Carlisle Companies Incorporated

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.

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.

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.