Good afternoon. My name is Ashley, and I'll be your conference operator today. At this time I would like to welcome everyone to the Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Vice President and General Counsel, Steve Ford. You may begin.

Thank you, Ashley. Good afternoon, and welcome to the Carlisle Companies Third Quarter 2017 Conference Call. On the phone this afternoon are Chris Koch, our President and Chief Executive Officer; Bob Roche, our Chief Financial Officer; and Titus Ball, our Chief Accounting Officer. On today's call, Chris will discuss our third quarter 2017 performance and will provide an update on our 2017 outlook, which excludes any impacts from our pending Accella acquisition. Bob will review our segment performance, balance sheet and cash flow. Before we discuss our results in more detail, please review Slide 2 of our presentation entitled Forward-Looking Statements and the Use of Non-GAAP Financial Measures. Reconciliations of U.S. GAAP to non-GAAP measures are provided in the appendix of this presentation. Those considering an investment in Carlisle should read these statements carefully, along with reviewing the reports we filed with the SEC before making an investment decision. These reports explain the risks associated with investing in our stock, which is traded on the New York Stock Exchange under the symbol CSL. Chris will now review our third quarter results. Chris?

Thanks, Steve. Please turn to Slide 3 in the presentation to review our third quarter performance. We are pleased with our record third quarter sales of $1.1 billion and 9.9% year-over-year increase. These results reflect the continued dedication and effort of the worldwide team of Carlisle employees and our commitment to the execution of our core strategies. These efforts resulted in above-average organic growth and solid EBIT performance in the quarter and the further advancement of our continuous improvement culture throughout the company. We continue to execute on our previously announced restructuring and facility rationalization initiatives, which we expect will contribute to Carlisle's profitable future growth. Our third quarter results demonstrated solid progress against the significant headwinds we faced in 2017. Despite raw material cost rising at CCM, a transition within in-flight connectivity technology in CIT's commercial aerospace markets and the prolonged downturn in global commodity markets at CBF, we achieved solid overall EBIT performance. We are also pleased that the core CIT business improved sequentially during the third quarter, slightly exceeding our expectations and are confident of the CIT team continuing their progress as we close out the year. Continuing with CIT, medical and test and measurement markets, in particular, showed strong growth, while CIT delivered on their SatCom commitments. At CCM, where sales growth rates exceeded North American non-residential market growth rates, pricing remained relatively stable, reflecting our ongoing focus on delivering value to our customers through the Carlisle experience. Meanwhile, our organic growth initiatives at CBF are beginning to impact our sales and are combining effectively with the early stages of a market recovery in off-highway mobile equipment. Third quarter earnings per share from continuing operations of $1.37 declined 21.2% from the prior year, excluding the third quarter 2016 CBF impairment charges. EPS of $1.37 includes $0.25…

Thanks, Chris. Please turn to Slide 4 of the presentation. As Chris mentioned in his opening remarks, we are pleased with the record third quarter sales, which represent Carlisle's 18th consecutive quarter of year-over-year growth. Selling price and volume had a positive 4.4% impact, driven by strength in U.S. commercial roofing and recovering off-highway construction and mining equipment markets. Acquisitions contributed another 5.3% of sales growth in the quarter. Turning to our margin bridge on Slide 5, adjusted EBIT margin decreased 490 basis points in the quarter to 13.1%. The net impact of volume and selling price had a positive 130 basis point impact. Unfavorable mix had a negative 100 basis point impact. COS drove 70 basis points of improvement, and acquisitions contributed another 30 basis points in the quarter. Rising raw material costs, driven largely by CCM, and other operating costs across all segments had a negative 460 basis point impact. Lastly, net special items, which we will review later in the presentation, had a negative impact of 160 basis points. Now let's turn to Slide 6 to review the quarterly performance by segment in more detail. At CCM, sales increased 10.7% in the quarter, led by high single-digit volume growth in domestic commercial roofing sales. The Arbo and Drexel Metals acquisitions contributed just under 3% to the year-over-year growth. Selling price at CCM was relatively stable, and we are determined to maintain price discipline in the market while delivering a superior customer experience. Despite rising raw material cost environment, CCM delivered solid EBIT margin of 19.4% in the quarter. Raw material costs negatively impacted EBIT by approximately $15 million. Higher sales volume and savings from the Carlisle Operating System were partial offsets to this raw material headwind. Please turn to Slide 7 to review CIT's results. CIT's net…

Thanks, Bob. Please turn to Slide 14 as we discuss our updated 2017 outlook. We are now raising our 2017 consolidated sales outlook to the high single-digit range. By segment, we are maintaining CCM's outlook of high single-digit sales growth. CCM remains focused on maintaining price discipline in their markets, driving operational efficiencies in their factories, integrating the Drexel Metals and Arbo acquisitions and integration planning activities for the pending Accella transition. In the CIT segment, based on improved sequential results, we now expect a low to mid-single-digit revenue decline for the full year and improvement on our second quarter full year forecast of a mid-single-digit decline. Our medical platform remains a focus of growth as we continue to drive new programs at major medical device producers and seek high-quality acquisitions in the med tech space. Moving on to CFS. We expect net sales growth of approximately 40% for the year, inclusive of San Jamar. At CFT, our expectations for sales growth remain in the mid-single-digit percent range for 2017, driven by stronger system sales in the fourth quarter. On October 3, we announced the appointment of Shelley Bausch as President of Carlisle Fluid Technologies. Shelley has demonstrated effective leadership throughout her career and is an excellent addition to the CFT team. We expect Shelley and the CFT team to complete the planned footprint consolidation efforts in the fourth quarter and improve operational efficiency. The team's focus will transition to generation of profitable growth through new product development, expansion in the core adjacencies and further development of global distributions. We continue to be cautiously optimistic that CBF end markets have reached the bottom of the cycle. We are seeing an improvement of key OEM customers and look to see strong sales growth for the remainder of the year. We are raising our expectations for CBF to mid-teen net sales growth in 2017. Corporate expense is expected to be $70 million, which includes approximately $4 million to $6 million of restructuring and nonrecurring acquisition-related costs for the full year. Depreciation and amortization expense is expected to be $160 million. For the full year, we expect capital expenditures will be approximately $150 million. We're anticipating free cash conversion to be approximately 100%. Interest expense is expected to be $28 million, and our tax rate is expected to be approximately 34% in 2017. We are pleased by the record sales performance in the quarter. As a result of our strong performance, we are raising our full year sales outlook to high-single digits. We are excited about the prospects of the business segments and confident in the growth initiatives our teams have underway. We will remain focused and diligent on the successful execution of our key restructuring plans. This concludes our formal comments for the third quarter results and the 2017 outlook. Ashley, we're now ready for questions.

[Operator Instructions] Your first question comes from the line of Neil Frohnapple.

Hey, guys. How are you doing?

Hey, Neil.

Hey, Neil.

Can you provide an update on the restructuring costs outlook for 2018? I believe, last quarter, you indicated it would be $25 million. So wondering if that's still a good assumption as compared to the $45 million to $50 million expected this year?

That is Neil, that's what we're seeing right now. Obviously, we're still working through the plans for next year with our units. But that's a great directional figure where we are now.

Okay. And then for the CCM segment, is there any way you can frame for us the raw material tailwind or headwind for 2018? If MDI costs and some of the other raw material input costs remain at current levels, I think that's the biggest concern right now out there. So I know it's still early, but any way you can kind of shed light on expectations there?

Yes, Neil, as you said, it is early. I think right now, we are expecting raw materials to be relatively flat to maybe slightly up year-over-year. So it should not be anywhere near the headwinds that it was for us here in '17. A lot of it depends on MDI, and that we do think that a lot of the supply-demand issues that we experienced here in '17 will not repeat in '18. So we're cautiously optimistic.

Great. Thanks. I'll pass it on.

The next question comes from the line of Jim Giannakouros [Oppenheimer]

Hi. Good afternoon, everyone.

Hey, good afternoon.

Staying on CCM, you said the pricing was relatively stable, but raw material - is that a gross number, that $50 million headwind? Just trying to make sure I understand the math of the price cost impact in the quarter, and if there is an update to how you guided for the full year.

Yes. Pricing was relatively flat year-over-year and sequentially. And the raw - all of the headwind was raw materials. They were up 15 year-over-year. And for the full year, that price-raw material headwind dynamic is still right around 50.

Okay. And I know that - I don't know if you're going to just confine your comments to the core non-Accella business. But just given the price cost risks that we're seeing and the comments that you've made on how you're thinking about '18 on core, how should we be thinking about Accella and the accretion there? Is there a risk to the initial accretion estimates that you have? What do you have embedded there? And any color on that influence on Accella specifically would be helpful. Thanks.

Yes. Just with Accella, we did a lot of due diligence on this. When you look at the major components within the Accella raw material cost structure, I'd say our team at CCM had a good handle on that as did the Accella team. I think everything we've got put into the projections right now, at least as far as we could see in 2018, is both teams are very consistent on their outlook, and I think we're pretty confident in the initial estimates we had on raw material savings. Steve, do you want to add anything to that?

Yes. Assuming we close on or about November 1, we will have the inventory step-up cost behind us here on '17, and we're looking at about $0.09 or $0.10 of accretion for next year.

Okay. And going back to the core, one last one if I may. Just finer points to the U.S. commercial up 7.9%, global sales up 12%. From what I understand, the market is not growing that fast. And so I think that your share gains continue. Can you kind of cut by your 3 major products, I guess, just EPDM, TPO and insulation, supply-demand dynamics, competitive dynamics and pricing dynamics that you're seeing on those 3 products?

Yes. Let's just - we'll each - probably Bob and Steve will want to add, and so I'll take the growth in the industry. EPDM, the industry at least with the information we have, was very low single digits. I think for the Carlisle team, you could think about us doubling that. TPO, pretty consistent with the mid- to high-single digit growth rate within TPO and the industry. We were very consistent with that. And I'd say the team did a nice job as well with PVC being in the more mid, at least the industry data we had, to being in the more mid-single digits range. So I think from that perspective - and then on the polyiso, I think, it varies regionally. But I'd say we were right in there with what was happening in the marketplace. And as far as competitive dynamics, we continue to be in an environment where we are going to be the rational pricing leader. There is some activity there with some market challenges and a few competitors. I would say those are more centered in the polyiso side. But I think the teams did a really nice job of dealing with that. And again, so much of the Carlisle sales comes down to the complete Carlisle experience, and by that, we mean having the right product, the highest-quality product on the job, at the right time and meeting the customer and the contractors' expectations. So I think the team's doing an excellent job of selling value there.

Thank you, guys. I'll pass it on.

Your next question comes from the line of Garik Shmois [Longbow Research]

Thank you. Just a follow-up on that last question with respect to the market growth. If you look out to 2018, it sounds like the market in different segments that you service within CCM is kind of in the mid-single digit range on average, it sounds like. Is there anything that you're seeing out there that would deviate off of that mid-single-digit growth into 2018?

Right now, not really. We look at the key verticals: warehouses, educational buildings, office buildings, stores, big-box, institutional, multifamily housing. I mean, I think when we look at the projections for '18, pretty consistent, a few percentage points give-and-take, but pretty consistent with what we saw this year. And I'd say right now, if 2017 market forecast were in that mid-single digit, 4, 5, 6, I would say '18 is right there. Maybe a shade - no, I'd say right down the middle, probably pretty much the same.

And then just on CIT, is it fair to say that the improvement in the quarter was driven by medical entirely and that SatCom was in line? Or was there any, I guess, improvement in SatCom relative to where we were a quarter ago?

Yes. Their medical did grow nicely, and SatCom grew nicely as well. If you remember from last quarter's call, we were talking about $20 million in the first half, $40 million in the second half, and we're seeing that play out exactly as we thought right now through the third quarter. So there was a nice growth in SatCom sequentially, which helped the - played in with the medical.

Okay. Thank you very much.

Your next question comes from the line of Charley Brady [SunTrust Robinson Humphrey]

Thanks. Evening, guys.

Good evening. Hi, Charles.

Just on the CIT business, on SatCom. If you're looking out to 2018, I wondered have you seen any positive move, something moving to the right. But I want to know, has it stabilized? Has it started coming sooner? What are you hearing from the key players in that market on the SatCom rollout looking out beyond this year?

Yes, Charley, what we're seeing - we're still seeing as we expected. We're not seeing any push out. We're not seeing a lot of pull in. As this market matures, we expect there to be some movement, now we would be optimistically looking for that to move in. But as we stand today, not much has changed in our outlook from where it was a quarter ago.

And Charley, the only thing I'd add is we do see some tangential positive indicators. I think Delta just announced that they're going to offer free texting on all flights. We're seeing some things on long-haul flights and recommitments to that cabin for the long-haul traveller, that also includes a pretty sophisticated in-flight entertainment and communication system. So I think, qualitatively, I think that's what's bolstering our thought that this is continuing to move in this direction, and it was a good idea that we got into a product that can help provide a solution in the CIT, complete set of solutions for aerospace customers.

Switching gears to Fluid Tech for a minute. You touched on it a little bit about the next phase, once you get done with the facility rationalization this year. But maybe if you'd be a little more granular on kind of specific areas you're targeting and what the time line might be for a margin impact on what you're going to do?

Yes. Charley, specifically, we had an ongoing initiative. I think we talked about this on a call, roughly 30 new sales heads were added in 2016. We're starting to see some of the gains come from that. I think that will be good for both geographic coverage. And I think it will help with margin as well as we open up some new opportunities in some markets that haven't seen our product yet. When we look at adjacencies, really it's that sealings and adhesives market that seems to be the very attractive one for us and a good core adjacency, based upon where customers use finishing products, they tend to use sealants and adhesives as well, and so we think that's going to be a good space to enter. We do have efforts going on there. And then the powder business continues to grow for us, not at the pace we had hoped for, but we are doubling down efforts on that. And we still think the acquisition that we made will help us have some strong results in powder in 2018. So those are the ones I would say that we're most focused on.

Okay. Thank you.

You bet.

Your next question comes from the line of Kevin Hocevar [Northcoast Research]

Hey, everybody. I was wondering if you could help me understand. So with the CCM margins, I guess, I'm trying to understand how the CCM margins shook out where they did. Because if I look back sequentially from 2Q to 3Q, it always seems to go higher. Looking back to 2001, there's really only been one other time that margins came down sequentially from 2Q to 3Q, and this had about 100 basis points sequential decline, so it's kind of the biggest since 2001. But it sounds like you said raw material headwinds were similar in the third quarter than they were in the second. It was $15 million this quarter, $13 million last quarter. You mentioned pricing was pretty stable, and then volume growth was obviously very strong. So I guess I was wondering if you could help me understand why - what led to the margin deterioration sequentially, especially when normally it seems like margins moved higher from 2Q to 3Q?

Well, Kevin, last year, margins were flat Q2 to Q3. And this year, it was that additional $15 million of increased raw material costs that we incurred in the third quarter. Pricing was stable. It was flat, but it was not offsetting any of that $15 million, and that's what sort of drove the decline.

Okay. Got you. And in terms of - so with raw materials, could you walk us through what you're seeing at some of those key raw materials like MDI and other - or like the resins, polypropylene and stuff. It seems like some of those have gone up quite a bit since the hurricane. At least the data points we can see. And I know those don't always match with what you guys are actually paying, but it sounds like the $50 million price raw number is still a good way to think about it. But wondering if you could give us some update on what you're seeing out of those raw materials. Is there some risk to the fourth quarter or first quarter from higher raw materials? Or are some of those MDI data points of polypropylene not really what you guys are actually seeing in the market for your raw material basket?

Yes. So again, Qs 2 and 3 are the big production quarters. So we're buying a lot less raws in Qs 4 and 1, so the risk is definitely mitigated. And we locked in at the beginning of the quarter, and we're locked for 90 days. So we feel pretty good about the $15 million number that we've been talking about really since the second quarter call. Not expecting it to worsen here in the fourth quarter. And again, the first quarter is a lower production quarter for us. And then as we move into next year, it's kind of hard to predict and forecast that far out. But we've got a very strong team. We've got good relationships with our suppliers, and we feel good about the overall landscape with additional suppliers and capacity coming on board in the Gulf region. And we feel much better about some of the - about the MDI environment for next year than we had here in '17. So we feel pretty good about the environment, Kevin.

Okay. Got you. And then last one. Curious how to think about incremental margins in brake and friction? I thought incremental margins in this business would normally be 40-ish percent or something. And I know this quarter's sales were almost up 30%, and EBIT grew about $1 million, $2 million if you exclude the one-time items. So wondering if there is anything in the quarter that prevented the incremental margins from being more kind of in line with what we would historically expect and what we should think about going forward. Is that 40% incremental margin a good number to use kind of over the long term as those markets recover?

Yes, Kevin, in the quarter, one of the big impacts has been the decline of the aircraft business. Those were some pretty hefty margins, well in excess of 50%. And the lack of that aircraft business did impact in the quarter a bit. However, over the longer term, what I would say is that the evolution of the incremental margin we talked about in average, 35% to 40% there. And when we're at the lower levels, I think you probably know if you followed it closely enough, that about $20 million is probably breakeven for this business. And then when we start to move through the 20s, we start to see some acceleration in EBIT percentages into the mid-single digits. Once we cross 30, we start to get into those low teens, and then when we're up, I'd say, $40 million to $45 million is when we really get some very, very good incremental margins. So there is some progression with volume, but on the whole, we still feel the story we have around margin improvement is going to remain intact, especially with the efficiency gains we'll get with the Tulsa move and with some nice new products that are adding significant value to the customer that CBF is introducing. So we think that, that incremental margin is intact for the future.

All right. Great. Thank you very much.

[Operator Instructions] Your next question comes from the line of Tim Wojs [Baird Equity Research]

Hey, guys good afternoon.

Good afternoon.

I guess, I just - going back to maybe Accella quickly, I just want to be clear. So the $45 million to $50 million does not include any one-time cost related to Accella? And if that does close as anticipated, does that kind of $10 million to $12 million of one-time cost hit in the fourth quarter?

Tim, yes, it does not include it. And yes, we would expect the inventory step up to hit in the fourth quarter if we close as we are planning at the end of the month.

Okay. Okay. Okay, that's helpful. And then when we think about buybacks, just given some of the cash, the revolver use that you're going to need in the fourth quarter with Accella, would you say that buybacks in '17 are kind of done now? Or would you guys look at doing more in the fourth quarter maybe?

Yes, I think we're thinking of it with where we are in the run-up in the stock price and where we are with cash and what we've done for this year. We're thinking largely we're down for the year now.

Okay. Okay. And then the last one, does that 8% growth number in commercial, in the CCM business just - is that an organic number? Or did that include Drexel?

That's an organic number. It's about 8% organically and close to 10% if you factor in Drexel and Arbo.

Okay. Okay, great. Appreciate the time. Thanks, guys.

Thanks, Tim.

Your next question comes from the line of Joel Tiss [BMO]

Hey, guys. How is it going?

Good.

That's good. So is the kind of pricing un-discipline or whatever from your competitors in CCM, is that likely to carry through into 2018 as well or throughout 2018?

Yes, and it's hard to say, Joel. I think that the efforts, obviously, when we look at the sequential year-over-year price being relatively flat or the impact, it's changed a lot from even obviously a couple of quarters ago. I think what's being done is it's out there, it's impactful, but it's on the margin. I don't see it changing, the current conditions changing. And with that being said, I think if we are at a flat position as we are today, that's something we've talked about for a couple of years now, that maintaining a flat year-over-year price environment would be a good step. And then it'd to be the first step in getting then to a positive price environment. So I think as we leave '17 and we enter the first quarter of '18, I don't think we'll see much change in the competitive dynamics.

And what's the focus of the restructuring program in 2018? Is that kind of across the board? Or are there more targeted areas inside the company, the $25 million?

Yes, we do have some projects going on at CIT, as you know, in a bunch of different areas, and then we have the CBF factory move, are the 2 big ones.

Okay. And then is the timing of the Accella acquisition, is that a little bit of a signal that you're gaining confidence in your restructuring program doing what it's supposed to do? Or is it more just that property was available and you have to strike when the iron is hot or whatever they say?

Yes, the acquisition of Accella, Joel, I think, yes, I think that's probably the latter. In that properties come up, and we have some pretty core strategies around where we're going to deploy. Building envelope was one. This came up, and we took advantage of it. And we thought it was a good fit. So might say on the acquisition front, 90% of the time, it's usually the latter than some internal driver.

And is there any - are we getting to the point where you can like if we're trying to think about, I don't know, operating margin potential 3 years out when we start to get through all this restructuring activity? Do you think the company is better positioned to be able to exceed the levels that you had in 2016? Or is it just more of a kind of a grinded out every year, and we'll see how it goes?

Well, I think our goal and, Joel, it's the first, we have to approve every day as a key component of our corporate culture is continuous improvement. And we think the Accella add does some nice things. You saw the synergies specifically in raw material. We think there are other synergies there as well. We think the developments in CIT with the transition in technology and the growth in medical provide some nice margin opportunities. Carlisle Fluid Technologies, the adjacencies we talked about earlier in the call, specifically the sealants and adhesives, we see as a nice incremental margin add that, when it becomes fully developed, should help with the profitability. And then we've talked now for a couple of years about some portfolio readjustment that we think can also help the margin profile as we execute. So our goal would be to exceed those previous goals as we move 2, 3 years out.

Okay. Good. And then the last one, sorry. On the foodservice business, how come the margins were down year-over-year? I don't know if I caught the reason there, the operating margins?

[Operator Instructions] [Technical Difficulty]

I was just asking about the foodservice operating margins. How come they were down in the quarter?

Yes. There was mix, Joel, there, raw materials and freight were the 3.

Okay. So there's no change in the tone in the end market or what the customers are saying at all?

Not really. Not this quarter.

Okay. All right, great. Thank you so much.

Thank you, Joel. Thanks for your patience.

No worries.

Your next question comes from Liam Burke [FBR Capital Markets]

Yeah, thank you Chris, you had in the CIT division, medical and test did pretty well. Understanding that's a smaller part of the business but something you'd like to grow to diversify from the aerospace. What's driving that growth? And do you see it moving the needle at any point?

Yes. When we look at the different segments, the medical specifically, we do see it move the needle. We've talked about the number of projects. I think the last time we talked about it, it was in excess of 40 projects. It's a major medical customers that the CIT team has been working on. And we continue to make good progress with those. As you know, those are like aerospace programs. They could take longer to develop as we get FDA approvals and that. But we are very excited about what we've got on that development sheet. And we're very confident that over the next couple of years, we'll able to add through acquisitions some very nice med tech properties to that portfolio. Within industrial, that segment was up as well within CIT. That's mostly driven by the type of resurgence you're seeing in CBF, and the Caterpillar and John Deere and those types of companies. And then test and measurement was up as well. Smaller unit, but again, driven by some OE customers that are seeing some increase in demands for handheld electronic devices and that. So these segments are small. We see test and measurement and medical as 2 platforms that will get some attention, and we think we've got - the team's got very good ideas on how to grow those businesses organically and through acquisition over the next couple of years.

All right. Just touching on acquisitions, as you integrate Accella, bring it on board, is that affecting the pipeline of the smaller tuck-ins, for instance, the medical, in CIT?

Not at all. Bob and Steve talked about it quite a bit. We've got a great capital structure. We have plenty of capacity for acquisitions. Accella was a big deal, but I would say did not affect in any way the strategic direction with acquisitions within CFT, CIT or even within CCM for their future.

Great. Thanks, guys.

There are no further audio questions at this time.

Well, thanks, Ashley. We want to apologize for the disconnection in our conference call today. We do not know how that occurred, but again, we apologize. And we thank everyone on the line for their patience and for sticking with us. This does conclude our third quarter 2017 earnings call. Again, thanks for your participation. We look forward to speaking to everyone on the next earnings call. Have a good one. Thanks so much.

This concludes today's conference call. You may now disconnect.