Q3 2024 Allegion PLC Earnings Call
Good morning, awakened to the Allergan third quarter 2024 earnings call.
All participants we believe Saturday boat.
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Joshua Pokrzywinski: I will now like to turn the conference over to Josh Pokrzywinski, Vice President of Investor Relations. Please go ahead.
Speaker Change: I would now like to turn the conference over to Josh book, IV and ski Vice President of Investor Relations. Please go ahead.
John Stone: Thank you, Sasha.
Josh book: Thank you Tasha good morning, everyone and thank you for joining us for allegiance third quarter of 2024 earnings call with me today are John Stone, President and Chief Executive Officer, and Mike <unk>, Senior Vice President and Chief Financial Chief Financial Officer of Allegiant.
John Stone: Good morning, everyone. Thank you for joining us for Allegion third quarter 2024 earnings call. With me today are John Stone, president and chief executive officer, and Mike Wagnes, senior vice president and chief financial officer of Allegion. 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.alegion.com. This call will be recorded and archived on our website. Please go to slide two. Statements made in 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.
Josh book: Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to on today's call are available on our website at Investor <unk> Com. This call will be recorded and archived on our website. Please go to slide two.
Josh book: Statements made in 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.
John Stone: 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 and the financial tables of our press release for further details.
Please 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.
Josh book: 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.
Unknown Executive: Please go to slide three.
Josh book: Let's go to slide three and I'll turn the call over to John Thanks, Josh Good morning, everyone. Thanks for joining us we can sum up this quarter with stable markets and strong execution.
John Stone: I'll turn the call over to John.
John Stone: Thanks, Josh. Good morning, everyone. Thanks for joining us. We can sum up this quarter with stable markets and strong execution. Two, three marks another quarter of strong execution by the entire Legion team, resulting in revenue growth and margin expansion, demonstrating the resilience of our business model. I'm especially pleased with the top line growth in the quarter. And overall, demand remains stable and is supported by our broad end market exposure and specification expertise. Institutional markets have continued to lead, while commercial verticals have been more mixed. We have accelerated capital deployment in 2024, returning cash to shareholders and growing our business with the creative acquisitions.
John Stone: Q3 marks another quarter of strong execution by the entire Allegiant team, resulting in revenue growth and margin expansion demonstrating the resilience of our business model I'm, especially pleased with the topline growth in the quarter and overall demand remained stable and is supported by our broad end market exposure and specification expertise.
John Stone: Institutional markets have continued to lead all commercial verticals have been more mixed.
John Stone: We have accelerated capital deployment in 2020 for returning cash to shareholders and growing our business with accretive acquisitions, our strong cash generation balance sheet and pipeline of opportunities continue to position us well for future capital deployment, creating long term value for our shareholders as.
John Stone: Our strong cash generation, balance sheet, and pipeline of opportunities continue to position us well for future capital deployment, creating long-term value for our shareholders. As we push to year end, I feel we're performing at a high level. We're raising our full year guidance for EPS, and we're affirming our overall revenue with some small updates at the segment level. Additionally, we're affirming our available cash flow outlook. Later in the call, we'll discuss these full-year updates as well as provide some initial thoughts on how we see the market shaping up for next year.
John Stone: As we pushed a year and I feel we're performing at a high level, we're raising our full year guidance for EPS and we are affirming our overall revenue with some small updates at the segment level.
Additionally, we're affirming our available cash flow outlook later in the call. We'll discuss these full year updates as well as provide some initial thoughts on how we see the market shaping up for next year.
John Stone: Please go to slide four. Let's take a look at cap allocation. First, we continue to invest in the core to drive organic growth. In June, we introduced a new product line of exit devices, the Von Duprin 70 Series. Our 70 series combines the quality and trust Von Duprin is known for as the creator of this product category with the performance and value ideal for many modern applications ranging from warehouse and industrial office, multi-family, retail, and hospitality space. This new product line is backed by our experts, safety and security consulting, specification writing, technical support and training, and it highlights what we do well with our flagship brands like Bondoopron.
Please go to slide four.
John Stone: Let's take a look at capital allocation.
John Stone: First we continue to invest in the core to drive organic growth in June we introduced a new product line of exit devices. The von <unk> 70 series are 70 series combines the quality and Trust fund Dupont is known for as the creator of this product category with the performance and value ideal for many modern applications.
John Stone: Ranging from warehouse industrial office multifamily retail and hospitality spaces. This new product line is backed by our experts safety and security consulting specification, writing technical support and training.
Highlights, what we do well with our flagship brands like bond Dupont, we innovate for new markets, while still expanding our core capability that's difficult to match, but is a strength of allegiance.
John Stone: We innovate for new markets while still expanding the core, a capability that's difficult to match but is a strength of allegiance. With the Bondoopron 70 series, we're leveraging more than a century of experience in developing high performance exit devices to meet the safe entry and egress needs of customers. Allegion continues to be a dividend bank stock; in the third quarter of this, amounted to approximately $42 million in cash return to shareholders.
John Stone: With the final <unk> 70 series, we're leveraging more than a century of experience in developing high performance exit devices to meet the safe entry and egress needs of customers today.
Speaker Change: Allegiant continues to be a dividend paying stock in the third quarter. This amounted to approximately $42 million in cash returned to shareholders.
John Stone: Turning now to M&A, and as announced last week, we recently closed the acquisition of SaaS Door Hardware. Saas manufactures premium door hardware primarily sold across North America and non-residential markets. Best known for their line of invisible hinges, Saas complements our core mechanical portfolio with fire-rated heavy-duty solutions for industrial, commercial, and institutional spaces. And like our other well-known brands, SaaS is an industry pioneer with more than a century of experience that makes it a category leader today. SaaS is a small bolt on with the Legion-like margins. We expect SaaS to deliver solid returns, accretive to EPS in 2025 in a space we know well as a pure play leader in security and access.
Speaker Change: Turning now to M&A and as announced last week. We recently closed the acquisition of source door hardware sauce manufacturers premium door hardware, primarily sold across North American nonresidential markets best known for their line of invisible hinges sauce complements our core mechanical portfolio with fire rated heavy duty solutions for indoor.
Speaker Change: US real commercial and institutional spaces, and like our other well known brands such as an industry pioneer with more than a century of experience that makes it a category leader today.
Speaker Change: Sources of small bolt on with the lesion like margins, we expect sauce to deliver solid returns accretive to EPS in 2025 in a space, we know well as a pure play leader in security and access.
Michael Wagnes: Lastly, in the quarter, we made share repurchases amounting to approximately $40 million. To sum up this slide, Allegion will continue to take advantage of the strong cash generation our business drives for the benefit of our shareholders.
Speaker Change: Lastly, in the quarter, we made share repurchases amounting to approximately $40 million to sum up this slide Elysian will continue to take advantage of the strong cash generation of our business drives for the benefit of our shareholders. Mike will now walk you through the third quarter financial results.
Michael Wagnes: Michael now walk you through the third quarter financial results. Thanks, John, and good morning, everyone. Thank you for joining today's call.
Mike: Thanks, John and good morning, everyone. Thank you for joining today's call. Please go to slide number five.
Michael Wagnes: Please go to slide number five. As John shared, our Q3 results reflect solid performance from the entire Legion team. We continue to execute at a high level, delivering another quarter of strong margin expansion with mid-single digit top line growth driven by price, volume, and acquisitions. Revenue for the third quarter was 967.1 million, an increase of 5.4% compared to 2023. Organic revenue increased 3.3% in the quarter as a result of favorable price and volume. We saw strength within our America segment, with international organic revenue relatively flat in the quarter. Q3 adjusted operating margin and adjusted EBITDA margin both increased by 100 basis points, driven by price and productivity in excessive inflation and investment, as well as favorable volume leverage.
Mike: As John shared our Q3 results reflect solid performance from the entire Allegiant team.
We continue to execute at a high level delivering another quarter of strong margin expansion with mid single digit top line growth driven by price volume and acquisitions.
Mike: Revenue for the third quarter was $967 1 million, an increase of five 4% compared to 2023.
Mike: Organic revenue increased three 3% in the quarter as a result of favorable price and volume.
Mike: We saw strength within our Americas segment with international organic revenue relatively flat in the quarter.
Mike: Q3, adjusted operating margin and adjusted EBITDA margin, both increased by 100 basis points, driven by pricing productivity in excess of inflation and investing as well as favorable volume leverage I am pleased with the operational execution and margin expansion in 2024.
Michael Wagnes: I am pleased with the operational execution and margin expansion in 2024. Adjusted earnings per share of $2.16 increased 22 cents for 11.3% versus the prior year. Strong operational performance, a creative capital deployment, and favorable interest in other more than offset headwinds from higher tax. Finally, year-to-date 2024 available cash flow was 388 million, which was a 21.1% increase versus last year.
Mike: Adjusted earnings per share of $2 16 increased 22 cents.
Mike: Or 11, 3% versus the prior year strong.
Mike: Strong operational performance accretive capital deployment and favorable interest another more than offset headwinds from higher tax.
Mike: Finally year to date 2024 available cash flow was $388 million, which was a 21, 1% increase versus last year.
Michael Wagnes: I am pleased with our cash flow and working capital management and will provide more details a little later in the presentation.
Mike: I am pleased with our cash flow and working capital management, and we will provide more details a little later in the presentation.
Michael Wagnes: Please go to slide number 6. This slide provides an overview of our quarterly revenue.
Please go to slide number six.
Mike: This slide provides an overview of our quarterly revenue I will review our enterprise results here before turning to our respective segments.
Michael Wagnes: Our review of enterprise results here before turning to our respective segments. Organic revenue grew 3.3% in the quarter, which included price realization of 1.8% and volume growth of 1.5%. Acquisitions drove approximately two points of growth in the quarter. Additionally, currency was a slight tailwind, bringing total of a reported growth to 5.4%. Q3 revenues was sequentially consistent with Q2 and reflects a more normal seasonality compared to an unusual 2023, as we indicated previously.
Mike: Organic revenue grew three 3% in the quarter, which included price realization of one 8% and volume growth of one 5%.
Mike: Acquisitions drove approximately two points of growth in the quarter. Additionally, currency was a slight tailwind, bringing total reported growth to five 4%.
Mike: Q3 revenues was sequentially consistent with Q2 and reflects a more normal seasonality compared to an unusual 2023 as we indicated previously.
Michael Wagnes: Please go to slide number 7. Our America segment delivered strong operating results in Q3. Revenues of 782.4 million was up 5.6% on a reported basis and up 4.1% on an organic basis. Organic growth included both favorable price and volume in the quarter. Reported revenue included 1.6% growth from the June acquisitions of Krieger and Unicell. Our non-residential business increased mid-single digits organically in the quarter as institutional and markets remained stable. Our residential business was up low single digits, similar to what we saw in Q2. Electronics revenue was down high single digits compared to Q3 last year, which included significant catch-up and volumes as supply chains recovered from disruptions that we experienced in 2021 and 2022.
Please go to slide number seven.
Mike: Yeah.
Mike: Our Americas segment delivered strong operating results in Q3 revenues of $782 4 million was up five 6% on a reported basis and up four 1% on an organic basis.
Mike: Organic growth included both favorable price and volume in the quarter.
Mike: Reported revenue included one 6% growth from the June acquisitions of Kreger and Eunice L.
Mike: Our nonresidential business increased mid single digits organically in the quarter as institutional end markets remains stable.
Mike: Our residential business was up low single digits similar to what we saw in Q2.
Mike: Electronics revenue was down high single digits compared to Q3 last year, which included significant catch up in volumes as supply change recovered from disruptions that we experienced in 2021 and 2022.
Michael Wagnes: It's worth noting Q3 electronic revenue dollars were flat sequentially to Q2 levels, generally following the seasonality of the rest of the business.
Mike: It's worth noting Q3 electronic revenue dollars were flat sequentially to Q2 levels generally following the seasonality of the rest of the business. We continue to believe electronics, our long term growth driver for Allegiant.
Michael Wagnes: We continued to believe electronics are a long-term growth driver for a legion. America's adjusted operating income of 231.1 million increased 9.7% versus the prior year period due to solid top-line growth and strong operational execution. Adjusted operating margin and adjusted EBITDA margin for the quarter were up 110 and 120 basis points, respectively, as we continue to drive margin expansion through price and productivity in excess of inflation and investments.
Mike: Americas adjusted operating income of $231 1 million increased nine 7% versus the prior year period due to solid top line growth and strong operational execution.
Mike: Adjusted operating margin and adjusted EBITDA margin for the quarter were up 110, and 120 basis points respectively.
Mike: As we continue to drive margin expansion through price and productivity in excess of inflation and investments.
Michael Wagnes: Let's go to slide number 8. Our international segment had a solid third quarter. Revenue of 184.7 million was up 4.4% on a reported basis and up 0.2% organically. Acquisitions were a tailwind in this quarter, positively impacted reported revenue by 2.9%, driven by the Dorcas embossed businesses. Currency was also a tailwind contributing 1.3 points of growth. International adjusted operating income of 25.2 million increased 6.3% versus the prior year period. Adjusted operating margin and adjusted EBITDA margin for the quarter increased 20 and 10 basis points, respectively. Margin expansion was driven by price and productivity exceeding inflation, and investments offsetting the volume decline.
Let's go to slide number eight.
Mike: Our international segment had a solid third quarter revenue of $184 7 million was up four 4% on a reported basis.
Mike: And up 2% organically.
Mike: Acquisitions were a tailwind this quarter positively impacted reported revenue by two 9% driven by the darkness and bus businesses.
Mike: Currency was also a tailwind contributing 1.3 points of growth.
Mike: International adjusted operating income of $25 2 million increased six 3% versus the prior year period.
Mike: Adjusted operating margin and adjusted EBITDA margin for the quarter increased 20, and 10 basis points respectively.
Mike: Margin expansion was driven by price and productivity exceeding inflation and investments offsetting the volume decline.
Michael Wagnes: Please go to slide number 9, and I will provide an overview of our cash flow and balance. The year-to-date available cash flow came in at $388 million, up $67.6 million versus the prior year. This increase is driven by higher earnings and improvements in working capital, partially offset by higher capital expenditures. Next, working capital as a percent of revenue improved as we continue to focus on working capital efficiency to convert earnings to cash. Finally, our balance sheet remains strong, and our net debt to adjusted EBITDA is at a healthy ratio of 1.7 times. It's worth noting our gross debt and cash balances at September 30, 2024, include the proceeds from our $400 million senior note issuance and Q2, which were used to repay $400 million senior note on October 1.
Speaker Change: Please go to slide number nine and I will provide an overview of our cash flow and balance sheet.
Speaker Change: Year to date available cash flow came in at 388 million up $67 6 million versus the prior year.
Speaker Change: This increase was driven by higher earnings and improvements in working capital, partially offset by higher capital expenditures.
Speaker Change: Next working capital as a percent of revenue improved as we continue to focus on working capital efficiency to convert earnings to cash.
Speaker Change: Our balance sheet remains strong and our net debt to adjusted EBITDA is that a healthy ratio of one seven times.
Speaker Change: It's worth noting our gross debt and cash balances at September 32024 include the proceeds from our $400 million senior note issuance in Q2, which were used to repay $400 million senior note on October one.
Michael Wagnes: This results in a slightly higher gross leverage at the end of the third quarter, but has no impact on net leverage. Our business continues to generate strong cash flow, and our balance sheet supports continued capital deployment.
Speaker Change: This results in a slightly higher gross leverage at the end of the third quarter, but has no impact on net leverage.
Speaker Change: Our business continues to generate strong cash flow and our balance sheet supports continued capital deployment.
John Stone: I will now hand the call back over to John. Thanks, Mike. Please go to slide 10. The leasing remains on track for record results in 2024. We are affirming our total reported revenue growth outlook of 2.5 to 3.5%. We're also affirming our total organic revenue growth outlook of 1.5% to 2.5%. Although we now expect international, organic revenue growth to be slightly higher, and America's organic growth to be slightly lower than what we previously shared with you. The international team has executed well as markets have been slow the past two years. There's now seen some stability in the mechanical portfolio.
Speaker Change: I'll now hand, the call back over to John Thanks, Mike. Please go to slide 10.
John Stone: Allegiant remains on track for record results in 2024, we are affirming our total reported revenue growth outlook of two five to three 5%. We're also affirming our total organic revenue growth outlook of one and a half to two 5%. Although we now expect international organic revenue growth to be slightly higher in Americas.
John Stone: <unk> organic growth to be slightly lower than what we previously shared with you the.
John Stone: The international team has executed well as markets have been slow the past two years is now seeing some stability in the mechanical portfolio.
John Stone: In the Americas, we're lapping record multifamily markets, which have slowed with higher interest rates this year. On balance, we still describe our markets as stable, particularly in the institutional verticals. We'll share more color on our markets on the next slide as we look forward to next year.
John Stone: In the Americas, we're lapping record multifamily markets, which have slowed with higher interest rates this year.
John Stone: On balance we'd still describe our markets are stable, particularly in the institutional verticals will share more color on our markets on the next slide as we look forward to next year.
John Stone: Based on our strong operational performance in the third quarter, capital deployment, and a revised tax rate, we are increasing our adjusted earnings per share outlook to a range up to $7.35 to $7.45. Lastly, we're affirming our outlook on available cash flow to be in the range of $540 to $570 million.
John Stone: Based on our strong operational performance in the third quarter capital deployment and our revised tax rate, we are increasing our adjusted earnings per share outlook to a range of $7 35 to $7 45.
John Stone: Lastly, we are affirming our outlook on available cash flow to be in the range of $540 to $570 million.
John Stone: Please go to slide 11. As you know, we'll provide a Legion's formal 2025 financial outlook during our February earnings call, but today we'd like to share a preliminary view on our key markets for next year. Overall, demand has been stable throughout 2024. Last quarter, we highlighted what makes our business model resilient: from our front-end spec engine that pulls product through the channel to our broad and market coverage and large install base. Of course, strong execution by one of the safest, most engaged workforces in the industry, complemented by what is without a doubt the best distribution channel that the industry has.
Please go to slide 11.
John Stone: As you know will provide allegiance formal 2025 financial outlook during our February earnings call, but today, we'd like to share a preliminary view on our key markets for next year.
John Stone: Overall demand has been stable throughout 2024 last quarter, we highlighted what makes our business model resilience from our front end spec engine that pulse product through the channel to a broad end market coverage and large installed base and of course strong execution, but one of the safest most engaged workforces in the industry.
John Stone: Complemented by what is without a doubt the best distribution channel that the industry has.
John Stone: As we approach 2025, we see many of the same dynamics in place and do expect to grow organically. Starting with the Americas, macro indicators remain rather mixed. Institutional markets are stable and showing signs of modest growth. Commercial markets have been muted, and while we're encouraged by improvement in some indicators, the long cycle nature of our business results in a lag versus planning and start data. Based on past starts, multi-family is one market likely to be slower as we enter 2025. We do expect America's residential markets to grow next year. As a reminder, we're mostly exposed to residential aftermarket and due existing home sales as an important driver of activity for us.
John Stone: As we approach 2025, we see many of the same dynamics in place and do expect to grow organically.
John Stone: Starting with the Americas macro indicators remain rather mixed institutional markets are stable and showing signs of modest growth commercial markets had been muted and while we're encouraged by improvement in some indicators the long cycle nature of our business results in a lag versus planning and start data based on past starch multifamily is one market like.
John Stone: To be slower as we enter 2025.
John Stone: We do expect Americas residential markets to grow next year. As a reminder, we are mostly exposed to residential aftermarket and view existing home sales as an important driver of activity for us.
John Stone: For international macro indicators, remain soft. However, we have been in this environment for most of the last two years. As such, more moderate comparisons and continued strong execution should support growth in 2025. Finally, Allegion has a healthy, balance-y strong-cast generation that gives us flexibility as we enter the new year. We do expect capital deployment to drive additional earnings per shared growth focused on returns for our shareholders.
John Stone: For international macro indicators remain soft however, we have been in this environment for most of the last two years as such more moderate comparisons and continued strong execution should support growth in 2025.
John Stone: Finally, allegiant has a healthy balance sheet strong cash generation that give us flexibility as we enter the new year, we do expect capital deployment to drive additional earnings per share growth focused on returns for our shareholders.
John Stone: Please go to slide 12. In summary, Q3 marks another quarter of strong results for Allegion. Our team continues to perform at a high level, driving revenue growth and margin expansion, demonstrating the resilience of our business model. We've seen stable markets this year and have accelerated capital deployment and heading into the last few months of 2024. We're focused on meeting customer needs and delivering on our commitments to shareholders.
Please go to slide 12.
John Stone: In summary, Q3 marks another quarter of strong results for Legion. Our team continues to perform at a high level driving revenue growth and margin expansion demonstrating the resilience of our business model, we've seen stable markets. This year and have accelerated capital deployment and heading into the last few months of 'twenty 'twenty four we're focused on meeting customer needs.
John Stone: And delivering on our commitments to shareholders with that let's turn to Q&A.
Unknown Executive: With that, let's turn to Q&A. We now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speaker phone, please pick up your answer before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Please limit yourself to one question on one follow-up.
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Unknown Executive: At this time, we will pose momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble to outgrow SAR.
Vivek Shavaswar: If the first question is from Joe Richie with Goldman Sachs, please go ahead. Thanks for the question.
Speaker Change: The first question from Judy Chu with Goldman Sachs. Please go ahead.
Speaker Change: Thanks for the question because it makes their life on for Joel.
John Stone: This is Vivek Shavaswar on for Joe. My first question is just from the America's non-residential business. The mid-single digit growth this quarter is pretty impressive in light of all project delays and events we've been hearing in the quarter. So maybe could you help us understand how is your visibility over the next 12 months based on specification activity in this vertical, and then can you also provide any color on revidentials back activity?
Judy Chu: My first question is just on the Americas non residential business the mid single digit growth this quarter.
Judy Chu: It's pretty impressive in light of all probably going to make.
Judy Chu: I'm going to have you been hearing and truck market. So maybe could you help us understand how is your visibility over the next 12 months, we have done specification activity and that's why they couldn't and then can you also provide any color on residential stack activity.
John Stone: Yeah, so let's talk non-res first, and thanks for the question. I'd say consistent with the slide and prepared remarks, we do continue to see organic growth. We do continue to see non-res overall as stable. With some mix there and some of the commercial verticals, like we indicated, multifamily we do expect it to be soft for a while, but on the institutional side, looking at leading indicators like Dodge starts and Dodge momentum would be indicative of kind of activity that we're seeing in the market. If you look at municipal bond issuance this year, it has been very strong, up almost 30 percent year to date, which is an indicator of, again, spending and education where safety and security are always on the list, and our advocacy and our activity promoting safe schools position us well to support customers there.
Speaker Change: Yes, so let's talk non res first and thanks for the question I'd say.
Speaker Change: Consistent with the slide and in our prepared remarks, we do continue to see organic growth.
Speaker Change: We do continue to see non res overall is stable.
Speaker Change: With some some mix there and some of the commercial verticals like we indicated multifamily we do expect it to be soft for a while.
Speaker Change: But on the institutional side.
Speaker Change: Looking at.
Speaker Change: Leading indicators like Dodge starts and Dodge momentum.
Speaker Change: Would be indicative of the kind of activity that we're seeing in the market.
Speaker Change: If you look at municipal bond issuance. This year has been very strong up almost 30% year to date.
Speaker Change: Which is an indicator of again spending in education, where safety and security are always on the list in.
Speaker Change: Our advocacy and our activity promoting safe schools position us well to support customers. There. So I think just consistent with what we shared with you on that last slide.
John Stone: So I think just consistent with what we shared with you on that last slide, we see overall stable markets for the foreseeable future, led by the institutional verticals, with some of the commercial verticals a bit more mixed.
Speaker Change: We see overall stable markets for the foreseeable future led by the institutional verticals with some of the commercial verticals a bit more mixed.
John Stone: on the residential side. I think you asked about spec activity. We don't spec residential. We do participate primarily in the aftermarket unresadential. We do see as the interest rate environment as if that continues to improve. We do see signs that both on the new build side as well as the aftermarket side there are signs that are indicating growth.
Speaker Change: On the residential side I think you asked about spec activity, we don't spec residential we do.
Participate primarily in the aftermarket on residential we do see as the interest rate environment.
Speaker Change: If that continues to improve we do see signs that are both on the newbuild side as well as the aftermarket side. There are signs that are indicating growth.
John Stone: Very helpful. I just follow up on just for activity, the equation pricing, net of productivity, ambition and investments. Continues to remain positive through the year.
Speaker Change: Very helpful and just a follow up on just productivity the equation pricing net of productivity.
Speaker Change: And investments continues to remain positive.
Speaker Change: We're all curious where are you in here it would be Germany was pre COVID-19 levels.
John Stone: Curious where are you in your productivity journey versus pre-COVID levels? What are the opportunities we see on TKPI of like land utilization levels as we answer in 2025? Yeah, so really pleased with our productivity. If you recall the last couple of years, 21 and the beginning of 22, we really ran into challenges in our supply chain that resulted in us being inefficient. If you fast forward the 23 and 24, much more efficient where we can drive productivity. When you look at the equation and how we like to look at it, it's the price in the productivity that cover the inflation and fund the investments.
Speaker Change: What are the opportunities you see.
Speaker Change: On PPI as like line utilization.
Speaker Change: As we enter 2025.
Speaker Change: Yeah, So really pleased with our productivity if you recall the last couple of years 'twenty.
Speaker Change: 21, and the beginning of 'twenty, two we really ran into challenges in our supply chain network.
Speaker Change: That resulted in us being inefficient if you fast forward to the <unk>.
Speaker Change: 'twenty, three and 'twenty four much more efficient, where we can drive productivity and when you look at the equation and how we like to look at it it's the price and the productivity that cover inflation and fund the investments and so we've gotten margin expansion. This year really pleased with the expansion as I mentioned earlier.
John Stone: We've gotten margin expansion this year. Really pleased with the expansion, as I mentioned earlier. Just know when you think of a legion, it is going to be driving the price in productivity to cover that inflation and fund investments on a growth forward basis.
Speaker Change: And just know when you think of a Legion Allegiant is going to be driving the price and productivity to cover that inflation.
Speaker Change: And our fund investments on a go forward basis.
Unknown Executive: Thank you.
Speaker Change: Well thank you.
Julia Mitchell: The next question is for Julia Mitchell with Barclays. Please go ahead. Hi, good morning. Maybe a first question just on the residential side of things. I think about the market outlook for next year. We talk about recovering starts on slide 11. I think it's about maybe just remind us it's close to maybe 40 percent or so green field. So I just wanted to check that exposure. When you look back historically at the business, what sort of typical lag from interest rates moving lower to seeing some help in your top line, whether residential green field or repair and remodel, any sort of context around how your thoughts on that market have changed in recent months.
Speaker Change: The next question is from Julian Mitchell with Barclays. Please go ahead.
Speaker Change: Hi, good morning, maybe a.
Speaker Change: First question just on the residential side of things you know thinking about the sort of market outlook for next year.
Speaker Change: It took about recovering starts on slide 11.
Speaker Change: And I think it's about maybe just remind us sort of close to maybe 40% or so greenfield. So just wanted to check that exposure.
Speaker Change: And when you look back historically at the business most of that sort of typical lag from interest rates moving lower to seeing some help in your topline whether residential greenfield or repair and remodel them any sort of context around how your thoughts on that market.
Speaker Change: Should we see pumps.
John Stone: Thanks for the question, Julian. If you think of our Rezzy business, certainly a little more is the aftermarket. So you can think of it as roughly a third of our businesses aftermarket retail being, I'm sorry, two thirds aftermarket. I apologize. Two thirds aftermarket, a third new build and retail being the biggest piece, think of like a Home Depot, a Lowes, a customer like that Amazon. And then, with respect to building construction of new home, that could take six months to a year. It's not like an institutional building. So it is quicker responding to interest rates.
Speaker Change: Thanks for the question Julian if you think of our resi business certainly a little more is the aftermarket. So you could think of it as roughly a third of our business is aftermarket retail being.
Speaker Change: I'm, sorry, two thirds aftermarket I apologize two thirds aftermarket a third new built.
Speaker Change: And at.
Speaker Change: At retail being the biggest piece think of like a home depot Lowe's a customer like that Amazon.
Speaker Change: And then with respect to building construction of new home that could take six months to a year, it's not like an institutional building. So it is quicker responding to interest rates.
John Stone: and on the aftermarket side. I mean, that's consumer spending money, so it is less determined or less long, I would say, from a timing of recovery when you think about versus the new build side.
Speaker Change: And on the aftermarket side I mean, that's consumer spending money. So it is less.
Speaker Change: Less determinant or unless long I would say from a timing of recovery when you think about.
Speaker Change: Versus the Newbuild side.
Unknown Executive: That's very helpful. Thank you.
Speaker Change: That's very helpful. Thank.
Speaker Change: Thank you and then as we're thinking about electronics that market you know you talk about growth.
Julia Mitchell: And then, as we're thinking about electronics, that market, you know, you talk about growth in both electronics, America's plus international next year. This year I think it's still digesting sort of tough comps and the sudden easing of supply chain conditions. Remind us perhaps what's the medium term, you know, electronics growth assumption as you see it globally. And as we think about 2025, you've had such volatility in recent years. Is it sort of trend growth realistic, or are we still dealing with complications around comps and that type of thing for next year?
Speaker Change: Growth in both electronics Americas, plus international next year. This.
This year I think its still digesting sort of tough comps.
Speaker Change: Some easing of supply chain conditions.
Speaker Change: Remind us perhaps what's the medium term electronics growth assumption as you see it globally and as we think about 2025.
Speaker Change: That sounds you volatility in recent years is it sort of trend growth realistic go we're still dealing with complications around comps in that type of thing but for next year.
John Stone: Yeah, Julian, appreciate the question. And you're exactly right. 2023, March, you know, a lot of still wonky comps, particularly on electronics. And we're still dealing with, as you can tell, with the longest of the long tail of issues, particularly on a couple of high-volume electronic locks.
Speaker Change: Yeah, Julian I appreciate the question and you're exactly right.
Speaker Change: 2023 mark.
Speaker Change: So a lot of still a wonky comps, particularly on electronics and we're still dealing with as you can tell with the longest of the long tail of issues, particularly on a couple of high volume electronic locks.
John Stone: We do see, I would say, more normal comp environment in 25 and for the foreseeable future. We do still see electronics adoption growing. We do still see electronics replacement cycle just kind of starting. So I think those two combined, we would be very consistent in our feeling that this is a high single to low double-digit growth driver for a legion over the cycle. And I think that's still our view as we look forward. Great. And you have a chance of being in that range next year because of normal comps.
Speaker Change: We do see I would say more and more normal comp environment.
And 25 and for the foreseeable future, we do still see electronics adoption growing we do still see electronics replacement cycle, just kind of starting so I think those two combined we would be very consistent in our.
Speaker Change: Our feeling that this is a high single to low double digit growth driver for allegiant over the cycle.
Speaker Change: And I think that's that's still our view as we look forward.
Speaker Change: Great and you have a chance of being in that range next year because of normal comps.
Speaker Change: I I'd I'd, probably hesitate to give like too much of a breakdown of too much detail. We really intended just to give you a high level look into the market and the more specific detail would come in our February call for 2025 outlook.
John Stone: I'd probably hesitate to give, like, too much of a breakdown of too much detail. We really intended just to give you a high-level look into the market.
John Stone: And the more specific detail would come in our February call for 2025 outlook. I'll just stood.
Speaker Change: Understood. Thanks, very much thank you.
Unknown Executive: Thanks very much. Thank you.
Joe O'Day: The next question is from Joe O'Day with West Fargo. Please go ahead. Hi, good morning. Thanks for taking my questions. I just wanted to start on some of the 2025 comments. And when you talk about a stable environment moving forward, I think, you know, also saying in a stable environment, you would expect organic growth. But just want to, you know, make sure that in terms of moving pieces year over year, some of the more notable would be, you know, Rezi potentially getting a little better multi-family, potentially with some headwinds.
Speaker Change: The next question from Joe O'dea with Wells Fargo. Please go ahead.
Speaker Change: Hi, good morning, Thanks for taking my questions.
Joe O'dea: Just wanted to start on some of the 2025 comments and when you talk about a stable environment.
Joe O'dea: Moving forward I think you know also saying in a stable environment, you would expect organic growth.
Joe O'dea: But just want to make sure that in terms of moving pieces year over year. Some of the more notable would be you know rajeev potentially getting a little better multifamily essentially with some headwinds.
John Stone: Just anything else in terms of as you look at pipeline and think about no developments next year versus this year and how the market sort of changes.
Joe O'dea: Just anything else in terms of as you look at the pipeline and think about you know.
Joe O'dea: Developments next year versus this year and how the market sort of changes.
John Stone: Hey, Joe, this is John. Appreciate the question. And I think, yeah, the overall macro look we would just say is stable. We do see signs of America's residential improving. I think that's fair to say.
Joe O'dea: Hey, Joe This is John appreciate the question and I think.
John Stone: Yeah. The overall macro look we would just say is stable.
John Stone: We do see signs of America's residential improving.
John Stone: That's I think that's fair to say.
John Stone: The degree of which we need to come back to in February and give you more detail there. I'm a non-resign. Our view would still be, and I think again, there's some Dodge indices you can reference that show that in the non-resign, the institutional and verticals will still continue to lead the way. There is still, as we mentioned, a lot of municipal bond issuances this year, which does provide funding in the K-12 vertical where we're quite strong. You know our business is a little bit heavily tilted to the institutional verticals as well. So you sum all that up, and there is mix in there, like you say.
John Stone: The degree of which we need to come back to you in February and give you more detail there.
John Stone: On the non res side, our view would still be and I think again, there's there's some some dodge indices you can reference that show that in the non res side, the institutional verticals will still continue to lead the way.
John Stone: There is still as we mentioned a lot of municipal bond issuances. This year, which does provide funding in the K through 12 vertical where we're quite strong.
John Stone: You know our business is a little bit heavily tilted to the institutional verticals as well.
John Stone: So you sum all that up and and you know that there's mix in there like you say and it's it's fair to see multifamily has been kind of soft and probably stays kind of soft for a little while.
John Stone: It's fair to see multi-family has been kind of soft and probably stays kind of soft for a little while. Data centers, as you know, have been exceptionally strong. We participate very well there. So yeah, add it all up: stable markets. Yep. And I think we do still see organic growth. Terrific.
John Stone: Data centers as you know have been exceptionally strong.
John Stone: We participate very well there.
John Stone: And so you add it all up stable markets, yet and I think we do still see organic growth.
Speaker Change: Terrific I appreciate the color there.
Unknown Executive: I appreciate the color there.
Joe O'Day: And then just in terms of the price cost environment and as you're looking out in terms of pricing and maybe 50 from customers on inflation and how you're thinking about the pricing opportunity environment and just in terms of timing for us and when you would be going to market, such that any anticipated price next year would be out there. Yeah, Joe. We're still in an inflationary environment, and in an environment where there's inflation, look for a legion to drive pricing to cover the inflationary pressures.
Speaker Change: And then just in terms of the price cost environment and as Youre looking out in terms of pricing and maybe fatigue from customers on inflation and then how you're thinking about the pricing opportunity environment and just.
Speaker Change: In terms of timing for us and sort of when when you would when you would be going to market.
Speaker Change: Yeah. So it such that you know any any anticipated price next year would be out there.
Speaker Change: Yes, Joe we're still we're still in an inflationary environment and in an environment, where there's inflation look for allegiant to drive pricing to cover the inflationary pressures.
John Stone: As to timing, we would always announce that to the channel before an earnings call. We have some history that you're pretty familiar with that you can get an idea of what the industry does, but just understand that, hey, we are in an inflationary environment, and as such, look for us to ensure that we manage the profitability by driving the pricing to cover the inflationary pressures. Understood. Thanks a lot.
Speaker Change: As to timing, we would always announce that to the channel before and earnings call.
Speaker Change: In history that you're pretty familiar with it you can get an idea of what the industry does.
Speaker Change: Just understand that hey, we are in a inflationary environment.
Speaker Change: And as such look for us to ensure that we manage the profitability by driving the pricing to cover the inflationary pressures.
Speaker Change: Understood. Thanks, a lot.
Unknown Executive: Thanks, Joe.
Joe O'dea: Thanks, Joe.
Brett Lindsay: The next question is from Brett Lindsay with MiZilho. Please go ahead. Hey guys, good morning.
The next question is from Brett Linzey with Mizuho. Please go ahead.
Speaker Change: Hey, guys. Good morning, this is Brian on for Brett Linzey.
John Stone: This is Peter Kasson from Brett Lindsay. So just another on the on the spec side, what are you guys seeing just with to build out an international spec rating and just how is that trending? Thanks. Yeah, so it's a good question. I appreciate that. I would say that has historically not been a strength for a legion, but it is things that we have been investing in capability. If you recall from our release earlier in the year, the acquisition of Boss Door Control, that was also a step in the direction of more capability and more channel alignment with spec driven business there in the UK.
So just another one on the spec side what are you guys seeing just with the build out in an international spec writing and just how is that trending.
Speaker Change: Yeah. It's a good question I appreciate that I would say that has historically not been a strength for elysian, but it is things that we have been investing in and capability.
Speaker Change: If you recall from our release earlier in the year the acquisition of boss door controls that was also a step in the direction of more capability and more channel alignment with the spec driven business there in the U K.
John Stone: We've been building out human resources, human capability, human capital there for that capability and international.
Speaker Change: We've been building out our human resources human capability human capital there for that capability in international and I would say, it's early innings, yet, but it is going to be an important part of the business as we go forward for international.
John Stone: And I'd say it's early innings yet, but it is going to be an important part of the business as we go forward for international.
John Stone: Cool, thanks. And then just, I know you're calling it the munibon issuances being strong, feeding into education.
Speaker Change: Cool. Thanks, and then just I know, you're calling out the muni bond issuances being strong feeding into education, but have you seen any change in demand there just related to the sunsetting of master funding.
John Stone: But have you seen any change to men there just related to the sun setting of Esther funding? Yeah, so Esther was probably more directed at other products than ten hours. And so it wasn't much of a tail land, and I don't see much, much change for our business there. Suffice it to say, you know, as schools get funding, they have a lot of things they need to direct those funds to. Safety and security are paramount in those budget exercises. And I'd say, you know, we've released new products. We continue to write specs that keep schools up to code.
Speaker Change: Yeah. So.
Speaker Change: So it was probably more directed at other products that than ours and so.
Speaker Change: Well it wasn't much of a tailwind and I don't see much much change for our business. There suffice it to say you know as schools get funding that they have a lot of things they need to direct those funds too.
Speaker Change: Safety and security are Paramount and those those budget exercises and I'd say, we've released new products. We continue to write specs that keep schools up to code. We continue to consult were very strong advocates for safe schools and some of the <unk>.
John Stone: We continue to consult. We're very strong advocates for safe schools. And, you know, some of the products that we showed you, we highlighted as investing for organic growth on our quarterly calls are directed right there. And they've hit a sweet spot in the market. We're happy with them. We think they add value to faculty and teachers. And I think that is a vertical, you know, critically important to our mission.
Speaker Change: Products that we showed you we highlighted is investing for organic growth on our quarterly calls are directed right there and they've hit a sweet spot in the market, where we're happy with them, we think they add value to faculty and teachers and our I think that is a vertical critically important to our mission.
John Stone: But also has the tail lands a pretty strong munibond issue and this counter here. Perfect.
Speaker Change: But also has the tailwind is a pretty strong muni bond issuance here in this calendar year.
Speaker Change: Perfect. Thanks, everybody. Thank you.
Unknown Executive: Thanks, everybody. Thank you.
Unknown Executive: Another reminder: if you wish to register for a question, you may press star and one on your telephone.
Speaker Change: But as a reminder, if you wish to register for a question you May Press Star one on your telephone.
Robert Schultz: In this question, if you're from Robert Schultz, we'd pay it; please go ahead. Hey guys, thanks for taking the question. Maybe first off here, your commentary on the back activity seems to be slightly more positive than your largest competitor. But within institutional, they called out seems the more weakness in the health care vertical. Are you seeing any weakness there? And how do you describe any possible share gains over the past nine months?
Speaker Change: The next question from Robert Routh, We'd say, yes. Please go ahead.
Robert Routh: Hey, guys. Thanks for taking the question.
Robert Routh: Maybe first off here your commentary on spec activity seems to be slightly more positive than your largest competitor, but within institutional they called out some more weakness in the health care vertical are you seeing any weakness there and how would you describe any possible share gains over the past nine months.
Robert Routh: That's.
John Stone: That's appreciate the question. And I think, first off, you know, we don't give really specific detail on spec activity. It's just, it's just not, yeah, details we don't disclose. But I would just at a high level say our spec activity is in line with the overall macro commentary we've given you. In terms of our largest competitor, look, they're a great company. They have great products. They keep us on our toes. They're tough to compete with.
Speaker Change: I appreciate the question.
Speaker Change: And I think.
Speaker Change: First off we don't give really specific detail on spec activity. It's just it's just not.
Speaker Change: Yeah details, we don't disclose but I would just at a high level say our spec activity is.
Speaker Change: This is in line with the overall macro commentary we've given you.
Speaker Change:
Speaker Change: And in terms of our largest competitor look they're a great company. They upgrade products that keep us on our toes there tough to compete with I think consistent with past quarters any share gain that's happened out there has probably been at the expense of short line suppliers in the market who might have found some opportunity when we.
John Stone: I think, consistent with past quarters, any share gain that's happened out there has probably been at the expense of short line suppliers in the market who might have found some opportunity when we had supply chain problems. But overall, we feel good about the institutional verticals as a whole and continue to see institutional leading the way in the near term.
Speaker Change: Supply chain problems, but.
Speaker Change: Overall, we feel good about the institutional verticals.
Speaker Change: As a whole.
Speaker Change: And continue to see institutional leading the way in the near term.
Unknown Executive: Got it. Thanks.
Speaker Change: Got it thanks, and then maybe on M&A with thoughts does that help any specific vertical vertical and then maybe more broadly on M&A. I think you guys correct me if I'm wrong here, but have done five deals year to date, how do you think about the pipeline and the 25.
Robert Schultz: And then maybe on M&A, with sauce, does that help any specific vertical and then maybe more broadly on M&A? I think you guys, correct me if I'm wrong here, but have done about five deals a year to date. How do you think about the pipeline in the 25 and the cadence there? Do you see that playing out at a similar level to 2024, or any incremental thoughts there? Be appreciated. I appreciate that.
Speaker Change: And the cadence there do you see that playing out at similar level to 2024 or any incremental thoughts there would be appreciated I appreciate that and yeah. We're very excited about.
John Stone: And yeah, we're very excited about the sauce acquisition. It's a great team. It's a great product line. It's perfectly complimentary to a business unit that we already have. So really nice add to the business that will help our customers. And this is products that primarily serve the non-residential markets here in the Americas, with some smaller amount of the sales in Asia. I would say overall we feel really excited about the pipeline that we're looking at. I would still feel consistent with past quarter commentary. The M&A environment is definitely better than it was for strategics in 22-23.
Speaker Change: The source acquisition, it's a great team, it's a great product line, it's a perfectly complementary to our.
Speaker Change: Our business unit that we already have.
John Stone: And again, excited about the pipeline. We have some good momentum going this year, as you mentioned. And I would say, as we look forward, the objective won't be to pile up cash on the balance sheet. We will deploy it in the best interest of our shareholders. So, as that means a creative acquisition, you can look for us to continue to be disciplined like we have been. And when that means repurchase, we will do that at the right time, too.
Unknown Executive: Awesome. Appreciate the colors. Thanks, guys.
Unknown Executive: Thank you.
Unknown Executive: This concludes our question and answer session.
John Stone: I would like to turn the conference back over to John Stone, President and CEO, for any closing remarks. Thanks very much. Thanks everyone for attending the call today. Again, Allegion, stable markets, strong execution by a great team united by a mission of making the world safer and more accessible. And now we look forward to connecting with you again in Q4.
Speaker Change: Yeah. Thanks, very much thanks, everyone for attending the call today are again, a legion of stable markets strong execution by our great team United by our mission of making the world safer and more accessible and we look forward to connecting with you again in Q4.
Unknown Executive: The conference is now concluded.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines Goodbye.
Unknown Executive: Thank you for attending today presentation. You may now disconnect your lines. Goodbye. .
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].