Yet Another Value Podcast - Pershing Square Challenge 2025 winners on Carlisle $CSL

Episode Date: May 19, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker interviews the first-year Columbia MBA team who unanimously won the 18th Annual Pershing Square Challenge with their investment thesis on Carlisle Companies (CSL). The team—Tuan, Dimitry, and Erik—shares their detailed research into the commercial roofing giant, exploring its competitive moats, sticky customer relationships, management alignment, valuation framework, and opportunities for expansion. They discuss their firsthand trade show research, unique insight into labor dynamics, and responses to key concerns like cyclicality and pricing power. The conversation also covers the company's history, recent transformation, and what could keep an investor up at night.You can find the team's CSL pitch deck here: https://www.dropbox.com/scl/fi/mn4ib4897o8gfpgdzs03c/CSL-US-Carlisle-Pershing-Square-Challenge-Presentation_YAVB_Abridged.pdf?rlkey=ck47pu6samrrnctwlfyr536hc&e=1&st=nj9zt415&dl=0______________________________________________________________________[00:00:00] Intro to podcast and guests[00:02:44] Guest introductions and backgrounds[00:05:35] Overview of Carlisle Companies[00:08:32] Pitch background and idea process[00:13:03] Unique research: trade show visits[00:19:28] Carlisle’s competitive advantages[00:24:58] Sticky customer and contractor base[00:30:00] Valuation and IRR framework[00:35:14] Management's strategy and alignment[00:42:07] Target 2030 growth breakdown[00:46:20] QXO, Beacon, and distribution impact[00:52:22] Risks and margin sustainability[00:54:28] Potential new entrants: Berkshire risk[00:56:33] Labor shortages and benefits[01:00:17] Leverage and capital allocation debate[01:02:56] Final reflections and thank yousLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

You're about to listen to the yet another value podcast. Today's episode is with the team who won the Pershing Square Challenge. Their pitch was Carlisle. It was the 18th annual Pershing Square Challenge, and I believe this was the first team to win it unanimously. They're super smart. It was a really interesting conversation. They did fantastic work on it.

So I think you're really going to enjoy it. And these guys are first year Columbia MBA students. So if you want to reach out to them, they'll be a link to their presentation in the show notes. I'd encourage you. I think they did fantastic work. It's a great conversation, so I think you'll really enjoy it. That's coming up.

But first, a word from our sponsors. This podcast is sponsored by FinTool. Those of you who have followed me on the blog, on the podcast, know that the two areas I've probably thought the most about over the past couple of months is AI and corporate governance. And look, if you are not using AI, you are getting left behind. And let me just marry those two thoughts in one way. If you read through proxies, there's one thing that you know. Proxies contain a lot of information, but they suck.

Companies are almost intentionally obfuscating and bearing a lot of the interesting information here. Guess what? You can use AI to really cut through the noise there. So FinTool just released a thing. You can go do a deep dive into every person in a company's executive roster. So, you know, if I'm looking at a company, I can go to the FinTool People tool. I can look at their CFO. And I can see, hey, here's exactly how much he's paid.

Here's everything that he's done. Here's everything that's been included about him in the proxy for the past five years. Here's all those key incentives points, summarized, laid out so that, you know, what used to take me a day of going through 12 different proxies and looking and matching and saying, was he on this board? When did he join this board? It takes 15 seconds. So look, go check out FinTool. Start using AI. You are going to get left behind fast if you are not using AI as a fundamental investor.

or FinTool, the really interesting product and it continues to evolve. All right, hello, and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have the team that won the Pershing Square Challenge at Columbia, the, what is it, the 18th anniversary, 2025 Persian Square Challenge, Team Carlisle, the ticker there is CSL. We're going to be talking about all of that today. I'm going to turn it over to you guys to introduce yourself.

Before I do, quick disclaimer, remind everyone, nothing on this podcast is investing in advice. There's a full disclaimer at the end of the episode. You can listen to that if you want. So, Team Carlisle, you guys won the Persian Score Challenge. All of you are first years at Columbia Business School. Congratulations. I'm winning. Congratulations to that. I'd love to start this podcast. If each of you could just give a 30-second overview, who you are, introduce yourself a little bit of background. And Eric, you're in the top left of my screen. So, Eric, do you want to go first? Sure. So my name's Eric. I grew up in Florida. I moved out to Texas to start my career at a startup. I was there for a little bit under two years and made the switch into an investing role.

I worked for Andy Beale at CSG Investments for about two years, did distressed debt investing, and that got me to Columbia. And so at Columbia now really just been taking all the investing courses at time with these guys and been interning at Owl Creek asset management over the spring. and this summer I'll be at Rothschild doing restructuring. God, what a, what a terrible, terrible background. Awful mentors, awful history, just the worst. Now you're at an Ivy League business school.

Demetri, do you want to go next? Sure. I'm Dimitri. I was born in Russia, moved and grew up in London, and then came to undergrad to use Chicago, so I studied in the U.S. once before. And I was quite lucky. I joined a byside rotational program.

a small Swiss bank, first in London, looking at international non-US equities, and then for one year before my MBA was in Geneva, working for a sustainable fund, and then came here to find the right kind of philosophy and opportunity for me to go forward. Fantastic. And Tuan, do you want to wrap it up? Sure. My name's Tuan. Also, like Dimitri, I was born and raised in Russia and then moved to the Vietnamese family, but moved to the U.S. to pursue a professional career in tennis. Then I went to school in Boston, went to BU, Boston University,

and then shortly after came out of school and spent a few years in hotel private equity and then made a pivot to corporate strategy at a grocery retailer. But throughout this whole time, kind of found my passion investing and Ben Graham and Buffett in college, so I knew I wanted to pivot into investing management at some point.

So Columbia was kind of, I set my side from Columbia about eight years ago. So right now it's kind of living that dream goal and really excited to both be in this program and just exploring the career path and investment management after school as well. That's awesome. My wife also went to BU, so, you know, go, it's go dogs. It's bulldogs, right? Terriers, terriers. Terriers.

Yeah, you got it. There we go. Well, let's dive into it. So you guys won. I believe I was told that this was in the 18 years of the Pergings Square Challenge. This was the first unanimous winner in the history of the challenge. So congrats on that. I'd love to just start.

Any of you can take it, but maybe we can just start with a quick high-level overview of, again, the ticker of CSL, Carlisle companies, what they are and what you found so interesting about them. In Tijuana, we'll kick us off and then we'll see if. Yeah, sure. Yeah, I can get started. So at a high level, Carlisle is the largest manufacturer of commercial. roofing systems in the U.S. and provider of building on those solutions. So at first glance, when people see building products, they'll tend to write it off as too cyclical, hard to own. But Carlisle is not as cyclical as one might expect for a building

products company for a couple of reasons. First, Carlisle has 80% exposure to commercial, which, as history shows, is much less cyclical than Rezi. And second, high R&R, which is also less impacted by microeconomic cycles, interest rates and the like. R&R, yeah, repair and replacement. And now, not many people are aware of this, but commercial roofing is a very attractive niche to be in, not just in terms of building products, but in absolute sense.

So you have high recurring revenues, 30% of revenues R&R, high barriers to entry, strong profit margins. It's relatively acid light and has low capital intensity, and we can get into that a little bit more. Attractive returns on invested capital, and very sticky, long-lived customers. due to the high switching costs. And then you also have a very laser-focused management team

with a strong track record of capital allocation. So all of that makes it a very high quality business. But for most of its history, this gem of a business was hidden as part of a complex diversified conglomerate, which at one point had as many as nine different segments and then five segments. And now today is a pure play building products juggernaut. And the story behind that is the present management

CEO, Chris Koch, took the helm in 2016, and over the past eight years, has kind of gradually simplified the business, selling off all the low-returning segments and emerging the company as this pure play company here and out. And we think the big reason for the patrini is it's been quite underfollowed for a company of this size, and it only sold off that last non-core segment, CIT, in May of last year. So historical financials are still quite noisy, very easy to be. miss if someone's just doing a quick green on Bloomberg. And so, you know, with that, we think Carlisle is very interesting at these levels. Obviously, it was a bit juicier when we pitched it

in the 350s range. Now, current price is about 400. So we think intrinsic value range is closer to roughly $600 per share. So we think IRR has come down a bit from the low 20s range to mid to high teens. But we're still excited for the road ahead. So maybe I'll pause there. I think you guys have, you have any questions? Or mid-time team's return is nothing to laugh at. Eric, Dimitri, I'll tell you, is there anything that you guys want to build off of what he said on the background and everything? There's a lot of stuff from, I've seen your DAG, I've got a lot of questions of the

company, but anything that Twan said that you guys want to build off there? Yeah, I think maybe Dimitri can add to this, but we knew we were going to team up before the class started. We were all hoping to get a head start on this whole thing. and we spent all of our Christmas break sort of looking into different names looked at hundreds of different companies and maybe Dimitri can kind of wrap it all together

and tell you how we arrived to Carlisle but this was a lot of work and we found this company really not expecting that this is what we were going to end up spending three, four months off. I'm just a little jealous. You guys are the three amegas. You're like, we want to work together

and then you got to work together for an entire semester and a value investing idea. I wish I had that with my friends. Yeah, let's do that. I think that's great. Dimitri, do you want to talk about how you guys kind of settled on Carlisle since it sounds like you had the team, you just didn't know the name that you guys were going to kind of research and find? Yeah, well, kind of as Eric was alluding to in our intro, we took a class called Advanced Investment Research altogether, which is one of these

flagship competitive classes at Columbia taught by Kian Ghazi. And we were a bit inspired by what we went through there. So we had three idea generation pillars. And we have a slide very deep in our deck that kind of goes through exactly how this worked. But one of our very simple funnels was we were looking for basically good companies that can generate some kind of decent return on capital that had had a share price reaction in the last year or two. And what Professor Garzi was teaching us is one way to have a very productive project where you're less likely to end up neutral is to hunt for nonlinear changes. So nonlinear changes can be anything from kind of the actual stock price movements to something in the industry. And in the case of Carlisle,

what grabbed our attention, you know, as we started reading more about it was, you know, what Tuan was talking about the portfolio simplification and the industry pricing change. So then a second funnel, and really, you know, Tuan was the champion of this idea, was going through the value investor insight articles over the last decade. And Carlisle was mentioned there a small handful of times, but was always, you know, a footnote in kind of a longer debrief on someone's strategy or was not really the main focus of different people's portfolios. So we kind of saw it there and then between those two and then the last funnel of trying to think about, you know, the Pershing Square portfolio and interest categories. For us, we didn't want to pitch something

very obvious, but we knew, you know, they would like a brand name. They would like something with good competitive position and Bill Ackman has a family history in real estate and obviously there's this QSR angle to the portfolio recently and sort of a royalty theme. So we were trying to think of a few ideas where in a less obvious way you would be getting a royalty on some of the things that they already like. And something that wasn't part of our thesis, but that we came across was when you have a franchise restaurant opening, the roof of that restaurant is also actually highly specified and it's not like you have free choice to pick whatever material you would like. And so if you like that theme and you think that's going to be more and more openings,

that could have been an initial angle on why to get excited and you're interested. I love the game theory. You guys found an undervali thing, but I love the game theory. You knew who the judges were and you wanted to design a pitch that one of the judges would be really useful. Look, if you think about like Sone, as people have said, the pitches at Sone tends to be extremely cyclical where, you know, when AI is hot and AI is the winner, and when an event driven is hot, you know, when I wanted a few years ago, event driven was hot, so an event

driven trades the winner. And it tends to be cyclical. I love that you guys just play to the to the judges. Let me, there were a lot of things. Maybe, go ahead. Can I add one other thing because maybe to de-emphasize the game theory aspect of it, you know, taking all of that. It's a great idea, too, but I just like that you kind of had an added edge. It was a nice, you know, extra, but overall, it also fit in the framework of which of the few ideas we kind of had a handful of, they seemed to cluster around certain themes. But this one really had, you know, multiple potential IRR drivers. And, you know, we're a team of three guys, one of whom has been living on a construction site for the last year at Columbia.

So it seemed like we'd have a small edge in terms of doing kind of this value-added research and outreach to get a new angle. So I have a lot of questions. But I want to start off by highlighting. If I was judging this, and I have judged things like this in the past, if I was judging this, this would have been the slide that I would have been like, oh, instantly, these guys are like high finalists, all this sort of stuff. You guys talked about the summary of unique work you did, and in particular, I was looking at you went to three different, it could have been more, but you went to three different trade shows.

I've got a roofing show in San Antonio, New York build in New York, and then the roofing contractors in Jersey. And I would have thrown you to the front of anything judging just because you guys. like went out and did that. So I just want to ask about the all of the extra research you did. And that's not it. There's a lot of others. Like towards the back, there's the photo of you guys with the hard hats, which I'm glad your investors not executives because, you know, it's a red flag when you see the executives with the hard hat. But I'd love to just quickly ask you about the extra research you did. And also, you know, I have been thinking a lot about going to trade shows

and we can talk why longer if y'all want to go into more philosophical discussion. But I'd love to hear about kind of when you guys go to these industry shows, what you were learning that maybe wasn't jumping off the page when you were just reading a 10K or listening to a conference call? Maybe shall I kick us off and try and keep it brief? But, you know, one other aspect that attract us to Carlisle is, you know, the top four players that control the market. Two of them are private and you don't really have all that much information. Carlisle has been going through this business simplification. So, you know, historically you really need to dig out the right data and Holsom, the number two player is actually a European conglomerate, and this is just

one business for them. So a really great way for us to get a proper understanding was to go and talk to the people at the trade show from each of these companies and also the people across the value chain who are interacting with them and make sure we're understanding the information that we're finding in Google in other creative ways correctly. And even things like market share, you know, there's a lot of different ways to slice and dice this. But I'll pause that. One thing I'll just touch on, Andrew, is the class that we all connected over, and best research, you know, calls for students to reach out to 15 people in the industry

for a particular name. And in that exercise, you know, we gowered LinkedIn to, and, you know, for me personally, 400 connections and only was able to get maybe 16 calls. And even then, you know, it's a very, you know, manual and tough process taking many weeks. But with the experience of actually going to these trade shows, at least personally for me, I found that the ability to define this differentiate research was just way more efficient. You're able to talk to so many more people and build these relationships that you can actually follow up on and continue nurturing that relationship over time if you're deploying a company or industry.

It was absolutely huge. Eric, if you want to add anything to that, why don't, but I ask the question one. I was going to say, like, you asked, like, how did this help us to get beyond the 10K? And I think that for me is pretty much the most, the experience at the conferences was very substantial in bridging the gap there, because you read from their investor deck or their website and they're saying these things that if you aren't working in the, the trade. You have literally no idea what they're talking about. And it almost sounds like they're just making words up to fill up space on the page and just seeing what sticks. So there's this

concept that they were really hitting a lot on, which was like labor savings. They were trying to market that their products were saving money on labor. And I was like, how exactly does this work? Like, how does this experience that they're selling really fit into reality and what these contractors are experiencing. And so when we got to the trade show, especially the one down in New Jersey, we were able to talk to contractors. We were able to talk to people across different companies and really understand what these things meant and get like a tangible sense for what these products are, why they're actually different and why they actually have value. And I think that like we were able to speak with the management team later on and actually

communicate kind of the gap there. And I think that's one of their concerns is that it's difficult to communicate these themes unless you've been there, unless you've experienced it, unless you've talked to people actually in the field. And this is a highly relationship-based business. So one anecdote is I remember Eric and I were at the Atlantic City show together talking to one of the contractors. You know, these are not people who are going to be writing in a 10K about how they have

you know, a family history of working with a specific brand and how, you know, nothing would compel them to change having, like, gone through generations of that. That's not something you can get otherwise unless you really go there and see it sort of firsthand explain to you. That actually transitions perfectly into my, the key question I had when I was reading your pitch, when I was reading the calls, if you came, if you guys came to me, and I think Twan mentioned it during his calls, well, if you said, hey, I've got a building product company. You know, it sells commercial roofs. I've been like, okay, cool, I'm going to guess 8% margins and return on equity through the cycle is volatile, but, you know, basically cost of capital. And that is not

what's happening here, right? Obviously, a little bit of cyclicality, but they will point and say, hey, did fine during the GFC, their target 2030, I believe their ROIC targets are over 25%. Like, this is a business that is generating incredible returns on capital, great growth, a lot less cyclicality than I would drop. Dimitra, you mentioned, hey, we talked to a construction product guy who he'd been working with the company for generations. And when you listen to the company talking about they'll say, hey, you know, this company that we just bought was started in the 1860s. This one was starting in the 1920s. Why is this business, why is this good? Just why is it good? Why is it, why does your guy who's been working with them for generations? Why isn't you working with them

this year? And the next year, some other roofing products calls them up and says, hey, we'll give you everything but we'll give it to you 3% cheaper and he says that's 3% more in my pocket let's go boys like why is this a good business and i can talk about this all day but probably to one has a more concise answer than me so i'll let him kick us we've got an hour ramble ramble yeah i mean i can start i think at the end of the day when it comes to the stickiness at the contractor level you have a couple components first you have the certification and the training that's required to actually install the product it's a very tight technical product with these commercial roofs and you and I, you know, can't just go out and

start buying Carlisle product and installing Carlyle product on roofs. You have to go through a certification process and you have to demonstrate that you can actually install these roofs reliably and build a track record. And we can get the person getting the certification. Is it the general contractor or is it each individual labor who's getting certified? So it's if you think about a typical building project, you've got the general contractor, but then you've got the roofing subcontractor. So in this case, it's the roofing subcontractor that gets that training. And then he in turn can also hire a bunch of other subcontractors that do some of the labor reform as well. But at a high level, you know, there's that certification training

component. And then what you'll find in the case of Carlisle as an example is they have different brands under the Carlisle umbrella like Versico and Neil Hyde and Carlyde and Carlin. Carlisle Sintech, Carlisle Cintech being the highest brand. And they kind of, in a sense, segment the contractor base in that respect. And as you prove your metal, you climb up that brand ladder within Carlisle. But that's one key component. What does a routine subcontractor decide to go with Carlisle versus someone else? Is it just, hey, when I was the JV under the other subcontractor, I learned Carlisle.

So when I go up, of course, I'm going to learn Carlisle, or is there like a bidding process? How does that happen? There's a couple of things. I think Tuan was about to get to them. Oh, sorry. Taking a step back is it's useful to understand a bit more tangibly, like what this product actually is and what the point is. Because it's, you know, a couple of very simple materials sold in a way that is combined that makes it much more technical than, you know, the underlying components might be. because really the point is that Carlisle is selling this fully warranted system that consists of,

you know, a bit of insulation, the TPO layer, and the accessories, and they're guaranteeing the system for the next 20 or these days could be up to 30 years. So if I'm a customer, like I am really worried about if something goes wrong, who is responsible and who can I, you know, charge and go to this for technical support? So typically the contractor takes the first couple of years of the warranty on themselves and on their shoulders, and then Carlisle or one of the other top four, who produce all of the components themselves in-house, they're able to guarantee that whole system for this enormous amount of time that is the full life of the roof. And that really is, you know, step one of separating these top four players from the next ones who, you know,

are sometimes white labeling from the top four players. And as a result, you know, the warranty might look similar, but actually any interaction point becomes like a big point of contention. So that's one of the pulls of this brand. But maybe I'll pause there for a second in terms of how the actual bid works and so on. Yeah, I'd love to understand how the actual bid works. That sounds great. I mean, I'm happy to continue, unless you go for it. Yeah, so we had, so as you saw, you know, we spoke to a lot of different people.

Maybe one very specific, tangible example is we spoke to the Director of Trades at Columbia. So Columbia's two business school buildings are actually have Carlisle installed on the roof. So the director of trades who actually two years ago was also before he came to Columbia, he was in charge of Capital One's building and roof portfolio, which is like 500 roofs across the US. And Columbia is 300. So, you know, not necessarily a representative sample, but quite a big one. He would have usually two approved vendors on his approved vendor list that he would choose from by default for a project that said, you would have some kind of competitive bid process at the point when you need to re-roof and, you know, you would solicit some information from some other players. But really 80% of volume would go to the top one player and 20 would go to a second kind of backup option.

option, which actually would not even necessarily be one of these top four and could be a more local player just to build some redundancy. So it's very, very sticky from kind of the customer side for a commercial customer like that, but also from the perspective of a new build, the architect or engineer, they have a spec sheet where they know certain brands they've worked with before that have this, you know, potentially decades long track record of what can be installed on the roof and how it's going to interact. with other parts of the building. And to disrupt that and come in, that's actually a really difficult process and requires challenging the architect's current work stream and way of thinking. And we have a potential anecdote there as well, if you like.

Yeah, give me with the anecdote. I'd love to hear it. Does one of you guys want to talk about ICO trying to enter the market? Go for it. Yeah, well, I can touch on ICO. So ICO, as brief background, is a Canadian manufacturer of roofing materials and they were more focused on the residential side of things.

But they decided to enter the commercial roofing materials market in about 21, 2021 timeframe. You know, they've had one facility and they've been trying to take share from the market It would pass, call it, three to four years, and based on all the conversations that we've had at these different trade shows, it seems like they still haven't gotten serious traction, you know, and that kind of speaks to how difficult it is to actually gain share, not just in these, you know, re-roofing projects, but especially these new build projects that Carlisle elevate and the other top four players actually compete in. So, you know, for a new engine to actually enter this market and take some of these excess returns can take, in our view, years, if not, up to a decade or more. So unless you buy yourself in to the spec sheet. Yeah. But also, the extra color here is, you know, this is not just some random, you know, small fun. These guys are highly visible at these trade shows.

They're advertising. They've taken, you know, veterans from the top three places. players and brought them into their business, and they've been trying to undercut price. And basically, they cannot actually compete for the same fully warranted projects that Carlisle is doing, even despite all those things. So if I'm listening to you guys correctly, it seems like the major, the major moat here is, it's almost brand, right? It's, hey, the warranty costs and everybody, like I'm from New Orleans, everybody knows

hurricanes come through and what's the worst thing. obviously if water gets in your home, that's worse. But the roof is damaged and you've got to call the insurance guy. And, you know, a roof is, I think it's 5 to 10% of a building's cost. So, like, that's material if the roof's getting damaged. That's where most of the damages is happening. So it sounds to me like the warranty and just knowing that these companies are going to be there 20 years from now to handle the warranty is the big thing.

I guess that makes sense as a moat. But, you know, the contractors have to get approved. But do contractors tend to, they only work with one of these big? three? It depends how big the contractor is. So for a smaller contractor, you know, it's not the most simple process. I mean, if you're a larger and you're making enough money on an aggregate basis, you probably are contracted with all of the top four and maybe a couple more. But it really depends. But what I was going to get at is you have this brand and kind of relationship aspect, but you also have the incentive to concentrate volume. So you do get a volume big. This product doesn't

travel super well. And, you know, historically there's these anecdotes about trips to Hawaii that elevate would give to its top 500 contract master contractors. And if you want to be making the most of the sales incentives, you're not really diversifying across more than, you know, two or three. That's a really funny moat. Hey, it makes sense, right? The more I hear about Salesforce is everything. Like, you concentrate, you hit the volume and you're going to get a free trip to why. Okay, I think that makes sense. Let me, we might return to the business, but let's talk valuation real quick. You know, I think the second thing, and I'm just pulling up my notes, people are going to look at this. And the first thing I thought was,

hey, I can't believe that this is a good business. And I think you guys and the numbers, you guys have suggested why it is, and the numbers are proving why it is, right? The second thing I would say is, hey, why is this an alpha opportunity? You know, if I was looking at valuation, I'd say, hey, if I went back to 2019, now they've divested some of the lower margin businesses, but margins are definitely up over the past five to seven years, right? Margins have gone up. I think if I kind of backed out the lower margin business, they backed out, they've probably gone from the low 20s to the high 20s.

So you've got margin expansion, and they're trading at, call it 20 times this year's earnings, 16 times next year's earning. So I'd say, hey, you've got a still somewhat cyclical business. It's trading for a full multiple. its margins are at the higher end of what they've earned. And then, by the way, this is a business that has done a lot with acquisitions. And at this point, you know, this is a $20 billion company. Last year, they did $700 billion acquisitions, $700 million acquisitions.

It's starting to get to the point where there's not a lot of acquisitions that budge the needle anymore. So if I just threw the three of those out there, it'd be like, oh, interesting business, good business, but is it alpha? So any of you can start and you can break down any of those points you want. Yeah, I think maybe we can touch on that the biggest pushback that this company has had in terms of the bull bear debate, if you will, is our margins going to sustain or are they going to mean revert? And so with the current, when we were looking at it, the pricing, what the current price was implying in terms of revenue growth and margins, it showed that revenue was going to be below

what management was guiding, which was 5%. and margins were going to stay about flat over the ensuing couple of years, maybe a little bit increased and then drop off dramatically. That was partly due to the limited analyst coverage going out three years. But that was the key question that we were trying to answer. The interesting thing is because this is not that well covered,

there's a few different ways you can think of what is actually priced in. So we were looking at consensus and could see that right now for this year, They had very weak organic growth, and then over the next couple of years had margins kind of coming down, but part of it is also because of analysts dropping out of consensus. So it's not super helpful. But then we also looked, as Tuan was alluding to, we did our own reverse DCF and tried to triangulate, okay, if we put the consensus numbers, what do we get if we kind of stretch this out into the next couple of years explicitly? But I think the overarching point is that you're buying a company that has very, you know, I guess relatively predictable growth characteristics and what we felt was a resilient margin at a multiple, which at the time was I think 16 times forward earnings compared to an S&P average that was meaningfully higher. And on top of that, this was kind of the U.S. listed pure play champion for this category and trading at a lower multiple. than other conglomerate building product company is listed in Europe, which is quite an unusual.

Yeah, trading below your, I mean, maybe over the past month, but the most frequent theme for investors over the past years has been, hey, this European peer play trades at a 50% discount to the Americans. Let me frame the investment another way. The stock, as you and I are talking, trading for 400 per share. They give a target 2030 EPS number, right? The target 2030 EPS number $40 per share, and on the Q1 call, they said, hey, we're going to generate, I'm looking at $6 billion in cash flow between now and then. That's about $133 per share. So if I said $40 per share, like what multiple would you put on a 2030 earnings number? Yeah, that's the big question. But I think we are exit multiple. We assumed 18 and we're still able to get an attractive

of RR, but a case can be made here for if you were to look at this business and take talk of their advantages in distribution, their underlying economics and just historical returns, and they're just competitive position in market share leadership in the industry. Can you argue for a low to mid-20s, multiple on a business like this? I mean, we had a slide in the deck that touches on some aspirational comps, like Sharon Williams comes to mind in terms of control over distribution. Company like Kingspan, also a very good operator, which we can touch on their interest in entering the U.S. market, a commercial roofing as well.

Seeker, who's created a crazy... Deca, exactly. ...who's now going to be leading Holesim Elevate as well. right I had just done 15 times $40 per share get you to a 600 stock price plus 133 in cash billed

between now and then that's 733 stock price against 400 that's a approaching 15% 5-year IRA like that puts you in the that puts you in the top

2% of investors yep Eric this is exactly these guys are covering it well sorry go ahead Dimitri Yeah, I was just going to say, so even though you can put an aspirational P on whatever you like, actually, we realize you don't even need to do that because, as you mentioned, you know, keeping the P constant, the cash bill that they should be able to do if we're right,

will enable management to buy back a significant amount of shares in the coming years, which will then get you that, you know, same IRA quite easily even about it. But sorry, Eric, go ahead and add if I'm missing anything here too. Oh, no, you're good. That was one of the main points that we were really eager to bring up whenever anyone would push us as to, okay, so great, you've got a good opportunity here. When is it going to materialize? What are the catalysts?

It doesn't really matter for us how long this takes to be materialized because management is committed to continue buying back. And you're just buying more and more of a good business that other people want access to but can't break into. So we think all is equal. The excess cash is going to be deployed. intelligently, whether it's through M&A or buybacks. You know, it's funny because I have always said, oh, if the price goes lower, it's great,

the management teams, they're going to buy back shares. And then maybe it's because I'm investing in worst management teams. The buybacks, when the stocks at 100, my God, do they know how to buy back stock? And then the stocks at 60 and they're, you know what? Then we don't know. We don't know. So that actually kind of transitions nicely into management. I love to talk about you guys, I saw your deck, you hit on the first thing.

I hit on as well, but I'd love to quickly talk about how you view management, how you view their track record, how you view kind of their alignment and incentives here. I'm happy to talk about alignment, but someone else should start. Otherwise, I'm talking to. I'll touch a bit on the context behind this. So this management team, and specifically, E.O. Chris Koch, he came into the business to Carlisle in 2008, and then assumed the helm as CEO in 2016. If you look back in 2016, this business had five disparate segments.

They had fluid technology segment, which was selling into medical and automotive. They had a food business at the time. They also had CIT interconnect technologies, which was a cable business. So on the earnings calls, you would have them talking about commercial roofing in one in one segment and then start talking about how they sell into Boeing. So it was a very Frankenstein type of conglomer that was very difficult for outside investors to understand. But since beginning of 2016 and kind of going forward, Chris Koch, he was very sensitive

to the fact that you had this hidden gem of a business that was just year and you're out churning, putting up 20% plus RICs year after year. So he slowly started adding both on acquisitions to that building product segment, you know, buying insulation businesses and kind of building upon the position in the building products industry segment. And then, you know, fast forward to 2020, 2021. The funny adding, though, that we actually learned directly from him when we were talking is he received The Outsiders book by Kuhna, Bill Ruehain and William Kuhna, forget the first name.

of Kunif, but Kunif's daughter gave him outsiders. He read that and he was like, oh, wow, that's exactly, he just had that light bulb of Tiffany and since then he just put all his chips into really focusing in on getting rid of the low-returning, you know, low-single-digit business segments and doubling down on that building product segment. That is so funny. And I will tell you my history with CEOs who, I will not name names, my history with CEOs who are like, I read the outsiders and I treated it as gospel, is either the stock is a grand slam home run or it's like this stock is going straight to zero in the whole way. They're going to be saying capital allocation. We're so aligned with shareholders. But, you know, I do think the results speak for themselves. And he owns $100 million in stock plus options. I have a strange question for you. Or does anybody? This might be what I was going to come on. Go ahead.

Yeah, so, you know, like we heard this story about the outsiders, and as you say, it does look like the track record aligns and is indicative of something interesting going on. But, you know, one thing to say is like the incentive design, you know, could do with some improvement and be more explicit in our view. But that said, as you're alluding to, you know, for a roofing company CEO, both Chris and Kevin own a significant portion of their total net worth. in Carlisle and have held it for a very long time, which is also partially what helps us feel more confident that, you know, they're aligned with what we as a potential owner of this business would want to be doing and combined with this return-oriented focus and ability to buy back shares and willingness to do it. It really kind of all goes hand in hand. Let me ask you a weird question. And this is just something I've been thinking about.

So it's not indicative of the company, but it's something that's been in my brain. so I want to get it out into the world. It's strange here because a lot of times I will see boards, a typical board where there was a private equity owner or there's a big long-goly fund. So the management team will own a middling to normal amount of stock, and then the board will have one or a few members who own quite a bit of stock, right?

What's interesting here is you've got a CEO who owns 100 million plus of options. The management team up and down owns a decent bit of stock. Now, part of that's because the stock's done so darn well that it's become a decent bit of stock. And the board, to my memory from looking at the proxy, owns almost nothing. And I think it's interesting when you've got a management team that owns a lot of stock and a board that owns almost nothing. I think that's really good alignment, but it is a strange thing. And I was kind of thinking like, hey, are there risk where

the board is asleep at the wheel? I think the management team still got under control, but I thought it was just kind of interesting and I wanted to throw it out in the world because I've been thinking about corporate governance from all sorts of different angles. Yeah, I think, you know, we're not as fresh on this as when I first did the review. But we did look into the overall intent of design across, you know, both CO, CFO, and the board. And, you know, the overall components that they are targeting and the metrics do broadly make sense, although they did get rid of Roic a few years ago. That said, I think there is also a function of a few of the pre-examble.

previous, you know, leading C-suite executives would step up to the board, but because they had spent like their whole life at the company, they would either retire, you know, sort of two years after or something along those lines. And I'm pretty sure those kind of people like, like I think the two former CFOs before Kevin had been on the board and would have owned a greater portion of shares. And I think it might just be kind of a function of this kind of, you know, transition from where you actually find these people and how many real roofing executives you can get who have good experience in the relevant places to put on the board too. Let me at 2030.

I've mentioned Target 2030. I believe they did a Target 2025. And I think before that, they had Target 22, remember correctly. They've hit their targets so far. So I just want to ask on Target 23, I think they're two for two. but what are the odds you think they hit target 2030? And what do you think they kind of need to do? Like, what are the key drivers to hitting that target?

Yeah, I think that I'll start. I think there are a couple of components. One, obviously, on the organic revenue front. I think, you know, they targeted that 5% organic revenue growth. I think from our view, it, and in, talking to them as well. I think it's on a conservative side of things in terms of organic revenue growth. Accepting a recession if we were to have one that might dampen both new build and removing to some extent. But keeping that organic revenue engine through 2030, the second

layer of it, I think, is on the M&A front. And obviously, they've shown a track record of doing accretive M&A in the past, especially over the past six, seven years in the billing product segment. So I think that if they can continue to find good bolt-on acquisitions in insulation and architectural metals to round out their roofing system and building envelope solutions, that can add another, you know, two, three percent potentially to the top line. And then you have buybacks in the event that stock price continues to, you know, not increase in any significant fashion, helping drive that EPS growth as well to that $40 per share range.

I haven't read the outsiders in the book, but they've demonstrated skill in Bulton acquisitions. The management team got rid of kind of all the superfluous divisions. But, you know, one thing, if you've demonstrated skill in Bulton's and you've got a passion for kind of buying, would there be a natural kind of larger than Boulton deal? you know, I don't know the commercial roofing space well enough, but it does seem like there be synergistic stuff that you kind of pump through the sales force or pump through your contractors. Do you think there would be a natural kind of bigger than Bolton deal that they could look into? I think one that they have done is the Henry acquisition, which maybe Tuan could talk

quite a bit about, but this is something they've basically entered a whole new market. They've expanded their TAM substantially. And it's basically formed the basis of a new segment for their business. But yeah, these guys, they are very good at acquiring. They do it in a disciplined fashion. They do it logically in order to address different parts of the spec sheet. And they're able to pay on a gross basis anywhere in the low to mid teens. And when you consider the integration, they get the multiple down to, you know, seven,

eight times on an EBITDA basis. They're disciplined and they're good at acquiring businesses. is it's usually a pretty accretive thing for them. The track record of over-delivering on synergies from what I can tell is just insane. And Andrew, to flip your question actually on its head, Carlisle themselves have been the target of potential acquisition several times in the past. So Kingspan, who are now entering the market or trying to enter the market, they had considered bidding for Carlisle in the past,

and they'd do more like wall insulation and the European-based at the moment. and they had been active in one or two other bid opportunities before. And as you might have seen in our deck and maybe read more broadly, like this could be a good question for Brad Jacobs as well, who's acquiring Beacon, which is one of Carlisle's major, kind of symbiotic specialist distributors and whether there could be, you know, a chance for greater vertical integration in that, but it sounds like there are good reasons historically.

It's funny, my last question was going to be Jacobs, They just bought Beacon. Beacon is their third largest customer, I want to say. Beacon's a big customer here. You can search through the filings. They've been mentioned a few times. I think on the Q1 call, somebody asked, hey, QXO and Beacon, what's going on with that? How does, and I only ask because for those who don't know, Brad Jacobs' legendary entrepreneur,

or probably the only person to build, like, do three roll-ups and take them to over a billion dollars. He just bought Beacon, a big customer here. Does Brad Jacobs moving to QXO risk opportunity? How do you guys think about that? Yes, this was my segment in the speaking note. Go ahead. Initially, we did think this was a potential risk and one of these very unique risks specific

to this sector and this company. We managed to find podcast that Brad Jacobs was speaking on about kind of his plan and his vision. I've done 300 plus of these podcasts, and the only one who might have done more is Brad Jacobs over the past year talking about QXO. I think every other Outlots podcast at this point is Brad Jacobs. Yeah, so we were listening to him and we were trying to understand whether this can change this key relationship because, as you said,

you know, Beacon's a top three, you know, customer of Carlisle and vice versa. Carlisle is a really important supplier to Beacon, especially on the commercial roofing site, because they also do Rezie, if I'm not mistaken. And so for us, after thinking through it and, you know, talking to management, talking to people in the industry, it really comes back to the point that, you know, Brad Jacobs wants to accelerate M&A and accelerate the consolidation of distributors. But that's something that's already been happening. And it's just a question of the speed at which it can happen going forward. And secondly, he wants to, you know, create cost savings and efficiency and do it by essentially concentrating volume on. probably the best relationships he has. And from the sounds of it, Carlisle, especially in certain regions, might well be even an exclusive supplier with Beacon and vice versa.

So from that perspective, there should be kind of mutually beneficial, kind of synergistic benefits to be had from working even more closely over time. So that's probably our take at the moment, but it's something we would need to monitor and could evolve. No, look, if you think there's reasons that people, I think the big three own 66% of the market, if you think there's reasons for the big three to own most of the market, then the best entrepreneur, roll-up guy in the industry getting involved in one of your suppliers, yeah, there's probably risk of pricing pressure, but it's probably good because he's probably

going to cut out anything he buys, is going to cut out his mom and pops. Anything else on Jacobs, or I had a few kind of lingering, other lingering questions. Yeah, the one other big piece that I would add is, The thing to understand here is the ultimate decision maker is the contractors, contractors and building specifiers. And so you have that demand pull. So, yes, the distributor can extract better economics if they have more concentration, more volume. But at the end of the day, they're going to sell products that are coming off the shelves and are getting demanded by the end customer. And in this case, you know, Carlisle has a very sticky customer base that will year and year out ask for Carlisle product.

So as Dimitri mentioned, Beacon is a very big customer and partner because in this case, you know, the way that the value chain works, the distributor and the manufacturer and the manufacturer employs a markup pricing model. So they're not very incentivized to necessarily have. pricing be lower. So if you take all of that into consideration, we think that on a net basis, Carlisle should benefit from increased consolidation in the Supreme Channel, especially with QXO accelerating them. One of the nice things about you guys having already done this pitch and won a contest is I can lean on the wisdom of the people, the questioners who came before me. So I'd love to ask, what was the most insightful question that you got when you did the first pitch or just when you've been circulating this pitch into

the ether recently. Yeah, I think we got a lot of questions on, I guess, you know, there's always the first question of what actually is this product and is this really recurring or not? We already ended that one. But once you get past that layer, it's really about the margins and how credible is this margin trajectory for the specific businesses they have today. and I mean I'll let maybe the guys talk a bit more about that potentially but we just felt we had many factors coming together

that we'll point in the same direction that it should be at least resilient if not even have room for improvement and that lined up with kind of the message the employees of Carlisle seemed to be saying as well. One interesting question was why invest in the manufacturers and not the distributors And so, I mean, in this case, specifically in this industry, I mean, you don't really have that many options either on the manufacturer's side or on the distributor's side. You just have Beacon as the only public player.

We have SRS, which was acquired by Home Depot, also private. Or you can invest in Home Depot and be exposed to all the other stuff too. And ABC supply, the largest, and that's also private. So, I mean, in our view, if that was the question, I think the fundamental drivers of this industry are so attractive going forward that you can make a case to be invested. Why not be exposed to both and by a bit of QXO and by a bit of Corlal. But yeah, that was one of the other interesting questions that we had. There's two categories of people we would tend to talk to.

There's the people who had come from the perspective of why did you guys choose to focus on building materials, you know, how are you going to win this competition? Isn't there going to be a very high hurdle? And then the people who kind of are aware that there are these high value added building materials with good relationships. And essentially those would be kind of the two tensions we'd have to grapple with depending who we're talking to. Eric, if I told you, we laid out the 2030 Vision, 700 stock price, 15% IRA. If I took, we go into a global depression and we never build another building in this country, again, off the table? And I ask you, what would be the thing that keeps you up the most at night if you were running a concentrated portfolio with Carlisle

as one of your big positions? What would be the thing that keeps you up the most at night? Yeah, I mean, the funny part about this question is that I was actually the guy who was trying really hard to kill this idea because I hated it at first. And I was really skeptical of the margins. Like, it's something where you have no track record, really, unless you really, really, like, we had to clean a lot of data. We had to really dive deep into the footnotes to figure out what the underlying business actually was. And until you're able to do that and understand going forward, the strength of the margins

and really the ability to sustain, like, this high margin business, I think that kept me up a lot. That was something I was trying to use to kill the idea. And going forward, I think that's really, that's the most worrying thing about. about it all. And it would require a few structural changes that we don't necessarily see as too likely. Give me a structural change that would kind of impact the margin story here. So let's just say that all of a sudden people stop caring about pricing and people change the way in which they quote contrast.

If there's one thing the past three years have taught me, it's people really care about pricing. Right. No, exactly. And every single person is along the value chain is incentivized. to keep pricing flat or higher. And that was something I didn't know from the outside. And so going forward, if I were to be getting kept up at night by anything, it'd probably be, okay, all of a sudden, everybody's going to stop trying to drive prices up. They're going to price off of a different model than cost plus,

and we're going to get something like a whole new regime in terms of pricing. That would be something that really worries me, but I don't see that as very likely. You guys mentioned the Canadian player who's moving in. Let me give you a different one. I understand there's a lot more here, but one of the things that really struck me here is the importance of the warranty. Berkshire Hathaway buys a competitor

and says we're going to guarantee the warranty for the next 20 years. All of a sudden, you've got like literally, you know, the only AAA credit out there who's guaranteeing the warranty. Does that, would that scenario worry you guys at all? Or would you just say, hey, I mean, Berkshire, you know, I actually think the history of the companies

run underneath them is they actually get a little bit sloppier and everything. But I was more thinking of it just from the, the warranty guarantee, now all of a sudden, you're going up against the gold standard of we will be there, we will make sure this gets replaced. Yeah, Andrew, I'm very excited for this question because, so if you think about the top, the top four players, the number three player is owned by Berkshire Hathaway. Oh, I did not realize that. Okay.

We bought them in 2000. And even they, despite, you know, the, I guess, impressive track record of Berkshire, they actually struggled to keep up with Carlisle's track record despite being within that umbrella. Who's the number three player that for shots? John Spanthold. Oh, I should have known that. Okay. I probably would have this on our slide three and then we show kind of the actual

margin difference. Let's that slide number. That's a good one. I'm trying to find it. It's in the appendix, a couple slides in. Okay, I must miss it. Last one. Last question, and then we can wrap it up while I try and find that John Mansville won.

When I was researching this and when I was reading the Q1 call, you know, one of my first things was, oh, labor shortages, right? A lot of migrants come in and do construction. I think that's more res-y than commercial, but I'm sure it's very much commercial as well. Labor shortages. You guys have, obviously NSA are concerned because I think there were two questions on it in the Q1 call. The company is concerned. You guys had kind of a different view on labor shortages and how it might actually benefit them. I think you talked about it a little bit up front when you were talking about going to the industry conferences, but I know people are going to be thinking labor shortage. I'd love to just hear how you think, like, that's a very

contrary view that it could benefit them instead of hurt them. I guess one thing to note really early on is that this is, like, very highly skilled labor. You can't just get any contractor to come in and do this type of work. I think Twan mentioned it. It's like, this is something to be certified for to even be able to install Carlisle product. We interviewed a lot of people at the trade shows that we went to. and most of them were smaller contractors. And so these are the guys that are the closest to the labor constraints. And all, like, on average, I'll try to not speak too broadly here for Dimitri.

On average, what I was gaining from the questions I was asking was backlogs are not really different. Like, they're not worse than they were last year, if anything, they're slightly higher. New project bids are not challenged by, or, constrained by the ability to find labor, and all else equal, their expectations are flat to slightly positive for the year ahead. I'm not sure if you guys have other things to add, but that helped us become a little contrarian. Andrew, when you ask, what would keep me up at night, I think the labor risk may be one of one of the few things that could keep me up at night.

I mean, labor has been tight, is tight and has been tight for many years for this industry and for other trades. Now, tack on to that, the immigration policies that we, this current administration has, we don't know. Like, when we ask and talk to industry folks on what the percentage, what percentage of roofing contractor labor is, you know, the legal immigrants. It's hard to say, but is the part that gives us a bit of comfort,

and maybe Eric touched on this a bit, is that the contractors that are able to install Carlisle product are, for the most part, established. Many of them are very established players, larger players, that have been installing product for, to some extent, decades. And they've built a very strong book of business, recurring book of business. And so if we were to see an environment where the aggregate labor force in this industry is constrained or reduces, I think, at the margin, the players that would get hurt the most are the smaller players, which have, you know, installers that are less experienced, perhaps. and yeah, have the rest of that. Starting with my interviews, that was the segment we were really trying to disprove the thesis on.

And if you can extrapolate that up, it really only gets better. Just last question, like party shot question here. Maybe not partying shot because this is the perfect job. But the company is running, let's call it $2 billion of debt. They're doing more than $5 billion of EBIT every year, if I am remembering off the top of my head correctly. That's a pretty lightly levered balance sheet. They read the outsiders. You know, I haven't read the outsiders a long time, but John Malone jumps to the top of my head.

A lot of people, the outsiders tended to run with a little bit more leverage than this. Do you think the company should lever up a little bit? Does this company belong in private equity hands outside of public markets? Do you think they should be a little bit more? I'm not saying to take it to 10 times, Evida, but do you think they should be a little bit more aggressive, run a little bit more leverage to amplify what I think is a pretty darn good, business. I think the Covenants, Dimitri, correct me if I'm wrong here, but I think it's something

around three times that they're allowed to. When they, when they do M&A, they've been willing to go up. Yeah. Three point three times. I'll let you continue. They can flex up as necessary. I think they're not trying to flex up to buyback stock. They'll use internal cash flows for that.

But in the event that they find another Henry, definitely. Do you think this should. Go ahead. Definitely hear you on that question. but do you think it's too conservative is kind of what I'm asking, right? Again, they don't have to run three, but I think they're running less than one right now. Should they just be, you know, kind of the, it's not in vogue right now because you can look at the charter stock price. But, hey, we run this two times levered.

Every dollar of cash flow, we buy back stock. If our EBidon grows, then we can buy back, you know, if it grows a dollar, we can buy back two because we run this two X lever and then we flex up to three for acquisitions and take it back down. But do you, I guess I'm saying, do you think they could improve returns without, to measure at risk by just being a little bit further on that leverage spectrum? I think the short answer is yes. I think the short answer is yes, but as now owners of the stock and the company as well, I think my preferences have the balance sheet flexibility for when downturns hit and given the somewhat cyclicality in this business, given building product, you want to have that flexibility to be able to play offense and do big deals when everybody

else is playing defense. So yes, they can have a more levered profile, but they don't need to. Look, I don't think there's a right or wrong answer, right? Because, again, I'm not saying take it all the way to the hilt. And you can say, hey, things get really bad, we'll be able to go elephant shopping. But at the same time, you know, you look at the history of the stock, if they had just been able to lean a little bit more into the buyback. There'd be a lot less shares outstanding right now.

And everything we've said is good business, a lot less technical than you think growing tailwinds. Like that does call for, hey, maybe we need to run with better than a AAA balance sheet. Guys, this has been awesome. I guess we're going to do two things. A, I'm going to include a link in some way, shape, or form in the show notes to either their presentation or some way to get in touch with the three of them. If you want to talk to them about the CSL, the research they did, what they're doing over the summer, all that sort of stuff.

so I'll include that, but I guess I want to wrap it up. We covered a heck of a lot. I actually had a heck of a lot more of my show notes, but I'm going to have to up at some point. Is there any burning thing or anything, any of the three of you think listeners should be touching on or we should have talked about? Now, from my end, we covered a lot of ground.

I just want to say thank you. Thank you for the opportunity. Thank you for bringing us on. I've listened to your podcast for many years, big fan, so this was a huge opportunity, so really excited to be on. I appreciate you guys coming on. Congrats again, first unanimous winners. I appreciate it.

I'm looking for us to staying in touch anytime you guys want to talk stocks or anything. I tend to buy, you know, you guys have a compound or a good business that goes up. I tend to buy shitty businesses that apparently only go down is what I'm really looking for. But let's stay in touch and everything and I appreciate coming on. We'll talk soon. Absolutely. We'd love to. Thank you.

Thank you, Andrew. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of this. mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.