Armstrong World Industries Inc (AWI) Q1 2021 Earnings Call Transcript

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Armstrong World Industries Inc (AWI 1.63%)
Q1 2021 Earnings Call
Apr 27, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the Armstrong World Industries, Inc. First Quarter 2021 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 today Tom Waters, VP of Corporate Finance. Please go ahead.

Tom Waters -- Vice President of Corporate Finance

Thank you. 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 armstrongceilings.com.

With me on the call today are Vic Grizzle, our CEO; and Brian MacNeal, our CFO. Hopefully, you have seen our press release this morning and both the release and the presentation Brian 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 World Industries, please review our SEC filings, including the 10-Q filed earlier this morning. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities laws. 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 will turn the call over to Vic.

Vic Grizzle -- Chief Executive Officer

Thanks, Tom and good morning, everyone. It's good to be with you today to review our first quarter results. A solid start to what we expect will be a robust year of growth for Armstrong. Overall in the quarter, we continue to see sequential improvement and the recovery of our markets.

Our total company daily shipping rate sequentially improved and accelerated through the end of the quarter and that acceleration has continued nicely into April. This first quarter comparison is against the last of the pre-COVID market conditions as we saw very little impact from our -- from COVID in our base period. In this first quarter of 2021, adjusted revenue of $253 million increased 2% from prior year, driven by sales of our 2020 acquisitions, which more than offset COVID-driven volume reductions in our organic business. Adjusted EBITDA of $85 million declined 12% from the prior year driven by COVID-related volume declines, continuing investments in our growth initiatives and the resumption of spending that was deferred when the pandemic hit. The Mineral Fiber business has started the year as we expected.

Our Mineral Fiber daily shipping rate posted a third consecutive quarter of sequential improvement as people return to work and markets continue to reopen. Like-for-like pricing exceeded input cost inflation, top-line mix was positive as sales of our premium products continue to outpace the rest of our product offerings and channel mix was once again a headwind, although to a lesser extent driven by relatively strong sales in the lower price point home center channel. Channel mix as we have experienced during the pandemic has already begun to subside and is not expected to be a headwind going forward. The territory mix challenges we faced for the past few quarters have diminished as New York City and the other six major metro areas we've recently called out are essentially in line with the rest of the country.

On the operations side, our Mineral Fiber plants ran well with solid productivity despite the challenges created by the winter storms. And our WAVE joint venture performed well and was able to price ahead of rising steel costs to deliver a strong first quarter. Our architectural specialty business delivered solid top-line growth of 25% versus prior year quarter driven again by our 2020 acquisitions of Turf, Moz and Arktura. A real highlight in the quarter was the acceleration in order intake with the sequential organic order intake at a record level that's resulted in a stronger-than-expected backlog.

We continue to be encouraged by our win rates on projects and our ability to differentiate our offering versus our competition. Given our strong backlog, we remain confident in delivering our 2021 sales outlook of more than 30% growth. In the quarter, we continued our investment in architectural specialties to further extend our capabilities and our capacity to support our expectation of continuing strong growth in this segment. Integration of our three new acquisitions continues to go well and I remain excited by the potential for incorporating their technology and design capabilities across the Armstrong platform. Our acquisition pipeline is robust and continues to grow, and we have the balance sheet, liquidity and appetite to execute additional acquisitions and alliances.

In terms of the overall macroeconomic environment and marketplace conditions, markets have improved and are showing signs of gaining momentum. I am encouraged by the trends we are seeing in the data and by the tone of the conversations with our customers and distribution partners. Bidding activity continued to improve through the quarter and more projects delayed last year are being released. GDP estimates are being revised upwards, which is a positive leading indicator for increasing renovation activity. CEO confidence is rising and return-to-office statistics are improving signaling a desire for an expectation of return to the marketplace. There's a strong desire to get students and teachers back in the classroom, where they can be most productive and to get work teams back together, so they can be most effective in collaborating, innovating and networking. These trends along with the potential for trillions of dollars in government spending on infrastructure, including spending specifically targeted for renovating schools is creating greater optimism and a more favorable economic backdrop.

Along with stronger economic outlook inflationary pressures are ramping up. The raw material most impacted in our operations thus far has been steel used primarily at our WAVE joint venture in the manufacturing of our suspension systems. As a result, beginning back in December, we have implemented five price increases totaling more than 40%. It's been a challenging body of work for both our sales teams and our distribution partners to manage, but they have performed well and as evidenced by WAVE's first quarter results. We are also experiencing rising input and freight costs in our Mineral Fiber and Architectural Specialties segments. As a result, we have announced a heavier-than-normal 10% price increase on Mineral Fiber products and pulled the effective date up to May, earlier than normal. This is on top of the implemented February increase of 7%. In Architectural Specialties, we have also increased pricing on standard products and are adjusting our quoting processes on custom projects. With these actions, I remain confident that we will once again deliver like-for-like price realization greater than input cost inflation.

Overall, both segments are operating at a high level. We have fortunately not experienced any supply chain disruptions, allowing for outstanding service levels. And because of our recent digitalization initiatives, we are staying more closely connected to our customers and partners than ever before supporting a strong project backlog position. And our teams are executing well on our price initiatives to stay ahead of inflation. So with this healthy state of operation, a solid first quarter result and our market outlook for the remainder of the year, we are reiterating the full year 2021 guidance we provided in February.

And with that, I'll turn the call over to Brian to review the details of our financials. Brian?

Brian MacNeal -- Chief Financial Officer

Thanks, Vic. Good morning to everyone on the call. Today, I will be reviewing our first quarter 2021 results and our guidance for the full year. But 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 4, we'll begin with our consolidated first quarter results. Adjusted sales of $253 million were up 2% versus prior year. These adjusted sales include approximately $700,000 of purchase accounting adjustments related to our 2020 acquisitions. This is the last quarter for this adjustment. Adjusted EBITDA fell 12% and EBITDA margins contracted 520 basis points. As Vic stated earlier, this contraction was expected given the pressure that persists this quarter from COVID-related demand declines, the investments we continue to make in our growth initiatives and the fact that we have reinstituted the cost we temporarily cut last year. Furthermore, as a reminder, when you look at our adjusted EBITDA reconciliation in the appendix on slide 12, Q1 of 2020 earnings as reported were significantly impacted by our Q1 pension annuitization. Adjusted diluted earnings per share of $0.84 were 23% below prior year results. This result includes $6 million or $0.09 of amortization expense related to our 2020 acquisitions. Adjusted free cash flow declined by $13 million versus the prior year.

Our balance sheet remains in a strong position as we ended the quarter with $397 million of available liquidity, including a cash balance of $122 million and $275 million of availability on our revolving credit facility. While net debt of $587 million was $43 million above Q1 2020 results, our net debt-to-EBITDA ratio of 1.9 times as calculated under the terms of our credit agreement remains well below our covenant threshold of 3.75 times. We have considerable headwind in this measure. In the second quarter, we repurchased 126,000 shares for $10 million or an average price of $79.60 per share. Since the inception of our repurchase program in 2016, we have bought back 9.9 million shares at a cost of $616 million for an average price of $62.57 per share. We currently have $584 million remaining under our repurchase program, which expires in December 2023.

Slide 5 summarizes our Mineral Fiber segment results. In the quarter, sales declined 5% versus prior year due to the impact of COVID. Mineral Fiber shipments exited the quarter on a positive note with March shipments flat to prior year on a rate-per-day basis. Through Friday, April's month-to-date daily ship rate is up 58% versus prior year and higher than 2019. The positive like-for-like pricing and favorable product mix continued. But as Vic mentioned channel mix was a headwind in the quarter and affected the fall-through rate. We expect this will be the last quarter we face this channel mix fall-through rate headwind. Mineral Fiber segment adjusted EBITDA was down 10% as a result of the COVID-driven volume declines, SG&A spending to support our growth of investments and the reinstitution of the 2020 temporary cost reductions. The Mineral Fiber plants ran well and drove productivity that fell through to the bottom line. Input cost inflation was temporarily offset by inventory valuations, but inflation is clearly ramping up and driving our proactive pricing actions. As Vic mentioned, WAVE has been pricing out ahead of rising steel costs.

Moving to our Architectural Specialties or AS segment on Slide 6. Adjusted sales grew 25% versus prior year were $13 million as the 2020 acquisitions of Turf, Moz and Arktura contributed $17 million in the quarter and more than offset COVID-driven organic sales decline of $4 million. EBITDA for our AS segment declined $3 million as EBITDA contributions from the 2020 acquisitions were more than offset by AS organic performance. Sales for our AS organic business continue to be lumpy as projects were delayed out of the first quarter and we made growth investments in both capacity and capability to support our top line expectations for AS. We remain confident in our sales guidance for the AS business as a result of the favorable trajectory of order intake in the first quarter that Vic mentioned. As sales ramp up throughout the year, we expect EBITDA margins to improve.

Slide 7 shows drivers of our consolidated adjusted EBITDA results for the quarter including a breakout of the impact from our 2020 acquisitions. Sales from our acquisitions essentially offset organic volume declines. AUV was a positive contributor driven by like-for-like pricing in the Mineral Fiber segment, but was offset by higher SG&A.

Slide 8 shows adjusted free cash flow performance in the quarter versus the first quarter of 2020. Cash flow from operations was down $13 million driven by lower earnings. Keep in mind that the first quarter is typically our weakest for free cash flow generation as we build inventory to service the strong summer demand period. We remain confident that we will deliver the 19% free cash flow margin that we have guided too for the year.

Slide 9 summarizes our guidance for 2021. We are reiterating our overall expectations to grow sales 10% to 13%; adjusted EBITDA 9% to 13%; adjusted EPS 5% to 15%; and deliver free cash flow yield of 19%. April is off to a good start and we are optimistic with the trends developing in the second quarter. It is too early to make any adjustments to our annual guidance and we will provide an update on our guidance in July when we have more data.

Slide 10 reiterates the seasonality we expect for sales in 2021. This is not something we typically share as our seasonality is usually very consistent year-to-year. However, given the disruptions experienced in 2020, the seasonal pattern of our year-on-year sales will be unusual in 2021, so we've included this page to provide additional insights.

In conclusion, I remain positive about the outlook for 2021, with an improving health and economic backdrop, an evolving portfolio of healthy spaces products, and new digital tools and capabilities, Armstrong is well positioned to advance our value creation model in 2021.

With that, I'll turn it back to Vic.

Vic Grizzle -- Chief Executive Officer

Thanks, Brian. Before we get to some Q&A, I want to touch on a few important initiatives in the company namely ESG, Healthy Spaces, and our new digital platform Kanopi by Armstrong. On our last call I mentioned that, ESG would be an area of focus for us in 2021 and beyond. As we build on our history of community engagement and corporate responsibility, it's increasingly important to all our stakeholders and it has a natural fit with our mission, our history, our culture and our strategy.

As many of you have seen earlier this month, we launched a redesigned sustainability section of our website that reflects our three pillars of focus: People, planet and product and establishes our 2030 goals in these areas. In addition, work is under way and on track to complete our first sustainability report this summer. This comprehensive report will address the needs of GRI, SASB and TCFD. And because of the importance of this work, I want to take a moment and recognize the great deal of effort and commitment by our teams that has gone into capturing our achievements thus far, baselining our opportunity for improvement and to developing meaningful long-term goals. More to come on this total effort as we progress along this important journey, which aligns well with our strategic emphasis on Healthy Spaces.

As Healthy Spaces continues to be a focal point in economic recovery, ceilings are becoming increasingly more relevant. As the capstone to an interior space, ceilings are critical for managing air flow and providing for optimal ventilation, as well as delivering acoustical performance in design aesthetics. These trends are revitalizing the ceilings category and making this category more relevant for the current and future need of healthy indoor spaces. And of course, this suits Armstrong well. As the longtime category leader, Armstrong is becoming recognized as a thought leader on the importance of holistic space planning, design and construction, and the impact this approach can have on the confidence and well-being of people, while they're in doors, which is where we spend a large majority of our time.

We believe that the growth investments we've made in 2020 will bear fruit in 2021, with gains from new Healthy Spaces solutions and our new digital capabilities. Our product innovations are on target for what a post pandemic market will demand. Healthy Spaces is much more than an event-driven opportunity. It's here to stay. Healthy Spaces has always been important, but the pandemic has forever changed the definition of healthy and our health and safety expectations for indoor spaces. Architects, designers, facility managers, business owners are all looking for solutions that bring people back into commercial spaces and make them more suited for future use. As offices dedensify and expansive collaborative space has become the norm, the need for acoustical performance in ceilings will only increase, as we -- as will the need to better clean and manage air flow.

Ceilings are central to providing these solutions. Our 24/7 defend family of products including AirAssure, CleanAssure and VidaShield ceiling solutions are designed specifically to help improve air quality and ventilation sustainably. What's encouraging is that despite being launched just five months ago, 24/7 defend products have been sold into all of our core sectors: office, education, healthcare, retail and transportation. This clearly demonstrates the broad-based opportunity for Healthy Spaces. These product innovations timed for the Healthy Spaces catalyst coupled with our new digital platform of Kanopi by Armstrong, positions Armstrong well to capture the evolving market recovery opportunity.

Launched earlier this year, kanopi by Armstrong that's what a small K is online at kanopibyarmstrong.com. Kanopi utilizes artificial intelligence and machine learning to provide early access and enhanced visibility to a large part of the market opportunity, we were previously unable to efficiently track. This technology is allowing us to influence an Armstrong solution, and is making purchasing easy. Kanopi provides facility owners and managers an end-to-end solution, including diagnostic tools, consulting and pre-certified installation services. Online consumer-friendly and fulfilled by our best-in-class distribution network, kanopi is tapping into pent-up renovation demand in smaller scale commercial spaces and driving Mineral Fiber volume growth. Early results are encouraging. We are seeing growth across all our critical metrics website traffic orders, order value and sales. To date, each month has been significantly better than the last, and I expect this will continue throughout the year.

Again, we are encouraged by the improving market conditions and the increasing relevance of the ceiling category. And we are especially excited about the market opportunities ahead that Armstrong is so well positioned to capture that will enable us to deliver on our commitment, to deliver strong results for our shareholders, and on our mission to make a positive difference by creating healthier spaces, where we live work learn heal and play.

And with that, we'll be happy to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Kathryn Thompson with Thompson Research. Your line is now open.

Kathryn Thompson -- Thompson Research -- Analyst

Hi. Thank you for taking my questions today. Helpful color in terms of the-what we're seeing in March and April and how we should think about stair-stepping with granted some unusual comps. One thing, if you could give just a little bit more clarity on, which is residential-new construction versus repair in your model. Given the launch of your Healthy Spaces product, I would imagine, you're seeing greater demand there. But really want to get a better understanding of, how much of growth is being contributed by new construction versus retrofit which is in a pretty unusual environment?

Vic Grizzle -- Chief Executive Officer

Yes. I think Kathryn, the activity-current activity is reflective of what-in new construction in particular, as you know is reflect of what's going to happen 18 months out, right? So what we're actually experiencing now in terms of sales, or revenue, or opportunities to ship into today is what was laid in 2020, OK, or what was not laid in 2020.

So I think this year, what we should expect, new construction activity from a sales standpoint is going to be a slight headwind. With that said, the bidding activity of new activity in new construction was positive in the quarter versus prior year. And this is the first time we've seen new construction activity be positive in the last several quarters. So I think that's an encouraging sign for me, when I start to see that, there's an end to a part of the headwind from new construction activity. Most of the activity, we're seeing today that we're developing and near-term and selling into for 2021 is on the renovation side. Several of the projects that were delayed last year, we're starting to see get released now. And really, it was the latter part of the first quarter and we expect to see that continuing into the second quarter. So the bigger part of our business, Kathryn, you know, well 70% of our business is from renovation and large remodel projects. That's an encouraging sign for us on the activity front. And on the new construction side, again, the fact that we're starting to see more activity there bodes well for the second half, or even into 2022.

Kathryn Thompson -- Thompson Research -- Analyst

Okay. And the follow-up question is on SG&A in the quarter. Really, just wanted to get a clarification of how much the increase was due to the ramp-up of your December acquisition, which is I believe closed mid-December structurally higher SG&A from the three acquisitions completed in 2020 and the higher incentive comp that you sort of noted in your release? Really essentially want to parse out, how much is more one-time versus structurally higher costs going forward.

Vic Grizzle -- Chief Executive Officer

Yes. I'll let Brian comment on some of the details of that Kathryn. But overall I would -- SG&A was as expected. We made a very conscious decision last year to continue our investments in the growth initiatives that I talked about. Healthy Spaces this new digital platform Kanopi by Armstrong, our Architectural Specialty capacity and capabilities, we've continued our investments in those. And those certainly are reflected I think in our first quarter numbers. And then, the resumption of the temporary cost cuts that came back in from the 2020 deferral. So, I'll let Brian comment on some of the specifics around those but when I look at our SG&A it was very much as expected and on track of what we intended to do with our really driven by our growth initiatives. Brian do you want to add any color to that?

Brian MacNeal -- Chief Financial Officer

Yes, sure. As you further break that down, Kathryn, say roughly $6 million to $7 million was around incentives and deferred comp and that's more of a temporary item that we last year had a reduction in that didn't repeat here in Q1. $3 million of it is coming from the 2020 acquisitions. And then the remainder is that growth investments we're making to support the AS and Kanopi in Healthy Spaces.

Kathryn Thompson -- Thompson Research -- Analyst

Okay, perfect. And before I part I wanted to say congrats to Tom for all your efforts with IR at Armstrong. We're going to miss you and I'm going to miss our big word challenge. Best of luck in retirement.

Tom Waters -- Vice President of Corporate Finance

Thank you for that, Kathryn.

Operator

Thank you. Our next question comes from John Lovallo with Bank of America. Your line is now open.

John Lovallo -- Bank of America -- Analyst

Hey, guys. Thank you for taking my questions as well. The first one Brian, if I heard you correctly, I think you said this April Mineral Fiber volume was up 58% year-over-year. Just curious if you could remind us of the monthly volume cadence on a year-over-year basis in 2Q 2020. So, April, May, June 2Q -- in 2Q 2020 on a year-over-year basis.

Brian MacNeal -- Chief Financial Officer

Yes, John, that's one of the reasons I referenced that April was above 2019. So, I'm encouraged to see that that sales rate per day exceeded two years ago before we had the COVID impact. So, roughly last year sales -- Mineral Fiber sales were down in the 50 range. So, it's a nice pickup and encouraging that we're seeing that in April.

John Lovallo -- Bank of America -- Analyst

Got you. But do you have -- I could follow-up with you, but I was curious to be added on a monthly basis. But I'll follow-up. The second question is AUV, obviously, returned to positive territory in the quarter which was encouraging and certainly ahead of our expectations. Curious if this was ahead of your expectations. And the level of confidence that you guys have that we're sort of through the worst of the pressure at this point.

Brian MacNeal -- Chief Financial Officer

No, this was as expected. And in fact John we had talked about last year. The underlying driver of our AUV last year that -- was this territory mix that was very unnatural and caused by the unevenness of the COVID impact on some of these major cities and of course, some of the shutdowns that happened there. And that that was transitory. The underlying driver of mix that has been occurring in this industry for the last 10 years has been product mix. And that remained positive last year in 2020. And as we expected this territory mix to kind of work its way through as it has as it did in the first quarter that this product mix would start to show its way through and drive a part of that AUV component that wasn't there last year. So, it kind of -- it's exactly where we expected it to be and we think it's going to continue to improve from here with the backdrop of inflation to help us with our like-for-like pricing. And I think this territory mix has already normalized itself as it's demonstrating here in the first quarter for the rest of the year. Channel mix was the only one that remained a slight headwind.

And again, that will work its way through and it's already subsiding in terms of its balance with the rest of the territories and the rest of the channels. So, now I think AUVs end exactly where we expect it to be. And I think it's fair to say as you look at our guidance for the rest of the year with our easier comps in the second and third quarter that we're trending toward the high end of that range.

John Lovallo -- Bank of America -- Analyst

Great. Thanks very much, guys.

Brian MacNeal -- Chief Financial Officer

You bet.

Operator

Thank you. Our next question comes from Susan Maklari with Goldman Sachs. Your line is now open.

Susan Maklari -- Analyst

My first question is just going back to the order trends that you are seeing in there. Can you give us some sense of maybe what those end markets are? Any color on the geographies as well? And just some context on that activity that you're seeing and how to think about where it's coming from?

Vic Grizzle -- Chief Executive Officer

Yes, Susan, I think -- let me start with the geography part of that, because we certainly have seen better demand from the southern part of the United States sooner as those parts of the market have opened up sooner than, say, the Northeast and even maybe parts of the Northwest. So, it's -- it seems to be kind of a transitory trend though other -- I see the Northeast like New York City, in particular and California, are improving nicely. And so, I kind of see the rest of the country catching up to that. But geographically, we did see, say, Florida, Georgia, Texas and some of those parts of the country out in front of some of the other areas. Really on the vertical side, so the different sectors, education office, we really see a bounce back uniformly across all of those sectors. And I would expect that, because what was -- what happened in 2020 was indiscriminate to the sector or the new versus renovation everything was shut down uniformly, didn't matter what type of project it was or what vertical it was in. So, I would expect here in these early days of the recovery is a bounce back kind of uniformly across all of the verticals. And I think that's what we're seeing here in the first quarter.

And again, into April it's early. But we like the trend that we see in terms of the market activity across all of those sectors. I will just mention though since you've asked the question around that the bidding activity in education and healthcare is trending upward nicely, and I would say ahead of some of the other sectors. And I think that's a reflection of maybe some of the additional funding and activity that's going into -- or funding that's going to drive that activity in those two sectors. So, we'll see. So, that will be -- to be determined I think as we see that unfold in the second and third quarters.

Susan Maklari -- Analyst

Yes. It does feel like there's a lot of focus on education and kind of improving the schools out there. And so, it seems like you are certainly capturing some of that, which is encouraging. My next question is just on the inflation. I know that you talked a little bit about the transportation expense obviously increasing. Can you give us some color around how to think about how that is kind of going to flow through for the balance of the year? Do you expect you'll see further increases? And I guess how do you think about that against the normal cadence of pricing that we usually see from you? Should we expect that there could be -- obviously you've already announced that second price increase? How many are you thinking about for this year? And how should we be expecting those to come through?

Vic Grizzle -- Chief Executive Officer

Well, I think the fact that we pulled it forward, we typically do our second price increase in August. We obviously pulled that forward into May. It's a little heavier than what we normally go with as well. It's 10% price increase to reflect what we expect to happen in terms of inflation so we can stay ahead of the inflation. So, the answer to your question is really to be determined. I think we're going to take a look around as we get into the summer months. And if we're expecting or seeing an acceleration of inflation I'll say, then we wouldn't be afraid to go out with another price increase to stay in front of it. So, I like what we see. Our 7% increase in February was very effective. And then -- which is again a little bit heavier than we normally go in February. I'm expecting that we'll have good success with the 10% in May, and then we'll see where we go from there. What I think is really notable is where we have the highest levels of inflation is in our WAVE business with steel costs that really started last August in terms of inflation, and they've really been able to implement price increases regularly, in fact over the last several months to stay ahead of the steel inflation.

So they're doing a good job. Remember this is the same selling organization that raises prices on our ceiling tiles as well as the grid system. It's the same sales organization. So, I'm confident we'll do a good job as we already are in terms of staying ahead of inflation.

Susan Maklari -- Analyst

Okay, that's very helpful color. Thank you, and good luck with everything.

Vic Grizzle -- Chief Executive Officer

Thank you, Susan.

Operator

Thank you. Our next question comes from Ken Zener with KeyBanc. Your line is now open.

Ken Zener -- KeyBanc -- Analyst

Good morning, everybody.

Vic Grizzle -- Chief Executive Officer

Hi, Ken.

Brian MacNeal -- Chief Financial Officer

Good morning.

Ken Zener -- KeyBanc -- Analyst

So 2Q is above 2Q 2019. That's good. When you think, obviously you're talking to your product mix which is -- I think is much regional mix fading in the second half. Is that correct where we try to think about product mix really being a -- driven by regional mix. Is that accurate Vic?

Vic Grizzle -- Chief Executive Officer

No, the product mix is underlying across all the territories. That's continued to be positive. It was positive all last year Ken and then it continued to be positive as a fundamental. The territory mix: New York and California, Chicago some of those areas that were harder hit that carry higher-value products but drove a negative overall mix. And that's pretty much normalized out as we've seen here in the first quarter.

Ken Zener -- KeyBanc -- Analyst

Okay. There's so many things happening. It certainly appears you're-the share gains, if we had a good metric would be improving I think. You guys are being very disciplined. We can see that in price. As I drove to Timbuktu to get my second shot, a couple of weeks ago, northern California just they're building like crazy adding farm fields, which wasn't uncommon but we had a big shift from the technology in the San Francisco area out into the exurbs. Is that -- could you maybe -- I know you've really focused on schools. But as I take a step back and your stock is trading where it is, which is appropriate I think. Could there be some bigger demand curve for your products is suburbs or exurbs get a lot more demand in terms of the traditional suburbs, right? I mean you have shopping centers, you'd have schools being built beyond just the refurb. I mean is there something with this huge infrastructure spend bill that could be coming inflation? Could you kind of just talk a little bit about blue sky if the demand curves? Because I know we're all focused on things like office buildings in the urban area understandably. But it seems like there could be a big kick from this exurb that perhaps people aren't thinking about. Or is it -- could you address that please?

Vic Grizzle -- Chief Executive Officer

Yes, Ken, we do see this trend. And again, there was a nice article on the Wall Street today on this trend that's happening of folks moving out of the cities, higher cost areas of city to lower cost areas of the suburbs. And we've said from the beginning Ken that there's not enough capacity, there's not enough infrastructure in place out there to house these folks that move there. That will create opportunities for new construction activity, renovation at the minimum but new construction activity. If you look at the commercial construction over the last 10 years, since the financial crisis, the inter cities is where the most investment has gone for new construction. It hasn't been in the suburbs. And so, we don't believe there's capacity there for a significant number of folks moving out of the cities into the suburbs. We've always viewed that as an opportunity at a very minimum, again renovation activity for those folks moving in but also for new construction to house the additional need in those areas.

And we shouldn't forget -- and Ken, as we talked about, you can't forget the capacity that's left in the inner cities. Somebody will fill that void. And I think that's the trick is how long will it take for that capacity to be utilized again, which drives a renovation event for Armstrong. That is latent demand for us. So net-net, we believe this is a positive trend when you have volatility or transitory trends in the commercial construction area.

Ken Zener -- KeyBanc -- Analyst

And maybe just to put that in context with volumes down like they were in FY 2020, when you guys have had that cyclical volume perspective where Mineral Fiber had been declining never really recovering from the 1999 peak and you're gaining obviously in Architectural, which is not necessarily swapping out square footage. But do you think there could be really a cyclical trough basically in Mineral Fiber? Because it fell so much in FY 2020, and its' been on this perpetual decline since 1999 effectively. Could this be renewed because -- I mean to the extent jobs are moving to Florida new office space to the extent Apple or one of the tech companies is building a tech plant in North Carolina. Just -- increasingly I mean thinking about how your business might really be affected by that? I mean are you seeing that -- I mean the bid activities take a long time, but can we dedensify? And wouldn't that hurt the product mix, if you're not putting in something into the Salesforce tower, but putting it into suburban and Raleigh for example? Thank you.

Vic Grizzle -- Chief Executive Officer

Yes Ken, we don't see any change in the mix whether it's in a suburb or whether it's in the intercity or in North Carolina versus San Francisco. These companies will have a standard of the quality that they want in their interior spaces; from an acoustical standpoint; from a lighting standpoint, and now with this new catalyst from a Healthy Spaces standpoint. And the role of ceilings and the importance of the role, it's playing in terms of driving and delivering high-quality air for occupants is a real catalyst for the ceilings category overall. So, I think we're going to see additional opportunity in the ceilings category as part of the solution to create healthy, highly ventilated air from the role that it plays in the interior design. So, I think net-net this is a tailwind opportunity for the category.

Ken Zener -- KeyBanc -- Analyst

Yes, it is into things. Well, thank you very much and Tom, thank you for all of your help over the years.

Operator

Thank you. Our next question comes from Keith Hughes with Truist. Your line is now open.

Keith Hughes -- Truist -- Analyst

Okay, thank you. Question on Architectural Specialties. You talked a lot about sales pace and Mineral Fiber. What does it look like in Architectural Specialties? And kind of where do you stand in April over a 2-year basis on that business outside of acquisition?

Vic Grizzle -- Chief Executive Officer

Yes the order rate has been terrific Ken -- or Keith as we talked about. It's we're coming into the quarter -- into the first quarter we saw some of these projects -- on the organic part of the business we saw some of these projects getting delayed and delayed out of the first quarter. So we landed about what we expected given some of the signals, we were seeing on some of these projects getting delayed. But with that said, we had -- on top of that we had really strong -- as Brian outlined in his remarks we had really strong order intake. In fact the month of March was a record level of order intake for us in Architectural Specialties which was really strong signal for us that, there's lots of projects out there. They're not getting canceled. And so, if I look at our backlog right now our backlog is in one of the better positions I can remember at being at this time of the year, for what we expect to deliver for the year. And that gives us confidence that these projects delayed out of the first quarter we're going to pick them up in the second and third quarter. And we're going to be fine on the top line there.

So again, I think there's -- we continue to win in this space. We continue to integrate these new acquisitions that gives us more credibility with the architectural design community to win specifications which you know is a big driver to the pricing and the margin structure that we have in this category.

Keith Hughes -- Truist -- Analyst

Okay. And kind of final question on raw materials, I understand we're talking about on steel and WAVE and all the price increases there. If you look at your AS and Mineral Fiber inputs for the tiles themselves what -- where is the most inflation coming from right now?

Vic Grizzle -- Chief Executive Officer

Well it's interesting. It's really on the packaging the packaging side which lumber is a big part of that. And you know well what's going on with lumber right?

Keith Hughes -- Truist -- Analyst

No, yes. Yes.

Vic Grizzle -- Chief Executive Officer

Yes. So the packaging is really where we're seeing the greatest impact across both of our businesses outside of way with steel which is very clear. So -- but I think that's where -- that and freight are the two highest levels of inflation we're seeing across the business. Brian you want to add to that?

Brian MacNeal -- Chief Financial Officer

Yes Keith, we talked previously about total cost of goods sold inflation in the $2 million to $2.5 million range we're now looking at that to be $3 million to $3.5 million across both businesses. So while it's picked up some that's been the basis for us pulling forward our pricing activity.

Keith Hughes -- Truist -- Analyst

And that $3 million to $3.5 million that's not WAVE numbers. That's excluding the steel component correct?

Brian MacNeal -- Chief Financial Officer

That's correct.

Keith Hughes -- Truist -- Analyst

Okay. Thank you.

Brian MacNeal -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Stephen Kim with Evercore ISI. Your line is now open.

Stephen Kim -- Evercore ISI -- Analyst

Yes, thanks very much guys. I wanted to pick up on your commentary about the April shipments and I did catch that back that you mentioned that it was going to be higher than 2019 which was kind of an attention-getter given where your guidance is. I guess my question was, I know that you guys do a fair amount of -- you have a lot of exposure to some of the particular -- the cities. I know in New York City in particular, but there's also some others. My question was whether or not those REIT areas had fully participated in that improvement, or if in fact what you're seeing in April is actually even maybe a little underpowered maybe based on these areas not fully coming back. So, just some clarity around that would be helpful.

Vic Grizzle -- Chief Executive Officer

Yes. So putting that into context the -- so Stephen right it's one month right? But we all know that the 2019 level is really a key marker for us, a key milestone for when the market is back to its pre-COVID conditions and that's such an important milestone. It's one month but we really like what we're seeing in that trend and acceleration actually from the month of March into April. So it's one month OK? So we're watching it very closely and we're encouraged by that. I will say not all of the seven key territories like New York City are fully participating yet. We -- there's still healing going on in those markets. There's still more to go in those markets, which is why I think you can't overweight April and we're not over-waiting April without taking into the context of these seven key territories, which are still -- California and New York in particular are still healing and still have more to go, or I would say we're encouraged by the activity, the bidding activity in those two regions, the conversations we're having with customers in those regions on the activities. So we're encouraged by that. But we're in the early days.

Stephen Kim -- Evercore ISI -- Analyst

Sure. Yes. No, but that's additionally encouraging. So, second question relates to a bigger picture, one around open plenum design specifically. One of the things that I think you all have made very clear is that there's a growing awareness of the need to manage -- to treat the air that is actually being occupied and -- just makes that job tremendously more difficult. And so you -- I would think that to the degree that an ongoing awareness of the need to treat airspace persists that open plenum is going to have a real -- some pretty tough sweating [Phonetic] ahead and that your business could theoretically gain share back from open plenum. So I was just wondering whether or not you'd seen anything that might be a little more concrete than just what that high-level thinking might lead you to conclude?

Vic Grizzle -- Chief Executive Officer

Well, I think even before now in the recent time, we've seen the pendulum on open plenum swing back away from no ceiling at all, because of the acoustical performance in those open plenum designs. So we've already seen -- and that's created a nice opportunity for us with our architectural specialty business to provide really open looking products like linears and some of the things that we have going in that provide an open look, but provide some acoustical solutions there. So we've already seen a change in the conversation on the popularity of open plenum. This will add additional I think scrutiny on energy efficiency, which is becoming more and more important in the sustainability equation. And number two again being able to treat 100% of the year or all of the year versus a portion of the year that doesn't get trapped in the plenum.

So, again, I'd say there's a lot of conversations. This will add some additional scrutiny to it, but it's too early to say that the category is -- what's going to happen to the category overall. In both cases, Stephen, I do believe this is an opportunity for ceilings to play a more important role in those open plenum designs. And we're encouraged by that.

Stephen Kim -- Evercore ISI -- Analyst

Yes, absolutely. Well, great. Time to look forward to. And Tom again congratulations and we'll meet you.

Tom Waters -- Vice President of Corporate Finance

Thanks, Stephen.

Operator

Thank you. Our next question comes from Phil Ng with Jefferies. Your line is now open.

Phil Ng -- Jefferies -- Analyst

Hi guys. The R&R activity that's coming back perhaps that was delayed from last year. Have you seen these customers take on some of these healthier living space products that you've been rolling out over the last few quarters? And are you seeing a little more retrofitting where these customers are improving that air ventilation or maybe improving social distancing?

Vic Grizzle -- Chief Executive Officer

Well, certainly the renovation activity that's going on now is stuff that was already in the works and is moving forward. Some of those specifications have been changed to our new products, so that they can get the benefits of Healthy Spaces. That's created a nice little lift early on, until we get through the specification process for larger projects and so forth. So, absolutely getting really -- we're getting really good traction, lots of great conversations around this. And as I mentioned, what was encouraging for me is specifically, it was not just office or not just education, but it really was across every -- including restaurants by the way, all the verticals that we serve.

Phil Ng -- Jefferies -- Analyst

That's great. And then, appreciating you gave some great color about how trends are shaking out in April. So that's awesome. But in terms of the backlogs and bidding activity appreciating, there's more of a lag. Can you quantify how much that is up in Q1 versus Q4? And then appreciating maybe new construction could be a little weaker this year that handoff from that pickup, when you expect that new construction piece to kind of inflect positive? Is this mid-2022? Just want to get a better hand on the handoff.

Vic Grizzle -- Chief Executive Officer

Yes. So, roughly in the single-digit positive range. Just to help you quantify the level of -- and that's versus prior year and it was much better than the fourth quarter. So, that's -- again, it's another data point in the sequential improvement in the opening of the market and the activity. And as you know, in this bidding activity, it can be anywhere from six to 18 months out, depending on how big the project is and how extensive the project is. So, what was the second part of your question, Phil? I may have missed that.

Phil Ng -- Jefferies -- Analyst

Yes, I'm just trying to get a sense when that handoff with the improvement you're seeing right now in terms of bidding activity will offset potentially some of the headwinds you were talking about on the new construction side, because obviously you had a drop-off last year, just from a timing perspective that handoff flipping positive.

Vic Grizzle -- Chief Executive Officer

Yes. We're really -- it's somewhere between six and 18 months. Again, very similar in terms of the size of the project itself that drives the timing of that. As you can imagine Phil, some of these large projects are 24 months out before they'll need a ceiling. And of course, some of the smaller projects can be three to six months. So, it's really hard to say. On average, I think, a good 18-month window is a pretty good average across the different types of projects and different verticals.

Phil Ng -- Jefferies -- Analyst

Okay, super helpful. And appreciate all the help. Good luck.

Operator

Thank you. Our next question comes from Garik Shmois with Loop Capital. Your line is now open.

Jeff Stevenson -- Loop Capital -- Analyst

Hi, this is Jeff Stevenson on for Garik today. Thanks for taking my questions. My first is on, how should the AUV improvement look the rest of the year between like-for-like price and mix?

Vic Grizzle -- Chief Executive Officer

Yes. I think, we're going to see -- normally just for your reference, we typically see about half and half contribution from like-for-like pricing and mix and our outlook. We're currently outlooking 4% to 6%. And as I indicated earlier, I think, we're closer to the high end of that range, given where we are at the end of the first quarter. Again, normally it's about half and half. But I think, it's fair to say this year, given the headwinds that we had last year on territory mix, that we don't expect to repeat this year, we could see a little bit more contribution from mix at the -- toward the end of the year, than like-for-like pricing. Again, I expect a really strong like-for-like pricing performance, given the inflationary backdrop that we're in right now.

Jeff Stevenson -- Loop Capital -- Analyst

Right. Well, that makes sense. And I know, it's early and you mentioned that, you're tracking toward the higher end of the 4% to 6% Mineral Fiber AUV guidance. But could there potentially be upside, given the higher than usual may increase, especially if some of these higher-priced northeast markets come back faster than expected moving forward?

Vic Grizzle -- Chief Executive Officer

Yes. I think the range we're outlooking right now is still appropriate. We'll have to wait and see this inflationary backdrop, how it persists through the remainder of the year. And then of course, the rate and pace of which some of these key markets like New York and California we talked about, how much they bounce back in the second half of the year. So, I think the range we have again, trending toward the high end of that is still an appropriate range.

Jeff Stevenson -- Loop Capital -- Analyst

Okay. Thanks for taking my questions.

Vic Grizzle -- Chief Executive Officer

You bet.

Brian MacNeal -- Chief Financial Officer

Thanks, Jeff.

Operator

Thank you. Our next question comes from Yves Bromehead with Exane BNP Paribas. Your line is now open.

Yves Bromehead -- Exane BNP Paribas -- Analyst

Good morning and thank you for taking my question. I've got two. I just want to get a clarification on what is the one-off cost exactly on the AS side. I think you mentioned $6 million to $7 million in incentive $3 million on acquisition in Q1. Just wondering if I've got the correct numbers. And how should we think around those numbers going forward?

Brian MacNeal -- Chief Financial Officer

Yes. This is Brian. So the one-off costs really hit the Mineral Fiber EBITDA bridge. On AS, you've got a combination of additional SG&A from the acquisitions and then investments happening to support our growth. So they're less temporary. On Mineral Fiber, I called out that $6 million to $7 million that's more temporary base for Q1.

Yves Bromehead -- Exane BNP Paribas -- Analyst

Okay. Thank you. And my second question is on the AS. Just trying to understand what is the side of the market that you'd like to achieve going forward. How much do you think the actual specialty revenue could hit in, let's say, five years' time, assuming you continue your external growth? And then on the back of that, what level of margin should this division be able to achieve once you've already done all the growth investments on the OpEx side?

Vic Grizzle -- Chief Executive Officer

Brian, I'll take that. As far as the opportunity, we've been public around the size of this specialty segment being in the neighborhood of $1 billion segment for the Americas. And so, I think that's good proxy for you to use, or to think about. That's how we think about it. We're obviously relatively in the early innings of our penetration into a $1 billion segment. So we're not going to provide any long-range guidance other than to say our expectation is that, we continue to grow double digits every year in that space. We have plenty of penetration opportunities in addition to organic growth opportunities. And I think the margins in this business over time, we expect to continue to improve as we get better at this and we get more efficient with this. We do believe it's -- this is not a business that you would expect to receive or to achieve Mineral Fiber-level EBITDA margins, for example. It's a very different business and very different manufacturing model.

So, we would expect this business to be in the mid to high upper 20 level of EBITDA margins, which would be among the best-in-class business or building products companies out there. And that's our directional that we're working toward as we penetrate more and more of this market. I hope that helps your question, Yves.

Yves Bromehead -- Exane BNP Paribas -- Analyst

Yes, thank you. And, again, good luck on the retirement, Tom. Thank you very much.

Tom Waters -- Vice President of Corporate Finance

Okay. Thank you.

Operator

Thank you. Our next question comes from David MacGregor with Longbow Research. Your line is now open.

David MacGregor -- Longbow Research -- Analyst

Yes. Good morning, everyone.

Vic Grizzle -- Chief Executive Officer

Hi.

David MacGregor -- Longbow Research -- Analyst

Hi. I guess, I want to start off with just asking given the kind of encouraging indication on your orders and your billings, at least -- your bidding, excuse me. How are you thinking about kind of the investment in the marketing organization? Do you begin adding spec writers here, or just -- how hard you lean into at this point, or do you kind of wait and see just if this has legs, or just want to think about how you -- that investment profile looks for you over the balance of the year.

Vic Grizzle -- Chief Executive Officer

Yes. Actually, we've been investing into this. Even in 2020 we invested into the go-to-market capability, especially around our Architectural Specialties business, where you need more project management than designers to support more and more projects, as we continue to build out our pipeline of projects in Architectural Specialties. So it's kind of an ongoing building of that organization from a capacity and capability standpoint. And I'll just remind everybody too that, we have one selling organization. We sell Mineral Fiber and Architectural Specialties in one selling organization. It really is a point of leverage for us with the architectural and design community to specify a broad range of products on every job. And so, when we add capability to that, a lot of times, its subject matter experts and again designers and project managers to support that field sales organization. So, I guess, long-winded answer, but I would just say, we're kind of feathering that in as we go. And our backlog gives us again some good optimism that this is going to continue throughout the year.

David MacGregor -- Longbow Research -- Analyst

So do you have an expansion of that, selling organization built into your guidance for this year?

Vic Grizzle -- Chief Executive Officer

Yes, we do.

David MacGregor -- Longbow Research -- Analyst

Okay, great. That's helpful. Thank you very much. And then you mentioned -- you were talking earlier about education and healthcare. I'm just wondering if the bidding you're seeing there the upturn in bidding there, you called it as being maybe exceptionally strong versus the other verticals. Is that remodel, or is there a meaningful new component to that, or just maybe, what you're seeing there within those two verticals?

Vic Grizzle -- Chief Executive Officer

Yes. For the most part, it's alterations and renovation activity. But I will say there were some good new activity as well which again was encouraging to see of course 18 months out, we would like to see that kind of activity feeding the pipeline. But yes, for the most part we're seeing renovation and major renew and renovation type projects.

David MacGregor -- Longbow Research -- Analyst

Okay. And then, maybe I could just come back to an earlier question, kind of broached on the topic of the infrastructure. And maybe I could just ask the question maybe a little more pointedly. And it's just -- are you a beneficiary of an infrastructure bill? And if so how?

Vic Grizzle -- Chief Executive Officer

Yes. Absolutely, when you look back at investment and infrastructure commercial construction comes along with it. And I think in this particular one, the focus on, again schools and education system is encouraging for us, because we have a real strong presence there. And of course we think that that's a tremendous opportunity and the new construction as well as renovation activity. So we're a net beneficiary for sure in infrastructure. Again historically speaking that's what's happened. And with our Architectural Specialty business and airports and subways, those are obviously very big opportunities for that segment of our business.

David MacGregor -- Longbow Research -- Analyst

Are many of these projects coming back Vic, dependent upon an infrastructure bill? I mean, you said, you're seeing a lot of bidding coming back from projects around hold last year. You think they're moving forward based on some expectation around, stimulus funding, or do you think they're moving forward on their own merits?

Vic Grizzle -- Chief Executive Officer

I think they're moving forward on their own merit. And really -- they were -- a lot of these projects were delayed from last year. That's what we're seeing in the early -- I'd say the early days of this recovery so far.

David MacGregor -- Longbow Research -- Analyst

Yes. Okay, great. Thanks very much. And good luck, Tom.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to, Vic Grizzle for closing remarks.

Vic Grizzle -- Chief Executive Officer

Thank you. And I just want to thank everybody for joining today. Again, solid start to the year, really ahead of our internal expectations and the market recovery in the commercial seems to be well under way. I'm really encouraged by the investments that we made last year that has put us in a terrific position to capture whatever this market opportunity offers up, in the next coming quarters.

So, we're excited about it. And we thank you again for your interest. And we look forward to talking to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Tom Waters -- Vice President of Corporate Finance

Vic Grizzle -- Chief Executive Officer

Brian MacNeal -- Chief Financial Officer

Susan Maklari -- Analyst

Kathryn Thompson -- Thompson Research -- Analyst

John Lovallo -- Bank of America -- Analyst

Ken Zener -- KeyBanc -- Analyst

Keith Hughes -- Truist -- Analyst

Stephen Kim -- Evercore ISI -- Analyst

Phil Ng -- Jefferies -- Analyst

Jeff Stevenson -- Loop Capital -- Analyst

Yves Bromehead -- Exane BNP Paribas -- Analyst

David MacGregor -- Longbow Research -- Analyst

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