Good afternoon. My name is Elliot, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will conduct a question-and-answer session. I would like to turn the call over to Mr. Jim Giannakouros, Carlisle's Vice President of Investor Relations. Jim, please go ahead.

Thank you, Elliot. Good afternoon, everyone, and welcome to Carlisle's fourth quarter 2021 earnings conference call. We released our fourth 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. Additionally, please refer to a separate release, we issued where we announced key leadership appointments and a new segment structure for CCM's building products businesses. Today, we'll be discussing our results and expectations referencing CCM on the hold as we have in the past. We will however, be providing historical data and updated guidance in accordance with our new segment structure in the coming weeks. On the call with me today are Chris Koch, Chairman, President and Chief Executive Officer; Bob Roche, our Chief Financial Officer; and Kevin Zdimal, our VP of Corporate Development, who we announced today will be succeeding Bob Roche, as Chief Financial Officer. Today's call will begin with Chris' business update highlighting fourth quarter results, current trends and context around our continued progress towards achieving our strategic plan, Vision 2025. Bob will discuss the financial details of Carlisle's fourth quarter performance, current financial position and outlook for 2022. Following Chris and Bob's remarks, we will open up the line for questions. But before we begin, please refer to Slide 2 of our presentation, where we note that comments made on this call may include forward-looking statements based on current expectations of future events and their potential effect on Carlisle's operating and financial performance that involve risks and uncertainties, which could cause actual results to be materially different. A discussion of some of these risks and uncertainties is provided in our press release and in our SEC filings. Those considering investing in Carlisle should read these statements carefully and review reports we file with the SEC before making an investment decision. Today's presentation also contains certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financials in our press release and in the appendix of our presentation materials. With that, I introduce Chris Koch, Chairman, President and CEO of Carlisle.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us on our fourth quarter 2021 earnings call. First of all, I want to thank all of Carlisle's 12,000 employees for their resilience and perseverance through a challenging 2021. I'm also very pleased everyone worked so well together this year to deliver record fourth quarter results. Turning now to the organizational announcements made earlier today. I'd like to formally announce that after five years at Carlisle, Bob Roche, will be stepping down as our Chief Financial Officer. As you may recall, Bob joined Carlisle in 2017, the year after I was appointed CEO. Bob came to Carlisle from Johnson Controls, where he had been leading the integration efforts of the merger of Johnson Controls and Tyco. Bob blended seamlessly into Carlisle and his experience in counsel were immediately impactful, especially in the development and execution of Vision 2025. And on behalf of our entire management team, I want to express my sincere gratitude for the many contributions Bob has made to Carlisle over the past five years and wish Bob the best as he embarks on this new chapter of his life. With the strong bench and active succession planning efforts, we are able to ensure a smooth transition for leadership with the promotion and appointment of Carlisle's next CFO. I am extremely pleased to announce the promotion and appointment of Kevin Zdimal to the position of CFO. Kevin joined Carlisle in 1995. And at that time, Kevin had made a decision to move from public accounting at Coopers and Lybrand to start a new career at Carlisle. In the following 26 years, Kevin held roles of increasing responsibility and scope throughout Carlisle, providing him with a unique and comprehensive foundation for the role of CFO. Since the move of…

Thank you, Chris. As Chris mentioned, we had an outstanding fourth quarter. I'm especially pleased about CCM's ability to effectively offset significant inflation by implementing early and effective price actions in 2021. The goal was put in place last February. Please now turn to the revenue bridge on Slide 10 of the presentation. Revenue was up 39% in the fourth quarter, driven by volume growth at all of our businesses, price and the acquisition of Henry. Organic revenue was up 26.4% driven by CCM, which delivered approximately 30% organic revenue growth. Acquisitions contributed 12.9% of sales growth in the fourth quarter, and FX was a 10 basis point headwind. On Slide 11, we have provided an adjusted EPS bridge, where you can see the fourth quarter adjusted EPS was $2.92, which compares to $1.83 last year. Volume price and mix combined accounted for $3.02 of the year-over-year increase. Raw material, freight and labor costs were $1.98 year-over-year headwind. Acquisitions contributed $0.13. Interest and tax together were $0.09 headwind. Share repurchase contributed $0.03. COS contributed $0.11 and higher OpEx was a $0.13 headwind year-over-year. Now let's turn to Slide 12 to review the fourth quarter performance by segment in more detail. At CCM, the team again delivered outstanding results with revenue increasing 46.5%, driven by volume and price, along with contributions from Henry. On top of that, a 10 basis point FX translation headwind. Notably, all of CCM's product lines delivered double-digit sales growth. CCM effectively managed raw material inflation headwinds experienced in the quarter with disciplined pricing, proactive sourcing and allocating products to strategic customers. Adjusted EBITDA margin at CCM was 21.3% in the fourth quarter, a 260 basis point decline from last year, driven by higher raw material prices, labor inflation and return to more normalized SG&A spending, partially…

Thanks, Bob. 2021 was a challenging year for all of us, a manner in which the Carlisle team approached our challenge is unified, resilient-driven, allowed us to persevere and finish with record results and momentum entering 2022 all of this, supporting our conviction in achieving Vision 2025. I'm very proud of our Carlisle team, especially the way everyone has shown respect for each other during the pandemic and supported our efforts to follow the CDC guidelines and Carlisle safety protocols. Our team members' cooperation with our guidelines has resulted in low levels of infection and serious illness in our workforce. And for that, I thank everyone at Carlisle. While we anticipate continued challenges throughout our end markets in 2022, we look forward to meeting them head on and driving continued profitable growth going forward and achieving our strategic goals set forth in Vision 2025. And that concludes our formal comments, Elliot. We are ready for questions.

Our first question today comes from Bryan Blair from Oppenheimer. Bryan, please go ahead.

Thanks. Good afternoon, guys.

Hey. Good afternoon, Bryan.

And Bob, thank you for clear help over the years. Kevin, look forward to working with you.

Thanks, Bryan.

If we look at your topline CCM outperformance in 2021 and assume the 30% growth guided for 2022, you're massively ahead of expectations to the tune of more than $400 million for this year and in revenue. How should we think about your volume, price and incremental Henry contribution factored into that guidance?

Yes. If you think about it, Bryan, we're looking at somewhere around 8% to 12% price in the base business, volume probably in the 5% to 9% range and then 12% contribution from Henry, and 30%.

Yes. Inflation has obviously picked up again to start the year, although that coincided with pretty aggressive January, February pricing. I suspect you guys were ahead of the curve on that. Given current visibility, how is your team thinking about price cost for 2022? And to the extent that you can parse it out first versus second half dynamic?

Bryan, Chris here. I think just overall, I think we still see some pricing or I should say, some inflationary trends here as we are in the first half of the year. And then I just guess, in general, we're still somewhat optimistic that we'll get some raw material pricing relief as we head into the third quarter and hopefully some labor relief as well. But I'll let Bob more specifically address.

Yes. Bryan, overall, we're going to pull back some of the specific price cost guidance due to competitive issues and everything else going on. But to help everyone understand what we see from a profitability standpoint, we expect adjusted EBITDA margins with CCM Henry combined to be up 150 basis points going into next year for the full-year.

That's very helpful. And focusing on Henry, if you're willing to break this out, how much of the $0.25 plus increase in accretion outlook would be attributable to stronger growth, price/cost or other factors?

Yes, Bryan. I think, first of all, synergies are running ahead, that's where we'll start. Price/cost is helping and so is organic growth on top of it. So as Chris mentioned in his comments, I mean, we are thrilled with where Henry is and what it's doing and it's acting exactly like our base CCM business. So it's everything moving in the right direction, not just one thing outweighing another.

Yes. And Bryan, I would just say that this is attributed to Frank Ready and the team and also the prior ownership that there was really no slowdown in any of the activities that they had underway, both. As we were at Carlisle, they were ahead on pricing there, and they did a great job of getting ahead of that and making sure they were also taking care of supply chain, working to be efficient in their factories. And I'm really pleased that through all the turmoil, the acquisition and the integration, the teams remain really focused. And that to me is what's being delivered and the synergies being ahead of schedule and then the continued momentum in sales. So we're really pleased again. We said when we bought the company, we thought it was a great fit, and we're just pleased with what the Henry team has brought to Carlisle.

All good to hear. Appreciate the color. Thanks again.

You bet.

Our next question comes from David MacGregor from Longbow Research. David, please go ahead,

Hi. This is Joe Nolan on for David MacGregor. Congrats on the nice quarter.

Thanks, Joe.

Welcome to the call.

Thanks. So first, I was just wondering, how should we think about cash that you can harvest from working capital? How should we think about that in your 2022 guidance?

I don't think there's going to be a ton of cash harvested. I don't think we're going to have to invest again with – because we're going to have strong volumes and sales again when things start going in a different direction, maybe we'll be able to slow down. But as long as sales are up 30%, I don't see us harvesting – it's just – we're not going to have to put that big investment we did this year with the outsized growth, I'll call it, and the inflation.

Okay. Thanks. That's helpful. And then also, could you just talk about the progress that you're making on Europe in terms of share gains in support of specifiers?

Share gains in support of specifiers. Just talking in general in Europe, we are really pleased. Obviously, we start off with the transition to new leadership under our new Head of Europe, Georg, and he's brought in also some new teams in a new approach. And they're out making as much progress as they can. But our work to expand with architects, specifiers and that is an ongoing thing. We do it all the time. One of the key things we need to do is to continue to reinforce our sales team with new products and new opportunities to bring into the marketplace. And so we're pretty excited about the addition of things like Henry that's probably, first and foremost, one that I think has a really good solid opportunity to drive some interest with specifiers in Europe. Obviously, we'll have to make sure the products are fit for the European market from a regulations perspective and local building codes, but then also some of the products that we're delivering in Architectural Metals and polyurethanes, we think have some excellent fit, which really complement and will provide a full suite of products for those salespeople to deliver. And I think right now, with what they've had in the past around our limited product line, they've done an excellent job. And really, it's going to be providing this suite of building envelope solutions, and then it'll give us the most progress, I think, with our specifiers. Hopefully, that answers your question.

Yes. That was very helpful. And then last one for me. Just within Vision 2025, how are you thinking about additional M&A going forward in your path to the goal of $8 billion in revenue? And then if you could also just talk about how your M&A pipeline looks at this point in the year.

Well, Bob and I can split this one up he can comment, too. I would say the pipeline looks fairly good. There have been a lot of transactions in the marketplace in a variety of areas. You saw we just picked up a small acquisition to add to Henry. So you can tell that even with Henry and I complimented Frank and the management team, I think it shows how much confidence we have in them that we would immediately invest in an acquisition under their leadership. And I know Henry has a list of acquisitions. We have targets in Europe. We have targets now in North America as well in other locations. So I think the pipeline is full. Obviously, pricing has been fairly robust for sellers. I think they're getting good multiples. So again, we're always going to be judicious and make sure that we can deliver on deals like Henry, where we can exceed expectations both in terms of EPS accretion and also in terms of synergies. But I'd say we're doing pretty well.

Yes. And I think the $8 billion, while it was a goal of ours. I don't see that as being the main goal, as Chris and I talked about many times. I mean, the $15-plus of EPS and the margins and returning cash flow to shareholders is what we've been focused on, and that's where the focus continues is profitable growth.

Got it. Very helpful. Thanks. I'll pass it along.

Thanks, Joe.

Our next question comes from Adam Baumgarten from Zelman & Associates. Adam, please go ahead.

Hey, good afternoon, everyone. Thanks for taking my question. I guess maybe on the supply chain headwinds you guys have been facing, I think the comment was around that maybe abating by midyear this year. I guess, one, have you started to see any relief in the early parts of this year? And then two, are you mainly referring to some of the raw material shortages that you've been facing?

Absolutely. Yes. And sorry for that lack of clarification. Yes, really revolving around the raw materials. And I think when we say abating by midyear, maybe more specifically starting to show improvement by midyear. We are seeing some, I guess, green shoots, as you call them, but with the Omicron popping up, that didn't help with different kind of, I think, impact we've seen in the ports and the traditional supply chain issues we've seen. And then I think with Omicron and its rapid spread and then labor I'll call it, issues in the marketplace where people were having lots of people calling sick, we saw some delays there. But overall, we just see these trends to getting back to a more normalized raw material situation. And we'd like to see that have more substantial progress by midyear. Obviously, it's going to continue to evolve, and we hope that there aren't any more outbreaks of significance that could delay that. But yes, we are seeing some things happening right now. They're improving things, but mostly on the raw material side, as you said.

Okay. Great. And then just on the strong replacement demand, which obviously is the vast majority of the business. I guess if we switch gears to new construction given the lag to some of the pretty positive indicators we've seen over the last year. Do you expect the new construction side of the business to actually be a tailwind in 2022?

I think in 2022. Well, yes, we've been having some meetings with contractors here in the first quarter. And it does seem like new construction still has some good legs to it. If we think about some specific areas, I'd say that warehouse is still are looking pretty good. We see the trends on online ordering and things like that, data warehouses, educational facilities and really office buildings as well. Despite all the talk we had around COVID and people working from home, we're still seeing some good positive momentum in 2022 in office buildings. So maybe that gives you a little color there.

That's great. Well, best of luck. Thanks.

Thank you.

We now turn to Tim Wojs from Baird. Tim, your line is now open.

Hey, guys. Good afternoon. Nice job.

Hey, Tim.

Thank you.

And Bob, thanks for everything. So maybe just first question, just on volume growth and maybe visibility, could you talk a little bit about kind of what you're seeing from a backlog perspective and maybe how the length of that backlog has evolved over the last three to four months. And when you think about the 5% to 9% kind of guidance for volume growth, how much of that is based on bringing on incremental capacity versus just seeing that improvement in the supply chain that you talked about, Chris?

Yes, Tim. I think the capacity question is we did start up the TPO line in Carlisle PA last month. So that's going – we haven't launched the 16-foot sheet yet. That will be later in the year once the line gets qualified, but we have brought on some additional capacity, which will help drive the growth. But Sikeston is not going to be open until next year. So there's not a ton of capacity. I think what we've been able to do and even this is evident in the fourth quarter, how strong the sales were. Our teams have been able to get a little more bit more raw material than they thought, and they're able to continue to drive it through the factories and be productive. From what we see now, I don't believe that capacity in the – I'm going to call it the roofing industry is the gating factor right now. It's the raws coming in. We have plenty of capacity to make more. It's having the raw materials to make it.

Okay. And then I guess on the backlog, I mean, have those – have they shrunk at all? Or are they elongating or pretty stable?

It's been – I think there's maybe been a little bit of an increase in backlog, and it really is related to more orders. And I think that's pretty much industry-wide. I don't think there's anyone that's seeing any lessening here as we start to head into the season and people get prepared to embark on another busy year. Obviously, the delays, Tim, as you know, in 2020, just added to it. I mean, labor – we talk about raw materials, but on the roof, labor is still a big constraint the installation, and that hasn't. I think raw materials probably will come back sooner than labor will. So we’re still have some gating there. There are a couple specifically items, too, that are not related to us as much as other suppliers on the roof like plates and screws and things like that, that are really lower priced items, but you got to have them to put a roof down. And so even though we may be fine with the TPO sheets and the PVC and EPDM and sealants and adhesives and that, we're still – there can be some of these small items that can be gating items, too. So I think labor is a big one and then some of the things around putting down a complete system or having some constraints out with the contractor as well.

Okay. Good. And then just last one I had. Just by splitting up roofing and waterproofing, I mean, would you say that both of those are now kind of growth platforms over time? I mean are they both going to get incremental capital deployment? And is that, I guess, the reason for splitting those two businesses up?

Yes. I think – well, for sure, they're both going to get a lot of attention. And you can see, like I said, with that, we've invested already some capital into Henry to help with productivity and operations. We're working on some IT stuff to again, expand capacity of the whole Henry organization, plus we've added one acquisition already. So you can bet that, that weatherproofing technologies group is going to get a lot of focus. And CCM, obviously, that's our core, we've been doing that for a long time. We still see a lot of opportunity there. We mentioned Europe. We have other new technologies as well around this Building Envelope. So there's really nothing in the portfolio within weatherproofing at CCM that isn't going to be a significant focus for our growth. And that's kind of what we're excited about. We call the Building Envelope. When you look at all these verticals, we're starting to really build some strength in each one of these verticals and give that leadership team, those leadership teams opportunity to execute their visions as well. And then as we work through the continued downsizing of our portfolio outside of building products, we'll be able to allocate capital to and focus to those from a management perspective as well.

Okay. Good. Well, thanks for the time. And good luck on 2022, guys. Thanks.

Thanks, Tim.

Thanks, Tim.

We now turn to Garik Shmois from Loop Capital. Garik, please go ahead.

Hi, thanks for having me on. Apologies if my questions are redundant. I was dropped earlier. But I wanted to ask just first off on any seasonality or cyclicality to call out for CCM volumes for the year, just kind of recognizing the supply chain headwinds that are still occurring here in the first half of the year. Would you expect the volume growth in CCM perhaps to be a bit more back half weighted just given the raw material availability or maybe conversely, just given the strong growth that you exited the year in 2021, should we expect the growth to be maybe a little bit more linear?

No. I mean, I think for me, Garik, the only thing that in terms of seasonality really is just the weather, right? And one of the reasons why we see less fewer roofs put on in the first quarter, fourth quarter is the parts of the United States that are impacted by winter weather. Obviously, it makes it more difficult for contractors to get out and do their job and deal with that. But other than that, I mean, it's pretty much full steam ahead for everybody in terms of work and getting as much now as they can. So I don't see anything else impacting us that would be different.

Yes. From a volume perspective, no, certainly, price will be front-half weighted as you know, for – so total sales to be stronger in the first half, but volumes pretty even.

Yes. Are you seeing any kind of concern on the part of contractors, just given inflation and any desire on their end to perhaps delay projects and recognize you can only defer a commercial reroof for so long. But is that all playing out just given the inflation that’s in the market?

No. As I mentioned with Mr. Wojs' comment around – and I mentioned the plates and screws and things like that, that may be delaying jobs. I don't think there are any contractors out there that are looking at deferred jobs. With the backlog where it is, I think the bigger issue for someone is if you were to say you wanted to defer your job, I think the quote would be well. If you defer it, you might not get back in the schedule til 2024. There's that much backlog and demand. So right now, I don't think there's anyone that is delaying anything unless, again, they don't have the labor, they don't have the complete system to put down. But I don't think anybody would delay anything willingly because it just probably means they're going to be waiting a lot longer than they would like to, to get back in the schedule.

Yes. Understood. Last question is just on CIT and CFT, just the comment made in the release around bookings and backlogs coming back to your pre-pandemic levels. Just wondering how quickly you would expect that to convert to revenues. And I don't know if you're willing to take a stab as to how quickly revenues come back to pre-pandemic levels in those segments?

Yes. I think CFT is going to be a lot earlier with what we're seeing from a industrial CapEx. We mentioned on the call also that the long haul aircraft 787 and things like that aren't coming back even close to us quickly. So I guess, overall for CIT, you would expect revenue getting back somewhere around 2024, but that also includes the addition of Providien. So from a base aero business, you're probably looking at 25%, 26%, but total CIT would be back by 2024.

Got it. All right. That's all for me. Bob, best of luck. It was great working with you.

Thanks, Garik. Appreciate it.

Our final question today comes from Kevin Hocevar from Northcoast Research. Kevin, please go ahead.

Hey, everybody. Good afternoon. Nice quarter and Bob, it's been a pleasure working with you.

Thanks.

So maybe were to start on – I guess I just want to clarify, in the pricing baked in the guidance for CCM, I think, Bob, you mentioned pricing, 8% to 12% this year. I imagine you exited the year up like mid-high teens or something in terms of pricing, in terms of that sales number you put up in the fourth quarter. And I know you started the year at zero. So it seems like you anniversary – if we just kind of anniversary pricing from last year into this year, it seems like you could probably get to that type of level, at least on the low half of that. So – but I know you also have the January price increase. You've got a February price increase, both of which are fairly sizable. So I'm curious, how much incremental pricing you're assuming from the 2022 action versus carryforward pricing? And yes, just kind of the acceptance of these – the price increases you have out there?

Yes. I mean they're out there. They're being recognized. So I think we're counting on them to come through. I don't think there's anything unusual with what we're seeing from the price increases.

Okay. And what about, I’ve heard – no, go ahead, sorry.

No. When you look at our guidance of 150 basis point improvement in EBITDA margins, that that shows some significant price.

Yes. Okay. And I've heard too that have you guys had a change or have you changed how you price warranties? I've heard that perhaps those were pretty low priced and historically, maybe even unprofitable. I don't know if that's true or not, but those had to be reset to more reasonable levels. So I'm curious if that's something that's happened. It wasn't clear to me if that's something that happened in 2021 or if it could be happening here in 2022. But curious if you could comment on kind of the warranties?

Well, we've had warranties for a long time. I think we've handled them differently than others have in the industry. I can tell you that I can't – I don't really want to speak to the profitability, but I can tell you that the CCM team has managed the warranties to be a value add to the people that choose to use them and not something that's a throwaway discounted item. So for sure, we won't be losing any money on them. And it is a valuable part of our entire Carlisle Experience. So there's value there that gets priced. But I can't really talk to any major changes because, to be honest with you, I don't think there's been any significance, I would say. But we'll check that out for you, Kevin, we'll get back.

Okay. And then lastly, in terms of mid to high single-digit type volume growth expectations for CCM this year. I'm curious is that an industry growth type number? Or is that – I'm curious how you believe you can perform versus the industry just given you've got the new capacity that's coming online. I've heard, I think, some other – maybe some other competitors have had some issues with certain raws. And I believe one of your competitors has to change their branding. They lose the branding rights at the end of this year. So I'm not sure if that's an opportunity for distributors to rethink some things who they're using. But I guess I'm curious your thoughts on your ability to how you – is there a chance for you to outperform the market? Or is it going to be so tight that, that might not be possible?

Well, I know our team at CCM and I know the team at Henry that just came in under Frank and his group, I know in Architectural Metals. I know everywhere. Europe included. Our teams seek to provide a Carlisle product for every application that's out there. So while we don't win all of them, I would say that our team over the past few years has probably done the best job of having the least disruptions if that makes any sense. And in certain cases, there have been times where we've been able to take some share. But when we think about even – let's just talk about reroofing or we think about – we just mentioned warranty, we're really looking for long-term relationships. Carlisle has been around a long time. We have a lot of really loyal contractors. We've got a lot of loyal architects and customers that depend on us, and we seek to serve those first. So in a time like this, I know as much as opportunities to gain share may come along really, Kevin, with the constraints that are there, we're going to worry less about what everybody else is doing and just make sure we're taking care of the people that are in the Carlisle family and that they get the service they need. And then, hey, look, if it results in us getting some extra share, that's fine. I mean we definitely want to be the number one, and we're going to strive to do that. But we got to do it under that Carlisle Experience, right product, right place, right time, most efficiently, and we want to pride ourselves on having the best experience for all of our channel partners and our contractors. So it doesn't really answer for you. All I can tell you is we think we've shared a lot of information over the years. We think the market is going to grow, as we said in the commentary to just over $8 billion, will continue to drive towards that. And so things that happen quarter-to-quarter, and we may not focus on as much. And we're on the right trajectory, and we just see that continuing to be the course that the market will take. And like I said, we'll try to do everything we can to take share. But first, we've got to serve our existing customers and our existing contractors.

Okay. Great. All right. Thank you very much.

Thank you. Well, thanks, Elliot. I guess this concludes our fourth quarter 2021 earnings call, and I want to thank everybody for their participation. I want to thank all the Carlisle employees for all hard work they've done. I want to thank all of our partners, especially the people that put their faith in our products every day, and I want to also thank Bob. It's been a great five years in these calls. We've done a few of them together, and appreciate all your support. And then Kevin, we’ll look forward to doing the next one together. So thanks, everybody.

Thanks, Chris. Appreciate it.

This concludes today's call. We thank you for joining. You may now disconnect your lines.