily due to the acquisitions of 3form and BOK.

Operating income for the first nine months of 2024 compared to the same period in 2023 was positively impacted by a $36 million margin benefit from increased sales, driven primarily by the acquisitions of 3form and BOK, and partially due to improved custom project margins.

This increase was largely offset by a $20 million increase in SG&A expenses primarily due to the acquisitions of 3form and BOK and a $9 million increase in manufacturing costs, driven by inflationary pressures and the acquisitions of 3form and BOK.

Net sales increased $51 million in the first quarter of 2025, driven primarily by a $41 million increase from the acquisitions of Zahner and 3form, in addition to increased organic custom project net sales.

Costs of goods sold during the first quarter of 2025 was $84 million, or 61.3% of net sales, compared to $56 million, or 64.5% of net sales, in the prior year period.

Gross profit increased $22 million, or 72.7%, compared to the prior year period due to a $27 million benefit from the higher net sales, partially offset by a $5 million increase in manufacturing costs.

The acquisitions of Zahner and 3form contributed a $17 million benefit to gross profit, with the remaining increase driven by improved operating leverage and custom project margins.

SG&A expenses in the first quarter of 2025 were $38 million, or 27.9% of net sales, compared to $23 million, or 26.6% of net sales, in the prior year period.

The increase in SG&A expenses was primarily driven by a $14 million increase related to the acquisitions of Zahner and 3form.

Unallocated Corporate

Unallocated Corporate operating loss was $1 million in the third quarter of 2024 and 2023.

Unallocated Corporate operating loss was $3 million in the first nine months of 2024 and $2 million in the first nine months of 2023.

Unallocated Corporate operating loss was $1 million in the first quarter of 2025 and 2024.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

FINANCIAL CONDITION AND LIQUIDITY

Operating activities for the first nine months of 2024 provided $180.2 million, compared to $176.4 million for the first nine months of 2023.

The favorable change in cash from operating activities was driven by higher cash earnings for the first nine months of 2024 in comparison to the prior-year period and a favorable timing-related change in accounts payable and accrued expenses was partially offset by an unfavorable timing-related change in accounts receivables and an increase in cash paid for income taxes.

Net cash used for investing activities was $61.2 million in the first nine months of 2024, compared to $10.6 million in the first nine months of 2023.

The unfavorable change in cash in the first nine months of 2024 compared to the same period in 2023 was primarily due to $94 million of cash paid for the 3form acquisition, partially offset by proceeds received from the sale of fixed assets, an increase in proceeds received from company-owned life insurance policies, and lower purchases of property, plant and equipment.

Net cash used for financing activities was $115.7 million in the first nine months of 2024, compared to $175.1 million cash in the first nine months of 2023.

The favorable change in cash was primarily due to a decrease in repurchases of outstanding common stock and lower payments of acquisition-related contingent consideration.

Operating activities for the first three months of 2025 provided $41.0 million, compared to $26.4 million for the first three months of 2024.

The favorable change in cash from operating activities was primarily due to higher cash earnings, partially offset by unfavorable timing related working capital changes in inventories, accounts payable and accrued expenses.

Net cash provided by investing activities was $6.0 million in the first three months of 2025, compared to $5.9 million in the first three months of 2024.

The change in cash in the first three months of 2025 compared to the same period in 2024 was primarily due to the prior-year first quarter investment in Overcast that did not recur in the current-year period, mostly offset by increased purchases of property, plant and equipment.

Net cash used for financing activities was $43.6 million in the first three months of 2025, compared to $33.1 million in the first three months of 2024.

The unfavorable change in cash was primarily due to an increase in repurchases of outstanding common stock.

Our liquidity needs for operations vary throughout the year.

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We have a $950.0 million variable rate senior credit facility, which is comprised of a $500.0 million revolving credit facility (with a $150.0 million sublimit for letters of credit) and a $450.0 million Term Loan A.

The revolving credit facility and Term Loan A are currently priced at 1.375% over the Secured Overnight Financing Rate (“SOFR”), plus a 10-basis point adjustment.

As of March 31, 2025, the revolving credit facility and Term Loan A were priced at 1.375% over the Secured Overnight Financing Rate (“SOFR”), plus a 10-basis point adjustment.

The revolving credit facility and Term Loan A mature in December 2027.

We also have a $25.0 million bi-lateral letter of credit facility.

As of September 30, 2024, the total principal balances outstanding under our senior credit facility were $433.1 million under Term Loan A and $125.0 million under the revolving credit facility.

As of March 31, 2025, the total principal balances outstanding under our senior credit facility were $421.9 million under Term Loan A and $100.0 million under the revolving credit facility.

The senior credit facility includes two financial covenants that require the ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to consolidated cash interest expense minus cash consolidated interest income to be greater than or equal to 3.0 to 1.0, and requires the ratio of consolidated funded indebtedness, minus AWI and domestic subsidiary unrestricted cash and cash equivalents up to $100 million, to EBITDA to be less than or equal to 3.75 to 1.0 (subject to certain exceptions for certain acquisitions).

As of September 30, 2024, we were in compliance with all covenants of the senior credit facility.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As of March 31, 2025, we were in compliance with all covenants of the senior credit facility.

The Term Loan A is currently priced on a variable interest rate basis.

We use interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility associated with our senior credit facility.

The following table summarizes our interest rate swaps (dollar amounts in millions):

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Risk Coverage

March 2021 to March 2025

November 28, 2018

November 2023 to December 2025

October 23, 2023

March 2025 to March 2026

March 27, 2025

March 2024 to June 2026

March 25, 2024

March 2025 to September 2026

March 27, 2025

November 2023 to December 2026

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June 26, 2024

Under the terms of the interest rate swap with a November 28, 2018 trade date above, we pay a fixed rate monthly and receive a floating rate based on SOFR, inclusive of a 0% floor.

Under the terms of all remaining interest rate swaps above, we pay a fixed rate monthly and receive a floating rate based on SOFR.

As of September 30, 2024, these swaps are designated as cash flow hedges against changes in SOFR for a portion of our variable rate debt.

Under the terms of our interest rate swaps, we pay a fixed rate monthly and receive a floating rate based on the SOFR.

These swaps are designated as cash flow hedges against changes in SOFR for a portion of our variable rate debt.

We utilize lines of credit and other commercial commitments to ensure that adequate funds are available to meet operating requirements.

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The following table presents details related to our letters of credit facilities (dollar amounts in millions):

September 30, 2024

March 31, 2025

Financing Arrangements

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Revolving credit facility

As of September 30, 2024, we had $73.7 million of cash and cash equivalents, $56.9 million in the U.S.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As of March 31, 2025, we had $82.8 million of cash and cash equivalents, $68.5 million in the U.S.

and $14.3 million in foreign jurisdictions, primarily Canada.

As of September 30, 2024, we also had $375 million available under our revolving credit facility.

As of March 31, 2025, we also had $400 million available under our revolving credit facility.

We believe cash on hand and cash generated from operations, together with borrowing capacity under our credit facility, will be adequate to address our near-term liquidity needs based on current expectations of our business operations, capital expenditures, acquisitions and scheduled payments of debt obligations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis