Carlisle Companies Incorporated

Good afternoon. My name is Zen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Company's second quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will conduct a question and answer session. I would like to turn the call over to Mr. Jim Giannakouros, Carlisle's Vice President of Investor Relations. Jim, please go ahead.

Thank you, Zen. Good afternoon, everyone, and welcome to Carlisle's second quarter 2021 earnings conference call. We released our second quarter financial results after the market closed today, and you can find both our press release and earnings call slide presentation in the investor relations section of our website, carlisle.com. On the call with me today are Chris Koch, Chairman, President, and Chief Executive Officer, and Bob Roach, our CFO. Today's call will begin with Chris discussing business trends experienced during the second quarter of 2021, views of what's to come, and context around our continued progress toward an unwavering commitment to achieving Vision 2025. Bob will discuss the financial details of Carlisle's second quarter performance and current financial position. Following Chris and Bob's remarks, we will open up the line for questions. But before we begin, please refer to slide two of our presentation, where we note that comments made on this call may include forward-looking statements based on current expectations of future events and their potential effect on Carlyle's operating and financial performance that involve risks and uncertainties, which could cause actual results to be materially different. A discussion of some of these risks and uncertainties is provided in our press release and in our SEC filings on Forms 10-K and 10-Q. Those considering investing in Carlyle should read these statements carefully and review reports we file with the SEC before making an investment decision. Today's presentation also contains certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financials in our press release and in the appendix of our presentation materials. With that, I introduce Chris Koch, Chairman, President, and CEO of Carlyle.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us on our second quarter 2021 earnings call. While we recognize that there are still many people suffering from the continued effects of the pandemic globally and an uneven recovery, we hope all of you, your families, coworkers, and friends are healthy and you're reengaging as global economies open. I'm also pleased to report Carlyle's COVID-19 infection rates approached zero in the second quarter, which wouldn't have happened without our team's strict adherence to our safety protocols and and commitment to each other across our global footprint. I'm also very pleased that Carlisle's performance continues to strengthen as we further accelerate into the economic recovery. Please turn to slide three. Vision 2025 has provided the clarity and consistency of direction that proved to be essential in guiding our efforts during the depths of the pandemic last year. It continues to guide us today as we seek to leverage improving demand across our end markets in 2021 and beyond. Vision 2025 provides Carlisle and our stakeholders a clear and direct vision that unites us in a collective goal, which in turn drives our priorities and everyday actions. We are very much on track to exceed the $15 of earnings per share targeted in Vision 2025. Our performance in the second quarter of 2021 illustrates our continued solid execution towards our stated goals. Several highlights of this continued progress include CCMs continued rebound in sales from the bottom of the pandemic in the second quarter of 2020. As a reminder, CCM sales were down approximately 20% in the second quarter of last year. As we entered the third quarter of last year, we had already begun to see improvements sooner than many industries, and that has continued sequentially through today. That positive momentum drove 28% organic growth year over year at CCM in the second quarter of this year and added to a significant and growing backlog. The rapid recovery from the lows of 2020 reinforced our confidence in this business. As we commented on in the fourth quarter 2020 earnings call, we envisioned 2021 being a year of challenges as pent-up re-roofing demand returned rapidly and supply chains, distribution channels, contractors, and labor markets came under increasing pressure to deliver their services and meet customer expectations. Our conviction in the late fall of last year that all of the fundamental drivers of growth we saw prior to the pandemic were still in place led us to take significant action on securing raw materials, ensuring production facilities were fully capable, and putting in place pricing actions to offset what we anticipated to be significant raw material headwinds in the year. Looking into the future, we continue to believe that the multi-decade trends in re-roofing demand, increased emphasis on energy efficiency, and tight labor markets will drive solid growth in our CCM business. As a result, we will continue to invest significant capital into our building products businesses. A few recently announced examples of our steadfast commitment to CCM's future include our plans to invest more than $60 million to build a state-of-the-art facility in Sykeston, Missouri, where we will manufacture energy-efficient poly-acyl insulation. We're also constructing our sixth TPO manufacturing line in Carlisle, PA, which will produce the commercial roofing industry's first 16-foot wide TPO membranes. We're breaking ground on phase two of the 8 million euro expansion of our CCM Waltershausen, Germany facility, which, as a reminder, produces our unique EPDM-based Restorix product. And lastly, a significant investment in our R&D capabilities and manufacturing capacity in our Cartersville, Georgia spray foam insulation business. Shifting gears to other parts of Carlyle, we continue to leverage the Carlyle operating system to drive efficiencies across our platforms and geographies. And in the second quarter, COS delivered 1% savings as a percent of sales and continued to further its role as a culturally unifying, continuous improvement foundation for Carlyle employees globally. In seeking to raise the return profile of Carlyle Companies, we continue to focus on optimizing our business portfolio. During the quarter, we announced the divestiture of CBF, and earlier this week, we announced an agreement to acquire Henry Company, which we will talk about later. Both changes to our portfolio will enhance long-term value creation for our shareholders. We continue to be a consistent and meaningful returner of capital to our shareholders. Since 2016, we have returned over $1.8 billion in share repurchases alone. Bob will provide more details later, but we continue to be active in the capital markets, opportunistically repurchasing shares when appropriate. We also anticipate continuing our long history of consistently raising our dividend, and when completed in August, will be our 45th consecutive year. We're very proud of this symbolic achievement. act in the nature of nearly half a century of stability of our business model, financial profile, and commitment to our shareholders. Moving to slide four. Driven by the growing strength in our CCM business and momentum building at CFT, our revenue increased 22% year over year. CCM had outstanding performance, growing revenue 28% year over year. CFT continues to drive new product innovation and operational efficiencies to better leverage improving dynamics in its global end markets. Partially offsetting this growth was commercial aerospace, which continues to weigh on CIT, with revenues declining 8% year over year in the quarter. That said, aerospace orders have stabilized, and we have line of sight to continued sequential revenue improvement in 2021. While aerospace markets have been depressed, our team at CIT has remained focused on innovation and continuing our long-term commitment to our customers, and most importantly, preparing for the inevitable recovery. Please turn to slide five. Carlyle Construction materials segment continues to demonstrate its extremely durable business model and to execute very well in the face of numerous challenges. CCM volumes in 2021 are benefiting from work postponed in 2020 due to the COVID-19 pandemic. And given both material and labor constraints, we believe even more deferrals experienced in the first half of this year will only add to the pipeline of roofing contractors' workload in the second half of 2021. We maintain our strong conviction in the sustainability of re-roofing demand in the U.S., where we continue to expect the market to grow from $6 billion to $8 billion in the next decade. We continue to be very proud of the CCM team's ability to keep the Carlyle experience intact, managing a record level of incoming orders, ensuring we keep our contractors working, and maintaining our commitment to being the best partner in the industry. And I'd like to take a moment to acknowledge our procurement, manufacturing, logistics, and customer service teams for their tireless and extremely dedicated work, without which the Carlyle experience wouldn't be possible. And as a reminder, by the Carlisle experience, we mean ensuring delivery of the right product at the right place at the right time. We do this by deploying industry leading investment in production and R and D capabilities. These investments have totaled over $300 million in the past five years. We also continue to invest in best in class education for our channel partners on the latest roofing products and installation best practices, including over 20,000 hours of virtual learning courses during the pandemic. I mentioned our world-class customer service team that processed over 65,000 orders in the second quarter, a remarkable feat at nearly two times the normal quarter's activity. We continue to innovate and provide value-added products that ensure quicker, more efficient and safer installation of our building envelope systems and solutions in an increasingly labor and material constrained environment. Finally, and importantly, we continue to focus on producing products that contribute to a better environment for all stakeholders. A few comments on our other businesses. CIT's second quarter results were in line with subdued expectations given the ongoing disruption in the commercial aerospace market. Despite a difficult past 18 months, the CIT team is taking significant actions to position CIT to be stronger when the market rebounds. We acted to create a more rational footprint in 2020 and 2021, closing three of our facilities. And while these decisions are not taken lightly, they were necessary to position CIT to return to and exceed our legacy profitability levels when demand returns. Also during this time, we have continued to invest in R&D in order to build our new product pipeline and support our customers. We continue to see some light at the end of the tunnel, evidenced by improving leading indicators for commercial aerospace, including the expanding vaccine rollout, numbers of TSA daily screenings increasing from a low of 20% of normal last year to over 80% in July, growing activity at our aircraft manufacturers, and corresponding improvements in CIT's order books. All of this gives us confidence that CIT is positioned for sequential improvement going forward. CFT delivered improved revenue and profitability performance in the second quarter driven by its re-energized commitment to new product introductions, improved operational efficiencies, price realization from earning the value that comes with innovation, and an improved customer experience. I'm very heartened by the progress the team has made over the last year in improving their sales and profitability, putting us back on track to achieve our expectations for this business. We expect the team to continue executing on its Vision 2025 growth strategy and to deliver continued improvement moving to the second half of 2021. Turning to slide six. Hopefully everyone had the opportunity to listen to our call on Monday during which we introduced our agreement to acquire Henry Company, a best-in-class provider of building envelope systems that control the flow of water, vapor, air, and energy in a building to optimize building sustainability. Henry delivered revenues of $511 million and adjusted EBITDA of $119 million, or 23% margin, in the last 12 months ended May 31, 2021. Bob will review more of the financial details related to Henry later in the call, but we expect Henry to add more than $1.25 of adjusted EPS in 2022. All of us at Carlisle are very excited to work with the Henry team, which has a proven track record of growth, a very strong brand, and a long history of new product innovation. The announced agreement to acquire Henry is another clear example of how we are executing on our Vision 2025 strategy to optimize our portfolio, which includes our efforts to expand further into the building envelope. For those of you new to Henry, let me give you a few examples of how, in practice, Henry complements CCM. Henry's large direct sales force, who have been focused on helping architects specify waterproofing and air and vapor barriers, can now assist in specifying CCM single-ply roofing solutions on the same buildings. Additionally, Henry has a presence in the residential and big box marketplaces, markets not previously a substantial part of CCM's business. Moving to slide seven, our ESG efforts also continue to gain momentum. In April, we published our 2020 sustainability report, which built on the foundations of our first report in 2019. And for the first time, the 2020 report disclosed in detail how Carlyle is tracking on the Global Reporting Initiative, or GRI, standards. We're also in the process of establishing achievable water, energy, and emission reduction targets based on detailed audits of our global facilities. Turning to diversity, during the course of April, Carlyle employees participated in the CEO Action for Diversity and Inclusion Day of Understanding. The Day of Understanding created a singular focal point in our year and is an opportunity for leaders to guide open dialogue about diversity in their workspace. Carlisle has been a member of the PWC-led CEO Action for Diversity and Inclusion since 2018, an organization that now includes over 2,000 CEO signatories. In order for Carlisle employees to participate in our ongoing success, we issued a special stock option grant or equity equivalent of 100 shares to employees on May 2, 2018. Those shares vested in the second quarter of 2021 having appreciated almost 80%. For each participating employee, this meant a gain of over $8,000. I'm very pleased the shares performed so well for our employees because Carlisle's success wouldn't be possible without their efforts. Finally, one area where we have made significant improvement is in our industry leading safety record. Our incident rate of approximately one quarter of the industry average demonstrates the work that has been done by all employees to ensure a safe workplace. While staying ahead of the industry is important, in the past six years, our incident rate has fallen 52%. Of all of our track metrics, this is especially meaningful because reducing employee injuries by 50% has had a tangible benefit and meaningful impact on people's lives. To continue to drive the importance of safety in our operations, in early 2020, we announced Path to Zero, which represents our commitment to creating the safest possible work environment and features the goal of zero accidents and zero industries. This program was launched globally in the second quarter of this year. And now Bob will provide operational and financial detail about the second quarter, review our balance sheet and cash flow. Bob?