Carlisle Companies Incorporated

Good afternoon. My name is JP and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Company's fourth quarter 2023 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. Mehul Patel, Carlisle's Vice President of Investor Relations. Mehul, please go ahead.

Thank you and good afternoon, everyone. Welcome to Carlyle's fourth quarter 2023 earnings call. I'm Mehul Patel, head of investor relations for Carlyle. We released our fourth quarter and full year 2023 financial results today, and you can find both our press release and the presentation for today's call in the investor relations section of our website. On the call with me today are Chris Koch, our board chair, president, and CEO, along with Kevin Zimmel, our CFO. Today's call will begin with Chris. He will provide highlights of our results and accomplishments, followed by Kevin, who will provide an overview on our financial performance and an update on our outlook for 2024. Following our prepared 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, Mahul. Good afternoon, everyone, and thank you for joining us on Carlyle's fourth quarter 2023 earnings call. Turning to slide three, I would like to start by extending my sincere appreciation to all of our team members for their dedication and commitment in executing our Vision 2025 strategy over the past five years and helping to drive significant progress and value creation during 2023. The past year represented a challenging and dynamic year for Carlyle. The first half of the year was impacted by continued destocking in our markets and the related challenges driven by supply chain constraints for many building products, including ours, in 2022. Despite those first half challenges, markets began a return to a more normalized order pattern beginning in the third quarter of 2023. This resulted in the second half of 2023 that was marked by increasingly positive momentum. In addition to delivering a record fourth quarter, Carlyle finished 2023 with one of the most significant events in our 106-year history, the completion of our well-communicated pivot from a diversified industrial portfolio of businesses to a pure-play building products company. Accompanying that strategic pivot was the successful achievement of our goals under Vision 2025 and the much-anticipated release of our Vision 2030 strategy. which builds on Vision 2025, adds new key initiatives such as an increased emphasis on innovation, and further unlocks the full potential of our PurePlay Building Products portfolio. We are very pleased to have finished 2023 on a record note despite the very dynamic and uncertain market conditions we experienced through the year. Our fourth quarter results surpassed the expectations we communicated on our last earnings call in October, largely driven by better than expected CCM sales and better profitability in CWT. We achieved record fourth quarter adjusted EPS of $4.17, which was an increase of 30% year-over-year. Our EBITDA margin of 26.4% improved by an impressive 440 basis points year-over-year on 2% lower sales, clearly demonstrating our ability to maintain our margins through economic cycles. In the fourth quarter, we benefited from more favorable weather conditions solid contractor backlogs, stronger operating efficiencies, and the power of the Carlisle experience to drive favorable price-to-value in our businesses. CCM and CWT continue to produce industry-leading margin and EBITDA results despite lower volumes and continue to deliver consistent value creation. The strength of our building product segment financials are now fully unmasked and on display with the pivot. Looking at our full year 2023 sales, despite a 16% decline in sales, we maintained an EBITDA margin in excess of 25%. Importantly, most of the lower volumes were mainly attributable to channel destocking, interest rate driven project delays, and weather headwinds we experienced predominantly in the first nine months of 2023. We are very pleased to be entering 2024 on a positive note with destocking behind us and with positive momentum. Furthermore, we achieved a stellar ROIC for the year of 27%, which is aligned with our stated goal under Vision 2030 of exceeding 25% per year. This performance is a testament to our focused execution at CCM and CWT, the efficiencies derived through the Carlisle operating system, the Carlisle experience, and our ability to price our products consistent with the value they create for our customers, reinforced daily by delivering an innovative, and compelling value proposition. Now let's turn to slide four and five. Following the release of our Vision 2030 strategy in December, we were pleased to announce in late January that we had reached an agreement to sell our CIT business to Amphenol for just over $2 billion. The sale of CIT represents the final step in our successful strategic pivot from a diversified portfolio of general industrial businesses to a premier PurePlay Building Products Company. This sale is an important milestone in that it showcases our financials and allows our building product segments historical track record of growth and best-in-class returns to be clearly seen. With the expected proceeds from the CIT sale combined with our 15% plus free cash flow margin, We now have an even stronger capital base that provides exceptional flexibility to execute on our highest returning capital allocation priorities and supports the investments contemplated in Vision 2030. In 2018, we embarked on our Vision 2025 journey with the goal of being superior capital allocators while seeking to drive five plus percent organic growth, leveraging that growth into earnings, making synergistic acquisitions, driving efficiencies through the Carlisle operating system, investing in talented people, returning capital to our shareholders, and ultimately creating value for all our shareholders. During 2021, to further demonstrate our desire to be a superior capital allocator, we made the decision to pivot our portfolio to our highest-returning building products businesses. Since the introduction of Vision 2025, we have nearly doubled revenue on our building products segment, more than doubled EBITDA on those segments, and increased free cash flow by over 200%. Furthermore, we exceeded our earnings target of over $15 per share, three years ahead of our commitment in our Vision 2025 plan. We are proud of these accomplishments, which we view as significant milestones that validate our strategies and actions over the last six years. and clearly demonstrate our commitment to an ROIC-focused capital allocation strategy. One of our key drivers of success is our ability to offer a compelling value proposition through what we call the Carlyle experience. The Carlyle experience can be defined simply as getting the right product to the right place at the right time. In other words, delivering on our commitments to our customers. We complement the Carlisle experience with a strong focus on innovation, and specifically innovation that delivers energy efficient and labor saving solutions. This focus has aligned well with the increasing demand for green buildings and products, the increasing need of customers to reduce GHG emissions and to conserve energy, and the need for our customers to address the forecasted significant labor constraints through improved job site productivity. As we move on from the success of Vision 2025, we now turn our attention to Vision 2030 and our emphasis on our building products portfolio of businesses. As we stated in our Vision 2030 video released in December, we plan to continue to deliver on our foundational strategies that produced such positive results these last few years under Vision 2025. Coupled with major secular tailwinds, we are committed to delivering innovative building envelope solutions, driving above-market growth, and unlocking additional value for shareholders in this next important phase of Carlyle's growth journey. The key pillars of Vision 2030 include enhanced levels of innovation, a continued emphasis on synergistic M&A, attracting and retaining top talent, and holding steadfast to our sustainability commitments. As we look to fulfilling our commitments under Vision 2030, a key lever in our pursuit of higher margins will be increased spending on innovation. As such, Carlyle is differentiating itself with a goal of investing 3% of sales to drive the creation of new products and solutions that add value through advancements in sustainability, energy, and labor efficiency. Additionally, we aim to continue to enhance our customer relationships through continued investments in the Carlyle experience. This includes advancing our digital experience for customers and is exemplified by our recently released mobile-friendly Customer Success Portal at CCM. This portal provides Carlyle customers with a unified and mobile platform for real-time engagement, including access to product catalogs, personalized pricing, order status, delivery tracking, and enhance communication with our customer service and operations teams. Overall, we delivered a strong finish to 2023, maintained our historically strong margins, and exited the year on an extremely positive note. Our Vision 2030 strategy is in place, and we are now a focused and simplified building products company. We are motivated to leverage the industry megatrends, drive innovation, and demonstrate margin resiliency through economic cycles to deliver superior ROIC and compounding EPS growth. With our solid foundation and a strong team in place, we are confident in achieving our goals set under Vision 2030. As we begin 2024, we are optimistic about the positive momentum building in our end markets. The inventory destocking headwinds we faced over the past year, largely in commercial roofing, are now behind us, setting the stage for a more normalized buying profile in 2024. We expect combined benefits from the tailwind of prior year customer destocking and a strong backlog of re-roofing projects due, in part, to constrained labor to collectively mitigate potential risks in the year ahead. As such, we have a positive growth outlook for 2024 that we believe is reasonable, achievable, and fully supported by our Vision 2030 strategic objectives. Kevin will touch further on our 2024 growth expectations and outlook later in the call. Now, please turn to slide six as I share some updates on our progress with Carlyle's sustainability initiatives. Sustainability is a core focus for our organization. We seek to positively impact the environment while creating value for all our stakeholders through our three pillar sustainability strategy. The three pillars are manufacturing energy efficient products, minimizing our value chain greenhouse gas emissions, and diverting waste and end of life materials from landfills. Under our first pillar, we provide end users access to solutions that drive energy efficiency in their buildings. As an example, adding one inch of poly iso insulation to a 50,000 square foot roof can save building owners as much as $110,000 in avoided energy costs over the service life of the building. Our second pillar, reducing our operational and value chain emissions, helps Carlyle reduce our carbon footprint and the negative environmental impacts. As an example, let's take our blowing agents in our spray foam operations. We finished the year converting over 50% of our HFC legacy spray foam products to a more environmentally friendly HFO formulation, amounting to over 250,000 metric tons of greenhouse gases avoided, a compelling achievement. As a reminder, HFCs are 1,000 times more carbon intensive than HFOs. Carlisle also obtained five additional ISO 14001 certifications through 2023, bringing our enterprise-wide total to 26. Additionally, our Montgomery Poly Iso plant recently obtained ISCC Plus certification, clearing the plant to run bio-based MDI and polyol on a mass-balanced approach. This is a pivotal achievement in Carlisle's ability to manufacture and extend the credits of bio-based poly iso to its customers. Lastly, our third pillar focuses on the reduction of construction waste entering landfills. As an update here, Carlisle's rooftop takeoff program diverted over 1 million square feet or 120 metric tons of reclaimed insulation and membrane materials from landfills throughout 2023. We have also expanded incentives for the program, which we believe will further expedite its growth and adoption. amongst our customers. I personally take great pride in Carlisle's sustainability legacy spanning over 100 years. Carlisle's commitment to operating efficiently, minimizing waste, and offering solutions to empower end users and reducing energy consumption has been ingrained in our culture and will be essential to our success in the future. And with that, I'll turn it over to Kevin to provide additional financial details as well as our 2024 outlook. Kevin?