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spk09: Good afternoon. My name is Jason. I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Company's second quarter 2022 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 Janakouros, Carlisle's Vice President of Investor Relations. Jim, please go ahead.
spk04: Thank you, good afternoon everyone and welcome to Carlisle second quarter 2022 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 Kevin Zimmel our chief financial officer. Today's call will begin with Chris giving an update on our progress in achieving our strategic plan, Vision 2025, highlights of our record second quarter, and a discussion of current trends. Kevin will discuss the financial details and updated outlook for 2022. Following Chris and Kevin'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 today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As Carlyle provides non-GAAP financial information, we've provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which, again, are available on our website. With that, I will turn the call over to Chris.
spk10: Thank you, Jim. Good afternoon, everyone, and thank you for joining us on our second quarter 2022 earnings call. As we enter the third quarter, we continue to operate in a highly uncertain environment, which has been the case each of these past three years. In addition to an ongoing global pandemic, tight labor markets and supply chain constraints We are now seeing the global impact of the ongoing war in Ukraine, rising interest rates from a Federal Reserve concerned with record inflation, and the uncertain outlook for the American consumer. Despite this challenging environment, I am very pleased with the outstanding performance our teams delivered in the second quarter. Our positive performance depends on a Carlyle team that continues to live a continuous improvement mindset with a focus on results and an unrelenting commitment to deliver the Carlyle experience. As a result, in the second quarter, we delivered another record performance, including revenues, EBITDA, and diluted EPS, which moves us closer to delivering Vision 2025, including achieving $15 of earnings per share three years ahead of plan. Please turn to slide three. Our record results continue to demonstrate that Vision 2025, which has provided the clarity and consistency of mission since its launch in 2018, has been the right path for Carlyle, even in these challenging times. In addition to our world-class team and proven business model, we've relied on a strong balance sheet and excellent cash flow generation to provide both financial and strategic flexibility to execute our Vision 2025 roadmap. A significant portion of our success has been driven by the multi-year process of reshaping our portfolio to pivot Carlisle to a diversified building products focus, setting the stage for accelerated and sustainable value creation. Allow me to update our progress on these strategic initiatives. Please turn to slide four. These initiatives include drive 5% plus organic growth with operational leverage. In the second quarter, we delivered 42% organic revenue growth and adjusted EBITDA growth of 146%. Utilize the Carlisle operating system. We use the Carlisle operating system to consistently drive efficiencies and enhance operating leverage by targeting cost savings of 1% to 2% of sales annually. We continue to execute on our Lean Sigma initiatives in the second quarter of 2022 and fully expect to be in our targeted range for this year. build scale with synergistic acquisitions. We continue to streamline and optimize our portfolio through acquisitions and divestitures to build scale in our highest-returning building products businesses. With almost one year since our Henry purchase, the team continues to execute extremely well on delivering a smooth and efficient integration and is on pace to exceed our initial synergy targets of $30 million. We remain excited about acquisition prospects within the building envelope and we're working an active pipeline of opportunities to augment our newest segment, CWT, in a variety of construction product-related verticals. Continue to invest in and develop exceptional talent. Our Carlyle leadership system is a holistic approach to talent management that incorporates mutually reinforcing processes and tools for the selection and development of high-caliber talent. In the second quarter, we held our week-long annual leadership summit with the current and future leaders of Carlyle with the aim of developing the next generation of leadership. While reinforcing the high standards expected of Carlyle leadership, we also discussed and developed ways to honestly assess our business performance and debated changes to facilitate continuous improvement in the organization and to enhance Carlyle's future performance. Deploy over $3 billion into capital expenditures, share repurchases, and dividends through 2025. Notably, we are on an accelerated path here. Since the launch of Vision 2025, we have deployed over $2.7 billion into these areas. Turning to our 2022 year-to-date actions, we've made capital investments of over $80 million into our businesses, made share repurchases totaling $175 million, and paid approximately $57 million in dividends in 2022. Now let's turn to the second quarter, and look at the drivers of our record performance. First on slide five, reroofing demand. Reroofing is a necessity for building owners in order to maintain the integrity of their substantial investments. Reroofing demand continues to be a reliable, significant, and sustainable driver for growth at CCM. As we continue to seek more efficient use of energy as a nation, increased amounts of insulation have been added to the reroofing system which expands our served market and increases the value of the roof to building owners. Specifically, one of the easiest ways to enhance the energy efficiency of a roof is by adding more insulation. In fact, over the past decade, the ratio of insulation to single-ply roofing membrane board feet has increased an estimated 40%, clearly demonstrating the annual increase in insulation consumption. The increasing number of low sloped roofs requiring re-roofing with more energy efficient solutions over the next decade underpins our confidence in CCM's ability to continue to generate above market growth. This rising demand coupled with our position as a key provider of energy efficient solutions for buildings sets up CCM very well for additional growth. Adding to these positive trends, we also expect continued high levels of backlog for the near future much of this due to COVID-19 issues in 2020 and exacerbated by supply chain disruptions and labor shortages in 2021 and 2022. Second, under the guide of Vision 2025, we continue to earn premium pricing in the marketplace by providing significant value to our customers through what we call the Carlisle Experience. Our continued and growing investment in new product innovation, the energy efficiency benefits of our building envelope systems, our world-class manufacturing and distribution facilities, and best-in-class customer service encompass the value proposition that our contractors have come to rely on from Carlyle. Contractors know that when they order from us, they'll get energy-efficient building solutions of the best quality in the right amount at the right place and at the right time. Third, We continue to seek synergistic and accretive acquisitions. We continue to be pleased with the Henry integration, where synergy targets are ahead of schedule, and we are on pace to achieve approximately $1.50 of accretion in 2022. We are also pleased that the acquired Henry leadership team has taken on the role of managing our diverse set of building envelope solutions in our newest segment, CWT. The solutions within CWT now include Henry, Carlyle polyurethane systems, and Carlyle's legacy diversified products. In February, we acquired MB Technology, a California-based provider of roofing underlayments and membranes, as a strategic bolt-on to CWT. We are pleased that this innovative company won a grant from the state of California to develop a modified bitumen product called EcoTorch, which incorporates recycled tires into the membrane. This type of commitment to sustainability reinforces the value Carlyle places in our acquisition targets. Given the success of Henry and the establishment of this new segment, we are actively seeking similar but larger tuck-in opportunities to enhance CWT's already significant capabilities. Fourth, since launching Vision 2025, we've remained focused on being a disciplined and superior capital allocator. Our strong operating cash flow enables Carlyle to remain financially and strategically flexible in order to drive value through a balanced and opportunistic approach to capital allocation. This approach includes investing in organic growth, returning capital to shareholders in the form of dividends and share repurchases, and as I just mentioned, continuing to seek accretive acquisitions that enhance Carlyle's ability to create value for all our stakeholders. Notably, we anticipate this August will mark Carlyle's 46th consecutive year of annual dividend increases. We are extremely proud to be approaching a half century of annually paying and increasing dividends, part of our commitment to return capital to our shareholders. We also remain on track to deploy $175 million in capital expenditures this year with a large share dedicated to fund growth products in our building product segments. Fifth, we remain firmly committed to sustainability and ESG. Please turn to slide six. We are proud that our business model is squarely in the middle of global ESG trends as our products and systems enable a more efficient use of energy in buildings. Energy efficient buildings can contribute to lower greenhouse gas emissions on a large scale as evidenced by the fact that over 30% of GHG emissions annually are attributed to the operation of buildings. With our pivot to building products and the accelerating demand for energy efficient products in the broader market, Carlisle is enabling a more sustainable planet. Carlisle will help deliver a net-zero future by supplying innovative, energy-efficient products and solutions while reducing greenhouse gas emissions and the amount of construction materials in landfills. One recent project to support this net-zero mission includes the purchase of $1.6 million worth of equipment to recycle production scrap at our Dixon, California, EPS plant. This investment will enable the diversion of 140 tons of waste from landfills annually. And more broadly, Carlisle is targeting the incorporation of more than 1 million tons of recycled materials and production scrap into our production stream by 2030, diverting that material from landfills. Additionally, we continue to make significant strides towards aligning our GHG reduction strategy with the Science-Based Targets Initiative, or SBTI. SBTI defines and promotes best practices and science-based targets that help provide companies with a clearly defined path to reduce emissions in line with the Paris Agreement goals. Please turn to slide 7, where we highlight our performance in the second quarter of 2022. Revenue increased 57% year-over-year, with organic revenue up 42%. All segments contributed to this growth. Adjusted diluted EPS increased 185% year-over-year to $6.15, driven by higher volumes, price, Henry's contribution, and Lean Sigma initiatives, which more than offset inflation and operational disruptions. For segment highlights, please turn to slide 8. CCM delivered an outstanding quarter, weathering challenges across its supply chain, pervasive inflationary pressures, and labor constraints. CCM drove solid top line growth due to continued strong demand, favorable product mix, new product sales, and captured price earned by delivering on the Carlisle experience. Contractor backlogs remain quite healthy and bid activity remains strong, giving us confidence for continued strength in the second half of 2022 and optimism for the future. Moving to slide nine, sales accelerated in the second quarter at our newly created segment, Carlyle weatherproofing technologies, where revenue increased over 23% year-over-year on a pro forma basis. Growth continued across all product lines despite supply constraints, which began to ease in the second quarter versus earlier this year. We continue to drive the Carlyle experience through CWT and its organization as we seek to earn the increased value of our products and services. As I mentioned earlier, the CWT team is executing well on a multifaceted integration plan that and is leveraging volume growth on plan. Moving to slide 10, CIT revenue increased 26% year-over-year in the second quarter of 2022 with balanced growth in its commercial aerospace and medical technologies platforms. Backlog continues to grow and notably remains higher than CIT's pre-pandemic levels. We are encouraged by the TSA checkpoint numbers that show domestic air travel is nearing 2019 levels driving increased demand for narrow-bodied aircraft and eventually wide-bodied aircraft as international travel returns to pre-COVID levels. CIT continues to navigate supply chain disruptions, facility consolidation efforts, inflation, and mixed headwinds. We do expect many of these influences to begin to abate in the second half of 2022, setting the stage for higher profitability. Turning to CFT on slide 11. CFT generated organic revenue growth of 5.5% year-over-year. We continue to be pleased by the progress CFT has made over the last couple of years, including improved operational efficiencies and new product introductions. We have also seen the team upgrade the customer service experience and earn strong price realization. We remain confident that commercial and operational improvements combined with growing backlog will deliver strong revenue growth and incremental margins in the mid-40% range this year, and as we continue to make progress towards our goal of 50% plus incremental margins in the coming years. And with that, I'll turn it over to Kevin to discuss some additional financial details and our updated outlook for the remainder of 2022. Kevin? Thank you, Chris.
spk11: Chris has covered revenue growth in his comments, so I will move to the EPS bridge on slide 13. EPS growth in the quarter was driven primarily by price, volume, and mix, more than offsetting the negative impact of materials and labor inflation. Additionally, the Henry acquisition contributed 47 cents of accretion in the quarter. Moving to slides 14 and 15. Carlisle ended the second quarter of 2022 with 353 million of cash on hand, with cash generated from continuing operations totaling $181 million. Capital expenditures of 52 million, share repurchases of 50 million, and dividends paid of 28 million during the quarter. We currently have 4.3 million shares remaining from our last share repurchase authorization. Our net debt to EBITDA ratio is two times, down from three times at the end of 2021, which as a result of the Henry acquisition was elevated compared to our target net debt to EBITDA range of one to two times. Our policy is to maintain a conservative balance sheet. However, for the right acquisition, we will take on additional debt and through earnings growth and debt reduction, drive our net debt to EBITDA ratio back to our target range within one to two years. Given our anticipated repayment of our $350 million senior notes in the second half of 2022 and expected EBITDA growth for the balance of this year, we expect to reduce our net debt to EBITDA ratio to approximately 1.5 times by the end of this year. On slide 16, we have our updated 2022 financial outlook. At CCM, as Chris mentioned, we are seeing strong re-roofing and new construction demand, as well as increasing interest in our energy efficient solutions. We now expect total revenue growth at CCM to be approximately 40% in 2022, up from our previous estimate of approximately 30%. At CWT we now expect revenue to grow approximately 60% year over year, including 20% organically. Henry continues to contend with supply constraints, but as Chris mentioned earlier, is navigating that well. With integration efforts tracking above our deal model, we reiterate our accretion target of $1.50 for 2022. At CIT, we are encouraged by growing backlogs in both our aerospace and medical businesses, and thus increasing our revenue guidance to approximately 20% in 2022, up from our previous estimate of low double-digit growth. At CFT, with orders coming in as expected and with positive pricing and new product sales ramping up, we continue to expect approximately 10% revenue growth in 2022. Finally, on a consolidated basis for Carlyle, we now expect to deliver revenue growth of approximately 40% in 2022. Given the strong fundamentals across our businesses, staying ahead of inflation with proactive pricing actions and driving strong leverage through COS, we expect total Carlyle adjusted EBITDA margins to expand approximately 650 basis points in full year 2022, up from our previous estimate of approximately 500 basis points. With that, I turn it over to Chris for closing remarks.
spk10: Thanks, Kevin. I want to express again how pleased I am with the outstanding performance delivered by the entire Carlisle team this quarter and thank them once again for their perseverance, especially as we operate in this challenging and uncertain environment. Despite these challenges, the Carlisle team continues to live our culture of continuous improvement, focused on delivering results in an environment of mutual respect and trust. The outstanding results in the second quarter clearly demonstrate Carlisle's exceeding expectations and is on pace to achieve much of what we set out to accomplish in Vision 2025, including our goal to deliver $15 of earnings per share. As a result of solid fundamentals across all of our businesses, Our outlook remains optimistic for the rest of 2022. This concludes our formal comments. Operator, we are now ready for questions.
spk09: If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. And as a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question is from Brian Blair with Oppenheimer.
spk08: Please proceed.
spk05: Thank you. Good afternoon, guys. Hey, good afternoon, Brian. Another exceptional quarter. Thinking about the revised sales outlook for CCM, I know your team isn't going to break out volume and price contribution by quarter for competitive reasons. But in terms of the step-up to the guide, could you perhaps give us the weighting of the 10 points relative to moving from 30% to 40% for the year?
spk11: As you say, we're not splitting that out by segment, but more so looking at it overall. If you looked at total Carlisle, we'll say a third of the increase is related to or a third year over year. Growth is price and or volume. Sorry about that. A third is volume. Two thirds is price.
spk05: Okay, fair enough. And for CCM and CWC, it would be great to hear how orders trended through Q2 and into July, and whether price inflation, general macro concerns, any other factors have started to impact the strength of run rate demand. We know that your business is ostensibly booked for the year. It's more of a 2023 consideration, whether there's anything currently signaling that there could be a pullback into next year.
spk10: Well, Brian, it's a very challenging market, as we highlighted in the script there. You continue to see more changes. I think the 75 basis point increase today was received well, but obviously that's going to have some impact, and I know there's concerns in the market as to whether the 75 basis point increase will tamp down demand but not do anything to things like supply chain issues. for the rest of the year. So look, when we look at what our world looks like on a very North American kind of sector basis in construction with both COET and CCM, as you said, in our core non-resi business, look, you're right. We, under what we've been running, an MSP program, which is basically an allocation program this year to help all contractors and distributors get some product we are out until the end of the year, and we see ordering beginning already in 2023, so we see those, the current demands continuing into Q3 and into Q4. Obviously, we always are a little bit, you know, conscious of the fact that Q3 has burned us before in weather with something like a hurricane, I think, in 2018 that might have affected it. It might have been 17, and then we have weather affecting us, obviously, as we get closer to the winter, and You know, we like a warmer fall so that we can keep more days on the roof. But for the outlook, it's more of the same in the Q3. Obviously, we are lapping price increases that occurred last year. So the year-over-year comps will be down a little bit on that, but sequentially good. When we look at CWT and the new weatherproofing technologies group, you know, really good trends there that I think even if we look at something like the home center market, that team has delivered year in and year out. I mean, I'll just go back to, you know, I'm familiar with, say, 2014, and they've continued to do things like increase the content of their products on the shelves. And they've, you know, been able to pass on pricing. They've been able to garner new accounts in the home center market. And so, you know, they've been able to overcome some of these, you know, inner quarter challenges that occur from time to time. But, You know, the big things for us going forward remain on the supply chain side. Can we get enough product to continue to maximize our capacity and address the demand that's out there? And then obviously labor constraints remain. I think they're going to be there for a while. And, you know, with the supply constraints and with the labor constraints, it just sets up that this backlog probably doesn't get resolved right away and continues on into 2023. So I think overall for us, pretty positive outlook for the remainder of the year and then hopefully continues into 23.
spk05: That's very helpful, Keller. In terms of Henry, you mentioned supply constraints. Is that what has led to what I'm assuming is a bit of conservatism and not taking up the accretion guide? You're pacing ahead. I realize there's more seasonal variability going into the fourth quarter, but with The synergy plan ahead, run rate growth being very solid, I assume that you're very confident in the third quarter at minimum. Is it just conservatism in terms of what could play out with supply and seasonal variability going into Q4 that the $1.50 was not taken up?
spk10: Yeah, Brian, I think that's right on. And I think that conservatism is well-founded in the fact that we don't know them as well as we know our core players. and while the team's doing a great job and providing great information and insight and just doing a heck of a job on the integration, I think, you know, that's right on. We just want to be a little conservative here and make sure we understand all the puts and takes as we go through the year. All perfectly fair. Thanks, guys. Thanks. Yeah.
spk09: Our next question comes from Saray Boroditsky with Jefferies.
spk08: Please proceed.
spk00: Thanks. So maybe we could talk a little bit about your EBITDA margin expansion, your guidance by 150 basis points. Could you just talk through how much of this is driven by positive price cost or maybe a little bit of detail by segment?
spk11: Yeah, we did it on purpose to consolidate it. So we're not going to go into the segment by segment piece of it. But yeah, overall, as I think I pointed out on the volume being one third and price being two thirds, you should be able to do the math off that piece of it to get the to the 650 basis points.
spk00: Great. Thanks. And, you know, you talked a lot about increased energy-efficient solutions and insulation. Could you help quantify what that opportunity represents as older roofs are replaced with these new, more energy-efficient solutions?
spk10: Yeah. As we look out, I think there are two vectors here on insulation that are important. One is, you know, just this simple one we highlighted. And I think if you think about just what we talked about, that the board feet of insulation to membrane, you know, up 40% over the last 10 years. That gives you an idea of what that trajectory looks like. And obviously there are a lot of places still in the United States that have not officially raised their code to double up on the insulation. There's a lot of places that are just not doing it. But as we begin to, you know, get people more educated and they see the benefits of this, I think that rate will continue. That's a good rate to look at. And I think the other thing is we have to look at new technology. You know, PolyISO and EPS have been around for a while, and our teams, you know, are working on every day the next gen or generation of both membranes and insulation. And we think there are some interesting concepts out there that could increase our value, reduce time of insulation, which is a big deal, obviously, out there for contractors, and so improve the efficiency of our entire system. So, I like that run rate for right now that without any new technology that we've shown over the past 10 years, I think that continues. And then as we add new technology, that could really accelerate things from a dollar perspective and from a volume perspective. So I'll just leave it there. I mean, I know that's not as clear as you probably want, but I think that past history is a good indicator of what we're seeing happen in the marketplace today.
spk00: I appreciate the call. Congratulations on the great quarter, and thanks for taking my question.
spk10: Thank you.
spk09: Our next question comes from Adam Baumgarten with Zellman & Associates.
spk01: Hi, this is Marius for Adam. Thanks for taking my question. You mentioned in your press release that you added about 100 million of sales from new products and I was wondering whether you can maybe expand a bit more on that and talk about what those products are what other opportunities are there? Thank you.
spk10: Yeah, sure. You know, I just mentioned it with Sheree there, a great question she had on what the future of insulation is. And I think, you know, that's one of the areas that we're going to look at is how can we get, you know, better insulation, more efficient insulation to increase the R value, decrease labor content per square foot installed. And really, those are the kind of things we're looking to do. We're really looking to help the contractor you know, get the job done more efficiently, more effectively so they can take on more work and also use their labor more effectively. If you look at a couple of products that we've introduced in the last couple of years that I think are just outstanding products and are quite innovative, one is our appeal product where we are, you know, got a piece of TPO membrane installed There's a thin layer of film over it that when the job is completed, we can pull that back and you have the clean TPO white roof there. In the past, without that, with all the workers that are on the roof and people installing things, you'd get a lot of dirt and they'd have to haul up pressure washers and things like that to clean it off. And it just meant more labor, more time on the roof, more expense for the contractor. So we think that appeal product does exactly what we want to do for the contractor and there's value there. Another product we have is we have a Velcro adhered system in TPO that I also think is pretty innovative. And, you know, this is used in some pretty interesting installations. I remember a couple years ago I had a job. We were out talking to the contractor, and they were going to put a roof on an air traffic control center in the west, and they really couldn't shut down the control center. And so they needed something that could be put down without any adhesives or things like that. And so they used basically our TPL membrane with our Velcro adhered process, and it's done mechanically there. So that's another one where we were able to complete a job in a difficult situation, please the end user, and make it easier on the contractor to get the job done, get off the roof, and move on. So, you know, another one is obviously our CavGrip series where we continue to improve that. and that's an adhesive, two-component adhesive system we use. We've had great reception to that. So those are a couple of examples. I could keep going on, but that's probably enough for you to get an idea of the type of new products we're putting out there. But again, it really centers on improving the quality of the system, increasing the energy efficiency of the system, and getting the contractor off the roof as quickly as possible, allowing them to move on and make more money.
spk01: Thank you. And just a quick follow-up. Has your outlook for inflation changed since last quarter? And if so, what are some of the buckets where it changed the most? Thank you.
spk10: I don't really think the outlook has changed. I'm not going to give you the specifics on the outlook in terms of numbers. But what I will say is, you know, obviously inflation on the supply chain side, as much as we thought it would abate by this time, we're still seeing inflation in raw materials. In the second quarter, we see it going into the third and fourth quarter and not abating to a big degree. We still see labor inflation. I think that's pretty obvious for everyone out there that's been following the labor markets that there's more pressure on workers. We have a lot of open positions in the economy today. People are looking for more wages to offset the increases in health care costs or gasoline and commuting to work or things like that, rents and things like that. So those pressures remain. So freight is another one, and then obviously fuel prices. So those four buckets, you know, when you look at those and the impact they have on our customers and on our factories, those are the ones we focus in, and they really haven't changed. They're still – Well, as you can see by what the Fed's done, they're still pretty high. Thank you. You're welcome.
spk09: Our next question is from Garik Shmois with Loop Capital. Please proceed.
spk02: Oh, hi. Thanks. Thank you. Hey, Garik. Congrats on the great quarter. I wanted to ask first just on raw material availability, you know, just curious if there's been any improvement there and, you know, just a follow-up to that, you know, let's say there is improvement moving forward and maybe you do get some cost relief. I'm just kind of curious as to how you're thinking about CCM prices moving forward if we are in a
spk10: So availability got a little bit better in some areas, and I think that you could see that manifested itself in a little bit higher sales because obviously with the orders we had in the backlog, if we can get the raw materials, we can produce more product and get it out the door. In terms of raw material pricing, again, we've said this now for a while, but I'll just reiterate it, is we're really – And you can see this with these new products and you can see it with our philosophy in the Carlisle experience. We're really pricing to the value of the products in the market. So, you know, if we see a reduction in pricing in the, I don't see it happening this year, but if it happened next year, I think we're going back to that's a separate function on raw materials than it is. It's not going to be tied into the price of our products. They're not commodities. They provide a lot of value and it's really our job to, you know, take, that value and explain it to our end users or contractors or architects or distributors, get them to understand that that's a price you want to pay for that product because of the value it's returning. Eric, I'll give you one example. We're launching this 16-foot wide TPO membrane into the market here. And when you think about what it's going to do for the contractor in terms of labor saving and efficiency, My guess is that people will be willing to pay a premium for that product and not be as connected to raw materials on that, again, because we'll be able to show the value and demonstrate it to the buyer.
spk02: Got it. That's helpful. The follow-up question is just on the residential side of the business and CWT, be it Henry or Spray Foam. And just getting from the concern on the housing side, are you seeing any change in order trends of late? And then just maybe help remind us how durable the residential part of CWT is if there is a slowdown in residential construction.
spk10: So right now, you know, with the raw material supply, obviously in the tight labor markets, when we look at CWT as a whole, You know, the order backlog remains strong at the consolidated level. I mean, you do see signs of some softness emerging in some areas. I'm not going to get into the specifics there, but it's really not a softness to a – it's really coming off quite a high volume, and so there's still very good, you know, demand and very good – uh shipping going on and and i think a good tone in the marketplace i think the other thing is we talked about new products we talked about the value i mentioned a little bit about uh what we're doing at some of the home centers by trying to put more product into the aisles and that that we own so we'd have to segregate that out too but i think the demand going forward for cwt is good i think it's durable And I think that we will see some, obviously some issues there with the, with resi construction as interest rates rise. I mean, I don't think, I don't think we can avoid that, but I'm not sure that's altogether bad. I think that might help the raw materials catch up, get a little relief there. And then, you know, 2023 still looks pretty positive for us.
spk11: Yeah. And this Kevin, half of their business is R and R as well. So you get that aftermarket business. So 50% is new and, 50% repair and replacement.
spk02: Got it. Thanks again. Best of luck.
spk09: Thank you. Our next question comes from Josh Chan with Baird. Please proceed.
spk03: Hi. Good afternoon, Chris, Kevin, Jim. Great quarter. On the strength in the CCM demand, could you guys talk about where you're seeing that relative to new construction versus re-roof and any specific verticals that are driving the strength particularly?
spk10: Yeah, I mean, we're seeing it. Believe it or not, we're seeing it through the business. Demand's been pretty good right across the board, everything from architectural metals to insulation to commercial roofing. If you look at... the different membranes, EPDM, PVC, TPO. I think those are all doing a, we're having a great job there. When you look at verticals, you know, warehouses are up, educational buildings, office, you know, maybe flat up, stores are up. I think right across the board, it's still good across everything. And the reason I think that is is because obviously we've got this pent-up demand that came with COVID. You know, we got into COVID and things kind of got behind. And, you know, and then we see the huge surge in the supply chain problems. And so you look at this backlog that just, like we said, is continuing on from now the end of 22 into 23, and that means that the sales end of those verticals are going to continue, and we don't really see that changing for the foreseeable future. So, yeah, I'd like to highlight something that I didn't feel good about right now, But I don't really think there is anything in the foreseeable future. Like I said in the beginning that we see back half of 22 strong. Again, there are issues out there on inflation. That's keeping pressure on supply. Supply chain might get a little bit better, but probably not completely resolved. And, yeah, we still see demand being strong. That's great. Yeah, that's good color there.
spk03: And then on the CWT side, I think you guys mentioned – acquisition pipeline a few times in the prepare remark. So could you talk about, you know, when do you feel like you're organizationally ready to make another acquisition and or what areas are you looking at for the next transaction there?
spk10: Yeah, well, without going into anything too confidential, we don't want to tip anybody else off at our competitors. But what I would say is we've talked about expanding into the building envelope. CWT is doing the same thing. We're looking at different areas. We're looking at products that could further position us well in the home center market for the DIY or for the professional that shops there. We look at increased products that could help us in the professional market where we're seeing the Henry team begin to integrate with the CCM team and spend more time at Architects. And we've got some great products on the Henry side like the blue skin wraps and things like that. So we're we would look in those verticals. It might be house wraps. It might be something like that. You can also see that we didn't wait very long after acquiring Henry to put our confidence in Frank Reddy and the team and go out and buy MB Technologies. It's a small business there in California, but it adds some unique value to us and some unique products, and we think that team's doing well. So I'd say there's plenty of places for us in the building envelope to leverage the Carlisle experience, to leverage our you know, presence in the architectural community to find brands that can help us penetrate different channels and really just be a more comprehensive, you know, solutions provider to the contractor, to the building owner, and to the architect. So that's probably as much as I want to give you today. That's great. Thanks, Chris, for the color and the time. You bet.
spk09: Our next question comes from David McGregor with Longwell Research. You may proceed.
spk12: Yeah, good afternoon, everyone. And congratulations on a strong quarter.
spk08: Thank you.
spk12: Thank you. It's exciting to hear all the discussion around the innovation. I wish if we had more time, I'd probably ask you to talk more about embedding solar power generation capability into the roofing membrane. But maybe you should do another call and just focus on innovation and product opportunity. I wanted to just ask you for an update on capacity investments. If you could start off by just giving us some context on where we are now in terms of capacity utilization. You're obviously on allocation, so I'm guessing it's pretty tight. But you're bringing on, I think, some TPO capacity next quarter, and you've got some PolyISO coming on next year, and probably a bunch of other things that I don't have in front of me. But just can you give us some sense of what the revenue opportunity is of just bringing that capacity on, maybe at existing prices and and how we should think about that.
spk10: Yeah, I'll let Jim talk to you about that, the actual dollar revenue opportunity on those things. But where I'll go from a capacity thing is, you know, you mentioned allocation. I want to be clear that the allocation that we have experienced has more to do in a lot of ways with raw materials than it does our capacity. We still have some capacity out there that we can utilize when we get raw materials. And you saw in the second quarter we were able to do that and continue to increase volumes. So then we move to the two new lines. We have the new TPO line in Carlisle, PA, and obviously that's going to add some capacity to the industry and to us, and I don't have exactly the dollar figure for that, so I'll let Jim handle that. And then Sykeston, obviously we've got a new factory going on there, and we have the possibility of putting two lines in there, and so without exposing too much of our strategy on capacity, that one or two lines can change the total amount of capacity that we put into the market. But we'll be prudent about it because there's no sense putting in overcapacity. We don't think that's good for the industry, and we think the whole industry and ourselves have been pretty rational about not overbuilding there. So I'll let Jim pick up on the dollar value. But the other thing I would tell you is, even though we won't have time for a technology discussion today, your comment on solar, you know, we've already embedded solar into roofs. We have that capability. It was probably 10 years ago that we were embedding solar into EPDM membranes and putting them on landfills. We actually had an organization within Carlyle that did that, and it worked pretty well until the tax environment went away and it became unprofitable for people that were installing those roofs, but we do have that capability. Then I just make note of that.
spk04: Yeah, yeah, and as far as the capacity to kind of help you, David, you know it's our 6th. It's TPO manufacturing line number 6 that's that's getting fired up this year and it's our 9th poly iso installation facility. So without getting overly precise, that directionally should help you. Get to arrange it.
spk12: It does. Yeah, that's what that does help. Thank you. And then second question I just Somebody should ask about CIT, I guess. You mentioned, Chris, in your prepared remarks that you expect margin headwinds to abate in the second half. So I just wanted to see if you could elaborate a little further on that.
spk11: Yes, we've done a lot of restructuring over the last couple of years in that business. And as the airline travels coming back, we're seeing the production of planes coming back, and that's going to be a positive to us. We think we have a lower overhead cost structure now and so our incrementals are going to be very strong there and we should start seeing that in the second half of this year and definitely end at 2023.
spk12: So is it really just about just leveraging what you've got there now or is there still a sort of an efficiency opportunity beyond just the productivity of having the more volume?
spk11: Yeah, there's efficiency as well that we've been investing in on the COS side, definitely in all our factories on that. We got a big investment we've made in Tijuana, and that's a beautiful facility down there if you ever get a chance to visit, as well as the mix. I mean, mix has a big impact on us as well, and we're seeing that as We have more content on that plane than we do the other plane. So as that eventually ramps up, that's going to be a big positive for us.
spk12: Just one last one, if I could. How should I think about kind of terminal velocity at the margin line there? What's achievable in terms of percentage margins at CIT once you get back into sort of full fighting form?
spk10: You know, David, we used to talk about prior to COVID and then also prior to our switch to EBITDA, we used to be aspirational to 20 plus percent OI. And you can make the adjustment there on the EBITDA and where that would put you. But that would be pretty consistent with some of our competitors and where they were. And I might even say that's probably been at least reinforced or maybe we might have even elevated it a little bit with the addition of the increased medical exposure. And then the work that John Berlin and the team have done over the last two years to decrease their footprint and make their existing facilities more efficient. But that kind of frames up where we were prior to COVID and all that. We were targeting a 20% plus OI for CIT.
spk12: Got it. Very helpful. Thank you very much, gentlemen.
spk09: And our next question comes from Dan Oppenheimer with Credit Suisse.
spk07: Thanks very much. Just wondering on the CCM side, with the, we've had in terms of the growth north 50% for the first half of the year and the talk of 40% for the full year, that sort of implies significant slowing to about 25% in the second half. Understanding the environment is still uncertain. You talked about challenges potentially with weather, material availability, and comping some of the pricing. It doesn't sound as though there's anything else, but it's more that conservatism around those issues. Is that fair?
spk11: That piece as well is – so pricing, we had more pricing in the second half of last year than we did the first half of 2021. So as you look at comps, we're not going to have as much year-over-year improvement.
spk04: And we also have volume comps as well. Dan, when you think about, you know, 4Q was a record, 4Q21. You know, volume's really ripped, and that's where the acceleration really started coming into 2022. And so it's both comps on both price and volume that is reflected in the updated guidance.
spk07: Great. Okay. Thanks very much.
spk09: There are no more questions waiting at this time, so I'll pass the call back over to the management team for any closing remarks.
spk10: Thank you. Well, this concludes our second quarter 2020 earnings call. I want to thank everyone for your participation, your support of Carla, and once again, thank all of our employees who make it possible for us to deliver these results. We look forward to speaking with all of you at our next earnings call.
spk09: That concludes the conference call. Thank you for your participation. You may now disconnect your lines
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