Q1 2021 Allegion PLC Earnings Call
Good morning, and welcome to the Allegiant first quarter 'twenty 'twenty, One earnings conference call.
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I would now like to turn the conference over to Tom Martineau, Vice President Investor Relations and Treasurer. Please go ahead.
Thank you Andrew Good morning, everyone welcome and thank you for joining us for allegiance first quarter 2021 earnings call with me today are David Petraeus, Chairman, President and Chief Executive Officer, and Patrick Shannon Senior Vice President and Chief Financial Officer of Allegiant.
Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to in today's call are available on our website at Investor day at Allegiant Dot com.
This call will be recorded and archived on our website.
Please go to slides two and three.
Statements made on today's call that are not historical facts are considered forward looking statements and are made pursuant to the safe Harbor provisions of Federal Securities Law.
We see our most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections.
The company assumes no obligation to update these forward looking statements.
Today's presentation and commentary include non-GAAP financial measures. Please refer to the reconciliation in the financial tables of our press release for further details.
Dave and Patrick will now discuss our first quarter 2021 results, which will be followed by a Q&A session.
Please for the Q&A, we would like to ask each caller to limit themselves to one question and one short follow up and then reenter the queue, we would like to give everyone an opportunity given the time allotted.
Please go to slide four and I'll turn the call over to Dave. Thanks, Tom.
Good morning, and thank you for joining us today.
I am pleased with the company's first quarter performance, we delivered revenue growth margin expansion double digit earnings growth and strong available cash flow against the tough prior year comparable.
We continue to make progress on our seamless ex us strategy, while maintaining our focus on keeping our employees safe and serving our customers efficiently.
Let's begin by walking through the first quarter financial summary.
Revenue for the first quarter was $694 3 million, an increase of two 9% or <unk>, 5% organically.
The organic revenue increase was driven by strength in the Americas residential.
Allegiance International businesses offsetting continued softness in Americas non residential.
Currency tailwind provided a boost to total revenue and more than offset the impact on divestitures.
Patrick will share more detail on the regions in a moment.
Adjusted operating margin increased by 30 basis points in the first quarter.
We executed extremely well and the restructuring and cost management actions taken during 2020, along with the volume leverage on the businesses that group.
Offset the mix headwinds we are experiencing.
Adjusted earnings per share of $1 20 increased 16 or 15 for <unk>.
<unk>, 4% versus the prior year.
The increase was driven by expanded operating income along with favorable other income and share count.
Year to date available cash flow came in at $105 5 million, an increase of more than $86 million versus the prior year.
The increased cash flow was driven by improvement in net working capital growth in net earnings and reduced capital expenditures.
Please go to slide five.
As we discussed previously reflecting on 2020, despite the ongoing pandemic Allegiant continues to invest in our future most.
Most notably through our innovation engines.
From industrial design engineering and to ventures partnerships and acquisitions, we are building.
Hey, build borrow by approach to accelerate seamless access and.
Investing in our capabilities.
Partnering and integration are all core to our innovation strategy.
Let's review some of the regions innovation and investments.
Allegiance overture, our cloud based ecosystem, where project teams collaborate on the specification design and construction of door security and openings expanded in multiple ways during the past year.
Key on credential management was added more functionality and integration for a building information modeling customers and automation that helps hardware specification writers.
Overture allows digital connectivity to our customers over the life of the structure.
<unk>.
Proving its value as a single source of truth for hardware requirements and decisions and to empower our partners to work more productively.
Our <unk> brand also launched a significant upgrade of its software platform in Q1, the pure access cloud for point, a reader controllers are pre configured to the cloud and only require a network connection on site, making the <unk> system truly <unk>.
Employ the software upgrade includes new front end technology with customize dashboards gives a boost to cyber security and anticipates, adding capabilities and future new devices.
Our product innovation spans the world of Allegiant signed.
Simon's Voss recently renewed re leased a smart locker a retrofit no drilling mark option for lockers in furniture and schools hospitals and industrial facilities.
This innovation was customer expired inspired based on trends and needs in the market.
<unk> integrates the existing Simons Voss digital ecosystem.
And theres additional functionality to fried or open each lock remotely to display break in attempts in the software and to send notifications.
And just as our internal innovations continue to delight our customers innovation is built through key partnerships and our early leadership in the Iot market has established us as a go to partner.
In Q1, Homebase announced that they are working with Allegiant and Walmart and home to enable direct to fridge grocery delivery for apartment residents starting in the Kansas City Metro.
Homebase enables communities.
Homebase enabled communities come with pre installed <unk> smart locks, meaning that the Walmart associate making the delivery against secure onetime access for entry during the designated timeframe for delivery.
This is a clear demonstration of seamless access adding value to people's everyday lives.
Partnering with seaboard.
Apple and Android has rapidly expanded seamless access to use cases on higher education campuses by enabling mobile credential technologies. We are part of the ecosystem that supports contactless student Ids for iphones, Apple watches and Google pay.
Seaboard also brings our bond dupri exited devices and deploy given colleges, new remote walk down and monitoring capabilities. These.
These integrations are good for our campus securities and.
And help universities and colleges operate more efficiently and safely.
Rounding out our build borrow by approach to innovation Allegiant ventures continues to invest in companies like costs on net house versus an open path.
We also acquired you know me a technology company and leader in Iot cloud platforms.
Founded in 2013 by building automation and enterprise computing experts <unk> was the first to create a smart home ecosystem, one that automatically discovers and coordinates devices.
Legion was an early customer and investor.
Today <unk> solutions are used in more than 150 countries connected to millions of Iot devices.
Iot excuse me. Let me also holds unique intellectual property debt matches, well to allegiant strategic priorities for accelerating growth through seamless access innovation and meaningful partnership.
Our goal is to be the provider of choice I'm on Iot developers and integrators.
We will continue to see more examples of investments innovation through our build borrow and buy approach in 'twenty, one and we look forward to sharing more with you in the future Patrick will now walk you through the financials and I'll be back later to discuss our 'twenty, one outlook and wrap up.
Thanks, Dave and good morning, everyone. Thank you for joining today's call. If you would please go to slide number six.
This slide reflects our earnings per share reconciliation for the first quarter.
For the first quarter 2020 reported earnings per share was zero adjusting $1 for SaaS for charges related to intangible asset impairments restructuring expenses and integration costs related to acquisitions. The 2020 adjusted earnings per share was $1 for.
Operational results increased earnings per share by <unk> <unk>, driven by volume leverage along with continued benefits from cost control measures and restructuring actions taken in 2020.
Favorable price and currency also contributed to the increase the combination of these items offset the unfavorable mix.
Favorable other income and interest expense increased earnings per share by <unk> <unk> and was driven primarily by favorable unrealized investment gains in 2021 compared to unrealized investment losses experienced in 2020.
Favorable share count drove another <unk> <unk> per share impact more than offsetting the <unk> reduction from investments.
This results in adjusted first quarter 2021 earnings per share of $1 20, an increase of 16 or 15, 4% compared to the prior year.
Lastly, we have a <unk> <unk> per share reduction for charges related to restructuring costs.
After giving effect to these items you arrive at the first quarter 2021 reported earnings per share of $1 18.
Please go to slide number seven.
This slide depicts the components of our revenue performance for the first quarter on.
Our focus on the total leasing results and cover the regions on their respective slides.
As indicated we experienced a 0.5% organic revenue growth in the first quarter.
As solid price performance was able to offset lower volume.
Although the total company volume was slightly down we did see strength in the Americas residential and international businesses.
Currency also provided a tailwind of total growth and more than offset the impact of divestitures.
Please go to slide number eight.
First quarter revenues for the Allegiant Americas segment, where for $198 9 million down two 6% on a reported basis and down two 9% organically.
The region continued to deliver good price realization.
On volume Americas residential was outstanding again experiencing low 20% growth boosted by continued strength in retail point of sale, new home construction and electronics growth, which nearly offset the anticipated decline in the nonresidential business caused by lower new construction.
And discretionary project delays.
Electronics revenue was down mid single digits with growth in residential products that was offset by reduced commercial electronics driven by delays in discretionary projects.
We continue to see electronics, and touchless solutions as long term growth drivers and expect electronics accelerated growth to resume when market conditions normalize.
Americas adjusted operating income of $135 5 million decreased seven 6% versus the prior year period, and adjusted operating margin for the quarter was down 140 basis points. The decrease was driven primarily by volume deleverage negative mix and incremental investments Park.
Really offset by benefits from cost reduction actions and restructuring.
Please go to slide number nine.
First quarter revenues for the Allegiant International segment were $195 4 million.
Up 22% and up 11% on an organic basis, the organic growth was driven by strength across all major geographies and businesses as markets continue to rebound.
Part of the year over year growth was due to the comparative impact of Covid related shutdowns in the prior year.
Favorable currency impacts also contributed a total revenue growth and were slightly offset by divestiture impacts.
International adjusted operating income of $18 million increased nearly a 1000% versus the prior year period.
Adjusted operating margin for the quarter increased by 820 basis points the.
The margin increase was driven primarily by solid volume leverage benefits from lower operating costs from the restructuring cost control actions taken during 2020 as well as favorable currency impacts.
This is also our first quarter reporting under the new Allegiant International segment the.
The transition was seamless and made possible by having strong leadership in place to drive effective change.
Please go to slide number 10.
Year to date available cash flow for the first quarter 2021 came in at $105 5 million, which is an increase of more than $86 million compared to the prior year period.
The increase was driven by improvements in net working capital and higher earnings and reduced capital expenditures, our strong cash flow generation continues to be an asset of the company.
Looking at the chart to the right. It shows working capital as a percent of revenues decreased based on a four quarter average this was driven by reduced working capital needs from the lower volume throughout 2020, as well as strong collections performance.
The business continues to generate strong cash flow and we remain committed to effective and efficient use of working capital we.
We will continue to evaluate opportunities to opt on optimize working capital and drive effective cash flow conversion.
I will now hand, it back over to day for an update on on a full year of 2021 outlook. Thank.
Thank you Patrick.
Please go to slide 11.
We have more visibility into our markets and I am increasingly optimistic on the economic recovery.
The American the Americas residential business continues to be hot and is expected to grow in 2021.
We anticipate strength in residential to pursue to persist for the foreseeable future.
<unk> demand remained strong in the construction market is strengthened by a shortage of available new homes continued low mortgage rates and improved trends in permits and starts.
However, completion rates had been lagging starts due to labor and supply shortages, which should improve as we move further past the pandemic.
Looking at the Americas non residential business, we saw demand begin to increase on the repair retrofit projects sooner than we previously anticipated.
We expect this trend to continue for the remainder of the year.
And new constructions, we are starting to see positive movement and macroeconomic indicators, but it's important to remember the late cycle nature of this market.
For 2021, I expect nonresidential, new construction to remain soft.
But the monthly change in the architectural building index.
Dodge construction starts and potential stimulus spend spending are trending favorable and assuming this continues it will lead to growth in 2022 and beyond.
The seamless access software and electronics continue to be long term growth drivers and they will remain our top investment priorities. They are the future of Allegiant.
With these parameters in place we are now projecting total inorganic revenue in the Americas to be flat to up 1% in 2021.
And the Allegiant International second segments markets continue to recover and we expect full year growth in most of our international segments led by our Germanic and global portable Securities business.
We continue to monitor the pace of vaccine Rollouts internationally as this will lead to sustainable improvements in the economic environment currency <unk> more than offset the divestiture of our Q on my door business and contribute to total growth.
For the region, we are raising our outlook for total revenue growth to 12% to 13% with organic growth of seven five to eight 5%.
All in for total lead the Legion, we're now projecting total revenue to be up 3% to 4% and organic revenue to increase 2% to 3%.
We are also raising our earnings per share outlook with reported EPS at a range of 485 to 505 per share and adjusted EPS to be between $5 and $5 15.
This guidance incorporates pricing actions to offset direct material inflation as well as reflecting our supply chain capability to mitigate an industrial three challenges on supply and electronic component shortages. We anticipate that these challenges will persist for the balance of the year and we will continue to.
Monitor and adapt to changing market conditions.
Our outlook for available cash flow is also being raised and now projected to be $430 million to $450 million.
The outlook assumes investment spending for approximately 10 to 15 per share the full year adjusted effective tax rate is expected to be approximately 12, 5%.
The outlook for outstanding diluted shares continues to be approximately $91 million.
Please go to slide 12.
Allegiant is off to a great start we experienced reported inorganic revenue growth expanded operating margins and delivered strong cash flow.
We have solid business fundamentals, and our proven ability to execute and adapt to changing and uncertain market conditions.
We have managed the business extremely well to set us up for success as markets return to normal.
Macroeconomic indicators and specific indices related to our business are trending positive and I'm increasingly confident in the recovery.
The allegiant commitment to shareholders employees and customers is to be stronger exiting the pandemic than when we entered our work continues on.
Want to thank this opportunity to thank our employees for their diligence and dedication during the pandemic. It is their commitment that has driven the company to perform well and accelerated our vision of seamless access on a safer world.
Allegiant future is bright thank you now Patrick and I will be happy to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speaker phone. Please pick up your handset before pressing the keys.
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Again, please limit yourself to one question and one brief follow up.
May rejoin the question queue. If you wish at this time, we will pause momentarily to assemble our roster.
The first question comes from Julian Mitchell with Barclays. Please go ahead.
Hi, good morning.
Maybe just.
Just wanted to dial in on the revised.
Americas organic sales growth outlook, maybe just help us understand.
How that guidance increase was split between residential and nonresidential assumptions.
Changing and then within nonresidential specifically.
How should we think about that flow.
Decline.
<unk> over the balance of this year.
Been running at a sort of down low double digit rate for four quarters in a row now.
Yeah, Julien so I would characterize it this way.
First of all during the course of the quarter.
Things progressively got better, particularly as we looked at our non residential business and by that I mean, just kind of the level of activity orders customer enthusiasm specifically related to discretionary projects.
And so that piece of information plus with the improvement in certain indices, leading indicators relative to our business I E.
New construction starts those types of things.
Of which I'll remind you relative to new construction it doesn't necessarily mean, it's going to be incremental business. This year, but continued improvement, particularly as we look beyond 2021.
With the improvement in non lessee really relates to discretionary projects.
<unk> to be favorable more than what we had originally anticipated last time, we were on the conference call residential continues its strength.
Really across the board.
Just really seeing good improvement in DIY, new build construction et cetera, we expect that strength to continue.
I would just remind you.
Keep in mind that last year as we are coming exiting out of Q2. After the plant shutdowns demand started to surge we were kind of catching our feet relative to production and kind of keeping up with demand. We didn't start kind of filling channel inventory until <unk>.
<unk> Q3, Q4 that will be non recurring right. This year.
And so you get into a tougher comp if you will in the back half of this year as it relates to the residential business, but still growth on a normalized basis.
Thank you and then my follow up would be switching to the Americas.
Margin.
Outlook. So if I look in the 10-Q, you have that pricing and productivity in excess of inflation line.
That was there any about 20 bps.
Tailwind to margins in the first quarter.
How should we think about that playing out over the balance.
As the year.
Both in terms of sort of what's happening with inflation and also youll pricing measures.
It's going to be more difficult and the reason being is the inflationary.
Item will step up.
It's going to be worse as we progressed throughout the course of the year why because of the input cost spill.
Specific to commodities and material components. The other thing I would remind you is remember we talked last year about some of the Boomerang effect.
The cost kind of coming back in into 2021 that was not there in 2020.
So thats another item plus.
You'll have incremental investments all of those are going to weigh a little bit more on margin.
And we'll put a.
More pressure if you will on margins in the back half of the year debt.
For 'twenty, one that we did not experience in 2020 on let me, let me just add something else I think.
On the non resi side of things.
Relative to the reduced volume, even though things are getting better as we progress throughout the year, we do have volume deleverage.
We have taken the necessary actions to extract variable costs. Okay. So it's really a volume deleverage issue.
Not a permanent item when volumes come back margins will accelerate.
And because we've taken the necessary cost control actions.
I'd add one other dimension and that would just be a slight mix shift as this is the discretionary small project comes back and we're seeing that in applauding. It it tends to have more mid price point.
Our products versus our new build supply that's heavy on our premium premium products.
Great. Thank you.
The next question comes from Colton West of Longbow Research. Please go ahead.
Hi, Good morning, Thanks for taking my question it looks like some great progress was made this quarter.
I guess, firstly as we speak to contacts and we hear about a pickup in non res quoting activity and in the prepared remarks, you called out an acceleration on the R&R side. What's worked condition stand today are you able to give us some more concrete sense of when we start to see orders and then the corresponding topline growth and is this something do we start to see.
Quotes turn into orders and for released <unk> or.
Does this not materialize until maybe the back half for next year.
We see some favorable indicators one the broader indicators that you all see Abi Dodge ex.
Starts not dart starts.
But momentum so we like what we see there to our own specification is up.
Sure.
The challenge of debt as specification.
Does it mean orders tomorrow or next week or even next quarter, we would see that gaining momentum as we exit 'twenty.
<unk> 21, and then into 'twenty two.
Also why the.
Where the investment is going in terms of our mix.
And strength of the company as we see end market dynamics in major projects in construction hospitals K through 12 college campuses and institutions, that's where the market is rebounding and it tends to complement the strength of the company.
Okay and then my next one is from sort of a 30000 foot for you would you consider the current level of earnings to be trough earnings and if so can you walk us through the moving parts total puts earnings for the next peak.
Yes, so I would characterize.
The earnings.
Really good performance, obviously in Q1.
If we look at the full year guide kind of in line with last year in terms of where we ended up.
I would expect.
The improvement in terms of our outlook, particularly on the non residential business gaining momentum.
That will hopefully continue to accelerate in 2022 and as I mentioned before you would see continuous improvement in margins relative to that business.
With the continuation of residential on the strength of the end markets would expect growth there.
Yes, I would I would characterize as long as the end markets continued to be favorable.
We will see earnings growth.
Accelerate from 'twenty, two and beyond.
Okay, Great. That's all I had thank you.
The next question comes from Andrew Owen of Bank of America. Please go ahead.
Yes, good morning, good morning, Andrew.
Yes. So a question in the last stimulus Bill and I think HVAC companies have been talking about it.
And also electrical companies have been talking about there is a lot of money allocated for schools.
And I think if you look in the last stimulus.
I think 70% of the money was spent on capital improvement project right and the minus seems to be like sort of 6% to 7 billion for next two years.
So.
I think HAC companies on electrical companies are talking about the fact that they will see an impact from this and next quarter right. Because you do a school remodeling of the summer.
So institutional vertical it's quite a big deal for you guys.
Are you going to see any impact from it and what's your assessment of the impact of this portion of the stimulus on your business day.
Next year. Thank you.
So thanks for your question, we absolutely see.
The billions of dollars that are being allocated into K through 12.
Campuses, we will see benefit from that hard to quantify each project will have different attributes, but it's clear.
The school security remains on the minds of Americans.
And.
I think to the rise in violence, which is disturbing across the country.
Well coupled with the stimulus.
<unk> security will get a portion of debt investment and benefit of Legion.
Great.
Is it in your guidance, yet or is it just too hard to quantify at this point.
I would say, Andrew a little bit too hard to quantify at this point however.
We talked about earlier, a step up in terms of order activity relative to discretionary projects, we did see.
And that will turn into we'll call. It new business Q2, Q3 type of timeframe, but I think trying to kind of quantify on larger impact specific to the stimulus Bill right now is probably premature.
I would just add.
We will capture a large percentage of that security spend and we should be able to have visibility to that and our spectrum quotation activity in which we also see a very large part of the market.
Got you and just a follow up question on international sort of.
Starting to build impressive momentum there in terms of operating turnaround can.
Can you just give us more granularity.
What's driving it because Italy is that Poland is that Korea is on Australia.
I said, it's been all of a sudden there's real momentum just would love to get a better sense of what's happening day. Thank you.
So one remember the Panda pandemic started.
Internationally before it started here so Asia Pacific.
Particularly Italy hit hard early on.
So we're seeing that recovery, even though the pandemic continues to move.
Two our continued.
Investment in electronics and software are inter flex on Simon's vast businesses are performing extremely well and quite proud of the work.
The leverage of investment to drive top line, which we will continue.
Third success on our GPS business for those of you that have gone to try and buy a bike theres no inventory and we made supply chain changes that gives us some advantages versus importers, we like that and then we're beginning to see early recovery as well.
Australia, and New Zealand remember, our Gainsborough acquisition as <unk>.
Residential recovery drives in Australia will do extremely well there.
I'd add something else over the last four to five quarters, we've been.
Working hard to reposition that we collapsed.
Three divisions into two that gave us some cost efficiencies driving more accountability down and the ability to invest back on those.
Businesses for future growth.
I like our position and the future's bright as we move through recovery.
Thank you really appreciate it.
The next question comes from Tim Weiss with Baird. Please go ahead.
Hey, Hey, everybody good morning on this network.
Thank you Tim.
Maybe just a bigger picture question for you guys just as Youre seeing buildings reopen.
We're in the budget stack in security and somewhat on the priority perspective, and I guess I'm just kind of wondering yes.
Youre seeing other areas within buildings like HVAC, taking focus away from security or are you seeing kind of the interest in the budget priorities.
Relatively unchanged relative to where they were pre COVID-19.
I would describe it is this and I think it's consistent as I have painted it I think over the last 12 months. There has been the absence of any type of preventative maintenance and small project work because the focus was on the health and safety of the occupants on buildings.
I believe what we saw strongly beginning mid March and continues on is the return of that.
People are going after those projects.
For those small projects preventive maintenance activity.
Particularly for security related carry a pretty high priority versus other preventive maintenance aspects.
Let's say the door doesn't show it properly it's not locking I have the security breach.
Maintenance people are always making trade offs as we move into the air conditioning season, or I don't have a heat those tends to be a red priority, we could fall into yellow, but.
Tim I believe there is an absence there has been an absence of preventative maintenance. These small projects and those are moving in I believe the budgets are there I've also been refresh that in.
Larger projects that have that were delayed those are coming back in the mid priced project level and an example would be the university of Tennessee. They had a project that was slated to go on 'twenty that's come back on so with fully budgeted.
I think again what.
That will naturally occur and we will get our share of that wallet and as the new construction comes back it.
We'll add more momentum to allegiant.
Okay, great that's good to hear.
And then maybe just my second question is just on the M&A side of things.
How would you kind of characterize the development on the pipeline over the last three to six months.
Any sort of increased activity of action ability. There just given you made more of a meeting of the minds in terms of.
People's perspective on the end market.
I would say.
The attention of the leadership team.
<unk> has never been stronger.
Focused on moves that can help.
Improved the scale of Allegiant.
We believe as we move harder and seamless access scale matters, we're pushing hard on moves that we think.
Would help us participate in the <unk>.
Connect connection of access seamless access at a faster pace.
I'd say less time spent on smaller projects and deals.
But we've been working on this now for seven to eight years and we're portion on those relationships. We believe there is further consolidation opportunities in the market and the faster that we accelerate.
This convergence.
It's going to force some action.
Okay, Okay, great well good luck on there for you guys. Thanks for thank.
Good to hear from them.
The next question comes from John Walsh with Credit Suisse. Please go ahead.
Hi, good morning.
Really impressive execution in the international business.
Wanted to actually ask about where you see the margins going for that segment now I mean really strong out of the gate here with that kind of high end of upper single digits performance.
What should be kind of be thinking about for the full year there in terms of margins.
Yes, John So again as you indicated really strong performance, both topline and margin.
Rates, particularly relative compared to prior year.
As a reminder, you may recall last year, we were pretty quick out of the gate in terms of implementing cost control measures going in with the restructuring programs across the board.
In Asia, as well as Europe, and so youre seeing kind of the full benefit of that if you will.
Reflected in the 'twenty one results. So the restructuring actions taken last year begin to lap in the back half of the year. So youre not going to see kind of a step up on the margin performance that you saw on Q1, However, I would suggest that margins will continue to improve.
Year over year as we continue throughout the year and we should finish on an aggregate basis I E. The consolidation of Asia and Europe together at kind of a record performance in terms of margin percent and Thats really reflective as Dave kind of highlighted earlier the continued strength.
On electronics, which has a higher margin profile.
All the cost reduction actions that we've taken will continue to manifest itself and the collapse in consolidation of the two segments together, we're seeing the benefits of that as well I feel like we're on a really good position kind of going forward not only to drive top line, but to ensure that we do it in a profitable basis.
And we continue from here on out getting margin accretion as the business continues to grow.
Great. Thank you and then just as a follow up I think it was in response to Julians question about residential you called out kind of some stock orders in Q3 Q4, just curious here in Q1, if you were still seeing those stock orders or.
Kind of sell in is equal to sell out at this.
Yes, yes, so we did experience some of that not to the magnitude that we did in the latter half of last year and I would say too.
Quite frankly, if you kind of look at inventory levels in the channel, particularly at Big box.
Look that on a like a trailing 12 month basis basis of future demand still probably lower than where it needs to be.
So it's a matter of kind of trying to produce at a higher level, which is difficult right now kind of given some of the supply constraints in our business.
So there is maybe a little bit more of that we could put into the channel but.
Right now we're kind of assuming we're more on on normalized basis producing basis of demand type of thing.
Great I appreciate taking my questions. Thank you.
The next question comes from Jeff Sprague with vertical research. Please go ahead.
Thank you good morning, everyone.
Good morning, Jeff, Yes, I just wanted to wanted to put my finger a little bit more on kind of the cyclical trajectory also.
And I thought maybe it'd be helpful to kind of discuss things a little bit sequentially, given how wild some of the year over year comps are with Covid and the like just thinking about Americas and aggregate yet right with commercial come at off the bottom then Rajiv still strong.
Is there any reason to think you don't have your normal sequential lift in revenues there from Q1 to Q2.
I think.
First let's look a delay of the land.
Backwards you had the rupture of the pandemic, let's go even better we had a record Q1, you had the rupture of the pandemic, but as we compare to competition.
I believe we were stronger quarter in quarter out over several of the last quarter. So.
Weather was up or down the sequential nature of it remember we talked about.
Plowing through our backlog.
So with that as a backdrop as we move through we should expect some lift in the second and third quarters that we would normally see.
I think.
That's why we highlight the return of the discretionary and small projects, which I think will certainly be better than it was a year ago.
The but is that new construction demand is not as robust as it was going into the pandemic. So I think it takes 21 to normalize itself and we'll see.
A truer picture of what the market is going to be and we believe better as we go into 'twenty two.
Yes, the nature of my question is really for acre.
Just kind of play math exercise with you right but.
Q2 sales typically rise, 15% to 20% sequentially right.
For that to happen.
You need almost 30% organic growth in Q2, and if you do 30% organic growth in Q2.
You're implying kind of negative <unk> in the back half to get to your guide.
So Patrick I'll add the math I would I would suggest that were suggested or forecast is not going to happen and I think one of the key drivers is.
New.
Non.
On.
Nonresidential construction starts they had been down 28% for the last four quarters and that is clearly a driver of our business that's got to be in place to get that type of ramp.
So Jeff keep in mind.
Going into Q2 last year, we're coming off a record quarter Q1 2020 back.
Backlogs were really really healthy both on discretionary.
New construction.
Projects that were started we're kind of still being completed some of them may have been delayed and pushed out during the back half of the year.
So you still have a real tough comp on non res new construction.
Begins to improve year over year.
And sequentially, but by Q2 is still going to be.
On non resin now, okay, not residential and nonresidential still kind of be tough we didn't have plant shutdowns like we did in residential business in Q2.
Great. Thank you.
The next question comes from Josh <unk> with Morgan Stanley. Please go ahead.
Hey, good morning, guys good morning, Josh.
David just on a bit of a snap the line update versus where you were in kind of three or six months ago. I think the expectation was that when we get into the second half folks will be back in some of these institutions are offices and will drive some retrofit activity.
Sounds like some of that is starting to percolate a bit quicker but.
One am I reading that right and two is that something that could show up as soon as ex <unk> I know, there's still plenty of chop in the new size of the market by just versus that prior expectation of a second half improvement in non <unk> retrofit.
On.
Want to be very clear.
Beginning in mid March and through today, we saw an uplift in wholesale and CHD demand that we believe is part of.
An air pocket that we saw 12 months earlier preventive maintenance small projects were delayed.
And that's come back and we're very pleased to see that.
It was a little earlier I think the results of the vaccination.
Success, we're having here in the U S has driven that and overall confidence.
So feel good about that we added to our legions commercial for commercial and institutional backyard backlog in the Americas.
During the period and.
We continue to believe that will that demand will continue I think.
The challenge is that new construction backlog, which the projects are complete I think it's evident in the starts data that comes out of Dodge and we just got to work through that I think we've got a reasonable view on it again.
Market demand was better than.
We anticipated in Q1.
Reasonably better it's still softer than it was a year ago.
Got it that's helpful and maybe just to follow up on that and I think this sort of gets to what what Jeff was asking as well.
I guess theres still plenty of uncertainty on new construction.
Preface that with your answer just now that the non res new backlog, it's still lower.
Is it lower than what you would have thought a few months ago I guess.
And that would sort of imply some higher level of conversion. So I guess, that's always possible, but it sounds like the market itself is doing better from an orders perspective, so just trying to balance that.
Yeah, maybe heightened caution on the backlog comment even though I don't know if anything has really changed for you.
I would say the new construction activity is performing.
Performing as we would anticipate and we see the benefits of that really rolling in.
Into 'twenty, two and it's the nature of the Beast.
I would also emphasize this.
However, the market performs on the retrofit small per project and new construction.
Struction I believe that we've made the investments here that we will continue to be the market.
Great that's helpful color and congrats on a good quarter.
Thank you.
The next question comes from Chris Snyder with UBS. Please go ahead.
Thank you on just following up a little bit more on the non res comments.
Starts inflect positive here shortly when could we expect the new construction business to bottom and then just any color you could provide on the R&R trajectory embedded into 2021 guidance.
I would say.
Sure.
It starts inflect.
And we believe they will gain momentum as we go through the year, you really see the benefits of that in 'twenty two because dirt in the ground today does not mean revenues for Allegiant Tomorrow. This is a long cycle nature most building projects.
Have a 12 to 18 months.
<unk>, especially in our sweet spots and.
That's how I'd payment I'm extremely encouraged by the uplift of our specification activity and the broader indices and I think.
Couple that with the stimulus.
We feel good about where this business is growing.
I appreciate that all that color.
And then just kind of following up so non res has been running at a low double digit or down low double digits for the last three quarters can you provide any color on the under the surface movements between new construction, which kind of based on your last comments seems like it would be continually getting worse through at least <unk>.
Q1.
And just.
Any mix there between new construction R&R just under the surface movement.
As you know, we don't really give specific guidance associated with a breakdown on those kind of end markets, but.
I would.
Characterize it this way debt.
Continued.
Pressure as we kind of continue to go through 'twenty, one relative to new construction.
Year over year, but getting sequentially better in the back half of the year. We progressed the rate of decline becomes less the repair retrofit was the first.
Area that kind of saw the decline last year and that will start to hopefully improve in the back half of the year.
Year over year, but keep in mind the <unk>.
New construction part of our non residential business is roughly 65% relative to or compared to the discretionary total.
I would also appreciate that suggest just a little bit more color on that.
The range of capabilities of Allegiant has today opening price point mid price point and full price point in terms of our.
Commercial and institutional offerings is it significantly better than it was in the last downturn, we're seeing that growth.
Reflecting our strength in the channel to make sure info dollars available for revenue that we get more than our fair share of the.
Thank you.
Okay.
The next question.
<unk> comes from Ryan Merkel with William Blair. Please go ahead.
Hey, everyone first off can you just talk about the supply chain pressures youre seeing and is this risk manageable or are you expecting to see a revenue and tax in 'twenty one.
So our record speaks for ourselves here I think the Allegiant supply chain has performed exceptionally.
Through the last five quarters.
<unk>.
Because of this strategic choice that we make to produce in region and it's benefiting this in a lot of ways, there are clear and obvious pressures, particularly on electronics and.
We're certainly adapting to those.
There could be.
Some some shutdowns in terms of unit were enabled not April day or produce specific products with that in mind. We were very aggressive early to put in long term orders.
<unk>.
To secure our supply chain, we've got tight.
Vendor relations and.
Again my confidence is.
Yes, we can be affected but we will navigate it better than the competition and I would add debt. The current guide assumes that we're going to help mitigate the impact of the inefficiencies.
I feel good about debt, where we stand today.
However continued pressure there does create inefficiencies to the extent.
We are unable to procure the appropriate.
Supplies needed to produce the products and so kind of remains to be seen but we're managing through it some of our product lines, particularly electronics for hand to mouth and it does create inefficiencies, but we're working through those issues.
I would also.
40 years of dealing with this type of thing we made moves early debt will.
Help us.
Extremely proud of our supply team and what they've done to mitigate a variety of issues.
We were well out ahead of this and I think we'll come out of it stronger.
Got it alright, and then just quickly great to hear the non res Reno is coming back is that a broad based comment or is it just happening in certain sectors today.
So I think if you go across the geographies.
We see stronger activity, particularly in the south.
East, Texas.
You can kind of look at where COVID-19 come on.
<unk> had harder hits or.
We're shutdowns have been harder.
It reflects the strength as you go into the different segments.
About.
Completing your preventive maintenance lifts debt any hospital in the United States over the last 15 months I would suggest the answer's no.
College campuses, similar and we see confidence and our wholesale distribution.
Orders incoming orders.
And it is going into those segments that have really been battered in their ability just to.
To meet the needs of their customers.
Perfect. Thank.
Thank you.
The next question comes from Jeff Kessler with Imperial capital. Please thank you.
And thank you for taking the question.
First just quickly on on it.
On international again, congratulations on the numbers you've explained them I'd love to give Tim all the credit but of course, I won't yet, but I do want to know what is game plan is there what's the game plan is.
For getting one.
In general for getting an international SME.
Essentially moving so thats, the so that currency and other factors are not what we're going to be talking about in two or three years, but the but gains and gains in market share.
Et cetera.
Because obviously, having international moving forward.
Is just another quiver in your and your gross cap.
So Tim.
Tim does have a lot of instant talent and we give him.
Great Kudos on the first 90 days, Jeff there's been a tremendous amount of work that's gone on in that business over the last couple of years.
One is I talked about the restructuring.
Significant investment and prioritization around inner flux on Simon's Voss.
Really nice growth over the last six quarters <unk> Simon's Voss per performed exceptionally during the pandemic.
That momentum will continue as.
As you think about strategic priorities for Tim is to continue that growth and expand the cloud and technical capabilities.
No better than others that Simons Voss.
Really thrives on what we call active technologies drew.
Driving more investment that goes into some of the passive areas will help fuel those their growth which could include also acquisition.
But we like that Simons Vos enter flex I think second important for Tim is.
We acquired the Gainsborough.
The asset.
That's well positioned we launched the first electronic try lock in the region.
We think we're well positioned to be with new in the new build and the DIY too.
See nice growth as that residential market recovers in Gainsborough.
Third what has been surprising to Tim and his first 90 days is the opportunity to expect export more capability from the Americas, which he has more knowledge.
Then.
Anybody in the company and so looking forward to.
Taking some.
Some of the real strengths, we have here in the Americas and helping.
Our international partners.
Grow even faster.
My follow up question quickly is and maybe this is the answer I mean diesel quake is just underneath your level I would say.
Comps down level from from where you folks operate we're seeing.
A shift.
A small shifts in growth from away from video and toward those calls you want to call. It software based access control everything from obviously NFC to Bluetooth too.
So ultra high frequency as well as.
No.
Just as well as the.
Power power over Ethernet, which you folks know a little bit about.
And what we're also seeing is simple.
Simply put our gain in software as the driver as opposed to hardware as a driver in in getting into access control and with access control, let's say, becoming a faster growth areas other than even then even video and we've seen some crazy valuations.
Interest in the venture and private equity markets for some of these companies that are getting involved in areas that are either adjacent to or actually may compete with you.
So on interest comps all the way to all the way too.
Two to SaaS based.
Things.
What is the company what is the company looking at in terms of trying to make sure that.
Both protects its flank and grow this business.
So I would describe it as one of the most exciting opportunities that I've seen.
My 40 years of industrial.
Participation.
The company has been invested heavily and increased our investment as we went through the pandemic.
On the.
<unk> acquisition would be reflective.
But if you look under the covers and saw the growth of our investments in Bangalore, and our engineering capabilities. Since I created since we created a legion we've tripled the feet on the street there to be able to.
Physician ourselves more strongly in the connectivity.
And the software elements.
Third Jeff would be the venture activity.
You see some of the investments costs are meant house open path.
Don't believe we our strategy has been to.
<unk> be in the fast lane, two with new technology to be able to observe learn.
Partner invest potentially own you know we went through that entire cycle.
Thank you.
We continue to sharpen our position and I like our opportunities to be able to participate in the world of seamless access that you described.
Okay, Great look forward to interacting with you guys must future. Thank you for always the leader in this and we appreciate your thought leadership Jeff.
Thank you for this.
This concludes our question and answer session I would like to turn the conference back over to Tom Martineau for any closing remarks.
So we'd like to thank everybody for participating in today's call and have a safe day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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