The speaker, Jobi Coyle, welcomes participants to the Allegion Third Quarter 2023 Earnings Call and introduces the President and CEO, John Stone, and the CFO, Mike Wagnes. She mentions that the call will be recorded and archived on the company's website. She also notes that statements made in the call are considered forward-looking and non-GAAP financial measures will be discussed. John Stone then takes over and praises the team's operational execution and mentions that electronics demand is strong with potential for further growth.

Allegion had a strong quarter with mid-teens organic growth in electronics and software solutions, particularly in the Americas nonresidential business. They have the highest margins in the industry and are driving further expansion despite not having the same mechanical volume tailwinds as the previous year. Their balance sheet is improving and they have raised their guidance for full year adjusted EPS. Allegion's vision is to provide seamless access in a safer world and they are a leading provider of security and access solutions. They are leveraging their position to promote open ecosystems and are focused on delivering new value through software and services. An example of this is their recent announcement about Allegion Ventures.

Allegion Ventures, a strategic investment arm of Allegion, has recently made its largest investment in Ambient AI, a company that specializes in AI technology for seamless access. This is a reflection of the potential for collaboration between Allegion and Ambient to create value and improve access. The company's capital allocation priorities include investing in organic growth, paying dividends, making strategic acquisitions, and repurchasing shares. They expect to maintain their investment-grade status and have a strong focus on driving growth through innovative solutions. The third quarter financial results will be discussed by Mike Wagnes, followed by a discussion of the company's outlook for 2023 by John.

In the fourth quarter, Allegion continued to perform well with strong electronics growth, margin expansion, and healthy cash flow. Despite a slight decline in organic revenue due to pressure on the residential business, the company achieved its highest adjusted operating margin in history. Adjusted earnings per share also increased by 12% compared to the previous year. Year-to-date available cash flow also saw an increase of $95 million. The following slide provides a breakdown of revenue by region.

The company reported a 0.5% growth in the quarter, with a decline in organic revenue due to lower mechanical volumes. This was mainly due to the comparison with the previous year's quarter, which had a record organic growth of over 18%. Currency fluctuations also contributed to a 5/10 overall reported growth. The Americas segment had a strong performance, with operating margins expanding despite lower volumes. The non-residential business saw growth in the low single digits, while the residential business declined due to higher interest rates. The Access Technologies business had a mid-teens organic growth, demonstrating its stability. There was also strong demand for electronic solutions in the Americas.

The company saw high growth in the electronics sector and expects further growth in the long-term. Mechanical volumes were lower in the third quarter but have since returned to normal. The Americas segment had a 5% increase in adjusted operating income and strong margins. The International segment also performed well, with growth in electronics and software solutions, despite challenges in other markets. Year-to-date available cash flow increased by $95 million compared to the previous year.

The company has seen an increase in earnings, driven by higher revenue and offset by increased capital expenditures. Working capital has also increased, but the company remains focused on efficiently managing it. The company has successfully reduced their net debt and is back to pre-acquisition leverage levels. They expect to achieve record revenue, adjusted operating income, and adjusted EPS in 2023 and have raised their outlook for adjusted EPS while affirming their outlook for revenue and available cash flow. The Americas segment is expected to see strong growth, led by the non-residential business, while the residential business is expected to decline. The international segment is expected to see a slight decline in revenue.

Allegion's outlook for the company is positive, with expected revenue and EPS growth in the third quarter and a strong operational performance. They also anticipate continued growth in electronics adoption and plan to expand their software solutions portfolio. The institutional segment has shown resilience in the past year, despite a recent dip in ABI headlines. As a late-cycle business with a focus on the institutional segment, Allegion remains optimistic about their future prospects.

The company has a strong backlog and customer base in their auto door and service businesses. Their supply chain has improved and they expect to regain market share in the aftermarket space. The commercial office market is soft, but it only makes up a small percentage of their overall portfolio. Weakness in residential and certain international markets is expected to continue, but the company has taken cost actions to drive margin expansion. They feel confident in their ability to succeed and drive organic growth and margin expansion. In regards to their 2024 considerations, the company may see potential for top-line growth with the mix of factors such as market share gains in the aftermarket, headwinds in commercial and residential markets, and productivity and cost actions.

John Stone, from Allegion, confirms that the company expects to see organic growth in the future. He explains that their focus on institutional clients has helped them remain resilient, despite declines in the industry. Stone also discusses the company's international portfolio, noting that they are still facing challenges in China and the portable security market, but are seeing growth in their electronics and software solutions in Europe. Overall, they are optimistic about their future growth and margin expansion.

The company is investing in its business and has recently acquired a new team that is performing well. They anticipate continued growth in the electronic space and have a positive outlook for the future. However, the Americas market may see a decline in organic sales in the fourth quarter compared to the previous quarter, but the overall growth rate is expected to remain in the mid-single digits. The non-residential sector is stronger than the residential sector.

The speaker discusses their company's performance in the past year, mentioning that they expect a slight decline in residential sales but steady growth in non-residential sales. They also mention the impact of prior year comparisons on quarterly growth rates. The speaker expresses confidence in the completion of the inventory destocking process and mentions meeting with distributors to confirm this. They also note that overall spec activity remains solid.

The speaker discusses the institutional heavy business and spec engine, stating that it remains strong as they move forward. They also mention the mechanical business bottoming out and the company's improved cash flow and deleveraging, leading to a potential for M&A opportunities.

Allegion has been successful in reducing their debt and building up capital for future growth. They plan to continue this growth through acquisitions, specifically targeting strategic assets in the security and Access solutions industry. When comparing different building types, the company sees more potential in complex buildings such as schools and hospitals, which have a higher number of openings and doors per square foot. This is in contrast to simpler buildings like retail stores or warehouses, which have fewer openings and are not as lucrative for the company.

The question is about the Americas business in the fourth quarter and how the organic guide suggests that revenues may be flat or down compared to the third quarter. In previous years, the Americas business typically saw a decline of 4-7% in the fourth quarter, but the current forecast suggests better-than-normal seasonality.

The company discussed the decrease in organic growth in the third quarter due to channel destocking. They expect this trend to continue in the fourth quarter, but not as significantly as in previous years. The recent acquisition of Access Technologies has contributed to the company's organic growth. The company believes that the destocking phase is mostly over and the industry is stabilizing after experiencing challenges with inflation and supply chain disruptions.

The company is experiencing a normalization of their business, with lead times back to normal levels and a strong backlog. They expect to see some relief from previous high commodity costs, but are still in an inflationary environment due to other cost increases.

The speaker discusses the mid-teens organic growth in the electronics and software solutions business, attributing it to new product launches and good execution by the team. They mention that end user demand is still strong, citing recent visits to universities as evidence.

The speaker discusses the growth potential of electronics adoption in the market, particularly in education and healthcare industries. They also mention the success of their electronic and software business in Europe and their investment in the multifamily sector. They anticipate an increase in demand due to the convenience and security offered by smartphone wallets and mobile credentials. The speaker advises not to focus on channel build or restock, but rather on end user demand. They also mention the impact of a strong U.S. dollar on imported products in the market.

The speaker discusses the company's strong performance in the premium market and their ability to withstand fluctuations in the value of the dollar. They also mention the success of their flagship products, which are proudly manufactured in the United States. Another speaker praises the international team for their consistent improvement in margins and productivity, particularly highlighting the success of the Interflex business.

The company has seen double-digit growth in their electronics portfolio in Europe, with strong margin performance. The recent acquisition of plano has provided a lot of growth potential and customer value. Interflex, another successful business, has a blue-chip customer base and continues to grow positively. The company has faced supply chain challenges, causing them to focus on fulfilling backlog orders rather than aftermarket work, resulting in a temporary loss of market share to competitors.

The speaker, John Stone, is pleased with the company's performance and believes they are in a good position to regain lost market share. The company's lead times and delivery performance have improved, allowing them to compete and win more business. The call concludes with Stone reiterating the company's strong execution and momentum going into the next year.

This summary was generated with AI and may contain some inaccuracies.