Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Mr. Jim Giannakouros, Carlisle’s Vice President of Investor Relations and Financial Planning &Analysis. Jim, please go ahead.

Thank you, Josh. Good afternoon, everyone, and welcome to Carlisle's Fourth Quarter 2019 Earnings Conference Call. We released our fourth quarter financial results after the market close today, and you can find both our press release and earnings call slide presentation on our website at www.carlisle.com in the Investor Relations section. Discussing the results and our updated outlook today are Chris Koch, President and Chief Executive Officer; and Bob Roche, our Chief Financial Officer. Today's call will begin with Chris discussing our progress towards Vision 2025 and business trends experienced during the fourth quarter and later in the call, will discuss our 2020 outlook. Bob will discuss Carlisle's fourth quarter financial performance. Following Bob and Chris’ remarks, we will open up the line for questions. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements made during this call may be forward-looking and actual results may differ materially from our expectations due to a number of risk factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. Those considering an investment in Carlisle should read these statements carefully, along with reviewing the reports we file with the SEC, before making an investment decision. With that, I will turn over the call to Chris.

Thanks Jim. Good afternoon everyone. Please turn to Slide 3 of the presentation. I'm pleased to report Carlisle had record fourth quarter sales and operating income and we continue to make significant headway towards our Vision 2025 goals of $8 billion in revenue, 20% operating margin and 15% ROIC, all driving to $15 of earnings per share. As a reminder, the building blocks and drivers of achieving Vision 2025 include, growing 5% organically with operational leverage, driving a continuous improvement culture, utilizing the Carlisle operating system, building scale with synergistic acquisitions, investing in exceptional talent and deploying over $3 billion into capital expenditures, share repurchases and dividends. We are pleased with our progress towards delivering Vision 2025 while acknowledging our culture of continuous improvement drives us to seek out new opportunities for growth in sales and operating income. Highlights of our Vision 2025 journey so far include, driving organic revenue growth of 5% since launching Vision 2025, in line with our long-term target, increasing operating margin to 13.6% achieving gross savings and benefits from COS within our targeted range of 1% to 2% of revenues, deploying over $630 million of capital into 12 strategic and synergistic acquisitions and utilizing our strong cash flow and balance sheet to return over $1 billion of capital to our shareholders in the form of share repurchases and dividends. Turning to Slide 4, for the full year 2019 against the backdrop of challenging global conditions, Carlisle Companies performed very well, benefiting from significant exposure to strong North American construction markets, growing demand in re-roofing, increasing exposure in medtech, continued strong underlying demand in aerospace, a return to higher levels of profitability in our Brake & Friction business, continued operational improvements effort through COS and solid execution on our M&A integrations. Some specific 2019 highlights include…

Thank you, Chris. Please turn to the revenue bridge on Slide 6 of the presentation. Revenue increased 6.2% to $1.14 billion in the fourth quarter. Organic growth was flat. Acquisitions contributed 6.4% of sales growth for the quarter and FX was a 20 basis point headwind. Now turning to our margin bridge on Slide 7. Q4 operating margin expanded 170 basis points. COS added 140 basis points. Freight, labor and raw material costs netted to a 60 basis point improvement and net restructuring and rationalization costs were an additional 60 basis point tailwind. Partially offsetting these positives, pricing and volume combined for a negative 30 basis points and acquisitions were 60 basis point headwind. On Slide 8 we provided an earnings per share bridge. As Chris mentioned earlier, we reported record fourth quarter diluted EPS from continuing operations of $1.81, which compares to $1.49 last year. Volume, price and mix combined were a $0.04 year-over-year decrease. Raw material, freight and labor costs netted to a $0.18 benefit. COS contributed $0.19. A lower share count an additional $0.07, while taxes were a $0.06 headwind. Now let's turn to Slide 9 to review the fourth quarter performance by segment in more detail. At CCM, revenues increased 11.4%. Acquisitions contributed 6.5% of the growth. Organic growth was 5.1% partially offset by a 20 basis point foreign currency translation headwind. CCM executed extremely well and delivering approximately $19 million of net price cost realization in the quarter. Operating margin at CCM was 16.9% in the quarter, a 250 basis point improvement over last year. While the macro environment for commodities helped us in 2019, we are extremely pleased with CCM's sourcing initiatives, which add to our confidence in sustaining year-over-year margin improvement. Now please turn now to Slide 10 to review CIT's results. CIT…

Thanks Bob. Please turn to Slide 15 as we discuss our 2020 outlook. For Carlisle in 2020, we expect revenue growth of mid-single digit. By segment, at CCM driven by what we continue to view as a positive North American non-residential new construction market, growing demand for reroofing, a solid backlog of worker contractors, continued tight labor markets and the addition of Petersen into our architectural metals platform, we expect revenues to grow mid-single-digits in 2020. At CIT, we expect high-single-digit revenue growth. While we expect to see continued strength in our core CIT markets of aerospace and medical and benefit from pricing actions taken to offset inflation and other cost increases, we are realistic about our ability to offset the negative impact of the Boeing 787 MAX 8 issues and the impact from the slowdown in the global economy on our industrial customers. At CFT, despite the significant decline in the Chinese automotive and industrial markets, coupled with a very real decline in capital spending in North America, we expect 2020 revenue growth of low- to mid-single-digits. At CBF, we expect 2020 to be another challenging year in the off-highway vehicle markets with revenues declining mid-single-digits. Turning to our corporate items, corporate expense is expected to be approximately $100 million to $105 million for the year. Depreciation and amortization expense is expected to be approximately $230 million. For the full year we expect capital expenditures of $100 million to $120 million and free cash flow conversion of approximately 120%. Net interest expense is expected to be approximately $65 million for the year, and finally we expect our tax rate to be approximately 24%. As we turn to 2020, we’re well positioned to build on our record 2019 performance and continue our progress towards the vision 2025 goals of $8 billion in revenues, 20% operating income, and 15% ROIC. We remain steadfast in our commitment to achieving our goals and driving the $15 of earnings per share by 2025. Despite geopolitical and economic uncertainties including the effects of the China trade negotiations, the challenging industrial production environment, and yet to be measured impact of the coronavirus, Carlisle’s employees across the globe remain focused on the execution of the strategies and key actions that support vision 2025. We are very optimistic about the North American non-residential markets. Our emerging medical technologies platform and a return to normalcy at our largest North American aerospace customer. In addition to these strengths, we anticipate that we will continue to deploy capital for strategic acquisitions and opportunistic share repurchases. Our team continues to embody a positive and entrepreneurial spirit, a commitment to continuous improvement and a focus on delivering results for the Carlisle’s shareholders. As we conclude 2019 I would like to extend my sincere thanks and gratitude to all Carlisle team members for their contributions to another record setting year. This concludes our formal comments. Josh, we're now ready for questions.

[Operator Instructions] And your first question comes from Brian Blair with Oppenheimer. Please go ahead. Your line is open.

Good afternoon guys, another solid quarter.

Thanks, Brian. Good afternoon.

I wanted to start with a question on free cash outlook. A really, really strong performance in 2019. You're actually $1 million off from our 2020 estimate for free cash flow, so that was pretty impressive? Recognizing, there are some near-term headwinds in smaller segments and maybe some offsets elsewhere? CCM’s positioning implies pretty strong profit growth next year. You’ve guided 120% conversion that nets to continued ramp in free cash flow our perspective. Is there anything that we are not thinking about that could offset that trajectory or is that a fair assumption for the year?

No, I think that's fair. I mean, we the 120% is certainly within where we expect to be. We do – it's going from 130% to 120%. Some of that relates to a little higher CapEx we're seeing in 2020. As you know, we had a slowdown in some of the programs, spent a lot over the last 2017 and 2018, it was a little slowdown in 2019, but we expect to pick that up a little bit in 2020. So now continued free cash flow conversion.

Okay. Appreciate the color. Moving the CCM, strong demand backdrop you've got mid-single-digit growth against pretty legitimate stacked comp, so strong outlook. Given that demand CCM’s value proposition, it seems like pricing should be firm hopefully you'll get some upside into seasonally stronger quarters. If we combine that with that setup with the still cooperative commodity trends, is it fair to assume there's some upside to the baseline assumption of neutral price costs for the year? Or still too early to make that call?

Well, we always say the first quarter, it's really too early to make those calls. I think we're thinking about a price raise, number of something between $25 million and $35 million. Obviously we've implemented that new pricing exercise with an annual price increase and we saw our competitors follow suit there of about 2%. But again, it's a little bit too early to see if that is actually getting traction. Yes, Brian, I would just say let's stick with the $25 million to $35 million and then let's as we progress through the year, we'll obviously keep you updated on what's happening in the market.

Okay. That's fair. Then last one, if I can. Hoping we could take a minute to discuss CCM Europe, that gets a little less attention than the other parts of the story. Remind us the current size of that business, the market opportunity, the potential scale over time?

Yes. So we're mid-hundreds, 150 let's say is approximate for our European sales. We've been in Europe a while. We've made some good acquisitions there a few years ago. And we made the Arbo acquisition recently in the UK and Sealants and Adhesives. I think we still see Europe, I don't think I know we still see Europe and there is a significant opportunity. We built a new factory, Waltershausen and to show that confidence that we still think it's going to be expanding platform for us. I think we need to look at some pretty good growth rates going into vision 2025 in the 2025 year. I don't want to give you a number on that, but I would say it would be a lot more substantial than $150 million. And some of that'll come through acquisition; I think that has to be a play for us. I think it would take too long organically and some of it has to be an introduction of new product technologies that we haven't had there before. So I think summing it up, we're very bullish on Europe and we've had some good results in 2019 and I think we're expecting those to accelerate in 2020, 2021 and 2022.

Okay, great. Thanks again guys.

Thanks, Brian.

Your next question comes from Joel Tiss with BMO. Please go ahead. Your line is open.

Hey, how's it going guys?

Hello, good afternoon.

Can you give us some of the factors on for CCM about – around like the visibility you have, like how far you can see out for 2020 and then some of the competitive factors, I keep hearing some other guys are adding capacity. Can you just give us a little bit of a lay of the land of how things look for the next couple of quarters? Thank you.

Yes. I mean got leaving – just entering, I should say. This first quarter of 2020 I feel like we were saying the same thing as we were going into 2019, which is pretty much business is usually still see the same kind of environment. I think a couple of the maybe minor adjustments would be that our competitors seem to be continuing to follow suit on pricing, which is good. We'll see how that plays out, but hopefully there'd be some upside there. We will look at capacity. Obviously we haven't added a lot of capacity in the industry. I think polyiso and TPO plants that we've added have been maybe even under the growth of the industry. So they've been absorbed for relatively well, which to me says that capacity is not getting any larger in 2020. We do have a new entrant who is, I know the announcement came that they were going to introduce a new plant on the east coast somewhere and even if they do, I don't know that that's a significant amount that'll be absorbed and I will see how they can compete in the North American market. I know we had another announcement that a competitor was putting a facility in Texas. I think again, that's fine. I think it's going to add some capacity, but not enough that will offset the balance there. I think we'll still remain tight and certainly on EPDM, it's going to be, I mean there's no capacity being added there, so that will continue to remain a tight market. We think the reroofing, 80% of our business we estimate comes from reroofing. Reroofing demand, Bob has shown that graph that continues to build. We think new construction might be a little bit softer this year than it was last year, but it's still positive. Tight labor markets are still there. Contractor backlogs remain about where they've been for the last couple of years. So I think all-in-all, that's kind of how we see business as usual and in a really solid environment for 2020.

Now, that's excellent. And then can you just give us a little bit of a shape of how the other divisions are going to look? It seems like maybe just with this virus and with all the disruption going on, maybe the first half – our second half is going to be skewed a little bit versus history more for CBF and CFT, I just wonder if you can give us a sense there?

Yes. We're waiting to see how that unfolds. There've been some governmental actions in China with respect to factories opening and things like that after the Chinese New Year that are going to impact, I think CIT in some of the business they export out of that Dongguan facility. Obviously CBF is effective with our Hangzhou and Suzhou facilities, but a lot of that stays in China. Still it'll affect sales there. I think the biggest impact is the 787 MAX. That we were at a 55 plane a month, I think pace on the 737 MAX going into this problem, reduced to 42 and now we're at zero. So obviously we think that we're about, I think $100,000 of content on that plane. So you can see what that's going to do to the year. But if they can get the plane going, I mean that could – if we get certification here quickly and get it back in service then we're planning on it being out at least until mid-year and that obviously I think earlier than that would be good. I think CFT is one of, if we can get one of – situation is really dependent on automotive and global industrial and obviously the coronavirus does not help the Chinese automotive market for us, which that that's a big market for us and also global industrial production in European declines are at least flat and then North America, not that makes so much spending on the manufacturing side doesn't help. So think how it plays out Joel. It’s going to impact us and then we're hoping it gets better by mid-year and perhaps the backend with all those combined show some increased momentum.

Okay. Thank you very much. I'll let other people ask.

Okay, thanks, Joel.

Bye, Joel.

Your next question comes from Garik Shmois with Loop Capital. Please go ahead. Your line is open.

Hi, thanks. I'm just – first question on capital allocation. You've got still an acquisition that you have to close on, but if you look out into 2020, just wondering if you could speak to the M&A environment. How much you're comfortable deploying per acquisitions and in which business segment perhaps. Do you see the greatest opportunities?

Well, I think we've got a lot of capital. We're comfortable deploying quite a bit. I think the question for us is always around discipline. Can we see a model that provides a good solid organic revenue stream and then has synergies when we combine it to our platform? So I think we've been pretty clear about that. I don't see anything out there that would come up that we would not be able to afford and I think we've deployed up to $500 million, $600 million, $700 million a year in acquisitions and I think we're totally comfortable with that. If we look at where we're going to put it, right now the preference would be to add to our medical technologies platform. Would like to see accelerating growth there. I think the team that's come with Providien, I mentioned in my comments, Bill Gerard and that team has brought a lot of talent, so we really like his leadership and we feel very confident that he can absorb some acquisitions. CCM is again another opportunity I think within the metal polyurethanes and then as Brian asked us earlier, I think Europe's got to be a focus this year. And then lastly, back to aerospace, the Fileca acquisition, if we could find more acquisitions like that, they would be perfectly loved to build our geographic footprint in aerospace. And we'd also love to build our content – share the content per plane. So those will be the areas of focus. And lastly, I think we're at a point now with CFT where we could handle larger acquisition. They've handled these initial ones very well. We've gotten good synergies out of them. I think they're working very well. So it would be nice to see something appear that we could put together with CFT accelerate our growth there.

Okay. Thanks for that. I was hoping you could comment a little bit on what you're expecting out of the non-roofing pieces of CCM. So non – I guess traditional roofing pieces of CCM. So metal or installation in 2020, how you expecting those growth rates to map out?

Yes, I mean I know metal is going to continue where it has been in the mid-to-high single digits that's what being looking at. There's nothing changes in those pieces. Europe grew pretty good, close to double digits. In 2019 we expect that to continue and 8% for the polyurethanes business. So we're expecting those to be a little higher as was expected going into the acquisitions.

Okay, great. Last question is just on CIT and on the aero side, when the MAX – if and when the MAX comes back in the middle of the year. Is they're going to have to be a ramp period for you to get your capacity back to service the – I guess or just filling the gap from the lost revenues that you are currently experiencing or should we not expect any delays once the max is turned back on? And you should start to see the revenue flow?

I wouldn’t see any delays for the production standpoint. We’ve – as I said we viewed as a delay not a loss revenue, so we’re not doing anything like laying off people and shutting down lines and things like that. We're finding other work for them to do and we are ready to go when that MAX 8 rolls up, John Berlin and the CIT team will be on it immediately.

Great. Thanks so much, Chris.

Your next question comes from Josh Chan with Baird. Please go ahead. Your line is open.

Hey, good afternoon and congrats on a good quarter.

Hey, Josh.

Hi. I just wanted to ask about the – in the CCM business for in terms of price cost, can you give us the contribution in Q4? And then for the 2020 guidance that you provided, how much price is included in that 25 to 35?

Yes. Josh for Q4, that’s about $19 million.

Yes. And then we're not going to break up the price cost right now, Josh, for the 25 to 35, we'll get back to you on that as the year unfolds. I think there's too much uncertainty around the price.

Okay, now that's fair. Just I guess from a seasonality perspective, how far into the year would you get before you kind of have some understanding of how the price will shake-out?

Yes, I think it'll start in 2Q, Q2 and Q3 are big seasons, obviously are a big quarters, I should say, with the season underway. So I think it would be just after Q1 we'll start to see the effects of that.

All right. And then on the CIT business, could you tell us what the margin of the acquired revenue is or will be in 2020? It's one of a few moving pieces there, I think.

You're talking about Providien and Fileca?

Correct.

Yes. It's about low-to-mid single digits right now, currently we put the amortization and we have to work that back up, so we expect them to be higher but in the first few years, it's 5% to 10%.

All right. And then I guess lastly on the CIT margin for the full year for 2020, could you just help us think about how we should look at the margin progression? So you got the 737 headwind maybe for part of the year and then this deal impact, but then I think you've done some cost savings initiatives too, so how should we think about how margin flows through CIT in 2020?

Yes, I mean clearly we're expecting volumes to be down in the first half, just due to the MAX issues that we're seeing. So we'd expect margins to be weaker in the first half and growing into the second half.

Okay, great. Well thanks for the time.

Yes, you bet, Josh.

[Operator Instructions] And your next question comes from Daniel Wang with Berenberg Capital Markets. Please go ahead. Your line is open.

Hey guys, thanks for taking my question. Just the first question on the CIT outlook, I suppose. I suppose the 737 MAX is a big component of your outlook for 2020. I was just wondering if there's any other moving parts within this guidance for example, picking 2019, you talked a little bit about some SKU rationalization in med devices. Is this expected to impact 2020 numbers as well or it is for the most part completed?

Well, I think we do. We had an initiative on the SKU rationalization, but I think that's relatively complete. We do always go through, there's always product line rationalization as we move through things, but I think the MAX is the biggest issue, then obviously it's the integration of the two acquisitions and how they perform and how much we're able to drive there through COS savings and things like that. I think industrial, we'll have some, I still think some negative impact on the business as the industrial – global industrial customers are impacted. Hopefully that starts to wane in the end of the second quarter and gets better in the third quarter. Yes, those would be the big impacts. There might be some impact that we haven't completely calculated related to the Coronavirus in the global GDP as well as the importing of product from Dongguan and we have to see how that's going to affect us, so that's still unfold. But I think that pretty much covers The one other thing I would add and we talked about it in the commentary is, I don't think we can underestimate the impact on other business in the in-flight entertainment and connectivity related to the 737 MAX issue, that planes are just not being taken out of services like they were and so that has some negative impact. And then lastly, I think, there's the question hanging around the 787 and the reduction of that content in June by, I think two planes. So we estimate that would be, if it happens around $10 million for the year. So I think that pretty much covers all of that.

Yes. And so we're clear on the guidance for CIT that does not include Fileca yet, because we haven't closed it. So we never include anything in our guide until we actually close on it. So while we expect to close on it soon, we didn't put that in.

Okay. Thanks for the clarification. And just second question on some of the sourcing initiatives at CCM, I know you talked about it being a benefit in Q4. Can you provide a little bit more detail and color around I suppose, what the sourcing initiatives actually are?

Yes, we generally don't break that out. I mean it – we're just – I don't think we want to get into talking about what the initiatives are, but they just revolve around reacting to the pricing in the markets, and supply and demand and obviously then impact in how much we buy from a certain supplier and so obviously as our usage goes up, we expect preferential treatment and then we trade-off different things including the length of the contract and stability there on raw materials. So I don't want to go in each raw material, I'd rather not discuss on the call, but that gives you kind of a picture of what's going on.

All right, perfect. Thanks for taking my questions.

Your next question comes from Kevin Hocevar with Northcoast Research. Please go ahead. Your line is open.

Hey everybody, Tax rate, you said 24% expectation for 2020, it looks like it's at about 20% the last two years. So why is that expected to tick up so much in 2020?

Yes, I mean, a lot of discrete items, the base has been around 24% for the last two years. We don't bake-in discrete items, because we don't know when these hit around what happens in state and federal rebates or any kind of tax benefits that come as kind of one-timer. So, we start with the base rate and then as we see benefits, we'll tell you what's going to happen.

Okay, got it. And you guys talked about, there are some capacity additions coming in on the commercial roofing side of the business, and TPO and polyiso, you talked about capacity being pretty tight, I guess, how is your capacity, I mean, when you think of TPO, polyiso, EPDM, I guess maybe the first two, more than EPDM, but how is your capacity utilization, others are adding capacity. Are you going to need to add capacity soon based on how your plants are running, just kind of curious your thoughts there?

Well, it's a balance. Factories take a long time to build, they're expensive. We like the long-term view. We're going to keep our market share in mind, keep our new product development in mind, keep our segments in mind and make sure we're positioning ourselves so that we don't have excess capacity, but we have just the right amount. And I think the team there has just done an excellent job on this. I think we will need to add capacity in the coming years. I'd say in the next year to three years, we'll add some capacity in different areas. With respect to the EPDM, I don't see us adding any capacity in EPDM. I think we added capacity of be along the lines of TPR, polyiso or perhaps in our polyurethane business or metal. But we like the way the teams run it for the last two decades. We think we've been right on with our capacity versus the market trends and I think that's we're in good shape.

Okay. And then in CIT, I guess I just want to make sure I understood high-single digit percent sales growth and what is baked into that for the 737 MAX, is that – and I think you're kind of alluding to it earlier, does that assumes that it's the first half of the year is not being produced. And then in the second half it is, so the first half is being impacted by it and then the second half it isn't. Is that the right way to think of what's baked into that guidance?

Yes. Kevin, we took a pretty conservative outlook on the 737 MAX 8. Although it may come into service, we're hoping it comes in mid-year. There's been a lot of fits and starts with this. So we're thinking 50 million for the year negative in revenue and if you take that by what I talked about earlier, about a $100,000 per plane and about $55,000 a month, obviously that gives you a number that looks more like a year of non-production, but we're saying let's get it back in service. Let's be a little more conservative on our outlook. And even if it comes into service they still have to train a lot of pilots, they have to do other things and we'd rather be a little bit cautious there on what we're projecting.

Okay. Got it. Okay. Thank you very much.

Yes.

There are currently no further questions at this time. We'll turn the call back to management for closing remarks.

Well, thanks Josh and thanks everyone else. This concludes our fourth quarter 2019 earnings call. I look forward to speaking with you all at our next earnings call. Bye.

This concludes the conference for today. Thank you very much for joining us. You may now disconnect.