Carlisle Companies Incorporated

Good afternoon, ladies and gentlemen, and welcome to the Carlyle Company second quarter 2024 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on the 24th of July, 2024. I would now like to turn the conference over to Mehul Patel, Carlyle's Vice President of Investor Relations.

Thank you and good afternoon, everyone. Welcome to Carlyle's second quarter 2024 earnings call. I'm Mehul Patel, Head of Investor Relations for Carlyle. We released our second quarter 2024 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 second quarter results and accomplishments. followed by Kevin, who will provide an overview on our financial performance and an update on our outlook for the remainder of 2024. Following our prepared 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 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, Mehul. Good afternoon, everyone, and thank you for joining us for Carlyle's second quarter 2024 earnings call. To start, I'd like to direct your attention to slide three of the presentation. We are pleased to report another quarter of outstanding performance, reflecting the continued success of the Carlyle story. The underlying attributes of this story have been bolstered by the completion of our pivot to a pure play building products company this year and reinforces underlying themes and strategies we outlined in our Vision 2030 strategy launched this past December. We are pleased to see that the transformation of Carlyle since the introduction of Vision 2025 continues with success, and confirms the path we've been on remains the right one for all our stakeholders. In the second quarter, we delivered sales of $1.5 billion, representing double-digit growth, up 11% on a year-over-year basis. The CCM and CWT businesses continued to build on their first quarter performance of driving improved profitability and supported by pent-up re-roofing demand, continued discipline on price, and delivering on operational efficiencies gained through the Carlisle operating system. The combination of these key drivers translated into a record bottom-line performance for Carlisle, with adjusted EPS up 33% to $6.24 and adjusted EBITDA margin expanding 220 basis points year-over-year to a record 28.8%. CCM delivered an impressive quarter with 15% revenue growth and 220 basis points of adjusted EBITDA margin expansion, driven by strong re-roofing demand, which I previously mentioned, solid contractor backlogs, and the benefit of inventory normalization in the channel. As we had discussed when we entered 2024, we expected to see a year-over-year benefit of approximately $125 million of sales improvements from inventory normalization in the second quarter, and that estimate was on the mark. As a reminder, inventory normalization also positively affected our first quarter of 2024 by $200 million, and we project that inventory normalization will impact the third quarter positively by $50 million. CWT also performed well, showcasing its building earnings power. CWT delivered a 22.5% adjusted EBITDA margin on organic sales that were down approximately 1% as integration synergies and benefits from COS helped offset investments in growth initiatives and more difficult residential and markets. We are very pleased to see that CWT continues to have their sights set on the delivering of their aspirational goal of 30% EBITDA returns by 2030. During the quarter, we continued to make excellent progress on our Vision 2030 goals. A key milestone was the completion of our sale of CIT to Amphenol Corporation for approximately $2 billion. This sale marks the successful culmination of our strategic pivot to a pure play building products company, which allows us to continue to focus on delivering superior capital returns, keeps our management attention on a more focused portfolio, and provides a clearer picture of how value is created for our shareholders. We also completed our acquisition of MTL in May. As a reminder, MTL is a Wisconsin-based specialty manufacturer of high-performance metal edge and wall systems. This acquisition positions Carlyle as an industry leader in the $4 billion architectural metal category of 2024. We are extremely pleased that in addition to a great acquisition in MTL, we were also able to strengthen our architectural metals platform through consolidating the team under Tony Malinger, MTL's president. We look forward to supporting Tony and the team as they continue to drive success in our architectural metals business. Continuing with the theme of driving future growth, we recently announced plans for a $45 million investment in a state of the art research and innovation center in Carlisle, PA. This expansion will provide additional resources necessary for the next stage of our innovation journey. The investment will support our Vision 2030 objective to accelerate our innovation in areas of energy efficiency, labor saving solutions, and integrated systems. Expanding our R&D center in Carlisle is a key initiative to help us achieve our goal of generating 25% of revenues from new products introduced within five years by 2030. Furthermore, we maintained our focus on returning capital to shareholders through dividends and share buybacks in quarter two. During the quarter, we executed $550 million of share repurchases. This is consistent with our planned goal of $1.4 billion of share repurchases for 2024. We also distributed over $40 million in dividends. These actions reflect our ongoing commitment to returning capital to our shareholders and our confidence in Carlyle's future growth prospects. Turning to CWT. In the residential markets, home buyer demand continues to experience affordability headwinds. Higher interest rates have kept buyers on the sidelines, and changes in consumer spending are negatively affecting repair and remodel. However, with our focus on enhancing the Carlisle experience, bringing new products to market, and especially in our retail home center channel, by continuing to drive COS through our business and by implementing price-to-value approach, we expect to continue to grow CWT EBITDA margins towards our goal of 30%. To close out slide three, I would like to announce that we are raising our full year 2024 outlook by coupling our strong first half results with our previous projections for the second half of 2024 and the addition of MTL as of May 2024. We have strong confidence that the remainder of the 2024 construction season will continue the trends we have experienced in the first and second quarters of this year. We now expect revenue to grow approximately 12% up from approximately 10% previously and adjusted EBITDA margin to expand approximately 150 basis points up from over 100 basis points previously. Now, please turn to slide four as I discuss our vision 2030 value creation drivers and targets. Under Vision 2030, we are creating value for our shareholders through our portfolio of high-performing building envelope businesses that offer innovative, energy-efficient, and labor-saving solutions for our customers, coupled with our goals of driving above-market growth, delivering consistent price and cost leadership, and operating with a relentless focus on customer service and flawless execution through COS. As a reminder, Vision 2030 focuses on six key pillars. The first is the Carlisle operating system. Under Vision 2030, we will continue to drive our continuous improvement culture through the consistent application of COS across every function in the enterprise, with the goal to drive savings of 1% to 2% of sales annually through operational efficiencies. Second is the Carlisle experience. The Carlisle experience has established us as a premium brand with a recognized value proposition, backed by high-quality products and exceptional service. Our commitment to our customers is to ensure we deliver the right products at the right place and at the right time. We understand that we win with customers through exceptional service and labor savings efficiencies. Third is innovation. We plan to increase our spend on R&D to 3% of sales by 2030 to accelerate the creation of new products and solutions that add value to our customers through advancements in sustainability, energy savings, and labor efficiency. Fourth is M&A. We will expand in existing and adjacent categories that allow us to enhance our building envelope portfolio. As a reminder, our three criteria for acquisitions are, one, an embedded organic growth story, two, hard cost synergies, and three, a talented management team. When completed with our Carlyle integration playbook, we believe we have a competitive advantage in M&A. Fifth is a disciplined approach to capital allocation. Ultimately, we work for our shareholders, and in line with our track record, we will continue to invest our cash responsibly into the highest ROIC opportunities. And lastly, and perhaps most importantly, our sixth goal is attracting and retaining top performers to ensure that we have the best talent to execute our strategic initiatives and drive above-market growth. The execution of Vision 2030 aims to drive superior shareholder returns and position Carlyle as a premier investment in the building product sector. We expect by 2030 to deliver $40 of EPS, deliver over 25% ROIC, and generate free cash flow margins in excess of 15%. Turning to slide five, let me spend a few minutes discussing our latest acquisition, MTL. We were pleased to close on our acquisition of MTL during the second quarter, adding a tremendous set of assets that provide innovative, high-performance metal edge and wall systems. This addition of MTL aligns perfectly with our vision 2030 strategy and meets our acquisition criteria. By deploying our Carlyle integration playbook at MTL, we are on track to exceed the $13 million of synergies we announced in May. We now expect to deliver $20 million of annual synergies in year three. Another example of the effectiveness of Carlyle's integration playbook was in the Henry acquisition where we delivered over $50 million of synergies in year three compared to the $30 million of synergies initially announced. Now please turn to slide six and I'll highlight a few examples of innovation at work at Carlyle. As I've mentioned, our Vision 2030 strategy includes new key initiatives such as an increased emphasis on innovation to further unlock the full potential of our PurePlay Building Products portfolio. By investing in R&D and accelerating new product development, we aim to expand our competitive moat, deliver additional value to our customers, and augment our financial results with enhancements to our products at higher price points. Our goal is to increase our R&D spend to 3% of sales and grow the contribution from new products introduced in the last five years to 25% of sales. which represents a significant potential revenue lift. Over the last 18 months, we've launched over 25 new products, including several recent introductions that capture the market opportunities presented by the energy efficient, labor savings, and integrated solutions trends highlighted in our Vision 2030 strategy. One such product is our new ReadyFlash technology, which allows commercial roofing applicators to maintain optimal productivity in various temperature conditions by adjusting the adhesive setup time using either the light or dark facer side of the rigid insulation board. Our customer trials have demonstrated that the dark ready flash facer can provide up to four times faster adhesive flash off than a standard light facer with no sacrifice in performance. Another example is Carlyle's patented SeamShield technology for our SureWell TPO membranes in the commercial roofing market. This innovative feature provides an easy-to-remove protective film on the top and bottom seam areas, reducing cleaning time by 70% while increasing weld strength by 10%. Additionally, we recently introduced Henry BlueSkin VP Tech, an integrated panel that includes a weather-resistive barrier, continuous insulation, and a seam sealing in a single panel. In trials with independent contractors, BlueSkin VP Tech installed 30% faster compared to traditional methods, saving both time and labor costs. It also improves a building's energy efficiency by reducing air leakage and enhancing thermal performance. These three products are patented or patent pending, and together with our other new product launches, represent a significant incremental sales opportunity at higher margins. As we continue to execute our Vision 2030 strategy, we remain committed to investing in R&D and accelerating the introduction of innovative products that drive energy efficiency, labor savings, and superior performance for our customers. Please turn to slide 7. Before I hand it over to Kevin, I wanted to quickly highlight that we recently released Carlyle's 2023 Sustainability Report. The report contains detailed information including clear examples of how our products reduce carbon footprint in buildings, how we reduce emissions in our operations, and how we plan to reduce waste to landfills. It also will give the reader our latest progress on GHG emission reductions and our progress towards zero emissions by 2050. In conclusion, I'm extremely proud of our team's performance in the first half of 2024. Our ability to produce strong results in a dynamic environment demonstrates the resilience of our business model, our strategic market positioning, and the disciplined execution of our Vision 2030 strategy. As we move forward with Vision 2030, we are well positioned to capitalize on the positive fundamentals in our businesses and deliver profitable long-term growth. And with that, I'll turn it over to Kevin to provide additional financial details. Kevin? Thank you, Chris.