Carlisle Companies Inc Q3 FY2021 Earnings Call

Good afternoon. My name is Bethany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Third 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, Bethany. Good afternoon, everyone, and welcome to Carlisle’s third quarter 2021 earnings conference call. We released our third quarter financial results after the market closed today, and you can find our press release and earnings call slide presentation in the Investor Relations section of our website, carlisle.com. On the call with me today are Chris Koch, Chairman, President and Chief Executive Officer; and Bob Roche, our CFO. Today’s call will begin with a business update from Chris, highlighting third 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 third quarter performance and current financial position. 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’ve provided a reconciliation 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.

Good afternoon, everyone, and thank you for joining us on our third quarter 2021 earnings call. I hope you and your loved ones are safely returning to some aspects of your pre-pandemic lives. The challenging environment since the pandemic began in early 2020 persisted through the third quarter of 2021. This year has truly been a story of two halves. At the start of 2021, global prospects were uncertain, new virus mutations emerged, and we were gradually and unevenly coming out of lockdowns. As we entered the second quarter, vaccine distribution gained speed, access to vaccines became widespread, and substantial stimulus entered global markets. We began to see signs of recovery and slowly returned to pre-pandemic activity, which contributed to increased economic growth in a world that was not fully equipped to manage this pace. Factory shutdowns, stressed labor markets, and supply shortages led to increased inflation, creating significant challenges for normal business operations. These factors, along with the summer spike of the Delta variant and the impact of Hurricane Ida, made the third quarter particularly difficult. However, as we moved past September, it appeared we were past the peak of the Delta outbreak, and we are hopeful that the recently implemented measures will stabilize labor markets and relieve supply chain constraints. The Carlisle team demonstrated their commitment to continuous improvement, showcasing resilience and determination to meet the Carlisle experience, which resulted in record revenue in the third quarter. Our employees have faced significant challenges over the past one and a half years, and they have consistently risen to meet them, particularly in this quarter. Everyone at Carlisle is dedicated to finding solutions and innovative ways to alleviate pressures and serve our stakeholders, as strong order trends indicate sustained demand as we close out 2021 and move into 2022. We anticipate a slight easing of supply chain issues in the fourth quarter and an improved situation by mid-2022. Over the past several years, particularly during the pandemic, Vision 2025 has provided a clear mission and direction for our organization. In the third quarter, we achieved our key objectives under Vision 2025, including over 5% organic growth. In fact, we realized over 19% organic growth for the quarter. As we rebound from last year's COVID lows and look towards growth opportunities in our business segments, we remain confident in our projected mid-single-digit organic growth CAGR through 2025. A crucial aspect of this growth is our price leadership. We have consistently focused on earning pricing in the marketplace by offering our distributors, contractors, and partners innovative, high-quality products in a timely and efficient manner. This has been made possible through careful planning and collaboration with our suppliers to ensure a steady supply of necessary materials. Despite significant challenges in the third quarter, this collaboration proved invaluable in navigating the current environment. Our proactive approach to pricing and our ability to navigate these challenges has enabled us to maintain high service levels for our channel partners and end-user contractor base. In the third quarter, we effectively offset significant increases in raw material and freight costs with our pricing strategies and are on track to achieve price-cost neutrality for the full calendar year 2021. Another key pillar of Vision 2025 is expanding our higher-returning businesses through acquisitions. Since Vision 2025 began, we have broadened our portfolio into polyurethanes with our 2017 acquisition of Accella, and into architectural metals with the 2018 and 2019 acquisitions of Drexel and Petersen, respectively. Most recently, we expanded into weather, vapor, air, and energy barrier systems with the third-quarter acquisition of Henry Company. This acquisition not only aligns with our strategy to expand the building envelope but also reflects our commitment to increasing the proportion of energy-efficient products in our portfolio, addressing the fact that buildings account for about 30% to 40% of annual global greenhouse gas emissions. For example, Henry’s Air and Vapor barrier product, Blueskin, helps to prevent uncontrolled air leakage and can result in savings of up to 30% on heating and cooling costs. With the growing demand for energy-efficient solutions for sustainable buildings, we will continue to emphasize the development of products aimed at reducing carbon emissions, positively affecting the environment. In addition, we made progress on our Vision 2025 capital deployment strategy in the third quarter. Despite the acquisition of Henry, which is Carlisle’s largest acquisition, we continued our share repurchase program, spending $25 million during the quarter and bringing our total repurchases for the year to $291 million. Since 2016, we have repurchased over $1.8 billion in shares. We also remain committed to consistently raising our dividend, which we did again in August, marking our 45th consecutive year of increases. We take great pride in our decades-long stability that allows us to return capital to shareholders. As we close out 2021, we are making progress in our ESG efforts, performing audits to establish baseline data at manufacturing sites, identifying opportunities for reducing energy, waste, water, and greenhouse gases, and setting achievable reduction targets for the future. The Carlisle Operating System is central to our culture and is a driving force behind our success; continuous improvement applies to our ESG initiatives as well. We are utilizing this system to set ESG goals and targets that will result in significant reductions in emissions and energy consumption. We will publish these targets in the coming year. Some notable ESG initiatives that have progressed in the third quarter include our recycling program for production materials made of paper, which has expanded to several manufacturing sites across the U.S., recycling nearly 1 million pounds of waste into our insulation products. We have also upgraded our factories with energy-efficient LED lighting, saving over 3.5 million kilowatt-hours of electricity, resulting in a substantial reduction of greenhouse gases. Additionally, we plan to upgrade our expanded polystyrene facility in Dixon, California, to enable production using 100% recycled materials by the end of next year. This initiative, driven by our team in Dixon, aims to recycle up to 150 tons of production and customer scrap annually, preventing significant waste from being sent to landfills. We are thrilled to see our ESG efforts gaining momentum throughout the company. Our performance in the third quarter of 2021 reflects solid execution, with revenue increasing by 25% year-over-year, and organic revenue up over 19%. All segments contributed to this growth. Adjusted EPS rose by 27% year-over-year to $2.99, as higher volumes and disciplined pricing more than offset inflation during the quarter. In our Construction Materials segment, we experienced outstanding performance despite severe supply chain challenges, achieving over 23% organic growth year-over-year. Our organic sales were nearly 14% higher than the same quarter in 2019. The growing backlog continues to benefit CCM, driven by a robust reroofing cycle in the U.S., which we estimate will increase in market size from $6 billion to $8 billion over the next decade, coupled with a rising emphasis on building energy efficiency. We are confident that demand trends remain strong, supporting our view that roof replacements cannot be delayed indefinitely. Our acquisition of Henry exemplifies our continued focus on the building envelope. In its first month with Carlisle, Henry reported excellent results, and its integration has gone smoothly. We appreciate Henry’s experienced management team and their commitment to innovation, customer focus, and continuous improvement, which make us increasingly optimistic about exceeding our preliminary forecasts for 2022. Our other expanding platforms are also moving forward. In architectural metals and polyurethanes, we saw growth of over 35% in the quarter with ongoing improvements in profitability. Our new CCM European leadership team is effectively growing the core business and improving profitability while introducing new energy-efficient products. Recent investments in our Waltershausen, Germany facility will support this growth. Our strategic approach to pricing has allowed us to more than offset raw material and freight cost inflation in the quarter, demonstrating the strength of our pricing management philosophy developed since 2016. Additionally, the impressive work of our sourcing team at CCM has played a crucial role in ensuring high production levels amid strong demand. Moving on to CIT, third quarter revenue grew 6% year-over-year, reflecting progress in both the commercial aerospace and medical technology sectors. The commercial aerospace backlog has reached its highest levels since May 2020, which is encouraging. Demand for narrow-body production is increasing as air travel rebounds domestically, positioning CIT to capitalize on future growth as demand for wide-body production returns. CIT has made significant restructuring improvements recently, including the closure of our Kent, Washington facility, which has positively impacted profitability. In the medical sector, record revenues have supported both sequential and year-over-year growth as hospitals resume capital spending. We believe our medical business is well-positioned for mid to high single-digit annual growth in the long term. In CFT, revenue growth was 9% year-over-year, with adjusted EBIT growth of 16% due to a renewed focus on new products and improved operational efficiencies. CFT is benefiting from rising industrial capital expenditures, even as supply chain issues persist in automotive markets. We are optimistic about CFT’s sustainable value creation potential through innovation, operational efficiency, and automation. We expect continued execution on our Vision 2025 growth strategy and improved performance in the fourth quarter and beyond. With that, I’ll turn it over to Bob to discuss our financial performance in more detail.

Thanks. As Chris mentioned earlier, we had a strong third quarter. There are several items that I’m especially pleased with: CCM’s ability to offset challenging operating cost conditions by focusing on delivering the Carlisle experience; the growing backlog at CIT and CFT; our successful senior notes issuance; our disciplined approach to capital deployment in the form of share repurchases and dividends; continued investment in our high ROIC businesses to drive organic growth; and finally, our portfolio optimization actions, including divesting CBF and the acquisition of Henry Company. Please turn to the revenue bridge on slide 9 of the presentation. Revenue was up 25% in the third quarter driven by volume growth at all of our businesses, price, and the acquisition of Henry. Organic revenue was up 19%, driven by CCM, which delivered 23.3% organic growth. Acquisitions contributed 4.8% of sales growth for the quarter, and FX was a 30 basis-point tailwind. On slide 10, we have provided an adjusted EPS bridge. We can see third quarter adjusted EPS was $2.99, which compares to $2.35 last year. Volume, price, and mix combined accounted for $2.15 of the year-over-year increase. Raw material, freight, and labor costs were a $1.75 year-over-year headwind. Acquisitions contributed $0.15; interest and tax together were a $0.05 tailwind; share repurchases contributed $0.06; COS contributed $0.09, and higher OpEx was an $0.11 headwind year-over-year. Now, let’s turn to slide 11 to review the third quarter performance by segment in more detail. At CCM, the team again delivered outstanding results, with revenues increasing 29%, driven by volume, price, contributions from Henry, along with a 10 basis-point foreign currency translation tailwind. All of CCM’s product lines delivered double-digit percentage growth. CCM effectively managed raw material inflation headwinds experienced in the quarter with disciplined pricing, proactive sourcing, and allocating products to the strategic customers. Adjusted EBITDA margin at CCM was 22.6% in the third quarter, a 240 basis-point decline from last year, driven by higher raw material prices, labor inflation, and a return to more normalized SG&A spending, partially offset by volume, price, and COS savings. We continue to anticipate net neutral price-cost for the full year. Adjusted EBITDA grew 16.6% to $240.5 million, again demonstrating the earnings power of our CCM business. Please turn to slide 12 to review CIT’s results. CIT revenue increased 6.1% in the third quarter. As we expected, CIT returned to growth and promisingly returned to profitability on an adjusted basis. CIT’s commercial aerospace backlog has consistently grown in 2021 and has now surpassed second quarter 2020 levels. CIT’s medical platform continues to build a robust pipeline of revenue-generating products with increasing backlog. The team delivered record sales in this business in the third quarter, and we continue to expect sequential improvement from pent-up demand as the impacts of COVID on hospital capital spending and postponed elective surgeries ease. CIT’s adjusted EBITDA margin improved year-over-year 13%, driven by commercial aerospace and medical volume recovery, along with COS, partially offset by raw material and labor inflation. Given the positive indicators and actions undertaken in 2020 and 2021 to right-size the business, we are optimistic that CIT is positioned to leverage a return to growth over the coming quarters and years. While mix influences and timing of channel inventory depletion are our biggest watch items, we remain confident in CIT’s ability to manage through this, ensuring greater leverage to the recovery in the coming quarters and years with the line of sight to profitability exceeding pre-pandemic levels as demand returns. Turning to slide 13. CFT’s sales grew 9.4% year-over-year. Organic revenue improved 6.3%. Additionally, acquisitions added 0.9% in the quarter, and FX contributed 2.2%. CFT is well-positioned to accelerate through the recovery due to continued stabilization in end markets, driven by an improved industrial capital spending outlook, coupled with new product introductions, which have included $12.4 million of incremental new product sales in 2021 year-to-date, along with pricing results. Adjusted EBITDA margins of 15.3% or 40 basis points, declined year-over-year. This decline was driven by labor inflation and higher operating costs, partially offset by volume, price, and mix. On slides 14 and 15, we show selected balance sheet metrics. Our balance sheet remains strong. We ended the quarter with $296 million of cash on hand and $1 billion of availability under our revolving credit facility. We continue to approach capital deployment in a balanced and disciplined manner, investing in organic growth through capital expenditures, and opportunistically repurchasing shares, while also actively seeking strategic and synergistic acquisitions. In the quarter, we repurchased 124,000 shares for $25 million, bringing our 2021 year-to-date total to 1.7 million shares for $291 million. We paid $28 million in dividends in the third quarter, bringing our 2021 total to $84 million. We invested $34 million of CapEx into our high-returning businesses to drive organic growth, bringing our 2021 total to $89 million. Finally, we had a successful debt issuance of $850 million of senior notes at a weighted average coupon of 1.6%, which lowered Carlisle’s cost of debt from 3.35% to 2.85%. In addition, as has been noted, we completed the purchase of Henry Company for $1.575 billion. Henry is expected to deliver approximately $100 million in free cash flow on our first full year of ownership. We expect meaningful cost synergies of $30 million annually by 2025. Finally, we expect Henry to be immediately accretive to Carlisle’s EBITDA margins, adding over $1.25 of EPS in 2022. Free cash flow for the quarter was $82 million, a 55% decline year-over-year due to increased working capital usage related to our 25% revenue growth in the quarter. Turning to slide 16, you can see the outlook for 2021 and corporate items. Corporate expense is now expected to be approximately in the $120 million to $122 million range, slightly lower than our previous estimate of $125 million. We expect depreciation and amortization expense to be approximately $230 million, which now reflects the Henry acquisition. We expect free cash flow conversion to be in the 105% to 110% range, slightly lower than our previous estimate, primarily due to high-cost raw materials that we are holding in inventory. We now expect capital expenditures of approximately $125 million, lower than previous estimates, mostly due to timing. Net interest expense is now expected to be approximately $94 million for the year, higher than previous guidance due to our debt issuance in the quarter. We continue to expect our tax rate to be approximately 25% for the year. And finally, we expect restructuring expense to be approximately $15 million to $20 million in 2021. And with that, I’ll turn the call back over to Chris.

Thanks, Bob. Entering the third quarter, we continue to be optimistic about the remainder of 2021 and the first half of 2022. There are numerous reasons for this optimism, including record backlogs at CCM, supportive trends in CIT’s aerospace markets, growing strength at CFT, improvements in our supply chain, the impact of positive and proactive pricing actions, and significant traction in our ESG journey, all the while leveraging COS and the Carlisle experience to deliver innovative products to our customers. For these reasons, we’re confident in our continued ability to deliver results for all Carlisle stakeholders. For full year 2021, we anticipate the following: At CCM, the underlying reroofing trends that have provided a solid foundation for growth over the past decade picked up in the second half of 2021 after a pause in 2020. Through the pandemic, we continue to invest in CCM in order to ensure we would be ready when demand returned. In addition, our expansion further into the building envelope; the increasing importance of energy-efficient products; contributions from Henry; and our proactive pricing actions have positioned CCM well for continued growth over the coming quarters. Considering this momentum, we are increasing our anticipated revenue growth to mid-20% in 2021. At CIT, we are encouraged by the recovery in narrow-body commercial aircraft. While this first step to recovery is encouraging, demand for wide-body aircraft driven by international travel remains muted in 2021. We anticipate this demand will return to previous levels as COVID concerns subside and countries relax their travel restrictions. In addition, CIT’s medical business has built a record backlog. Taken together and coupled with significant restructuring at CIT over the past 18 months, CIT is now positioned to take advantage of the ongoing recovery. We continue to expect sequential improvements and now expect CIT revenue will only decline in the mid-single-digit range in full year 2021. At CFT, with end market strengthening due to increasing industrial capital expenditures and improvements in the team’s execution of our key strategies, including new product introductions accelerating growth in our new platforms and price discipline, we continue to expect mid-teens revenue growth in 2021. And finally, for Carlisle as a whole, we are now increasing our expectations to deliver high-teens revenue growth in 2021. As we progress through the final quarter of 2021, we are tracking to deliver a record year despite one of the most challenging periods in our history. We remain committed to our Vision 2025 goals of $8 billion in revenues, 20% operating income, and 15% ROIC, all driving to exceed $15 of earnings per share by 2025. Despite the continued uncertainties around COVID, stressed supply chains, raw material shortages, labor inflation, and winter weather, Carlisle’s resilient employees have adhered to our COVID protocols, shown respect for each other in the workplace, focused on safety, and most importantly, remained focused on delivering results for all our Carlisle stakeholders. With that, we’ll conclude our formal comments. Bethany, we’re now ready for questions.

Certainly. We will now begin the question-and-answer session. The first question comes from the line of Bryan Blair with Oppenheimer.

I would like to explore more about CCM’s underlying demand trends and outlook. Last quarter, you mentioned orders were close to 2x normalized levels. How did the third quarter trend compare to that? What momentum do you anticipate going into the fourth quarter, considering it’s typically a lighter season for us? Additionally, how is your team addressing the recent disconnect between order rates and revenue? Is there any additional insight on the proportion of firm orders contributing to pent-up demand and backlog as we enter 2022, compared to the double orders that were placed in response to supply concerns?

Bryan, let me start and Bob can add in. The demand has continued to grow. We're seeing more traction as we move into the third quarter and as we approach the fourth quarter. Our backlogs have increased, and orders have been pushed out. We're now in the second quarter of 2022, which is a delivery time frame that we haven't really experienced on a large scale before. So yes, demand remains strong. I anticipate that the fourth quarter will be unusual because, while we typically experience seasonal effects during this period, this year, with our backlog, we will ship as much as possible, particularly as roofers have work to complete. However, they will face constraints related to labor availability and weather. If we have a favorable fall and early winter with good weather, I believe things will trend positively. Concerning the double booking issue, our team has implemented some mechanisms that have effectively reduced that in our bookings. Despite this, demand remains robust and lead times are continuing to extend. Bob, would you like to add anything?

No. You’ve covered, Chris.

All good to hear. And you’re obviously putting through a lot of price, encouraging to see price cost back into positive territory. As prices continue to climb, have you sensed any pushback in the channel? Are there concerns about demand destruction with potentially shifting project economics going forward?

No, I don’t really think so. I think people understand that it’s in a very inflationary time. I think the key thing now is can you get product; I think it gets passed on early in the year. I would say there was more pushback in the first quarter where the demand hadn’t picked up yet. But as things have accelerated, I think people are focused on getting jobs done. I think also, I’ll give a tip of the hat to the guys at Greco today and David Low, who made a nice comment that people do a fair job of recapturing the costs, right? But we still have to make sense of what the end-user customer is doing at the decision point of sale. I think our CCM team has done a really good job of that, balancing that idea that it’s not like we made big gains in price over raws. We’re saying we’re neutral. So, we’re attempting to secure raw materials so they can complete their jobs and not trying to take advantage of the situation. So again, they’ve been making decisions to come to Carlisle consistently, and we haven’t seen any degradation in jobs or movement of jobs due to price.

Understood. Your comments on early-stage tender integrations were very positive. Can you provide any additional insights? What specifically drives your confidence in exceeding the $1.25 in the first year? Does this consider any price cost advantages, or what’s your perspective independent of that factor?

Yes. I want to emphasize our strong confidence stemming from the due diligence we conducted over the past six years regarding the Henry team. We discussed this after acquiring them, and it’s been reinforced through our interactions. Frank Ready and his team have impressed us significantly, and they have seamlessly continued their work post-acquisition without any delays. Our corporate integration team has provided excellent support to both the CCM and Henry teams, leading to a smooth collaboration. The quick alignment of both teams has been commendable, and their focus on growth is evident. On the pricing front, Henry is recognized as a premium brand that is in demand among their users. They, like CCM, are addressing the rise in raw material costs and availability challenges by communicating the need for higher pricing to their channel partners. There’s been a clear understanding from both channel partners and end users, which has led to successful execution. Overall, we have a strong team, effective ongoing operations, and excellent integration processes that boost our optimism for 2022.

The next question comes from the line of Saree Boroditsky with Jefferies.

Can you just talk through your increase in guidance for CCM sales to be up mid-20%? How should we think about the contribution from Henry and your assumptions on price versus volume? And then, any color on the carryover of pricing actions into 2022?

I will take the first question about the carryover, and Bob can address the previous one. We discussed previously that our pricing actions have been neutral. We believe these pricing actions will continue as long as demand remains steady, which it currently is. If we see any further increases in labor, freight, or raw materials, we will take steps to counteract that. However, I don't foresee any issues with the pricing carrying through, and I expect it to continue at least into the first half of 2022. We've maintained consistency in our pricing strategies throughout the year, which is why we're emphasizing pricing. This has been clearly communicated to the channel, and everyone comprehends it. Bob, you may want to respond to Saree's comment.

Yes. The guidance for base CCM continues to be in the high-teens, and we are adding Henry at a rate of 5% or 6%.

Understood. And then, you made a comment about orders going out to the second quarter of 2022. How does that work from a price cost perspective? Do these orders go out to prior pricing levels, so there should be more of a lag in realized pricing than is typical?

No. In fact, Saree, what's really happened recently is that many of these orders are priced at the time of shipment. We'll see that those orders are placed, but they aren't given pricing that we will recognize later. If there is an escalation, we'll adjust the pricing accordingly.

The next question comes from the line of Garik Shmois with Loop Capital.

You cited weather as a headwind in the release. Is that mostly on the supply side with the storms in Gulf Coast? Was there a cost impact, if so? And also, do you see any push-out of demand given some of the weather headwinds that you might have experienced? What I’m ultimately getting at is, is it possible at all to quantify how much the weather impacted the margin side?

Yes. It’s interesting, Garik, if it was a normal quarter, we probably would have been able to quantify. We would have said something like two or three days off the roof, but we didn’t, I think, with everything else going on and all the puts and takes. It obviously impacted demand if there’s a hurricane coming through the central part of the United States; obviously, we’re not going to have people on roofs. They’re going to be taking care to be safe and other things like that. I would say, though, it probably impacted a supply chain that was already under stress even more than it did demand. And yes, the demand gets pushed out. As we said, if you’re going to reroof for roof or if you’re going to do a job, you’re going to have to do it. If you can’t get it done that day, you got to do it in the future. And then, on the supply chain, I think it’s just as I said, it aggravated the situation more, probably put a little bit greater upward pressure on either supply availability or pricing or maybe both.

I was wondering if you could maybe provide a little bit more color on what you’re seeing on the supply chain, your degree of confidence that it will return to some sort of normalization in 2022 would be helpful.

Right. Well, I think from the base premises, if we look back at 2020, when we look at the costs that we had on unit cost across MDI, TPO, polyiso, EPDM, those things, those were supplied at a certain level with certain capacity there. Really, the only thing that happened was we had COVID hit and people had more restricted workdays. They shut things down, things like that. Prices escalated. When we look at the pricing escalation, most of it was done between the latter of Q2, I would say, probably June and then into Q3 and accelerated a bit into Q4. They had to hire, you can see the rising cost of labor, you have to start up factories, and you have increased shipping costs. I think we saw that this doesn’t affect us necessarily directly, but freight from containers from China had gone from, let’s say, 4,000, 5,000 to 25,000 on the spot market, I think. So, you see this happening. I think our thought is that these things will get worked out. We know in the Port of Long Beach, I think they’ve gone to 7-day-a-week, 24-hour-a-day work. They’re going to see some reduction in the backlog there over time. It will take time to do it. We think that plays out in the rest of the economy. By the time we get to Q1, those same trends that were there in 2019 and the capacity and everything else come back. Really, we haven’t seen the growth that would tell you that we’ve exceeded some of those capacities. I think we go back to kind of ‘19, and we see some stabilization and reduction in at least the lack of availability and hopefully some pricing as well.

Okay. And then, just my last question. Just in CCM, just given the momentum in your backlog, how much of this do you think is just underlying demand, and just kind of the natural part of the commercial cycle that you’re in versus your ability to continue to take market share just given your capacity and service levels?

Yes. I wouldn’t read too much into the market share in the June through current date timeframe. We don’t have a lot of really concrete data that we’ve gained share. I think what we’ve seen anecdotally is that we’ve had more people that previously were with competitors come and ask us for products. That would tell me that we’re maybe in a little bit of a better position than others, but I can’t back that up with anything on numbers. So, I looked back to the way it was, like I said, in ‘19 before COVID hit. I don’t think where the competitors are there that the markets have changed that much. So, going forward, we will see significant changes in market share. I think it’s really been demand that has accelerated because last year went down and projects were delayed and pushed aside and postponed. We came back, as we said in the first quarter, we thought things were going to be strong this year, we built inventory, we raised prices because we anticipated as the vaccines took hold and as reopenings occurred that demand would pick up. As we’ve always said, with 70% of our business being in reroofing, these things have to get done, and it would have to pick up some time. A lot of this demand is spread evenly across all of our competitors and ourselves, and it’s just a response to the 2020 downturn. That great mid-single-digit underlying trend that was there post-2010 just continues.

The next question comes from the line of Tim Wojs with Baird.

Maybe just sticking on supply a little bit, more on availability. Have you had any meaningful challenges actually getting supply in terms of commodities?

Yes, I would definitely say there have been some instances, though I won't specify which ones. That's why we highlighted our sourcing team, who has done an excellent job searching globally to find resources to ensure we can meet our customer demand.

Okay. Is that what you consider the easing from Q3 to Q4; is it actually about availability?

Yes. I think that’s the first, I think that absolutely.

Okay. And then, I guess, just in the offseason, historically, you guys have used it as a time to build more inventory. I’m just trying to think about, as you prepare for next season, particularly in the membrane part of the business, how you’re thinking about kind of that pre-season inventory builds to support next season, if you can have a normal build, I guess, or be able to do a normal build?

I would think it would be disingenuous to say we’re going to have a normal build. I think, as we talk about getting everything we can out to keep people working and to keep these job sites and living up to our Carlisle experience, right? We make a big commitment with that, and people expect it. As long as that demand holds, like I said, and the weather is good in the fourth quarter and the first quarter, we’re going to be shipping things out to put on roofs and support our contractors. Now, if there are days where we have long weather periods of snow or that we’ll use that opportunity to build inventory; we’re not going to slow down. But I think there will be some opportunity just because of the way the winter is in most of the United States. I also think if there’s any opportunity for people to catch up, they’re going to do it. So, I think we’ll have more information as we get kind of further into the quarter and see how things go. But I think it’s going to be tough to build any real meaningful inventory in Q4 and Q1 like we usually do.

Okay. And then, could you just remind us when the TPO and polyiso capacity comes on next year, at least preliminarily?

Yes, TPO is going to be the first quarter. We’re going to be making the normal 12-foot sheets on it and then going to 16 later in the year as they, I’m going to say, stabilize the production process and then get it dialed in. The polyiso is going to be late ‘22, early ‘23.

The next question comes from the line of David MacGregor with Longbow Research.

I guess, Chris, I wanted to ask you about a comment you made earlier with respect to the potential limitations you may face on growth, one of them being installation labor. To what extent do you think the installation labor availability will use as a governor to 2022 growth? What can you do about that? Do you have any options, do you have any levers you can pull to work around those potential constraints?

Yes. Well, I think you’re right to cite that. It is true. I mean, we actually are constrained. We’re happy to most times be able to deliver everything our customers can apply to a roof, but we’re constrained by their ability to put it down. So, that’s a real issue. I don’t know how much we can do to alleviate that. But what we can do and what our team is doing is making products to take labor off the roof. Bob just mentioned the new 16-foot TPO sheets that are going to be made in Carlisle, PA. We had a chance to see the progress on that line earlier this year. It’s remarkable, what an enduring feed it is. But more remarkable is the fact that that’s going to get a roof put down faster and allow our contractors to get off the roof quicker. We also have work we’ve done with CAV-GRIP, one of our adhesives and other things. We just keep trying to make the installation as quick as possible, obviously, still holding all the quality and technical specifications we need, making sure all the product is there. This is a big one. If you think about that idea that we say getting the product at the right place at the right time, right? In the right quantity and all that, we pride ourselves on that. It makes a huge difference because as we know, unless you have all the products there, you’re going to have labor standing around, and that doesn’t benefit anybody. Even on cleanup, we’ve talked about a product called APEEL that we’ve talked about for a couple of years. I thought it was an extraordinary product. It’s a thin sheet that goes on that as opposed to having to wash the roof after an installation and clean it and bringing power washers up and that stuff. You simply peel this membrane off, and you’re on your way. The CCM team is doing a heck of a job focusing their new product efforts on doing two things. One is really that whole ESG thing and making sure that we’re making our buildings more energy-efficient and people can use our products to do that. Then, the other one is to deal with this labor component and take labor out of the process.

The second question was really kind of, I guess, at a much higher level. I’m just wondering to what extent you’re seeing any change in building codes that would, if anything at all, bode well for your business over the next couple of years? Are building codes relatively static at this point and not an area where you’re seeing much revision?

No. I think building codes are definitely moving. We’ve had some incidents that have been positive this year and others that we know about that have been negative for everything from concrete to cladding and things like this globally that I know our building code people and our engineers and architects spend a lot of time trying to make these buildings safe and energy efficient as they can because there are great returns, and they want their buildings to be the best buildings that are out there. Look, in our business, one of the biggest drivers in our increased polyiso sales has been around the codification of that trend to double insulation and build it into the building code because increasing that, our value just had a great return for everyone. We will see that with some of the Henry products. We mentioned Blueskin. Once people start to see that a new product can help with the energy efficiency of a building, it gets through the architects. We do a lot of training, train our contractors on it. Then, we can drive that through. I think that type of product once people get to use it and see the results, then it can move into that code stage. To have the codes modified and improved is a pretty elaborate process, and they have to make sure they’re doing the right thing and testing everything. So, it happens. It just happens over time. But yes, we’re seeing that.

There are no additional questions waiting at this time. I would like to pass the conference back over to Chris for any additional remarks.

All right. Well, thanks, Bethany. This concludes our third quarter 2021 earnings call. We want to thank everybody for their participation, and we look forward to speaking with you again at our next earnings call. Thanks very much.

This concludes the Carlisle Companies third quarter 2021 earnings conference call. I hope you all enjoy the rest of your day.