Q3 2025 Allegion PLC Earnings Call
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I would now like to turn the conference over to Vice President of Investor Relations, Josh Polka Winski. Please go ahead.
Thank you Betsy and good morning, everyone. Thank you for joining us for our regions third quarter 2025 earnings call with me today are John Snow, President and Chief Executive Officer, and Mike Wackness, Senior Vice President and Chief Financial Officer of Alicia.
Speaker #1: Good day and welcome to the Allegion plc third quarter 2020 Earnings Conference call . All participants will be in a listen only mode .
Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to in days in today's call are available on our website at Investor <unk> Dot Com. This call will be recorded and archived on our website. Please go to slide two.
Speaker #1: Should you need assistance , please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on a touch tone phone .
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. 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.
Speaker #1: To withdraw your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Vice President of Investor Relations , Joshua Pokrzywinski .
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.
Speaker #1: Please go ahead .
Speaker #2: Thank you . Betsy . Good morning everyone . Thank you for joining us for Allegiant's third quarter 2020 earnings call . With me today are John Stone , President and Chief Executive Officer and Michael Wagnes Senior Vice President and Chief financial officer of Allegiant .
Please go to slide three and I'll turn the call over to John Thanks, Josh Good morning, everyone. Thanks for joining.
Q3 was another strong quarter as we execute our long term strategy and steadily to deliver on our commitments to shareholders.
Speaker #2: 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 .
I'm proud of our team's performance as we've remained agile in a dynamic operating environment.
Speaker #2: 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.
The double digit revenue growth for the enterprise and continued to segment margin expansion speaks to the resiliency of our model our broad end market exposures and the depth of our relationships with channel partners and end users.
We continue to take advantage of our business has strong cash generation, returning cash to shareholders and growing our business through accretive acquisitions.
Speaker #2: 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.
Speaker #2: 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 .
Year to date, we have allocated approximately $600 million to acquiring businesses consistent with the priorities, we outlined at our Investor day.
As we approach year end, the key market trends supporting our outlook are largely unchanged.
Speaker #2: Please go to slide three , and I'll turn the call over to John . Thanks , Josh .
Our team continues to execute well and we are allocating capital for the long term benefit of our shareholders.
Speaker #3: Good morning, everyone. Thanks for joining. Q3 was another strong quarter as we execute our long-term strategy and steadily deliver on our commitments to shareholders.
As such we are raising our 2025 full year outlook for adjusted earnings per share to $8 10 to $8 20.
Speaker #3: I'm proud of our team's performance as we've remained agile in a dynamic operating environment . The double digit revenue growth for the enterprise and continued segment margin expansion speaks to the resiliency of our model .
I'll be back later to discuss the outlook and share some early views on markets for 2026.
Please go to slide four.
Let's take a look at capital allocation for the third quarter, starting with our investments for organic growth.
Speaker #3: Our broad end market exposures and the depth of our relationships with channel partners and end users continue to drive our business. We are taking advantage of our strong cash generation by returning cash to shareholders and growing our business through accretive acquisitions.
In September the Allegiant team launched a new mid tier commercial product line for slag. Our performance series locks. These lock spring sled quality to more price points and nonresidential applications, giving us more ways to win in the aftermarket and building on the success of the mid price point <unk> 70 series exit devices released last.
Speaker #3: Year to date , we have allocated approximately $600 million to acquiring businesses consistent with the priorities we outlined at our Investor Day . As we approach year end , the key market trends supporting our outlook are largely unchanged .
Year.
Turning to M&A since we spoke at Q2 earnings Allegiant has announced two more acquisitions <unk> and <unk>. These.
Speaker #3: Our team continues to execute well , and we are allocating capital for the long term benefit of our shareholders . As such , we are raising our 2025 full year outlook for adjusted earnings per share to $8.10 to $8.20 .
These UK based businesses strengthen our product portfolio, including electronic locks in addition to enhancing our cost position.
As discussed previously the acquisitions of Alatech gateways and wait while closed earlier in the third quarter.
Speaker #3: I'll be back later to discuss the outlook and share some early views on markets for 2026 . Please go to slide four . Let's take a look at capital allocation for the third quarter , starting with our investments for organic growth .
Leasing continues to be a dividend paying stock in the third quarter. This amounted to <unk> 51 per share approximately $44 million.
Speaker #3: In September , the Allegiant team launched a new mid tier commercial product line for Schlage . Are Performance Series locks . These locks bring Schlage quality to more price points and non-residential applications , giving us more ways to win in the aftermarket .
We did not repurchase shares in the quarter.
And you can continue to expect allegiant to be balanced consistent and disciplined with capital deployment over time with a clear priority of investing for profitable growth.
Speaker #3: And building on the success of the mid-price point font and 70 series exit devices released last year. Turning to M&A, since we spoke at Q2 earnings, Allegiant has announced two more acquisitions.
Mike will now walk you through the third quarter financial results.
Thanks, John and good morning, everyone. Thank you for joining today's call. Please go to slide number five.
As John shared our Q3 results reflect continued strong execution from the Allegiant team delivering double digit revenue growth for the enterprise.
Speaker #3: UAP and Bressant . These UK based businesses strengthen our product portfolio , including electronic locks , in addition to enhancing our cost position .
Revenue for the third quarter was over $1 billion, an increase of 10, 7% compared to 2024.
Speaker #3: As discussed previously , the acquisitions of Elitech gateways and Weight while closed earlier in the third quarter , Allegiant continues to be a dividend paying stock , and in the third quarter this amounted to $0.51 per share , approximately $44 million .
Organic revenue increased five 9% in the quarter as fit as a result of favorable price and volume led by our Americas nonresidential business, where demand remains healthy.
Speaker #3: We did not repurchase shares in the quarter , and you can continue to expect Allegiant to be balanced , consistent and disciplined with capital deployment over time with a clear priority of investing for profitable growth .
Q3, adjusted operating margin was 24, 1% down 10 basis points compared to last year.
Both of our segments had more had margin expansion, which was offset by higher corporate expenses relative to the prior year comparable.
Speaker #3: Mike will now walk you through the third quarter financial results . Thanks , John , and .
Volume leverage and mix were accretive to margins. Additionally, price and productivity net of inflation and investment was a tailwind of $2 2 million.
Speaker #2: Good morning .
Speaker #3: Everyone .
Speaker #2: Thank you for joining .
Speaker #3: Today's call .
Speaker #2: Please go to slide number.
Speaker #3: Five as John shared our .
Speaker #2: Q3 results reflect continued strong execution from the Allegion team, delivering double-digit revenue growth for the enterprise. Revenue for the.
Adjusted earnings per share of $2 30 increased 14, or six 5% versus the prior year.
Speaker #3: Third quarter was .
Speaker #2: Over $1 billion , an increase of 10.7% compared to 2020 . For organic revenue increased 5.9% in the quarter as far as a result of favorable price and volume led by our Americas non-residential business , where demand remains healthy .
Operational performance and accretive acquisitions contributed 10 six points of EPS growth.
This was partially offset by higher tax and interest and other we still anticipate the full year tax rate to be in the range of 17% to 18%.
Finally year to date available cash flow was $485 2 million, which was up 25, 1% as we continued to generate strong cash flow.
Speaker #2: adjusted operating margin was 24.1% , down ten basis points compared to last year . Both our segments had more had margin expansion , which was offset by higher corporate expenses relative to the prior year .
I'll provide more details on the balance sheet and cash flow a little later in the presentation.
Speaker #2: Comparable volume leverage and mix were accretive to margins . Additionally , pricing productivity , net of inflation and investment was a tailwind of 2.2 million adjusted earnings per share of $2.30 increased $0.14 , or 6.5% , versus the prior year .
Please go to slide number six.
Our Americas segment delivered strong operating results in Q3.
Revenue of $844 million was up seven 9% on a reported basis and up six 4% on an organic basis led by our nonresidential business.
Organic growth included both favorable price and volume in the quarter.
Speaker #2: Operational performance and accretive acquisitions contributed 10.6 points of EPs growth . This was partially offset by a higher tax and interest in other .
Reported revenue includes one five points of growth from acquisitions.
Pricing in our Americas segment was four 6% in the quarter.
Speaker #2: We still anticipate the full-year tax rate to be Q3. It was $485.2 million, which was up 25.1%. As we continue to generate strong cash flow.
This includes a combination of core pricing and surcharges as we cover inflation, including tariffs.
Our nonresidential business increased mid single digits organically and demand for our products remains healthy supported by our broad end market exposure.
Speaker #2: I'll provide more details on the balance sheet and cash flow a little later in the presentation . Please go to slide number six .
Our residential business grew mid single digits.
Similarly, driven by volume associated with new electronic products that we launched in the quarter and price.
Speaker #2: Our Americas segment delivered strong operating results in Q3. Revenue of $844 million was up 7.9% on a reported basis and up 6.4% on an organic basis.
However, we still consider overall residential market demand to be soft consistent with year to date growth rates.
Speaker #2: LED by our non-residential business , organic growth included both favorable price and volume in the quarter . Reported revenue includes 1.5 points of growth from acquisitions , pricing in our Americas segment was 4.6% in the quarter .
Electronics revenue was up mid teens and continues to be a long term growth driver for Allegiant.
Americas adjusted operating income of $252 million increased 9% versus the prior year.
Adjusted operating margin was up 40 basis points as volume leverage and favorable mix were accretive to margins.
Speaker #2: This includes a combination of core pricing and surcharges . As we cover inflation , including tariffs . Our non-residential business increased mid-single digits organically and demand for our products remains healthy , supported by our broad end market exposure .
Price and productivity net of inflation and investments was a tailwind of $10 2 million.
Please go to slide number seven.
Our international segment delivered revenue of $226 million.
Speaker #2: Our residential business grew mid-single digits, primarily driven by volume associated with new electronic products that we launched in the quarter and price.
Which was up 22, 5% on a reported basis and up three 6% organically led by our electronics businesses.
Speaker #2: However , we still consider overall residential market demand to be soft , consistent with year to date growth rates . Electronics revenue was up mid-teens and continues to be a long term growth driver for Allegion .
Acquisitions contributed 13, 6% to segment revenue consisting of the acquisitions John mentioned earlier net of the previously announced divestiture of API.
Currency was also a tailwind positively impacting reported revenue by five 3%.
Speaker #2: Americas adjusted operating income of $252 million increased 9% versus the prior year . Adjusted operating margin was up 40 basis points as volume leverage and favorable mix were accretive to margins .
International adjusted operating income of $32 3 million increased 28, 2% versus the prior year period.
Adjusted operating margin for the quarter increased 70 basis points, driven by volume leverage and mix.
Speaker #2: Price and productivity , net of inflation and investments , was a tailwind of 10.2 million . Please go to slide number seven . Our international segment delivered revenue of 226 million , which was up 22.5% on a reported basis and up 3.6% organically , led by our electronics businesses .
Acquisitions were accretive to the segment margin rates, although slightly dilutive to the enterprise rates, we continue to drive portfolio quality in the international segment through self help.
In adding high performing businesses, where we have a right to win.
Please go to slide eight and I'll provide an overview on our cash flow and balance sheet.
Speaker #2: Acquisitions contributed 13.6% to segment revenue , consisting of the acquisitions John mentioned earlier , net of the previously announced divestiture of API currency was also a tailwind , positively impacting reported revenue by 5.3% .
Year to date available cash flow was $485 2 million up nearly $100 million versus the prior year.
This increase was driven by higher earnings lower capital expenditures and improvements in working capital.
I am pleased with the strong cash generation in 2025 and based on year to date performance, we see upside to our previous cash flow outlook.
Speaker #2: International adjusted operating income of 32.3 million increased 28.2% versus the prior year period . Adjusted operating margin for the quarter increased 70 basis points , driven by volume , leverage and mix .
We now expect conversion of 85% to 95% of adjusted net income.
Speaker #2: Acquisitions were accretive to segment margin rates, although slightly dilutive to the enterprise rates. We continue to drive portfolio quality in the international segment through self-help and by adding high-performing businesses where we have a right to win.
Working capital as a percent of revenue increase due to acquired working capital, which does not impact cash flow organic working capital improved compared to prior year.
Finally, our balance sheet remains strong and our net debt to adjusted EBITDA is at a healthy ratio of one eight times.
Speaker #2: Please go to slide eight and I will provide an overview on our cash flow and balance sheet . Year to date , available cash flow was 485.2 million , up nearly $100 million versus the prior year .
We continued to generate strong cash flow and our balance sheet supports continued capital deployment.
I will now hand, the call back over to John Thanks, Mike. Please go to slide nine and I'll share our updated outlook.
Speaker #2: This increase is driven by higher earnings , lower capital expenditures and improvements in working capital . I am pleased with the strong cash generation in 2025 and based on year to date performance , we see upside to our previous cash flow outlook .
With one quarter remaining in the year, our markets remain largely consistent with our prior outlook in the Americas nonresidential markets remain resilient and Allegiant is performing well in the aftermarket.
Our spec activity has grown over 2024 and year to date 2025, driven by our broad end market exposure and this supports our outlook.
Speaker #2: We now expect conversion of 85 to 95% of adjusted net income . Working capital as a percent of revenue increased due to acquired working capital , which does not impact cash flow .
Residential markets, However remains soft and as Mike mentioned solid performance in Q3 was primarily driven by new electronic product launches.
Speaker #2: Organic working capital improved compared to prior year . Finally , our balance sheet remains strong and our net debt to adjusted EBITDA is at a healthy ratio of 1.8 times .
International markets have largely been unchanged year to date, and we continue to expect roughly flat organic performance.
We expect approximately $40 million of surcharge revenue in the Americas related to tariff recovery, which does include the August 18th scope expansion for section 232.
Speaker #2: We continue to generate strong cash flow and our balance sheet supports continued capital deployment . I will now hand the call back over to John .
Speaker #3: Thanks , Mike . Please go to slide nine and I'll share our updated outlook with one quarter remaining in the year , our markets remain largely consistent with our prior outlook and the Americas non-residential markets remain resilient and it leads in is performing well in the aftermarket .
Based on strong execution and the recent acquisitions of <unk> and <unk>, we're increasing our 2025 of adjusted EPS outlook to $8 10 to $8 20.
You can find additional details as well as below the line model items in the appendix.
Speaker #3: Our spec activity has grown over 2024 and year to date 2025 , driven by our broad end market exposure . And this supports our outlook .
As you know, we'll provide allegiance formal 2026 financial outlook.
During our February earnings call. So please go to slide 10.
Speaker #3: Residential markets , however , remain soft and as Mike mentioned , solid performance in Q3 was primarily driven by new electronic product launches .
Today, we'd like to provide a preliminary view on our markets for next year.
And I'd say overall, we expect rather similar market conditions to 2025.
Speaker #3: International markets have largely been unchanged year to date , and we continue to expect roughly flat organic performance . We expect approximately $40 million of surcharge revenue in the Americas related to tariff recovery , which does include the August 18th scope expansion for section 232 based on strong execution in the recent acquisitions of UAP and Brassat .
In the Americas, our broad end market coverage and spec activity continue to support organic growth in our nonresidential business.
Residential markets continue to be soft the input cost environment remains dynamic with tariffs and you can expect us to continue to drive price to offset inflation.
Internationally markets had been sluggish how do however, we do expect to benefit from 2025 acquisition activity.
Speaker #3: We were increasing our 2025 adjusted EPs outlook to $8.10 to $8.20 . You can find additional details as well as below the line model items in the appendix .
For the enterprise, we expect carryover revenue contribution of approximately two points from acquisitions closed in 2025.
Speaker #3: As you know , we'll provide Allegiant's formal 2026 Financial Outlook during our February earnings call . So please go to slide ten . Today , we'd like to provide a preliminary view on our markets for next year .
Please go to slide 11.
In summary, our leads and is executing at a high level, while staying agile and steadily delivering on the long term commitments, we shared with you at our Investor day.
Our performance is led by an enduring business model and nonresidential Americas double digit electronics growth and accretive capital deployment as we acquire good businesses in markets, where we have a right to win.
Speaker #3: And I'd say overall , we expect rather similar market conditions to 2025 . In the Americas . Our broad end market coverage and spec activity continue to support organic growth in our non-residential business .
I am proud of the performance by the Allegiant team in this very dynamic environment, which gives us the confidence to increase our EPS outlook for the year.
Speaker #3: Residential markets continue to be soft. The input cost environment remains dynamic, with tariffs, and you can expect us to continue to drive price to offset inflation.
With that we'll take your questions.
We will now begin the question and answer session.
Speaker #3: Internationally , markets have been sluggish , how do . However , we do expect to benefit from 2025 acquisition activity for the enterprise .
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Speaker #3: We expect carryover revenue contribution of approximately two points from acquisitions closed in 2025 . Please go to slide 11 . In summary , a legion is executing at a high level while staying agile and steadily delivering on the long term commitments we shared with you at our Investor Day .
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
We ask that you please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
Speaker #3: Our performance is led by an enduring business model in non-residential America's double-digit electronics growth and accretive capital deployment. As we acquire good businesses and markets where we have a right to win.
Okay.
The first question today comes from Joe Ritchie with Goldman Sachs. Please go ahead.
Hey, good morning, guys.
Joe.
Speaker #3: I'm proud of the performance by the Allegiant team in this very dynamic environment, which gives us the confidence to increase our EPs outlook for the year.
So I appreciate all the color and the initial look into 2026.
Speaker #3: With that, we'll take your questions.
John maybe just following on that thread on spec writing continuing to be up in non res specifically I think you mentioned last quarter.
Speaker #1: We will now begin the question and answer session . To ask a question . You may press star , then one on your touchtone phone .
That you were starting to see some positive momentum.
Speaker #1: If you are using a speakerphone , please pick up your handset 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 we ask that you please limit yourself to one question and one follow up .
On spec writing specifically as it relates to office can you, maybe just give us give us an update on the key verticals and whether there is or any kind of discernible differences between how you feel today versus how you thought a quarter ago.
That's a good question, Joe and I think.
Speaker #1: At this time, we will pause momentarily to assemble our roster. The first question today comes from Joe Ritchie with Goldman Sachs.
The comments would be very consistent that our spec activity accelerated over the course of 2024 and has grown year to date 2025.
Speaker #1: Please go ahead .
Rather than picking and choosing this vertical or that vertical I would just say allegiant spec writers are very versatile and their expertise and one day could be writing a specification for an elementary school. The next day that could be doing multifamily in the next day after that they could be doing a day.
Speaker #4: Hey , good morning guys .
Speaker #2: Morning , Joe .
Speaker #4: So appreciate all the color and the initial look into 2026 John . Maybe just pulling on that thread on spec writing continuing to be up and non-res specifically , I think you mentioned last quarter that you were starting to see some positive momentum on spec writing , specifically as it relates to office .
The center, so they have that capability.
Ability in that engine never turns off I think the main thing we would have you take away is that spec activity has continued to grow in 2025 broadly speaking.
Speaker #4: Can you maybe just just give us give us an update on the key verticals and whether there were any kind of discernible differences between how you feel today versus how you felt the quarter ago ?
And spec activity supports our outlook as we talked about in the prepared remarks and gives us the confidence that we still see organic growth in non resume because.
Speaker #3: Yeah , it's a good question , Joe . And I think the comments would be very consistent that our spec activity accelerated over the course of 2024 and has grown year to date , 2025 rather than picking and choosing this vertical or that vertical , I would just say , you know , Allegiant's spec writers are very versatile in their expertise , and one day could be writing a specification for an elementary school .
Okay, great helpful and then.
I want to also kind of just talk a little bit more about your M&A pipeline, it's been such a great part of the story really over the last 12 to 18 months.
And recognize that you've kind of given us at the two points as a placeholder for next year just talk about the pipeline as you see it.
Speaker #3: The next day they could be doing multifamily , and the next day after that they could be doing a data center . So they they have that capability and that engine never turns off .
Today, and as you kind of thinking about like the potential accretion from an earnings standpoint into next year based on what you already know just any any color around that would be helpful.
Speaker #3: I think the the main thing we'd have you take away is that spec activity has continued to grow in 2025 . Broadly speaking , and spec activity supports our outlook .
Yes, it's a great question, Joe and it's something we're really excited about I think the pipeline is still strong.
<unk> strong in both of our reporting segments saw strong in international is strong in the Americas.
Speaker #3: As we we talked about in the prepared remarks and gives us the confidence that we still see organic growth in Non-res America's .
And if you recall, our investor day material, where we talk product categories that we're looking for whether thats.
Speaker #4: Okay , great . Helpful . And then I want to also kind of just talk a little bit more about your M&A pipeline .
Portfolio expansion in our mechanical business, whether that's electronics, whether that's complementary software we've got activity in all of those categories right. Now so very excited about the pipeline and I would say you can expect us to continue to be disciplined around the strategy and.
Speaker #4: It's been such a great part of the story, really, over the last 12 to 18 months. And recognize that you've kind of given us the two points as a placeholder for next year.
Speaker #4: Just just talk about the pipeline as you see it . Today . And as you're kind of thinking about the . Potential accretion from from an earnings standpoint into next year based on what you already know , just any color around that would be helpful .
And around the types of businesses, we acquire and around the shareholder returns that we generate from these acquisitions. So I feel real good about it and I think it continues to be an important part of allegiance overall growth story.
Speaker #3: Yeah , a great question , Joe . And it's something we're really excited about . I think the pipeline is still strong and strong in both of our reporting segments .
Hey, Joe with respect to the question on the EPS.
In the appendix, we provide what the full year benefit. This year is which allows you to calculate what the EPS benefit on acquisitions as in the fourth quarter and think about that as a carryover rate for the first two quarters of the year. The acquisitions were largely done early July.
Speaker #3: So strong and international strong in the Americas . And if you recall , our Investor Day material , where we talked product categories that that we're looking for , whether that's portfolio expansion in .
Speaker #3: Our mechanical business , whether that's electronics , whether that's complementary software . We've got activity in all of those categories right now . So very excited about the pipeline .
So that should provide you enough information for you to get a framework for the relative size of the benefit that we have.
Speaker #3: And I'd say you can expect us to continue to be disciplined around the strategy and around the types of businesses we acquire . And around the shareholder returns that we generate from these acquisitions .
Okay perfect. Thanks, guys.
Thanks, Joe.
The next question comes from Joe O'dea with Wells Fargo. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Speaker #3: So I feel real good about it . And I think it continues to be an important part of allegiance . Overall growth story .
Yes.
Can you just talk about conversations with.
Building owners architects over all end users on the current kind of uncertainty impacting the macro.
Speaker #2: Hey Joe , with respect to the question on the EPs in the appendix , we provide what the full year benefit this year is , which allows you to calculate what the EPs benefit on acquisitions is in the fourth quarter .
What they're looking for you know really just trying to get a sense for what your perception is of activity that sidelined and just waiting for a little bit better visibility.
Speaker #2: And think about that as a carry over rate for the first two quarters of the year . The acquisitions were largely done early July , so that should provide you enough information for you to get a framework for the relative size of the benefit that we have .
What some of those key ingredients are to bringing that activity off the sidelines.
Yeah, Joe It's a good question and I would say Theres, a couple of things going on and as we are out with customers and end users quite frequently our own channel checks would indicate comments very consistent with what we shared with you in the prepared remarks that non res project.
Speaker #4: Okay . Perfect . Thanks , guys .
Speaker #3: Thanks , Joe .
Speaker #1: The next question comes from Joe O'Dea with Wells Fargo . Please go ahead .
Activity is humming along pretty well and.
Speaker #5: Hi. Good morning. Thanks for taking my questions. Can you just talk about conversations with building owners, architects, and overall end users on the current kind of uncertainty and its impact in the macro environment? What they're looking for? I’m really just trying to get a sense of what your perception is of activity.
Thank.
Some private finance came off the sidelines this year.
A more favorable interest rate environment would certainly continue to be a swing factor that we would see to bring more of that private finance off the sidelines, but I would say.
Overall.
Positive environment.
Speaker #5: That's sidelined and just waiting for a little bit better visibility and and what some of those key ingredients are to bringing that activity off the sidelines .
And channel checks, our customers' backlogs are pretty healthy.
This has given them pretty good confidence about organic growth as well and that's what we've tried to convey to you today I think non res overall is humming along pretty well.
Speaker #3: Yeah , Joe , it's a good question . And I would say there's there's a couple of things going on . And as we are out with customers and end users , quite frequently , our own channel checks would indicate comments very consistent with what we we shared with you in the prepared remarks that Non-res project activity is humming along pretty well .
I appreciate that and then on the international side I think this was the first quarter volume growth.
After four of declines.
Better volume growth in international and Americas, even this quarter. So just kind of unpacking a little bit more what you saw in the quarter. How you think about any momentum behind a little bit of volume growth there.
Speaker #3: And , you know , I think some private finance came off the sidelines this year . You know , a more favorable interest rate environment would certainly continue to be a swing factor that we would see to bring more of that private finance off the sidelines .
Yes, I appreciate you noticing that Jill I mean, we were certainly really happy to see that and proud of the international team to put those numbers up on the board this quarter I would say our view on the end markets is still largely unchanged.
Speaker #3: But I would say, you know, overall, the positive environment and channel checks, you know, our customers' backlogs are pretty healthy.
It's around flattish kind of organic growth, but I would also say it had some of the market segments there.
Speaker #3: And as has given them , pretty good confidence about organic growth as well . And that's what we've tried to convey to you today .
Really at historical trough.
Speaker #3: I think Non-res overall is is humming along pretty well .
And we don't anticipate that.
Trend negative in perpetuity so.
Speaker #5: Appreciate that . And then on the international side , I think this was the first quarter of volume growth after four of declines , actually better volume growth than international , than Americas .
I think the international team has executed well in a lot of pretty challenging environments and like Mike mentioned in the prepared remarks, our electronics businesses are still performing very well.
Speaker #5: Even this quarter. So just kind of unpacking a little bit more what you saw in the quarter, how you think about any momentum behind a little bit of volume growth.
And you add to that we're still really excited about the <unk> acquisition, which was a pretty sizable deal for us that will continue to add momentum there in the electronics space.
Speaker #5: There .
Speaker #3: Yeah . I appreciate you noticing that , Joe . I mean , we were certainly really happy to see that and proud of the international team to put those numbers up on the board this quarter .
Thank you.
The next question comes from Julian Mitchell with Barclays. Please go ahead.
Speaker #3: I would say our view on the end markets is is still largely unchanged , that it's it's around flattish kind of organic growth .
Hi, good morning.
Just.
Wanted to start with maybe the adjusted operating margin. So those were flattish in the third quarter year on year, just wanted to check but it looks like perhaps you were assuming they pick up again.
Speaker #3: But I would also say you've had some of the market segments there really at historical troughs. And, you know, we don’t anticipate that they trend negative in perpetuity.
Speaker #3: I think the international team is executing well in a lot of pretty challenging environments. And like Mike mentioned in the prepared remarks, our electronics businesses are still performing very well.
With some margin expansion.
Of a few tens of basis points in the fourth quarter just wanted to check if that was the right assumption.
How we should think about the corporate cost movement into Q4 and next year in that context.
Speaker #3: And you add to that , we're still really excited about the acquisition , which was a pretty sizable deal for us that that will continue to add momentum there in the electronics space .
Yes. Thanks for thanks for the question Julien If you look at the third quarter are pleased with this segment margin expansion did a really good job.
Speaker #5: Thank you .
Speaker #1: The next question comes from Julian Mitchell with Barclays. Please go ahead.
We were negative incorporate part of that is just the year on year comp last year in the third quarter corporate was low.
Speaker #6: Hi . Good morning . Just wanted to start with maybe the adjusted operating margins . So those were flattish in the third quarter year on year .
This year, our third quarter is really consistent slightly less than even what you saw in the second quarter.
Think about margin expansion for the year you'd get back into it we expect to have margin expansion.
Speaker #6: Just wanted to check . But it looks like perhaps you're assuming they pick up again with some margin expansion of a few tens of basis points in the fourth quarter .
For the year and in the fourth quarter and then.
From a run rate perspective of corporate the question you asked.
Speaker #6: Just wanted to check if if that was the right assumption . And how we should think about the corporate cost movement into Q4 and next year in that context .
What we put up in the third quarter think of that as relatively what we've ran in the last couple. So you can kind of use that as a.
A fine estimate.
Speaker #2: Yeah , thanks for thanks for the question , Julian . If you look at the third quarter , pleased with the segment margin expansion .
That's very helpful. Thank you.
Just within the Americas segment for a second you had a decent tailwind from that PPE II bucket in.
Speaker #2: Did a really good job . We were negative in corporate part of that is just the year on year comp . Last year .
In the third quarter and I think that was a good pick up from what you've seen.
Speaker #2: In the third quarter , corporate was low . This year , our third quarter is really consistent , slightly less than even what you saw in the second quarter .
Being flattish in the in the second.
So when we're looking out the next few quarters should we assume that that sort of gross price of about four or five points is a good place holder in pp II stays as a decent tailwind just trying to understand.
Speaker #2: As you think about margin expansion for the year , you could back into it . We expect to have margin expansion for the year .
Speaker #2: And in the fourth quarter , and then , you know , from a run rate perspective of corporate , the question you asked , you saw what we put up in the third quarter .
Operating leverage you have that mid Thirty's place holder.
From the Investor day, we sort of on that path now, leaving aside the corporate costs moving around.
Speaker #2: Think of that as relatively what we ran the last couple . So you can kind of use that as a a fine estimate .
Yes, if you think about the Americas I talked about this earlier in the year.
Speaker #6: That's very helpful . Thank you . And just within the Americas segment for a second , you had a decent tailwind from that PPE bucket in the third quarter .
Inflation, especially associated with the tax rate was a little quicker than some of the pricing benefits. We said that would improve as the year progressed, you'll see that in the third quarter.
The big item for us on the pricing side is what is inflation and tariffs are a component of that inflation.
Speaker #6: And I think that was a good pickup from what you'd seen . That being flattish in the in the second , when we're looking out the next few quarters , should we assume that that sort of gross price of about 4 or 5 points is , is a good placeholder and PPE stays as a decent tailwind ?
Just look for us to drive pricing and productivity and you Fermi mentioned this many times before pricing and productivity covers the inflation in the investment and that helps drive the margin expansion.
Overall feel good about the progress we're making in the Americas I think we're doing a great job in combating a very dynamic environment of change when you think about tariffs and expect us to continue to drive that margin expansion.
Speaker #6: Just trying to understand , you know , operating leverage you have that mid 30s placeholder from the Investor Day . We sort of on that path now leaving aside the corporate costs , moving around .
Speaker #2: Yeah . If you think about the Americas , I talked about this earlier in the year . Inflation especially associated with the tariffs .
That we talked about.
Got it and that sort of mid thirties type.
Speaker #2: Right, we were a little quicker than some of the pricing benefits. We said that would improve as the year progressed. You see that in the third quarter.
Right.
Just on inflation and mix and price that that should be achievable next.
<unk> kind of quarters, nothing looks too out of line versus that.
Speaker #2: The big item for us on the pricing side is what is inflation . And tariffs are a component of that . Inflation . Just look for us to drive pricing and productivity .
Yes, certainly.
For you to calculate we'll be back in February to give you a 2006 margin outlook.
Speaker #2: And you've heard me mentioned this many times before . Pricing and productivity covers the inflation and the investment . And that helps drive the margin expansion overall .
Think of that as a long term right to the long term investors out there long term, we should be able to drive incrementals of 35%, let us get the February of next year. When we give you our outlook and complete the annual operating plan.
Speaker #2: Feel good about the progress we're making in the Americas . I think we're doing a great job in combating a very dynamic environment of of change .
But <unk>.
Certainly for the fourth quarter, you could calculate the implied margin expansion.
Speaker #2: When you think about tariffs and expect us to continue to drive that margin expansion that we talked about .
Absolutely thanks very much.
Thank you.
The next question comes from Jeff Sprague with vertical research. Please go ahead.
Speaker #6: Got it . And that sort of mid 30s type rate based on inflation and mix and price that that should be achievable . The next X kind of quarters , nothing looks too out of line versus that .
Thank you and good morning, everyone.
Hey, John I wanted to come back to the deals really kind of maybe a two part question.
First just thinking about.
With everything that you've done here.
Speaker #2: Yeah certainly . Q4 you can calculate we'll be back in February to give you a 26 margin outlook . Think of that that as a long term right to the long term investors out there .
It all looks like it makes sense and fits in nicely moving the needle as we've seen in your results, but just thinking about kind of the margin entitlement of what you've acquired where you might be on.
Speaker #2: Long term , we should be able to drive Incrementals of 35% . Let us get to February of next year when we give our , you know , our outlook and complete the annual operating plan .
Integrating these assets are they all truly being integrated or any of them sort of stand alone.
Speaker #2: But certainly for the fourth quarter , you could calculate the implied margin expansion .
Trying to kind of get my head around kind of the journey you're on here.
I appreciate the question, Jeff and I think.
Speaker #6: Absolutely . Thanks very much .
Speaker #3: Thank you .
If you recall, our Investor day commentary.
Speaker #1: The next question comes from Jeff Sprague with Vertical Research . Please go ahead .
We've talked about being disciplined and I would say some of those guardrails around being disciplined would be consistent with our strategy.
Speaker #7: Thank you . Good morning everyone . Hey John , I want to come back to the deals . Really kind of maybe a two part question first .
Consistent with our geographic exposure and consistent with markets, where we've got a right to win meaning we've got brand strength, we've got human capital and talent, we've got distribution strength and so yes to specifically answer your question all of these acquisitions are being integrated.
Speaker #7: Just thinking about of everything that you've done here , you know , it all looks like it makes sense and fits in as nicely moving the needle as we've seen your results .
Speaker #7: But I'm just thinking about kind of the margin entitlement of what you've acquired , where you might be on , you know , integrating these assets .
And being integrated rapidly I think there are.
Synergies across the board and revenue synergies cost synergies there our exposure to faster growing segments that we've acquired so I feel real good about.
Speaker #7: Are they all truly being integrated or any of them sort of stand alone just trying to kind of get my head around kind of the journey you're on here .
The strategic alignment of every deal we've done and continue to feel the same way about the outlook on our pipeline there. So.
Speaker #3: Yeah . I appreciate the question , Jeff . And I think , you know , if you recall our Investor Day commentary , we talked about being disciplined .
Speaker #3: And I would say some of those guardrails around being disciplined would be consistent with our strategy , consistent with our geographic exposure and consistent with markets where we've got a right to win , meaning we've got brand strength , we've got human capital and talent .
Really good but yeah, I mean, we're not we're not looking to occur.
Acquire our way into adjacent spaces, we're not looking to expand geographic scope, we're staying in markets, we know where we've got a right to win and we're acquiring enhancements to our product portfolio in electronics and mechanical and complementary software.
Speaker #3: We've got distribution strength . And so yeah , to to specifically answer your question , all of these acquisitions are being integrated and being integrated rapidly .
Feel real good about it. So I think you can again you can look for us to continue to be acquisitive, but continue to be disciplined like we've shown.
Speaker #3: I think there are synergies across the board and revenue synergies , cost synergies . There are exposure to faster growing segments that that we've acquired .
And then I guess discipline also includes the element of price paid and I kind of I kind of appreciate like each individual deal. It's hard for me the press, Josh or Mike or like specifics on multiples and all that but is there a way to just step back.
Speaker #3: So I feel real good about the strategic alignment of every deal we've done . And continue to feel the same way about the outlook on our pipeline .
And sort of collectively say.
Speaker #3: There . So really good . But yeah , I mean , we're not we're not looking to acquire our way into adjacent spaces .
You gave us the dollars deployed right on.
On a year to date basis.
Kind of what the average multiple has been.
Speaker #3: We're not looking to expand geographic scope or staying in markets . We know where we've got a right to win . And we're acquiring enhancements to our product portfolio and electronics and mechanical and complementary software and feel real good about it .
And when you think about the synergies kind of what the maybe what the forward multiple would be looking out kind of 12 to 24 months as you integrate these things.
Yes, Jeff It's a good question very fair question I think we've had some commentary around this in past quarters. So on the mechanical side, if we're expanding our mechanical portfolio you would see something in the high single digit EBITDA multiple would be a fair approximation.
Speaker #3: So I think you can again , you can look for us to continue to be acquisitive , but continue to be disciplined , like like we've shown .
Speaker #7: And then I guess discipline also includes the element of price paid . And I kind of I kind of appreciate like each individual deal .
The higher growth electronics, and software you're going to see a bit of a higher multiple there because we're expecting higher growth and higher longer term returns.
Speaker #7: It's hard for me to press Josh or Mike for like specifics on multiples and all that . But is there a way to just step back and sort of collectively say , you know , you gave us the dollars deployed right on a year to date basis ?
Jeff maybe also to help you out the biggest acquisition as Alatech.
Clearly that is the lion's share. So we gave that information when we released the acquisition.
Speaker #7: You know , kind of what the average multiple has been . And , you know , when you think about the synergies , kind of what the what the forward multiple would be looking out , you know , kind of 12 , 24 months as you integrate these things .
When we made the acquisition and we issued a press release.
You could see that and you get at least a pretty good idea of all the acquisitions, what's the biggest piece there from a multiple paid.
Speaker #3: Yeah , Jeff , it's a good question . Very fair question . I think we've we've had some commentary around this in past quarters .
Got it thank you.
Thank you.
Speaker #3: So on the mechanical side , if we're expanding our mechanical portfolio , you would see something in the high single digit EBITDA multiple would be a fair approximation on the , you know , the higher growth electronics and software , you're going to see a bit of a higher multiple there because we're expecting higher growth .
The next question comes from Thomas panel with Jpmorgan. Please go ahead.
Hello, everyone.
Come on.
Hi, I'd like to ask you about the residential outlook for Q4 in America. So the residential revenue improved to mid single digit in Q3, and you mentioned no clear signs of the recovery of the market for 2026, but how would you see debate you Dan Shaw segment performing in Q4 could you share your.
Speaker #3: And higher longer term returns .
Speaker #2: Jeff , maybe also to help you out , the biggest acquisition as tech , clearly that is the lion's share . So we gave that information when we released the acquisition .
Our current market outlook and also the new product contributions, especially for electronics in Q4. Please.
Speaker #2: When when we made the acquisition . And we issued the press release , you could see that and you get at least a pretty good idea of all the acquisitions .
So the answer your question on the residential I apologize I had some phone difficulties there.
Speaker #2: What's the biggest piece there from a multiple pay ?
Overall market demand for residential soft it's been that way for for a while in the third quarter. We did have the benefit associated with the new product introductions the locks.
Speaker #7: Got it . Thank you .
Speaker #3: Thank you .
Speaker #1: The next question comes from Thomas Asano with J.P. Morgan . Please go ahead .
That was the.
The arrive lock that we've talked about in the first quarter earnings call. We launched in the third quarter, we had the benefit as I said on the prepared remarks.
Speaker #8: Hello everyone .
Speaker #3: Hi , Thomas .
Speaker #8: Hi . I like to ask you about the residential outlook for Q4 in America . So the residential revenue improved to up mid-single digit in Q3 .
Overall.
Market demand consistent with year to date growth rates for residential which is down slightly so as you're thinking about the fourth quarter. We would not expect a mid single digit positive growth. We would expect it more in line with market demand, which is that softer nonresidential.
Speaker #8: And you mentioned no clear signs of the recovery of the market for 2026 . But how would you see the residential segment performing in Q4 ?
Speaker #8: Could you share your current market outlook ? And also the new product contributions , especially for electronics in Q4 ? Please .
Speaker #2: Yeah . Great question , Tomo . As we talked about in the prepared remarks , residential was mid-single and much stronger than market market for resi soft .
Market that we're in.
I am sorry residential thank you.
Thank you and my follow up questions on tariffs and pricing.
So you have that.
<unk> rated strong pricing power and agility in our margin.
Managing a tariff related cost pressures and are you seeing any signs of.
Pricing fatigue or customer weakness and how would you see the other market players.
<unk> forward pricing in the market. Please.
Tom I'll. This is John I would say I appreciate the comment and yes.
I think our teams.
And our customers have such collectively responded well to the inflationary nature of the tariffs.
Inc. Our industry as a whole has moved up with price realization.
Speaker #1: Q2 have lost connection with our main speaker line . Please wait while we reconnect .
I would say just as Mike said in the prepared comments.
Speaker #8: Hello . Hello .
As inflationary pressures continue.
We stand ready to to cover that with with price.
Speaker #1: We've lost connection with our speakers . Please wait while we reconnect .
I would say the demand environment in non res as we mentioned.
Good.
Healthy nonresident humming along pretty well so.
Haven't yet seen something that we would call fatigue.
Thank you Joe and Mike that's all from me.
Thank you.
We have one final question in our queue today.
The next question comes from Tim <unk> of Baird. Please go ahead.
Hey, everybody.
Good morning.
Maybe just the first one I'm kind of thinking bigger picture about kind of spec in spec, writing and just kind of content within the spec.
John how would you kind of compare.
The content in the spec that Youre, writing today versus maybe what you were doing three years ago, and I'm, just trying to kind of get at.
Speaker #9: We reconnect .
Speaker #1: With .
How that specs evolving, particularly as you kind of have done some of the I.
Speaker #10: Yeah . Hi , this is Mike . The team is back on tomorrow to answer your question on the residential , I apologize .
I'd say ancillary products kind of M&A over the last couple of years.
Speaker #10: We had some phone difficulties there overall .
Tim That's a great question I appreciate you asking I would say.
Speaker #8: No problem . Mike . Yes , please . Yeah . Could you could you repeat that again ? Your answers please . Thank you .
Speaker #8: No problem . Mike . Yes , please . Yeah . Could you could you repeat that again ? Your answers please . Thank you .
Couple of things come to mind in terms of <unk>.
<unk> content.
We're seeing electronics adoption accelerates.
Evident in our specs and I think evident in the electronics growth numbers that we've been showing lately, so very pleased with that.
Speaker #10: Ilox . That was the the arrive lock that we talked about in the first quarter earnings call . We launched it in the third quarter , and we had the
The new product launches that we've been doing in.
<unk> in particular are paying dividends there I would also say.
Speaker #10: benefit Yeah . , as I said , on the prepared remarks , overall , think of market demand consistent with year to date growth rates for residential , which is , you know , down slightly .
We're starting to see it would be very small, but starting to see even opportunities too.
Backend some of the complementary software that we've developed organically until like a multifamily applications. So that's very exciting for us to see as well in terms of the new acquisitions several of them. If you talk nonresident merica like kreger specialty products.
Speaker #10: So as you think about the fourth quarter , we would not expect a mid-single digit positive growth . We would expect it more in line with market demand , which is that softer , non-residential market that we're in .
Speaker #10: Salter residential , I'm sorry , residential . Thank you .
Hand in glove fit with our spec engine and we're excited to see the growth there because.
Speaker #8: Thank you . And my follow up questions on tariffs and pricing . So . You have demonstrated strong pricing power and agility in the margin managing a tariff related cost pressures .
If you recall that acquisition brought products that we didn't have in our hollow metal portfolio high margin fast growing niche products that we're finding great opportunities to spec and to new customers even so.
Speaker #8: And are you seeing any signs of pricing fatigue or customer weakness? And how would you see the other market players reacting to pricing in the market?
Really good fit.
Other good example from this year would be trimmed.
Speaker #8: Please .
Makes makes high end specialty hardware for commercial applications.
Speaker #10: Tom , this is John .
Speaker #3: I would say I appreciate the comment and .
Speaker #10: Yeah , I think our our .
You had pulled channel customers of ours for the last couple of years, they would highlight something like a <unk> that was one of.
Speaker #3: Teams and our customers have have collectively responded well to the inflationary nature of .
The best acquisition targets for Allegiant to go after so we're really excited to have that team on board with us and that's it again it fits right into the spec and so we're happy to see that momentum.
Speaker #10: The .
Speaker #3: Tariffs . I think our , our industry as a whole has moved up with price realization and I'd say just as Mike said in the prepared comments , as inflationary pressures continue , we stand ready to to cover that with with price .
Okay. Okay, that's great to hear and then maybe just on the modeling side just international kind of the opposite of Julians question on PPI.
Speaker #3: I would say the demand environment in Non-res , as we mentioned , is good . It's healthy . Non-res is humming along pretty well .
Negative this quarter is that just a timing consideration or is there anything.
To read in there around price productivity and inflation.
Speaker #3: So haven't yet seen something that we would call fatigue .
Yes, if you think about margins in international.
Good performance this quarter it was slightly negative on the PPI on a year to date basis, Tim thinking of it as it.
Speaker #8: Thank you , Joe and Mike . That's all from me .
Speaker #10: Thank you . Thanks .
Speaker #1: We have one final question in our queue today. The next question comes from Tim Weiss of Baird. Please go ahead.
Negative like a million Bucks, if you add up to three quarters. So it's essentially covered.
Yes.
Look for us in international to cover that inflationary pressure.
Speaker #11: Hey everybody . Good , good morning . Maybe just the first one . I'm kind of thinking bigger picture about kind of spec and spec writing and just kind of content within the spec .
So I wouldn't look too much into the third quarter at all look at the year to date rate and you get an idea of we're doing a pretty good job there.
Okay.
It sounds good good luck on the rest of you guys.
Speaker #11: John , how would you kind of compare the content in the spec that you're kind of writing today versus maybe what you were doing three years ago ?
Thanks, Amit.
This concludes our question and answer session I would like to turn the conference back over to CEO, John Stone for any closing remarks.
Speaker #11: And I'm just trying to kind of get at how that specs evolving , particularly as you kind of have done some of the , you know , I'd say ancillary product kind of M&A over the last couple of years .
Thanks, very much and thanks, everyone for the very engaging Q&A.
Look forward to connecting with you on our Q4 earnings call in February be safe be healthy.
Speaker #12: Tim . That's that's a great question . I appreciate you asking . I would say a couple of things come to mind in terms of spec content .
This is now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker #12: We're seeing electronics adoption accelerate, and that's evident in our specs. I think it's also evident in the electronics growth numbers that we've been showing lately.
Speaker #12: So very pleased with that . And I think the , the new product launches that we've been doing and non-resident particular are paying dividends .
Speaker #12: There . I would also say we're starting to see it would be very small , but starting to see even opportunities to spec in some of the complementary software that we've developed organically into , like a multifamily application .
Speaker #12: So that's that's very exciting for us to see as well . In terms of the new acquisitions , several of them , if you talk Non-res America's like Krieger Specialty Products , hand in glove , fit with our spec engine , and we're excited to see the growth there because if you recall that acquisition brought products that we didn't have in our hollow metal portfolio , high margin , fast growing , niche products that we're finding great opportunities to to spec into new customers .
Speaker #12: Even so , really good fit . Another good example from this year would be Tremco makes makes high end specialty hardware for commercial applications .
Speaker #12: If you had pulled channel customers of ours for the last couple of years , they would highlight something like a tremco as one of the the best acquisition targets for Allegiant to to go after .
Speaker #12: So really excited to have that team on board with us . And it's again , it fits right into the spec engine . So we're happy to see that momentum .
Speaker #11: Okay okay . That's great to hear . And then maybe just on the modeling side just in international , kind of the opposite of of Julien's question on PII that flipped negative this quarter .
Speaker #11: Is that just a timing consideration, or is there anything to read in there around price, productivity, and inflation?
Speaker #10: Yeah . If you think about margins in international good performance this quarter , it was slightly negative on the PII on a year to date basis though , Tim , you know , think of it as it's negative like a million bucks .
Speaker #10: If you add up the three quarters . So it's essentially covered . And you know look for us in international to cover that inflationary pressure .
Speaker #10: So I wouldn't look too much into the the third quarter at all . Look at the year to date rate . And you get an idea .
Speaker #10: We're doing a pretty good job there.
Speaker #11: Okay . Sounds good . Good luck on the rest of your guys .
Speaker #9: Thanks , Tim .
Speaker #1: This concludes our question and answer session . I would like to turn the conference back over to CEO John Stone . For any closing remarks .
Speaker #12: Thanks very much . And thanks , everyone for the very engaging Q&A . We look forward to connecting with you on our Q4 earnings call in February .
Speaker #12: Be safe , be healthy .