Carlisle Companies Incorporated

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

Thank you, Elliot. Good afternoon, everyone, and welcome to Carlisle's fourth quarter 2021 earnings conference call. We released our fourth 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. Additionally, please refer to a separate release we issued where we announced key leadership appointments and a new segment structure for CCM's building products businesses. Today we'll be discussing our results and expectations, referencing CCM on the whole, as we have in the past. We will, however, be providing historical data and updated guidance in accordance with our new segment structure in the coming weeks. On the call with me today are Chris Koch, Chairman, President, and Chief Executive Officer, Bob Roach, our Chief Financial Officer, and Kevin Zimmel, our VP of Corporate Development, who we announced today will be succeeding Bob Roach as Chief Financial Officer. Today's call will begin with Chris's business update, highlighting fourth 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 fourth quarter performance, current financial position, and outlook for 2022. 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 Carlisle's operating and financial performance that involved 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 Carlisle 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 fourth quarter 2021 earnings call. First of all, I want to thank all of Carlyle's 12,000 employees for their resilience and perseverance through a challenging 2021. Also, very pleased everyone worked so well together this year to deliver record fourth quarter results. Turning now to the organizational announcements made earlier today, I'd like to formally announce that after five years of Carlyle, Bob Roach will be stepping down as our Chief Financial Officer. As you may recall, Bob joined Carlyle in 2017, the year after I was appointed CEO. Bob came to Carlyle from Johnson Controls, where he had been leading the integration efforts of the merger of Johnson Controls and Tyco. Bob blended seamlessly into Carlyle, and his experience and counsel were immediately impactful, especially in the development and execution of Vision 2025. And on behalf of our entire management team, I want to express my sincere gratitude for the many contributions Bob has made to Carlyle over the past five years, and wish Bob the best as he embarks on this new chapter of his life. With a strong bench and active succession planning efforts, we are able to ensure a smooth transition for leadership with the promotion and appointment of Carlisle's next CFO. I am extremely pleased to announce the promotion and appointment of Kevin Zimmel to the position of CFO. Kevin joined Carlisle in 1995, and at that time, Kevin had made a decision to move from public accounting at Coopers & Labor to start a new career at Carlisle. In the following 26 years, Kevin held roles of increasing responsibility and scope throughout Carlisle, providing him with a unique and comprehensive foundation for the role of CFO. Since the move of our headquarters to Scottsdale, Arizona, Kevin has held the role of VP of Corporate Development, helping shape our strategy and finance capabilities alongside Bob and myself. With that, I extend my sincere congratulations to Kevin. And now let's turn to our 2021 fourth quarter results on slide three. As we stated in our release, the Carlisle team delivered very strong performance in the fourth quarter, exceeding our expectations despite the many challenges we faced in 2021. This performance would not have been possible without the team's resilience, which has been demonstrated since the beginning of the pandemic. In 2021, our acceleration into the recovery was in full swing, and the results showed. I'm very proud that our teams delivered record revenues, record-adjusted EBITDA, and record-adjusted EPS for the quarter. This performance is a clear measure of the Carlisle team's unwavering commitment to our customers, to the Carlisle experience, to each other, to continuous improvement, and to achieving Vision 2025. Fourth quarter and full year 2021 results were even more gratifying given the severe demand declines in 2020 that brought challenges of a different sort. This past year followed 2020 with accelerating demand in a market that had recently adjusted to the severe pandemic declines. The associated increasing demand levels and unprecedented orders placed on our business, the historic supply chain disruptions, raw material price increases, and extraordinary labor challenges impacted all our businesses and required truly exceptional efforts by our teams. In particular, CCM was charged with proactively managing price, securing raw materials, and maintaining staffing levels throughout 2021 to ensure our ability to deliver the Carlyle experience to our customers and to all our channel partners who expect and rely on our industry-leading service. Needless to say, our customer service, operations, and supply teams performed exceptionally well, keeping our customers both informed and supplied with product. While our businesses continue to navigate significant supply chain, labor, and inflationary challenges as we enter 2022, solid demand fundamentals for all our businesses remain intact. Specifically in CCM, we remain confident in a strong multi-year re-roofing cycle, continued pent-up demand from the pandemic challenges in 2020 and 2021, increasing demand for our products that improve the energy efficiency of buildings, and expanding our ability to meet growing customer demand's with a broader suite of products for the building envelope. In our other Carlyle businesses, we are encouraged by increasing passenger air travel numbers and improved capital spending in the medical and industrial markets, all of which are returning to pre-pandemic levels. And this bodes very well for our CIT and CFT businesses. Rest assured, though, everyone at Carlyle is working on solutions and innovative approaches to help alleviate the pressures experienced in our markets. Our teams continue to take appropriate pricing actions to help mitigate continued inflation pressures, actions that reflect our value to our contractors, distribution channel partners, building owners, and architects. As solid order trends across our businesses suggest, demand remains strong entering 2022. Coupled with expectations for supply chain constraints beginning to abate in mid-2022, we expect healthy volume growth at accretive margins across our businesses. Please turn to slide four. 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 fourth quarter, we continue to successfully deliver on our key pillars of Vision 2025, including driving organic growth well in excess of 5%. In the fourth quarter, we delivered 26% organic growth for the company, both off a rebound of the COVID-induced lows of 2020 by achieving greater price realization. As we look forward to the prospects for growth across our business segments, we remain very confident in our ability to generate our targeted mid-single-digit organic growth CAGR in 2022 and beyond. An important component of organic growth is demonstrated price leadership. We remain 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 could not provide that value without diligent planning, significant efforts by our operations teams, and collaboration with our suppliers to ensure a steady flow of our necessary inputs. While anticipated supply chain challenges persisted in the fourth quarter, this collaboration proved particularly valuable in this uncertain environment. Our ability to anticipate these challenges, especially this year, and proactively manage expectations around pricing has enabled us to provide a high level of visibility and service to our channel and to our end user base. In the fourth quarter, we more than offset the significant raw material and freight cost increases experienced in CCM with pricing, meeting our full year target of being price cost neutral for the full calendar year 2021. Another important pillar of Vision 2025 is to build scale in our highest returning businesses through acquisition. Since the inception of Vision 2025, we've expanded into polyurethanes with the 2017 acquisition of Acela, into architectural metals with the 2018 and 19 acquisitions of Drexel and Peterson, and most recently expanded into weather, vapor, air, and energy barrier systems with the acquisition of the Henry Company in the third quarter of 2021. The Henry acquisition not only clearly demonstrates execution of our strategy to expand 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, coupled with our existing poly-isolation solutions, help build reductions in these emissions throughout buildings and in the environment we live in. With accelerating demand for increasingly energy-efficient products made to help create more sustainable buildings in the future, we will continue to emphasize the development of products that help reduce the carbon emissions of buildings and positively impact the environment. Henry's culture around innovation, pricing to value, focus on customers, and continuous improvement complements CCM's culture very well. With strong results occurring in these initial post-acquisition months, we are raising our adjusted EPS accretion forecast to over $1.50 in 2022, up from our original commitment of $1.25. Finally, in the fourth quarter, we continue to execute on our Vision 2025 capital deployment strategy, We remain committed to maintaining a balanced approach to capital deployment, continuing share repurchases. We spent $25 million on share repurchases during the fourth quarter, bringing our total spend in 2021 to $316 million. I'm proud to report that our cumulative share repurchases since 2017 now stands at $1.8 billion. With our building products focus in mind, we also announced today that we are realigning our CCM division by creating a new segment organized around Henry's products and applications for the sustainable building envelope. With the Henry acquisition, we've established our Carlisle weatherproofing technology segment, which will be led by Frank Reddy, the president and CEO of Henry since 2014. In addition to Henry, Frank will also take on leadership of our Carlisle coatings and waterproofing business, Carlisle polyurethane systems, and Carlisle diversified products. Additionally, Steve Schwer, who has been with CCM for over 30 years, most recently serving as Senior Vice President of Sales and Marketing, has been promoted to President of Carlisle Construction Materials, which now consists largely of our core U.S. commercial roofing businesses and Carlisle architectural metals. Both Frank and Steve will continue to report to Nick Shears. Nick has successfully led CCM through some of the most challenging times in its history, and he will continue to provide leadership to both segments. Nick and Steve have fortified Carlisle's largest businesses with a deep and talented bench ready to drive its continued extension into the building envelope. And we look forward to this next chapter of our pivot where we will continue to broaden and deepen our offerings of substantial, sustainable solutions to energy efficient buildings of the future. Turning to slide five. In 2021, we continued to make substantial progress on our ESG journey. Our key accomplishments in the fourth quarter included breaking ground on our state-of-the-art poly-ISO insulation facility in Syston, Missouri, which will be built to LEED specifications. Progressing on energy audits of our manufacturing facilities, these audits will form the baseline on which we will make a formal commitment on net zero carbon emissions in the near future. And we're proud to have gained increased recognition for our ESG efforts with Carlisle's inclusion in Newsweek's list of America's most responsible companies. Turning to slide six, Our performance in the fourth quarter of 2021 evidence is continued solid execution. Revenue increased 39% year-over-year with organic revenue up over 26%. All segments contributed to this growth. Adjusted diluted EPS increased 60% year-over-year to $2.92 as higher volumes, price, and cost discipline more than offset inflation during the quarter. And Bob will provide more detail around these numbers later. Turning to slide seven. At CCM, our core construction materials businesses delivered an outstanding quarter, despite the severe challenges across its supply chain. CCM's organic growth in the fourth quarter was approximately 30% year over year, and notably, organic sales were well in excess of the fourth quarter of 2019. CCM continues to benefit from a growing backlog of orders fueled by the strong re-roofing cycle in the U.S., which we continue to forecast will grow at mid-single digits to a market size of over $8 billion in the next decade. An ever-increasing emphasis on the energy efficiency of buildings, proactive pricing actions, further expansion into retail and residential markets, and our investments in expanding our presence in the building envelope. We believe CCM's fourth quarter and full year 2021 results support our view that replacing and upgrading a roof can only be postponed for so long and that the underlying demand trends and value proposition of the Carlisle experience are very much intact. We are also very pleased with our other growing platforms in CCM that represent our continued expansion efforts into the building envelope as outlined on slide eight. Architectural metals was a standout in the fourth quarter, growing over 40% year over year. Polyurethane systems over 20% and Europe grew over 30% year over year. Notably, all platforms continue to progress well on profitability improvements given price discipline and leveraging COS to drive higher efficiency. Given our history of price leadership and proactive approach to price, we are very pleased that pricing more than offset raw material and freight cost inflation in the fourth quarter which are a full year price cost neutrality, a target we set for 2021 this time last year. Our multi-year focus on monetizing the value of the Carlisle experience that began in 2016 continues to evolve. This evolution has resulted in a more robust and comprehensive pricing management philosophy, which was clearly demonstrated during this extreme inflationary environment in 2021. Moving to slide nine, At CIT, fourth quarter revenue grew over 19% year over year, evidence of continued progress in both its commercial aerospace and medical technology platforms. Encouragingly, in commercial aerospace, backlog is now at levels not seen since March of 2020. We are encouraged by the growing demand related to narrow-body production driven by steady rebound in global domestic air travel. Longer term, as demand for wide-body production returns with the resumption of international travel, CIT will be well positioned to capture and leverage that growth. Over the past several quarters, CIT has taken significant restructuring actions to drive improved profitability. The impact of these actions has shown over the past several quarters driving CIT's profitability on an adjusted EBITDA basis to swing to positive year-over-year growth in the second half of 2021 as the resumption of revenue growth drives greater leverage. On the medical side, the team delivered record fourth quarter revenue as hospital capital spending resumes. Longer term, as our medical business gains momentum and adds to its current record backlog, we believe the platform is well positioned to drive and leverage mid to high single-digit annual growth going forward. CFT. CFT generated revenue growth of 6% year over year. We continue to be pleased on the progress CFT is making on new products, improved operational efficiencies, price realization from earning the value of innovation, and an improved customer experience. We're confident these actions will deliver results in the coming quarters. With that, I'll turn it over to Bob to discuss our financial performance in greater detail.