Carlisle Companies Incorporated

Good afternoon. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Carlyle Company's first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, we will conduct a question and answer session. I would like to turn the call over to Mr. Mihal Patel, Carlyle's Vice President of Investor Relations. Mihal, please go ahead.

Thank you and good afternoon, everyone. Welcome to Carlyle's first quarter 2026 earnings call. I'm Mehul Patel, Vice President of Investor Relations for Carlyle. We released our first quarter 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 providing key highlights for the first quarter. Kevin will follow Chris and provide an overview of our Q1 financial performance and our reaffirmed outlook for the full year of 2026. 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 our 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 on slide three.

Thank you, Mehul, and good afternoon, everyone, and thank you for joining us today. Carlisle's first quarter results exemplify the focus and execution our teams consistently deliver, even in challenging operating environments. Revenue for the first quarter was $1.1 billion, down 4% year-over-year, driven primarily by two timing-related factors. First, winter weather delayed projects and shipments across many regions in North America. Last year's first quarter benefited from approximately $15 million of tariff-related order pull-forward from Canadian customers, which did not repeat this year. Despite those headwinds, the underlying fundamentals of the business performed as expected and delivered better EBITDA margins in the quarter despite the sales challenges. As we reflected in our year-end 2025 call, improving profitability was a top priority for 2026. Q1 results reflected strong execution on that priority, with adjusted EPS rising to $3.63, up 1% versus last year, and adjusted EBITDA margin expanding by 50 basis points to 22.3%. It's important to underscore that margin expansion in the quarter was a result of our focused efforts, particularly worth noting in a quarter where volumes were pressured. The margin improvement reflects work that has been underway for several quarters. Our teams have been systematically driving productivity, improving manufacturing efficiency, tightening cost discipline, and simplifying execution across the network, effectively using all parts of the Carlisle operating system, or COS. Those actions will continue to compound over time and will drive our forecasted margin expansion under our Vision 2030 goals. This is another reminder that Carlyle is built to perform through cycles, not just at peaks, regardless of the environment. Q1 was a demanding quarter operationally, and the team responded exactly the right way. We stayed focused on the areas we can control, cost discipline, thoughtful pricing execution, and supporting customers through innovation and the Carlyle experience. That execution is clearly reflected in our results. Underlying demand trends in our end markets were consistent with the information from our Q1 outlook based on the Carlisle market survey, with weather being the key variable that caused a slight shortfall to projections for the quarter. Reroofing activity grew low single digits, continuing to provide the stable recurring demand base that defines Carlisle's resilience across economic cycles. Commercial reroofing remains our primary revenue engine, accounting for roughly 70%, of CCM's commercial roofing business, supported by an aging installed base with 20 to 25 year roof life cycles and increasing content per square foot driven by innovation that improves energy efficiency and reduces labor costs. We also understand that to protect and grow our position in the market, we must drive to be the leader in specifications, systems performance, comprehensive warranties, the Carlisle experience, And most importantly, trust with contractors, architects, and building owners, areas where Carlisle continues to lead. Importantly, orders improved as the quarter progressed, and we exited March with better momentum than we entered the year. April activity to date has been encouraging, with re-roofing work in line with seasonal norms and backlog conversion improving as weather disruptions have subsided. Offsetting this is the continued uncertainty in new construction related to the issues we have discussed before, notably interest rates and economic and geopolitical uncertainty. While we remain early in the quarter, the level of order activity we are seeing gives us increased confidence in the trajectory of the business as we move into the second quarter and into the heart of the roofing season. However, at the same time, we remain cautious about the second half given the ongoing geopolitical volatility. New construction remains soft across both residential and non-residential markets as expected. Our full-year outlook does not assume a near-term recovery. A higher-for-longer interest rate environment continues to weigh on construction activity, and our plans appropriately reflect that reality. Turning to pricing and input costs, recent geopolitical escalation has materially increased uncertainty in global energy markets. Rising oil prices impacted our petrochemical-linked raw materials and freight. We acted quickly in mid-March, announcing price increases across both CCM and CWT effective mid-April and implementing real-time freight surcharges to drive more immediate recovery. In addition, we announced a second round of price increases at CCM today to offset the additional cost pressures that disruptions in the petrochemical supply chain are driving. Those actions are beginning to work their way through the market, and we expect price-cost dynamics to improve sequentially through the remainder of 2026. It is also important to be clear that we are constantly evaluating the actions in the market by our suppliers and will act accordingly to address any misalignment. More specifically, Heightened risks surrounding the Iran conflict and sustained disruption through the Straits of Hormuz introduces uncertainty, which we are monitoring very closely. If volatility persists, structural cost levels reset higher, we are prepared to take additional pricing actions as needed. Our approach remains disciplined and deliberate. We've seen this type of situation play out repeatedly during periods of significant disruption, whether during the global financial crisis, the COVID-19 pandemic, or now amid elevated geopolitical risk, Carlyle has demonstrated exceptional margin sustainability. That durability is reinforced by the discipline embedded in Vision 2030, the depth and tenure of our team, our recurring re-roofing revenue base, the fact that over 90% of our revenue is generated in North America, and our superior capital allocation approach. Another important contributor to that durability is the way Carlyle allocates capital. We view capital allocation as a core competency, not a byproduct of the business. Across cycles, we have consistently prioritized returns over growth for growth's sake, investing organically where we have durable, competitive advantage, pursuing acquisitions only when they meet our stated criteria, and returning excess capital to shareholders when that represents the highest and best use. This balanced and disciplined approach continues to differentiate Carlyle and supports our ability to compound value over time. Based on our execution and the actions already underway, we are reaffirming our full year 2026 outlook of low single-digit revenue growth and approximately 50 basis points of adjusted EBITDA margin expansion. Kevin will now walk through the financials in detail. Kevin? Thank you, Chris, and good afternoon, everyone. I will review our first quarter financial results and then provide additional details on our full year outlook for 2026, which is unchanged from the outlook we provided in our previous earnings call. Beginning with consolidated results on slide four, first quarter revenue of $1.1 billion was down 4% compared to last year. As Chris mentioned earlier, The two primary drivers of that decline were the adverse impact of this winter's harsh weather limiting the number of days that roofing contractors were able to spend on the roof and the absence of approximately $15 million of tariff-related pull forward that benefited the first quarter of 2025. M&A contributions from our recent acquisition slightly offset the organic shortfall. Adjusted EBITDA was $235 million in the quarter, resulting in adjusted EBITDA margin of 22.3% of 50 basis points improvement from the first quarter of 2025. The margin expansion on decreased revenue is the result of strong execution led by COS-driven productivity gains, procurement discipline, and efficient management of selling and administrative costs. Adjusted EPS was $3.63 for the quarter, up 1% year over year. This increase was driven by share repurchases, which more than offset lower organic earnings and higher interest expense. Our segment performance starts on slide five. CCM generated first quarter revenue of $758 million. a 5% decline year-over-year reflecting lower volumes due to this winter's weather and last year's tariff-related pull forward along with continued softness and commercial new construction activity, partially offset by solid reroofing growth. CCM adjusted EBITDA was $208 million in the quarter, down 4% year-over-year, However, adjusted EBITDA margin increased 30 basis points to 27.4%. COS productivity gains, discipline procurement, and selling and administrative cost controls all contributed to the improvement in the EBITDA margin. Moving to CWT on slide 6. CWT reported Q1 revenue of $294 million, down 1% year over year. The slight decline reflects contributions from recent acquisitions, which mostly offset volume pressure from continued softness in both residential and non-residential new construction activity. TWT adjusted EBITDA was $45 million, down 3% year over year. Adjusted EBITDA margin was 15.2%, a decrease of 40 basis points compared to the first quarter of last year. This margin decrease reflects the impact of lower volumes partially offset by the benefits of internal initiatives, including footprint consolidation and the expansion of in-house production of expanded polystyrene resin from our Plastifab acquisition. We continue to see a clear path to meaningful margin expansion at CWT over the balance of 2026 as these actions compound and integration synergies build. For your reference, slide seven provides our first quarter adjusted EPS bridge. Turning to slide eight, Carlyle's financial position remains strong. As of March 31st, 2026, we had $771 million in cash and cash equivalents and $1 billion available under our revolving credit facility. Our net debt to EBITDA ratio was 1.7 times, within our target range of one to two times. This financial strength continues to provide us with significant flexibility to invest in innovation and capital expenditures, pursue synergistic M&A, and consistently return cash to shareholders. Moving to our cash flow on slide nine. Seasonality Q1 is the quarter where we deploy cash to pay down year-end incentives and rebate liabilities, and build working capital ahead of the construction season. Net cash used in operating activities was $45 million and a quarter, and free cash flow used in continuing operations was $73 million, reflecting a $125 million post-year-end settlement of an accrued tax-related liability. Excluding this tax-related payment, operating cash flow improved year over year as we deployed less cash into working capital. During the quarter, we invested $28 million in capital expenditures. We also returned $296 million to shareholders through $250 million of share repurchases and $46 million of dividends, and we are maintaining our pace toward our annual repurchase target for 2026 of $1 billion. Now turning to our outlook on slide 10. Oil cost volatility, interest rate uncertainty, and prolonged geopolitical conflicts are adding broader macroeconomic pressure to an already soft new construction market. However, based on our progress to date, we are reaffirming our 2026 outlook. We continue to expect full-year consolidated revenue growth in the lowest single-digit range. And with our recent price increase announcements, we now expect revenue growth at the higher end of that range, along with double-digit growth for EPS. Our consolidated full-year revenue outlook reflects CCM revenue growth in the low single digits driven by higher prices, continued strength and re-roofing more than offsetting slower new construction, and CWT revenue also up low single digits as contributions from higher prices and sure gain initiatives more than offset continued end market softness. Consistent with our guidance at the beginning of the year, we still expect consolidated adjusted EBITDA margins to expand by approximately 50 basis points for the full year supported by price realization building through the year to offset raw material increases, continued COS-driven productivity gains across both segments, and the structural operational improvement actions underway at CWT. We will continue to execute the levers within our control while remaining mindful of the macro risks and limited visibility in this dynamic environment. We remain confident in Vision 2030 and our long-term financial targets of $40 of adjusted EPS and 25% plus ROIC. Our path to Vision 2030 is founded on organic growth anchored in steadily increasing roofing demand and content per square foot. COS-led margin improvements in both segments, disciplined capital return through share buybacks, and targeted synergistic M&A when the right opportunities are available at the right price. These are flexible, independent levers. Our strategy does not depend on all of them contributing significantly in every year. As we showed under Vision 2025, the trajectory toward the target can accommodate choppy periods and cumulative execution across these levers over time is what ultimately drives us to our destination with that i'll turn the call back to chris for closing remarks thanks kevin overall the first quarter was challenging but the team delivered results with the kind of perseverance and disciplined execution that compounds over time and ultimately distinguishes carlisle from its peers while we are very cognizant of the volatility that continues in the markets What we are targeting for 2026 is designed to place a minimal reliance on new construction from current levels or a broader macro tailwind. We remain an imperative business with a leading position in what we believe is the most attractive building products market in the world. The structural demand drivers in North America are secular and intact. Our balance sheet is strong, our operational capabilities are advancing, and our capital allocation remains disciplined. We remain very confident in Carlyle's position as we move further into 2026. Before I close, I want to acknowledge and thank the Carlyle employees who produce these results through their daily effort and commitment to excellence. Over the years, they have made the commitment to ensuring our success. Thank you all for your time and continued interest in Carlyle. We look forward to providing further updates as the year progresses. And with that, I'll turn it over to the operator to open the line for questions.