Carlisle Companies Incorporated

Good afternoon, my name is Brika and I will be your conference operator today. At this time, I'd like to welcome everyone to the Carlyle Company's third quarter 22 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 De La Torres, Carlyle's Vice President of Investor Relations. Jim, please go ahead.

Thank you. Good afternoon, everyone, and welcome to Carlisle's third quarter 2022 earnings conference call. We released our third 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 third quarter results, and a discussion of current trends. Kevin will discuss the financial details and our updated outlook. Following Chris and Kevin's remarks, we will open up the line for questions. 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 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 third quarter 2022 earnings call. The third quarter of 22 was another superb quarter for Carlisle as our teams across the globe continued to deliver on the Carlisle experience utilized our continuous improvement culture to improve our processes, and leveraged our position as a preferred supplier of solutions to our customers. From order entry, to deliveries, to writing specifications, to the ongoing performance of our products in the building envelope. We also continue to see positive underlying trends, including positive multi-year re-roofing needs, solid new non-residential construction demand, and increasing interest in energy efficient solutions. Additionally, a much improved supply chain resulted in the emergence of a more orderly and normal operating environment than we have seen during the last two years. One example of this improvement is within our CWT business, where we have gone from having 50-plus suppliers on our watch list to now having less than 10. While supply remains tight in many areas, we did see our customers have more confidence in the supply of our product which drives a better and more efficient workplace and ultimately a reduction in the need for building inventory and extending lead times. As we enter the fourth quarter, despite the positive underlying trends I just mentioned, we continue to operate in a highly uncertain and volatile environment, which has really been the case since March of 2020. The continued effects of inflation and impact on the American consumer have been significant. The decision by the Fed to mitigate rising inflation with meaningful increases in interest rates has slowed the housing market due to a rapid increase in mortgage rates, which has raised borrowing costs for buyers and pushed many prospective buyers out of the market. In addition, most signs are pointing to a slowdown in U.S. and global growth, which will likely impact jobs and investments for the near term. Coupling these factors with the coming U.S. midterm elections and another potential 75 basis point increase by the Fed in November, There is no doubt the fourth quarter will continue to bring us volatility, uncertainty, and a more cautious stance by consumers and businesses. Turning back to the performance of the quarter and a more focused eye on our work here at Carlyle, I am very pleased with the outstanding performance of our teams. They continue to show resilience and persevere in their work and have driven record year-to-date earnings to over $14 of diluted earnings per share on a GAAP basis. Well, on our way to achieving our vision 2025 annual EPS target of $15 our accelerated path to achieving vision 2025 is due to our teams on yielding commitment to deliver the Carlisle experience. And a resilient and continuous improvement culture, all the while focused on delivering results for our stakeholders, 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 a guiding beacon and well-defined path for Carlyle, particularly given extraordinary volatility in global markets over the past several years. In addition to our world-class teams 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 on our long-term plan and elevate the earnings power of Carlyle. A significant portion of our success has been driven by the multi-year process of reshaping our portfolio to pivot from a diversified industrial products company to a building products focus, setting the stage for more focus, more simplification, and a better understood path to accelerated and sustainable value creation. The pillars of vision 2025 remain core to our strategy going forward, these include first drive mid single digit organic growth and in the third quarter we deliver 28% organic revenue growth. Second utilize the Carlisle operating system or CS to drive leverage. We use CS to consistently drive efficiencies and enhance operating leverage by targeting cost savings of one to 2% of sales annually. In the third quarter, adjusted EBITDA grew 75%, nicely leveraging our sales growth. Third, build scale with synergistic, accretive acquisitions. Under Vision 2025, we have streamlined and optimized our portfolio through acquisitions and divestitures to build scale in our highest-returning building products businesses. CWT leadership continues to execute extremely well on delivering a smooth and efficient integration of Henry and is on pace to exceed our initial synergy targets of $30 million. The CWT team is doing an excellent job working both incremental cost synergy opportunities and seeking to drive revenue synergies given its now broader set of products. We remain excited about acquisition prospects within the building envelope, and we're working an active pipeline of opportunities to broaden our suite of energy-efficient solutions. a returns-focused capital allocation strategy that includes deploying over $3 billion into capital expenditures, share repurchases, and dividends. Since the launch of Vision 2025, we have deployed over $2.8 billion into these areas. Turning to our 2022 year-to-date actions, we've made capital investments of over $130 million into our businesses to drive innovation, and the Carlyle experience is exemplified by the third quarter launch of our first industry-leading 16-foot TPO line in Carlisle, PA. And we remain on track to deploy $175 million in capital expenditures this year. We've also made share repurchases totaling more than $200 million and paid approximately $96 million in dividends in 2022. To that point, we were very proud to raise our dividend 39 percent to $3 in the third quarter. which continues our 46-year trend of annual dividend increases. This 39% increase is Carlyle's largest in the past 25 years and reflects our strong, sustainable financial position and confidence in continued growth of Carlyle's earnings and cash flow. While the pillars of our soon-to-be-achieved Vision 2025 have proven to be sound, I want to reiterate that these are core to Carlyle. With these cultural and strategic pillars in place, we are proud of our accelerated execution of Vision 2025 and remain committed to our approach to sustainable value creation for all stakeholders. Please turn to slide four and let's look at the drivers of our record performance in third quarter and year-to-date sales and earnings. First, U.S. non-residential construction demand remains strong, and we are optimistic that the underlying trends will overcome well-known pressures seen in the global economy. Reroofing demand also continues to be a reliable, significant, and sustainable driver for growth, and new construction is still a tailwind. Notably, we are on track for double-digit volume growth at CCM for the second straight year. Fortunately, material availability has improved meaningfully in the past few months, and as such, we are seeing a normalization of buying patterns by our customers. Additionally, the need for energy-efficient building solutions to help mitigate rising energy costs and collectively help reduce the planet's carbon footprint will continue to be a driver. Second, pricing at all of our businesses continues to be positive as we focus on earning price for the value we create for our customers through the Carlisle experience. Our continued and growing investment in new product innovation, world-class manufacturing capabilities, and best-in-class customer service encompass the value proposition that our partners have come to rely on from Carlisle. and architects and building owners know they'll benefit from our innovative, energy-efficient building solutions that the market increasingly demands. Third, residential markets are facing increased pressure due to interest rate hikes, significant inflation, and at the consumer level, a reduction in building products expenditures. While impactful in the short term, we believe that longer term, fundamentals in residential markets remain attractive given the undersupply of homes in the U.S. and growing demand for energy-efficient building solutions, particularly given recent supporting legislation and rising energy costs. Fourth, aerospace markets continue their recovery, driving record backlogs at CIT and increased profitability on the back of restructuring actions taken over the past few years. We're very optimistic about the prospects for continued recovery in the aerospace markets, supported by a shortage of aircraft which has caused the US airlines to cut back on flights as they struggle to cope with the rebound in passenger travel, both domestic and international. Finally, we remain firmly committed to sustainability. Please turn to slide five. The recent publication of our third corporate sustainability report is another milestone in our ESG journey. Carlyle's three pillars of environmental sustainability, energy efficient products and solutions, the reduction of greenhouse gas emissions in our manufacturing operations, and the reduction of waste entering landfills are central to our efforts to achieve our sustainability goals. We also announced on October 17th a special stock option grant to all eligible employees representing Carlisle's third broad-based stock option or cash equivalent grant to employees in the last 12 years. We believe that it is beneficial for all employees to have ownership and participate in the success of the company. This grant provides a significant incentive for the team to drive actions that will help Carlisle achieve its long-term objectives. Additionally, through the Inflation Reduction Act that was signed into law in August, the building industry can take advantage of extended and expanded incentives through energy efficient building practices. More than $300 billion will be invested in energy and climate reform through energy tax incentives, investments in clean energy production, and tax credits aimed at reducing carbon emissions. These increased incentives for U.S. builders, installers, homeowners, and commercial building owners who demonstrate reduced energy use should drive increased demand for Carlisle building products and energy-efficient solutions. Lastly, we continue to make significant strides towards aligning our greenhouse gas reduction strategy with the Science-Based Targets Initiative, or SBTI, which 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. We are on pace to submit our alignment goals for approval by the end of 2022. Please turn to slide six, where we highlight our record performance in the third quarter of 2022. Revenue increased 36% year over year, with organic revenue up 28%. All segments contributed to this record growth. Adjusted diluted EPS increased 89% year-over-year to $5.66, driven by higher volumes, price, Henry's contribution, and COS initiatives, which more than offset inflation and supply chain disruptions. And with that, I'll turn it over to Kevin to provide more detail about the businesses, additional financial details, and our updated outlook for the remainder of 2022. Kevin? Thank you, Chris.