Carlisle Companies Incorporated

My name is Constantine, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Carlyle Company's fourth quarter 2024 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, Carlyle's Vice President of Investor Relations. Mehul, please go ahead.

Thank you and good afternoon, everyone. Welcome to Carlyle's fourth quarter 2024 earnings call. I'm Mehul Patel, Vice President of Investor Relations for Carlyle. We released our fourth 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, who will provide key highlights on our fourth quarter and full year 24 results and some commentary on 2025. Kevin will follow Chris and provide an overview of our Q4 and full year 2024 financial performance and give an update on our outlook for 2025. 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 the 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, Mahul. Good afternoon, everyone, and thank you for joining us for Carlyle's 2024 fourth quarter earnings call. Turning to slide three of the presentation, I would like to start by extending my sincere appreciation to all our Carlyle team members for delivering a very productive start to our Vision 2030 initiatives in 2024, exceeding $20 of adjusted EPS this past year, and for completing our pivot in 2024 from a general industrial portfolio of businesses to a pure play building products company. We're very proud of several key accomplishments the company made over the last year. To start 2024 was a historic year for Carlisle as we completed our strategic pivot to a pure play building products company with the $2 billion sale of CIT in the second quarter. Our focus on building products has clarified and refined our mission for our employees and investors. highlighted the best-in-class financial performance that our building products businesses have delivered for years, and provided a clear path to $40 of adjusted EPS in 2030 by adding innovation and a strong M&A playbook to our already well-established and successful pillars of Vision 2025. Carlisle delivered record-adjusted EPS of $20.20 in 2024, representing a significant 30% year-over-year increase, driven in part by our growing and recurring revenue stream from re-roofing, which was up mid-single digits throughout the year. We also benefited from the return to more normalized inventory levels and buying patterns within our channels to the contractor. Our margin performance was also strong this year, with adjusted EBITDA margins expanding 150 basis points to a record 26.6%. This is even more impressive when we are reminded of two important factors. First, CWT's margin was substantially impacted by the significant negative trends in the residential markets we served. And second, CCM worked through the well-forecasted but nonetheless negative impact of a low single-digit price decline in commercial markets. We also continued to strengthen our market position in the building envelope space by deploying nearly $700 million of capital into two synergistic acquisitions that added to existing businesses within Carlyle. First, The acquisition of MTL expanded our architectural metal capabilities with the addition of Commercial Roofing's leading authority on perimeter edge metal. MTL enables us to offer a wide range of prefabricated solutions such as edge metal, fascia, coping, and composite panels and systems for the building envelope. As the year progressed, we validated the superb fit of MTL's leadership team with Carlyle And through our superior integration playbook, we exceeded our expectations on the synergy front and now expect synergies to increase from our initial estimate of $13 million to now well over $20 million. This acquisition of MTL also further positions Carlyle as an industry leader in the $4 billion architectural metal category. Second, Our recent acquisition of PlastiFab advances our position as the leading vertically integrated manufacturer of expanded polystyrene insulation for the building products market across North America. PlastiFab drives innovation in expanded polystyrene products for commercial, residential, and infrastructure construction applications. Plastifab's customers seek energy efficiency and contractors and building professionals seek comprehensive solutions. As the only vertically integrated expanded polystyrene company in North America, Plastifab meets those needs. And as with MTL, we expect a superb fit with our existing EPS business and significant synergies currently estimated at $14 million, which we expect to increase as we move through 2025. Yesterday, we completed the previously announced acquisition of Texas-based expanded polystyrene insulation manufacturer ThermoFoam, which builds on the recently completed acquisition of Plastifab and leverages Carlisle's vertically integrated expanded polystyrene capabilities while adding geographic coverage in Texas and the south-central United States. Looking at the fourth quarter 2024 performance on slide four, Carlisle continued to experience broad market headwinds more heavily weighted to the residential new and R&R markets and the commercial new construction markets. These headwinds included higher interest rates, restricting lending conditions, and unfavorable weather patterns. These factors negatively impacted sales and the results were below our mid-year 2024 outlook. Despite this challenging environment, Carlisle's consolidated Q4 revenues of $1.1 billion remained essentially flat year-over-year, and adjusted EPS grew by 7% to a fourth-quarter record of $4.47. We were pleased to see continued EPS growth as we remained confident in our Vision 2030 journey to $40 of adjusted EPS per share. We remain committed to the same principles our stakeholders know well, disciplined capital allocation, a focus on ROIC, and growing our businesses both organically and through robust M&A. Carlisle is well-positioned to benefit from widely understood macro trends, including growing commercial re-roofing demand, an ongoing housing shortage, and our ability to provide innovative, energy-efficient, and labor-saving solutions and systems in the years ahead. Looking ahead to 2025, our Vision 2030 strategy guides our path forward through four key elements. First, we are accelerating innovation focused on energy efficiency and labor-saving solutions. Nothing exemplifies our commitment to innovation more than our $45 million plus investment in our new state-of-the-art innovation center in Carlisle, PA. This expansion will provide additional capabilities and resources necessary to accelerate our development of innovative, energy-efficient, labor-saving solutions and integrated systems supporting our goal of generating 25% of revenues from new products introduced within the past five years. Second, we will seek to continue to expand our best-in-class margins by pricing our innovative products and solutions for the value we provide. by delivering those innovative products and solutions through the value-enhancing Carlyle experience and by driving operational excellence through the Carlyle operating system. Third, we will strategically expand our market positions in the building envelope with a best-in-class M&A process to complement our strong organic growth efforts. Our well-defined M&A playbook will continue to drive significant returns on deals and provide a strategic competitive advantage for Carlyle as was exemplified by our successful acquisitions and integrations of Henry, MTL, and now Plastifab. Leveraging our M&A playbook, Carlyle aims to maximize value creation by employing a disciplined integration process and ensuring acquisition targets align strategically. We achieve this by adhering to four key investment criteria in our selection process – As a reminder, those four criteria are, one, a solid organic growth story already underway in the target company. Two, a talent management team. Three, identified and meaningful hard cost synergies. And lastly, the ability to add value through executing the integration with our proven Carlyle M&A playbook. As a reminder, using our M&A playbook, we have identified over $20 million of synergies through the acquisition of MTL, and we expect more than $14 million of hard cost synergies through the acquisition of Plastifab. In 2025, we expect to add approximately $1 of EPS through these recent acquisitions. And fourth, we remain committed to delivering superior results through disciplined capital deployment. Balancing growth investments with shareholder returns, Carlyle deployed nearly $700 million this year into strategic acquisitions and returned $1.8 billion to shareholders in 2024 through share buybacks and increased dividends. Now let's turn to 2025. We expect the market challenges we experienced during the fourth quarter to continue through the first half of 2025. We are also continuing to digest the recent actions taken by the new administration on tariffs in recent days. With over 90% of our sales in the U.S. and less than 10% of our raw materials sourced outside of the U.S., we expect little direct impact from the tariffs. However, we are concerned about how the tariffs may impact consumers in the residential space who are already under pressure and the potential impact the tariffs may have on interest rates in all our served markets. That said, recent indicators make us cautiously optimistic that 2025 will be another record year. And we expect that positive trend to continue into 2026 and 2027, given Carlisle's ability to deliver solutions that address the significant housing and labor shortages, necessary energy efficiency improvements in buildings, and an increasingly volatile environmental backdrop. Our latest Carlisle market survey of over 500 market participants conducted in early January indicated positive 2025 volume expectations for commercial roofing, driven more by re-roofing than new construction. Based on the results of our survey, we expect a slow start to the year with Q1 flat when excluding any negative impact from weather. And then we expect growth to build through the rest of the year to deliver an overall low single-digit increase in volume for 2025. Consistent with our September 2024 market survey, contractors still expect low single-digit price increases beginning in the second quarter. Additionally, inventory in the channel is lower by historical comparisons due to higher carrying costs. A pickup in inventory stocking should be expected as the channel leans into the summer construction season in mid to late Q2. On the residential side, the Carlisle Market Survey indicates flat to low single-digit volume growth for 2025, with the first half down low single digits and the second half up low to mid single digits as residential markets rebound. In addition, while some indicators are mixed, we expect conditions to stabilize as we progress through the year and obtain a better understanding of the impact of tariffs on anticipated Federal Reserve interest rate cuts and the impact of the new administration's actions on U.S. consumers. In addition to the negative impact that tariffs and rising prices could have on the outlook for their Federal Reserve's interest rate cuts in 2025, We are also monitoring how the new administration's potential policies may impact labor. Currently, builders are already contending with a labor shortage that could potentially get worse with the administration's proposed actions related to undocumented immigrants. We've seen estimates of about 30% of construction workers are immigrants, and a significant share of those workers may be undocumented. As we look into 2025 and beyond, Carlyle will continue to focus our efforts on the factors that are in our control, maintain resiliency in our businesses through advancements in new product introductions, cross-selling and market penetration into CWT, and our architectural metals businesses. We will combine these share gain initiatives with our increased focus on innovation and our second decade of utilizing the Carlyle operating system to drive productivity and efficiencies to support our margins. Overall, the underlying fundamentals supporting our long-term growth remain strong, anchored by the pillars of Vision 2030, which include our commitment to innovation, exceptional service provided through the Carlisle experience, Operational excellence achieved through the Carlyle operating system and strategic and accretive M&A. Combined with our strong balance sheet and clear strategic vision, we are well positioned to drive sustained growth and create value for all our stakeholders as we progress towards our Vision 2030 goals. And with that, I'll turn it over to Kevin to provide additional financial details and color on our outlook for 2025. Kevin?