Carlisle Companies Incorporated

Good afternoon. My name is Bethany and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlyle Company's third 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 DeAnacouros, Carlisle's Vice President of Investor Relations. Jim, please go ahead.

Thank you, Bethany. Good afternoon, everyone, and welcome to Carlisle's third quarter 2021 earnings conference call. We released our third quarter financial results after the market closed today, and you can find 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 a business update from Chris, highlighting third quarter results, current trends, and context around our continued progress towards achieving our strategic plan, Vision 2025. Bob will discuss the financial details of Carlisle's third 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. 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've provided reconciliation 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.

All right, thanks, Jim. Good afternoon, everyone, and thank you for joining us on our third quarter 2021 earnings call. I can start by saying I hope all of you, your families, coworkers, and friends are returning to some semblance of your pre-pandemic lives while remaining safe and healthy. As you all know very well, the challenging and uncertain environment that we have experienced since the pandemic began in early 2020 continued through the third quarter of 2021. This year has truly been a story of two halves. As we entered 2021, global prospects remained highly uncertain. New virus mutations were occurring, and we were slowly and unevenly emerging from lockdowns. Entering the second quarter, the rollout of vaccines started to gain momentum as access to vaccines became widespread and the extraordinary stimulus being injected into the global markets took hold. We began to turn a corner and slowly return to our pre-pandemic activity, which in turn drove increased economic growth in the world that was woefully unprepared to absorb the rates of gain. During factory shutdowns, stress labor markets and lack of supply manifested themselves in increased deflation, major challenges to normal business operations. These dynamics, coupled with the Delta variant spiking in the summer months and the effects of Hurricane Ida, made the third quarter even more challenging. Thankfully, as we exited September, we seemed to be past the Delta outbreak peak. and we're optimistic that recently enacted remedies to ensure stability in labor markets and easing of constrained conditions in our supply chains will take hold. Carlyle's team leveraged our continuous improvement culture, exhibiting grit and determination to deliver on the Carlyle experience, which I'm happy to report drove outstanding performance, including record third quarter revenue. Simply put, we have asked a lot of our employees over the past year and a half the team has risen to the occasion every time especially in the third quarter there's no doubt everyone at carlisle is working on solutions and innovative approaches to help alleviate the pressures and deliver for our stakeholders as strong order trends across our businesses suggest demand will remain strong as we close out 2021 and continue through 2022. that said we do expect supply chain issues to ease slightly in the fourth quarter and gain more traction early next year with a better balance being achieved perhaps by mid-2022. Please turn to slide three. Over the last several years, and in particular through the pandemic, Vision 2025 has ensured clarity of mission and consistent direction for our entire organization. In the third quarter, we successfully delivered on our key pillars of Vision 2025, including driving organic growth in excess of 5%. In the third quarter, we delivered over 19% organic growth for the company. As we rebound off the COVID-induced lows of last year and look forward to the prospects for growth across our business segments, we remain very confident in our ability to generate targeted mid-single-digit organic growth CAGR through 2025. An important component of organic growth is demonstrated price leadership. We've always focused on earning price in the marketplace by delivering on the Carlisle experience. which means providing our distributors, contractors, and other channel partners with innovative products of the best quality at the right place at the right time and as efficiently as possible. We couldn't do that without diligent planning and collaboration with our suppliers to ensure a steady flow of our necessary inputs. While extremely challenging in the third quarter, this collaboration proved particularly valuable in this uncertain environment. Our ability to anticipate these challenges especially this year and maintain a proactive posture on pricing has enabled us to provide a high level of service to our channel and to our end user contractor base. Through a disciplined and proactive approach, we are successfully navigating the current inflationary environment. In the third quarter, we more than offset the significant raw material and freight cost increases experienced in CCM with pricing and notably are on track to be price cost neutral for the full calendar year 2021. Another important pillar of Vision 2025 is to build scale in our higher returning businesses through acquisitions. Since the inception of Vision 2025, we've expanded into polyurethanes with the 2017 acquisition of Acela. We've moved into architectural metals with the 2018 to 2019 acquisitions of Drexel and Peterson, respectively, and most recently expanded into weather, vapor, air, and energy barrier systems with the acquisition of Henry Company in the third quarter. Henry not only clearly demonstrates our strategy of expanding further into the building envelope, but also highlights our drive to increase the content of energy-efficient products in our portfolio. As a reminder, buildings account for approximately 30 to 40 percent of annual global greenhouse gas emissions. Henry's weather, vapor, air, and energy barrier systems contribute to the reduction of these emissions. One example of this is Henry's air vapor barrier product called Blue Skin. Blue Skin prevents uncontrolled air leakage and can yield up to 30% savings on heating and cooling costs. With accelerating demand for energy efficient products made for more sustainable buildings in the future, we will continue to emphasize the development of products that help reduce the carbon emissions of buildings, positively impacting the environment. Finally, in the third quarter, we also continued to execute on our Vision 2025 capital deployment strategy. Despite closing on Henry, which was the largest acquisition in Carlyle's history, we continue to repurchase shares, spending $25 million during the third quarter and bringing our total repurchases year-to-date to $291 million. As a reminder, since 2016, we have had over $1.8 billion in share repurchases. We also anticipate continuing our long history of consistently raising our dividend, which we did again in August, marking the 45th consecutive year of increases. We are very proud of the near half century of stability in our business model that affords us the ability to consistently return capital to shareholders. Turning to slide four and transitioning to our ESG efforts. As we close out 2021, we continue to make steady progress on performing audits to establish baseline data at our manufacturing facilities, identify opportunities for energy, waste, water, and greenhouse gas reduction, and establish achievable reduction targets for the future based on real, measurable, and impactful actions. With the Carlisle operating system core to our culture as a key driver of our success, continuous improvement applies to our ESG efforts as well. We're utilizing the Carlisle operating system toolkit and processes to establish ESG goals and targets, which, among many benefits, will result in meaningful reductions in our emissions and energy consumption. We will set and publish these targets in the coming year. Citing a few notable ESG projects with impactful results that progressed in the third quarter. We started recycling production materials made of paper, such as facer, cardboard, office waste paper, from our Carlisle, Pennsylvania campus back into our poly-ISO insulation products in mid-2020. Throughout 2021, we have expanded this program to three more CCM manufacturing sites around the U.S., and through the third quarter, we have recycled nearly 1 million pounds of what would have been waste back into our insulation products. Another effort has been to upgrade our factories with more efficient LED lighting. Throughout 2021, we have added LEDs and motion controls at many factories, saving more than 3.5 million kilowatt hours of electricity, which translates into a reduction of close to 1,300 metric tons of greenhouse gases. In an exciting new program, we're planning to upgrade our expanded polystyrene facility in Dixon, California, to enable production using 100% recycled materials by the end of next year. We'll have the ability to recycle as much as 150 tons of our production and customer scrap annually. which avoid significant waste from entering landfills. Subsequent expansion of the facility will provide for the recycling of any EPS product and waste from any source. I was in Dixon this fall, or at the beginning of this fall, and I was really pleased with what the team was doing and the fact that this initiative was driven by the folks in the facility there, and we're proud to see ESG moving through our entire company with such momentum. Turning to slide five, our performance in the third quarter of 2021 evidences solid execution. Revenue increased 25% year-over-year with organic revenue up over 19%. All segments contributed to this growth. Adjusted EPS increased 27% year-over-year to $2.99. It's higher volumes and price and cost discipline more than offset inflation during the quarter. And let me provide some additional divisional highlights. Starting with CCM, our construction materials business delivered an outstanding quarter despite the severe challenges across its supply chain. CCM's organic growth in the third quarter was over 23% year-over-year, and notably, organic sales were close to 14% higher than the third quarter of 2019. CCM continues to benefit from a growing backlog fueled by the strong re-roofing cycle in the U.S., which we estimate will grow from a market size of $6 billion to $8 billion in the next decade, with an ever-increasing emphasis on the energy efficiency of buildings and our proactive pricing actions, and our investments in expanding our presence in the building envelope. We believe CCM's third quarter results, on top of their performance through the pandemic, support our view that replacing a roof can only be postponed for so long, ensuring that the underlying demand trends are very much intact. On slide six, you can see how we're continuing into and expanding the building envelope, providing solutions from the ground up. Our increasing focus on the building envelope is exemplified by our recent acquisition of Henry, which delivered excellent results in its first month with Carlisle, where the integration thus far has been very smooth. As the integration has progressed, we've really become more appreciative of Henry's season management team, which is executing on all fronts and already proving to be a great addition to Carlisle. With similar cultures around innovation, pricing to value, focus on customers and continuous improvement, and strong results out of the gate, we are increasingly confident in Henry's ability to exceed our preliminary forecast of $1.25 and adjusted EPS accretion in 2022. We're also pleased with our other growing platforms that represent our initial expansion efforts into the building envelope. Please turn to slide seven. Architectural metals and polyurethanes were both up over 35% in the quarter and continue to progress well on profitability improvements. And regarding our presence and our expansion geographically, our new CCM European leadership team continues to make really good progress growing the core business, improving their profitability, and driving new energy-efficient product introductions. And our recent investments to expand our capacity in our Waltershausen, Germany facility will only serve to support that growth. Lastly, on CCM drivers, given our history of price leadership, proactive approach to pricing coming into 2021 and actions taken year-to-date, we're very pleased that pricing more than offset raw material and freight cost inflation in the quarter. Our multi-year focus on price began in 2016, gained traction in 2017, and continued to evolve. This evolution has resulted in a more robust and comprehensive pricing management philosophy and execution at CCM, which demonstrated its power during the inflationary environment in 2021. And finally, I'd like to take a moment to note that our results... could not have been generated without the stellar work of our sourcing team at CCM. They're doing an excellent job ensuring CCM is able to produce all it can, especially as demand across product lines is showing no signs of slowing. Ultimately, their hard work contributes significantly to our ability to deliver the Carlisle experience. Moving to slide eight at CIT, third quarter revenue grew 6% year over year, evidence of continued progress in both CIT's commercial aerospace and medical technology platforms. In commercial aerospace, backlog has now reached levels not seen since May of 2020, which is a significant milestone. We're encouraged by the growing demand related to narrow body production driven by a steady rebound in air travel domestically. In longer term, when demand for wide-body production returns, CIT is well-positioned to capture and leverage that growth. Over the last several quarters, CIT has taken significant restructuring actions, such as closing our facility in Kent, Washington, to drive improved profitability. The impact of these actions has shown over the past several quarters, driving CIT's profitability on an adjusted EBIT basis to swing positive during the quarter. On the medical side, record revenue supported CIT's sequential and year-over-year revenue growth as hospital capital spending has resumed. Longer term, as our medical business gains momentum and adds to its record backlog, we believe the platform is well-positioned to drive and leverage mid- to high-single-digit annual growth going forward. On CFT, given its re-energized commitment to new products, improved operational efficiencies, price realization from earning the value of innovation, and an improved customer experience, CFT generated revenue growth of 9% year-over-year and adjusted EBIT growth of 16% year-over-year in the third quarter. CFT is benefiting from increasing industrial capital expenditures across its end markets despite supply chain issues in the automotive markets. It's also making solid progress integrating and growing its newer platforms of sealants and adhesives, foam, and powder. With a focus on innovation, a leader cost structure, and a push into automation, we are optimistic about CFT's ability to generate sustainable value creation by driving and leveraging solid growth at healthy incremental margins. We expect the team to continue executing on its Vision 2025 growth strategy and to deliver continued improvement in the fourth quarter and certainly next year and beyond. And with that, I'll turn it over to Bob to discuss our financial performance in greater detail. Bob? Thanks.