Good afternoon. My name is JP and I will be your conference operator for today. I would like to welcome everyone to the Carlisle Companies Second Quarter 2023 Earnings Conference Call. 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. Good afternoon, everyone, and welcome to Carlisle's Second Quarter 2023 Earnings Conference Call. We released our second quarter financial results after the market closed today, and you can find both our press release and earnings call slide presentation in the Investor Relations section of our website, carlisle.com. On the call with me today are Chris Koch, Chair, President and Chief Executive Officer; and Kevin Zdimal, Carlisle's Chief Financial Officer. Today's call will begin with Chris providing highlights of our second quarter results and a discussion of our current business outlook, and Kevin will discuss additional financial details and our updated outlook for 2023. Following our prepared 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 today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As Carlisle provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Chris.

Good afternoon, everyone, and thank you for joining us on our second quarter 2023 earnings call. The second quarter proved to be a nice recovery story for Carlisle, with our performance evidencing the team's collective efforts to improve earnings and create value for all our stakeholders. We are grateful to all Carlisle employees for their continued perseverance in the face of significant challenges and for their contributions to making the second quarter a success. Most important is our team's commitment to continuously improving our businesses. As you know, in 2021, we decided to pivot Carlisle's portfolio of diversified industrial businesses towards becoming a building products pure play. Our recently announced sale of CFT represents another important step towards fulfilling that goal. Our Building Products businesses represented over 90% of our segment EBITDA from continuing operations in the second quarter of this year, providing further evidence that our pivot is almost complete. We continue to believe that a pivot towards an innovative building products portfolio with a focus on providing energy-efficient solutions will allow our shareholders to benefit from the significant trends in greenhouse gas reduction and increased demand for green buildings and products, especially ones that require less labor to install. Our recently announced sale of CFT continues one of the themes we brought to Carlisle under Vision 2025. That being our desire to be a superior capital allocator and in turn, drive superior shareholder returns. This goal was a primary factor in our decision to use the proceeds of the announced sale of CFT towards share repurchases this year. When combined with our share repurchases to date, our total capital devoted to buybacks in 2023 will be approximately $900 million. At CCM, despite continued channel destocking activity in the second quarter, our teams collectively drove improved sales and excellent profitability. Margins improved significantly from a combination of volume increases, price discipline, cost management, and efficiency gains through COS. The last three quarters of destocking at our distributors and contractors has been a challenge that was made more difficult by the uncertainty related to its quantity and duration. As we enter the second half of 2023, we have performed substantial work to understand the levels of inventory of distributors and contractors and reconcile that with current demand levels. Based on this work, we believe that the vast majority of destocking issues related to supply chain constraints from 2021 and 2022 are now behind us. In CCM, as in all of our Carlisle segments, we entered the second half of 2023 with our efforts focused on leveraging solid underlying demand, capturing raw material gains, and maintaining a positive price/cost relationship. Taken together, these areas of focus give us confidence that we will deliver another solid earnings performance for Carlisle shareholders in the third quarter. Our outlook would be even more optimistic if it weren't for some near-term headwinds impacting the Building Products businesses. First and foremost, well-known and well-published information about this year's extreme temperatures across much of North America have negatively impacted contractors' days on the roof. Here in the Phoenix area, for example, we have had over 26 days of 110 degree-plus temperatures and excessive heat warnings. These elevated temperatures have played a role in our contractors' ability to safely install roofs on schedule. Certainly, every roofing contractor in Carlisle's sphere of business is putting employee safety and well-being first. In addition to the unique weather situation, we have seen an uptick in delays in projects due to growing economic uncertainty, tighter financing conditions, and the ever-present tight labor market for roofing contractors. Even with these headwinds, we still anticipate continued strong demand for our energy-efficient building products, particularly for non-residential reroofing products. We remain very bullish on Carlisle's value creation runway given strong and sustainable underlying reroofing demand, accelerating price-to-value gains through new and innovative products and an increasing awareness by architects, building owners, contractors, local governments and others for the need to drive efficient energy usage, upgrade the energy efficiency of our buildings and decrease carbon emissions. Additionally, we believe that in both the non-residential and residential construction markets, our ability to exceed the expectations of our customers and distribution partners through the combination of the Carlisle experience and our Carlisle Operating System will drive significant opportunities for share and margin gains that will deliver increased returns for our shareholders. Our confidence in Carlisle's future rests on a multiyear backlog of reroofing projects in the U.S., supporting a healthy baseline of activity for our largest business, CCM, which has recently been further enhanced by the Inflation Reduction Act and its emphasis on utilizing a significant pool of assets to drive investment and energy savings. Solid nondiscretionary repair and remodel demand throughout the residential building envelope that makes up approximately 50% of CWT revenue provides reliable through-the-cycle sales growth. Our industry-leading ability to meet the well-known growing need for energy-efficient solutions for buildings and to drive a reduction in carbon-related emissions from buildings that, as many of you know, account for close to 40% of global energy emissions. Carlisle's robust pipeline of proprietary innovative new products is coming to market, accelerated by our increased investment in R&D. Our collective team's subscription to delivering the best-in-class Carlisle experience to all our stakeholders. And the financial flexibility and strategic optionality afforded us by Carlisle's fortress balance sheet and excellent cash flow-generating ability. This strong financial position allows for Carlisle's disciplined, value-creating acquisition strategy, ability to comfortably fund internal growth initiatives and consistent and reliable return of capital to shareholders in the form of a growing dividend and opportunistic share repurchases. Turning to our results. Please turn to Slide 3. In the second quarter, we delivered consolidated sales of $1.5 billion, adjusted EBITDA of $385 million, and adjusted EPS of $5.18. I'm very pleased with the second quarter results as they are a superb reflection of our earnings power as a company and have resumed the continuous improvement trends we were on, especially as it relates to margins. CCM's channel destocking was, as we believe, transitory. And while it was a challenge and caused some temporary impacts to CCM, it did not affect our fundamental business model. We remain focused on delivering products that support increasing demand for energy-efficient buildings and meeting contractors' needs for innovative labor-reducing products. Turning to CWT, revenues in the second quarter were generally in line with our expectations, while profitability was exceptionally strong. The CWT team continues to execute exceptionally well on realizing the synergies planned with the Henry acquisition and has done an outstanding job of integrating the legacy CCM businesses into the new segment of CWT. Needless to say, these efforts are delivering returns ahead of the original deal model. The team is also doing an excellent job of taking cost out through footprint reduction, leveraging customer relationships to drive increased sales across their businesses, improving efficiencies in our plants, and managing price cost effectively. Building on the solid performance in the second quarter, we expect this positive EBITDA growth story to continue for the rest of the year and now expect CWT's EBITDA to grow year-over-year despite the organic revenue declines expected for 2023, a truly outstanding accomplishment in a tough environment and with a relatively new management team. At CIT, we continue to benefit from the restructuring actions taken during the COVID pandemic that are now returning significant margin dollars to CIT as aircraft build rates rebound. The team has done an excellent job optimizing its manufacturing footprint and improving on its product mix, which positions us well to leverage the recovery that is underway in aircraft production. CIT's backlog is notably higher than pre-pandemic levels, giving us confidence that CIT has significant growth potential for the foreseeable future. Taken together, CIT is leveraging sales extremely well in 2023 with EBITDA up 520 basis points year-over-year in the second quarter, and we expect to continue that solid leverage going forward. Please turn to Slide 4. In line with our strategy to pivot to a pure-play premier building products company, we signed a definitive agreement to sell Carlisle Fluid Technologies for $520 million, with an intention to redeploy this capital into share repurchases in 2023. The sale of CFT represents another significant step forward in our efforts to build a diversified portfolio of premier energy-efficient building envelope solutions and demonstrates our commitment to being capital allocators of the highest order. On a pro forma basis, we now expect sales from our Building Products businesses to constitute approximately 84% of consolidated Carlisle revenue in 2023, up from 56% in 2016. Please turn to Slide 5. I'm pleased to share with all of you on the call today that our newest polyiso manufacturing facility in Sikeston, Missouri, is operational and began shipping product for sale in July. In addition to employing the latest advancements in green building technology such as solar power generation and energy base load control systems, the facility will lower the carbon footprint of our supply chain and improve lead times to customers. We're proud that Sikeston was designed and built to the highest current sustainability standards, including LEED Platinum specifications, which is a globally recognized symbol of certified sustainability achievement. Please turn to Slide 6. Our results continue to demonstrate that Vision 2025 has been the right strategy for Carlisle. In addition to our world-class teams and proven business model, we've benefited from a strong balance sheet and excellent cash flow generation to provide both financial and strategic flexibility to execute and achieve our ambitious goals. Our business portfolio transformation sets the stage for a more focused, higher returning, and better understood path for future sustainable value creation at Carlisle. The pillars of Vision 2025 are really well-established and remain core to Carlisle's strategy going forward. Over the last few years, despite the multiple challenges our teams have faced, we continue to be guided by the clarity of mission as outlined by our strategic vision first announced five years ago. As we approach the completion of many of the milestones and goals of Vision 2025 last year, including exceeding our goal of $15 of GAAP EPS, we were simultaneously working on the successor to Vision 2025, a new strategic plan that will be introduced formally later this year. Vision 2030 will be a plan committed to many of the same principles and pillars we used to establish Vision 2025. And with it will come new levels of performance and expectations that are a required part of our culture of continuous improvement and of our Lean Sigma initiatives under COS. As a reminder, the foundational pillars of sustainable value creation at Carlisle under Vision 2025 include: one, drive mid-single-digit organic revenue growth; two, utilize the Carlisle Operating System, or COS, to drive continuous improvement and greater efficiency in our operations; three, build scale with synergistic accretive acquisitions; four, maintain a returns-focused capital allocation strategy, including organic investment to drive growth, a disciplined approach to our M&A strategy, and returning capital to our shareholders. Notably, thus far in 2023, we've returned $327 million to shareholders with share repurchases of $250 million and $77 million paid in dividends. And of course, none of this could be possible without continuing to rely on, invest in, and develop our exceptional talent. Through the execution of Vision 2025, Carlisle has built a solid foundation leveraging a diversified workplace, decentralized management style, entrepreneurial spirit, and a culture of continuous improvement, which will continue to guide our value creation journey in 2023 and beyond and absolutely be core to our Vision 2030 strategic plan. And with that, I'll turn it over to Kevin to provide additional financial details as well as our updated 2023 outlook.

Thank you, Chris. For segment highlights, please turn to Slide 7. CCM delivered second quarter revenues of $948 million, down 15% from the prior year. The decline was due to continued destocking in the channel, disruptive weather, and some project delays. Adjusted EBITDA margin was strong at 31% as we had positive price costs in the quarter. Moving to Slide 8. Revenue at CWT decreased 20%, primarily due to continued softness in residential demand. Adjusted EBITDA margin was 22.5%, expanding 390 basis points from the second quarter of 2022. Echoing Chris' comments earlier, the team continues to benefit from its focus on integration of Henry, accelerated capture of targeted synergies, effectively rolling out COS and significant investment in operations throughout CWT to drive greater efficiencies in our businesses. Moving to Slide 9. CIT revenue increased 3% in the second quarter of 2023, reflecting strength primarily in our commercial aerospace platforms as we benefit from the rebound in demand for new aircraft. Adjusted EBITDA margin expanded 520 basis points to 18%, driven by price realization, leverage on restructuring activities, and efficiencies gained from COS. Slide 10 provides a year-over-year bridge items to second quarter adjusted EPS. Moving to Slides 11 and 12, Carlisle ended the second quarter of 2023 with $379 million of cash on hand and $1 billion of availability under our revolving credit facility. We generated cash flow from continuing operations of $196 million and invested $30 million in capital expenditures. We deployed $200 million toward share repurchases and paid $38 million in dividends. As of the end of the second quarter, we have 2.3 million shares available for repurchase under our share repurchase program. Turning to Slide 13. We have provided our updated 2023 financial outlook. For both CCM and CWT, we now expect revenue to decline year-over-year in the low teens range for the full year 2023. For CIT, we now expect revenue to increase year-over-year in the mid-single-digit range. For the total company, we now expect year-over-year revenue to decline in the low double digits. We attribute the lower revenue expectations to the same items that proved to be headwinds in the second quarter, namely destocking in the channel, disruptive weather, and some project delays. Given the solid execution by our teams across Carlisle, we now have a more favorable outlook on full year EBITDA margins. Despite the double-digit revenue decline, we expect consolidated margins to decline only 50 basis points year-over-year in 2023. We remain focused on disciplined pricing, which is leading to better price/cost capture this year, operational efficiencies, and managing costs through our continuous improvement efforts. With that, I turn it over to Chris for closing remarks.

Thanks, Kevin. In closing, I once again would like to express my thanks and appreciation for the excellent work by all of our Carlisle employees in the second quarter. Their perseverance and just plain hard work have returned us to delivering the results we've come to expect. I'd like to take a moment to share some important organizational changes that are occurring this week. First, all of you know Jim Giannakouros, our Vice President of Investor Relations. Jim has decided to leave Carlisle to pursue other opportunities. Jim was a covering analyst when I became CEO back in 2016, and I remember the dinner we had in New York in May of 2018, where I asked him if he wanted to join Carlisle and make our Investor Relations department the best there could be in the industry. Since then, he has made significant contributions, enhancing and professionalizing our Investor Relations function here at Carlisle, as well as having an extremely positive influence on the corporate and segment finance teams. Jim has lived up to the promise of developing a truly world-class Investor Relations department, and he will truly be missed. I wish him nothing but success and happiness in his future endeavors. And I know all of my fellow Carlisle employees feel the same way. Thank you, Jim. Stepping into the role of Vice President of Investor Relations will be Mehul Patel, who joined us when we acquired Henry Company in 2021. Mehul was most recently Vice President of Finance for CWT, and many of you may have already met him as he's been representing Carlisle at investor conferences and road shows for the past year. I am very excited to have Mehul backfill Jim's role, and I know he will do an excellent job with the investment community. Additionally, Kelly Kamienski, who has been at Carlisle since 2016 and most recently serving as our Chief Accounting Officer, will be taking on the role of Vice President of Finance for CWT and replacing her in her role as CAO will be Steve Aldrich, who has been at Carlisle since 2012 in various finance positions most recently as our Vice President of FP&A. I'd like to congratulate Kelly, Mehul, and Steve on all their accomplishments and wish them the best of luck in their new roles. With Vision 2025 objectives and our core values well ingrained throughout Carlisle, I remain extremely optimistic for the long-term success of Carlisle. We will continue to benefit from the flexibility afforded us by an incredible brand and reputation and take advantage of our strong capital position and superb cash flow generating capabilities. Despite near-term and potentially growing economic challenges, we will continue to drive a culture of, first, a pursuit of excellence in everything we do of continuous improvement of an entrepreneurial mindset and a commitment to superior capital allocation. We also believe the secular growth afforded us by both nondiscretionary reroofing demand and increasing needs for improving the energy efficiencies of buildings pave the way for long term and significant value creation. We'll continue to take the necessary actions to navigate an increasingly complex operating environment, continue to deliver the Carlisle experience to our customers and create value for all stakeholders of the company. And that concludes our formal comments. Operator, we are now ready for questions.

Your first question comes from the line of Bryan Blair from Oppenheimer.

I was just hoping you could thread a little more color, walk us through how the quarter played out for CCM, specifically in terms of destocking. We know has been a headwind for a while. How did that influence April and May operations relative to June? What's your sense of where channel inventory now stands? And how does that impact your progression into Q3?

Yes, several things there. The first on the destocking. Yes, so that destock going into the quarter, we were expecting around $100 million and we're slightly above that for the quarter, about $120 million in the second quarter of destock, remaining destocking. We think we have around $50 million to go in the third quarter. That continues from some of that, the weather, and as Chris mentioned, as far as labor on the roof has been a challenge for the contractors. So that's delayed a piece of that. As far as going through the quarter, I mean, April, May, June, no significant differences. I mean, it ramped up in the second quarter as we'd expect versus a fourth or the first quarter. So nothing of note there.

Okay. Understood. And we can obviously back into a second half figure given your revised CCM sales outlook for the full year, but how should we think of the sales cadence Q3, Q4? Obviously, there's noise that has impacts operations through Q2, a bit into Q3 that you just walked through? And then easy comps start to kick in, in Q4. If you could quantify expectations anymore, that would be helpful.

Yes, Brian, Chris, I expect Q3 to be similar to Q2 with a few exceptions. Kevin mentioned continued destocking, but it's also important to consider the emerging trend of restocking. The demand remains strong; however, there seems to be some reluctance to stock levels we've seen previously. Based on my analysis, I anticipate a slow start after July 5, but demand should increase as people become more comfortable with the quarter and as we approach year-end, especially as job growth stabilizes and distributors feel more confident about increasing inventory. Additionally, with rising interest rates, the cost of holding inventory is higher. There are also discussions among analysts about potential price pressure from competitors, which we didn’t observe in the last quarter, as pricing remained flat. This concern might cause some hesitation regarding high-cost inventory when there’s the possibility of lower-cost products in the future. I don't believe that price drops will happen, but this uncertainty is present. It's also worth noting that the market has been strong, as reflected in COS' results in their residential shingle business, which has utilized some working capital that could have gone to inventory. Therefore, for Q3, I see demand remaining solid, pricing staying flat, and prevailing trends continuing. That's my insight, but Kevin, feel free to add anything.

Yes. So that all shakes out to the third quarter being a couple of percent. 2%, 3% better than the second quarter. Then as you look to the fourth quarter, typically, we're down fourth quarter versus the third, about 15%, but without the destock in the fourth quarter, it will be less than that 15% down in the fourth quarter.

Very helpful color. Margin performance was definitely a highlight of Q2 and that was across the board. But with the scale of CCM, obviously, are needle moving to have some margin upside relative to expectations. I assume that price cost was a solid lever there. Kevin, I believe last quarter, you guided to $40 million to $60 million full year benefit for price cost. Wondering if you could give us an updated figure on that and also offer a little directional insight as to how we should think about the margin cadence through the year and netting to the 50 basis points improvement on a consolidated basis relative to the prior guide.

Yes. So on the price cost, as you said, we were at $40 million to $60 million in our previous guidance there. Now we think we're around $60 million to $80 million. So we've upped that number and that dropped right to the bottom line, we're talking down 50 basis points this year. So maybe looking at those margins, we think we can get to CCM margins right to about 30% this year for the full year. And then as you look to CWT, I think we can get them to up maybe 350 to 400 basis points on the year. And then CIT would be up to about 17% for the full year, so 250 to 300 basis points improvement there.

Yes, Jim, it's a pleasure working with you, and I wish you the best in your new endeavors. Chris, regarding the backlog, what feedback are you receiving from contractors and distributors? Considering days on the roof and the potential impact of the heat plan, how do you assess that in relation to what seems to be a weaker demand environment?

Thank you, Tim, for your question and for acknowledging Jim. We accomplished a significant amount of work in the second quarter. While I won't delve into all the details now, we can discuss it later if needed. We invested considerable time and resources to gain a better understanding, building on insights from the fourth and first quarters where we felt under-informed. We implemented a Net Promoter Score for Carlisle, which has proven beneficial. This initiative involved gathering insights from over 600 contractors, distributors, and other stakeholders, which began in April. Concurrently, we examined our backlog closely, as we wanted clarity on the inventory levels. We believe we have a solid understanding of distribution, but we may have underestimated the inventory on hand with contractors or at job sites. Throughout the quarter, we engaged with around 500 to 600 contacts to reassess. I feel confident about our insights on the backlog. While it's tempting to declare that destocking is complete, it's important to recognize that this trend will continue into Q3. However, there are variations among distributors; for instance, the Northeast experienced significant rainfall in Q2, possibly affecting their destocking rates compared to others. Overall, I believe the backlog is decreasing, and I anticipate that any dip in demand for Q3 and Q4 will largely reflect how fast distributors choose to restock. Looking ahead to the fourth quarter, we expect demand patterns to remain consistent, reinforcing what Kevin has discussed before, which will be illustrated in graphs. I'm optimistic for 2024, projecting a return to more traditional restocking rhythms as we enter the season, something we missed when COVID impacted us in February. During that period, we faced an unprecedented demand surge through 2022, where inventory simply flowed to distribution haphazardly. I’m reassured by the robust underlying demand. Additionally, regarding reroofing, we understand the importance of roof longevity and warranties, and our estimates in this area seem accurate. On energy efficiency, recent data highlight that air conditioning accounts for 6% of the total electricity consumed in the U.S., further stressing an already burdened grid, especially given rising temperatures. Car manufacturers are set to increase charging infrastructure, yet the numbers suggest we need more substantial growth. Our solutions will focus on greener initiatives, such as improved insulation and enhancing building efficiency, which aligns with what CCM and Henry deliver. I feel confident in the ongoing demand in this area. Lastly, concerning roofing days, we’ve heard feedback from the Southern states, where workers are trying to start earlier, but the heat limits effective working hours. Shortened workdays and patterns of increased activity at the beginning of the week are emerging, with less effectiveness noted later in the week due to fatigue and heat. While I can't specify a precise number of days for roofing, I would estimate it aligns with reductions we’d see during heavy rain, likely around 2 to 3 days in the quarter.

Okay. Okay. All right. No, that's all helpful. I appreciate that. And then maybe just on CWT. Just I guess what drove the margin upside, I guess, there in the quarter? And I guess, as you think about kind of the full year kind of margin expectations in that business, I mean, is that a good jumping off point on a go-forward basis?

Tim, we have a hole with us. We didn't announce them in the beginning of the call, and I think I'm going to turn that call over there to Mehul. I don't have a shot at it, and then we'll give Kevin back to them.

Perfect. Thanks, Chris. Tim, nice to meet you. Great question. So overall, for CWT, as Kevin mentioned, over a really strong performance on margin. To your first question, in terms of what's driving it. There are several factors. One is really strong pricing discipline. We're leveraging our investments in sales excellence and the ability to influence in-market demand with our mostly internal sales force. So on a declining raw material environment, that's creating a positive tailwind for us. The second thing is dampening out inefficiencies from 2022. Obviously, there are significant supply chain challenges, the sub-optimized our ability to supply from the optimal plant. So that's correcting now, and we're doing a good job getting back to normal there. The fourth thing, Kevin and Chris talked about synergies. We're doing a really good job executing that above the deal model. So that's creating a positive tailwind. And then lastly, really strong performance on our plants in a declining volume environment. We're really taking advantage of making the right calls, right adjustments, really variabilizing our costs as much as possible, which is helping us in a declining volume environment. Lastly, to your question in terms of a jumping off point, all these things I mentioned, they're going to stay. So I think this is a good margin for us for 2024, and there's continuing to be upside as well, right? As we try to continue to drive continuous improvement, the COS system that Carlisle has. The Henry team is embracing it, that's going to continue to provide tailwinds for us to drive margins up even further Year 2, Year 3 and forward.

Just wanted to follow up just on the CCM margins in the 30% that you're speaking to for this year. Just curious if you could speak to maybe your confidence in that as a jumping off moving forward in light of some of the competitive pressures, Chris, that you acknowledged recognizing your pricing is flat right now, but it seems like maybe the market is bracing for lower price?

Yes, I believe it's a strong and sustainable situation. In fact, I would be disappointed if we didn’t return to the margins we experienced in 2022. We’ve discussed before that while there are occasional bidding wars and concerns about pricing discipline, these instances are infrequent, and the general view is that there’s effective pricing discipline in the market. We’ve also seen management changes at one of our competitors and a different organization acquiring another. Both situations appear to be positive upgrades. Those involved understand value creation and are likely focused on driving it for their companies. Additionally, we’re actively working on new products, such as our 16-foot line, Cab Group 2, and the appeal product. We’re making progress in various channels, and our products are increasingly seen as ROI-driven. The concept of energy efficiency highlights that a roof isn't merely a roof but a critical factor in reducing energy consumption and enhancing return on invested capital. This shifts the conversation away from the basic idea of price competition among manufacturers like Carlisle, as each of us adds distinctive value. Our experience at Carlisle has also been beneficial in terms of pricing. Before 2019, we observed a 5% to 7% premium for our products due to contractors’ trust in receiving the right material at the right time. Since one-third of costs go to materials and two-thirds to labor, having reliable access to materials is valuable. The COVID pandemic disrupted this dynamic, creating confusion. Now, as businesses seek efficient inventory management, we face a challenge since quicker deliveries prevent customers from stocking our products. Nonetheless, we continue to enhance the Carlisle experience. In a growing demand landscape influenced by ESG and other trends, new products and exceptional customer service will help us stand out. On the cost of goods sold side, we are optimizing our use of raw materials and advancing automation at our Sikeston facility, where we are utilizing the latest in ISopolyther production, which is highly efficient. Therefore, as we assess the margins from 2022, we aspire to them moving forward and don’t foresee margins falling below the 30% we’ve seen this year.

Got it. No, that's helpful. My follow-up question is on CWT. I was wondering if you could maybe go into the revenue guidance revision in a little bit more detail, and I can appreciate the, I guess, weaker housing market, but the builders have been certainly more optimistic of late. So just wondering if you're seeing any of that as an opportunity? And just any additional color on the change in the CWT revenue guidance would be great.

Yes. So Tim, a couple of things. One is project delays that are impacting the CWT business, both on the commercial and residential side. So that's a key driver for the change in overall guidance. The second thing, there is still some destocking to a lesser degree, not even close to what we're seeing on the CCM side. But nonetheless, similar reasons are negatively impacting CWT. And then lastly, with raws coming down, there are still pockets for reducing price, but nonetheless, it's still a positive from a price cost standpoint.

So maybe switch have focused on 2024 a bit. So given the impact of destocking this year in CCM, how should we think of this as a tailwind into next year? And if we're in a flattish demand environment, what could you see from sales growth in that segment?

Thank you, Saree. I will hand it over to Jim for a more technical response. However, I want to emphasize that it is premature to make specific predictions about 2024 at this point. Generally speaking, I agree with your assessment. Historically, the legacy demand in the CCM markets has shown mid-single-digit growth, which was disrupted by COVID but rebounded in 2022, returning to those mid-single digits. We expect this trend to continue. Additionally, as we work through the inventory destocking, we should benefit from a favorable environment in 2024. Moreover, macro trends influenced by the Investment Reduction Act and reshoring efforts suggest that 2024 could be a more normal and productive year for us compared to 2023 in terms of top-line growth.

Yes, we should see 40% incrementals on that growth. And as you said, I'm adding to Chris' piece on the top line, that destock should have a plus 10% impact on '24 versus '23.

I would like to hear more about the project delays that were mentioned. Residential accounts for about a quarter of CWT, but only a part of that is related to new residential projects. I'm curious about the overall impact of lower residential volumes on revenue guidance compared to product delays and pricing changes.

Yes. So this is Mehul here again. For CWT, the project delays overall. I mean it's not like a significant amount of the change, I would say, from a percentage standpoint, I would attribute maybe 20% of it project delays, and that's going to come through a combination of labor, just the availability of labor on the construction side, the challenges getting labor. So projects are getting extended out, and taking longer to get on to the next project. The second thing is financing, right, both on the commercial side, which is also another 25% of our in-market exposure for commercial starts. Financing is creating project delays just from taking longer to get projects financed.

Yes, that's a good question. I haven't noticed significant cancellations. There may be some, but they likely stem from poor business practices rather than market factors. While I might say there aren’t any, someone will inevitably find an example. Looking at the segments, we've observed some negative impacts on warehouses, which have been highlighted in media discussions regarding Amazon's warehouse situation. However, in regions like Phoenix, warehouses continue to be developed, indicating some regional variability. Education has performed well this year, showing substantial improvement since 2021, with growth rates comparable to 2022. When it comes to office buildings, the decline has been less dramatic than anticipated. We believe this is due to the nature of our projects, predominantly involving flat-roofed structures like 3 to 4-story office buildings and possibly some manufacturing or warehousing. Thus, the impact of remote work appears lesser for us compared to major metropolitan areas like San Francisco or Manhattan, which are facing significant challenges in their office markets, though this doesn't reflect our low slope group. Retail has seen some slight downturns, but it's manageable, and the healthcare sector is thriving. With an aging population and an emphasis on extended care, I believe investment in healthcare infrastructure will persist. Locally, there have been considerable expansions tied to the Mayo Clinic, with discussions of a significant building expansion in Rochester. Multifamily housing remains in demand, and the shortage in this sector is likely to provide a positive boost moving forward. However, rising interest rates may complicate some of these projects if they remain at historically high levels as indicated today. I hope that provides sufficient insight.

Yes, absolutely. So when we talk about the residential starts, you got to remember, that's 25% of the business. The other 25% on the residential side, and there's also 25% on the commercial side at all R&R. And a big component of that is really nondiscretionary roof coating projects. Products that when you have a leak on your roof, you're not going to have a choice but to use those products. The demand should be stronger in those areas, especially when there's weather events and high rain events.

Yes. Jim, good luck to you, ma'am. Sorry to fly. Exactly. So I wanted to just ask you about the main components within your cost basket. We talked about price cost, and thank you for the detail on that. But if we could just isolate the cost basket for a second and just talk about how prices you may see trending on the main components there?

Well, I don't think we really like to get into that. But I would say you can look at that's obviously a big one that we track. I think there's a mistaken correlation there that a lot of people have to the price of oil. I mean MDI really more correlates to what's happening in the cracking facility and what demand major chemical companies are seeing in petroleum companies on other feedstocks that come off of that. But MDI is seeing some reduction. I think we look at polyethylene, that's another one. EPS is a big one. We've got our synthetic and natural rubbers that we see some oils. I think just overall, again, we're seeing very positive there. I mean, in a sense, it relates to some of the demand factors that are occurring throughout the world. I don't think that a poor European economy hurts us because I think that takes out some demand, and people are looking for places to put their production. I think China is certainly the chemical, petrochemical industry in Taiwan and in China is probably also looking for places to put that. So I think generally, we're seeing those declines again. MDI has been a pretty good one. I'll leave it at that. But I think overall, as you look to the second half of the year, you could see why we've upped that. And to Kevin's point, it's 60 to 80, but we're probably looking more at the upper end of that range, more like the 80 than the 60. So I know that didn't give you enough, but hopefully, that helps you from a directional perspective.

Yes. Typically, for us, once a residential project has started, our products would go on somewhere between 5 and 6 months after the start. So you kind of think of that in terms of where residential starts are and improvement there in terms of how long it takes us to trickle through for our products to go on the project. I think as far as inventory goes, yes, I think as in the residential market, it seems like it's kind of bottomed right now as it improves, it should help us on the inventory side, definitely.

Yes. David, I think it's important to distinguish between new construction and repair and remodel in CWT. We've seen demand increase rapidly, especially following weather events in California. For instance, after a storm, we could find ourselves out of stock at Home Depot and need to respond quickly. Understanding the difference between new construction and repair and remodel is crucial because it influences our sales. A delay of 5 to 6 months might be on the longer side when we consider the entire business.

There are no further questions at this time. I will now hand over to Chris. Please continue.

Well, thanks, JP. I appreciate it. This concludes our second quarter 2023 earnings call. I want to thank everybody for their participation. I do want to once again thank Jim for all the good times and great work he's done and everything he's contributed. He's been a big part of Carl, and I know going forward, he'll be very interested in what we do, and we'll be keeping in touch. And then Mehul, thanks for being on the call and taking up those questions so quickly, you're in. So here we go. And thanks, everybody. We look forward to speaking to you at the next earnings call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.