Allegion Public Limited Company 2026 Q3 Earnings Call

Thank you, Shell. Good morning, everyone. Thank you for joining us for Allegion's third quarter 2026 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.allegion.com. This call will be recorded and archived on our website. Please go to slide 2. 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.

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. Please go to slide 3, and I'll turn the call over to John.

Thanks, Josh. Good morning, everyone, and thanks for joining us. Third quarter results were driven by strong organic growth in the Americas, led by double-digit organic growth in our non-residential business. The team's performance reinforces what I hope you've come to believe about Allegion. We're a leader in security and access with premium brands and the highest margins in a great industry. Our resilient business model has the proven ability to navigate inflation and withstand cyclical forces based on the value we provide to our customers and the large installed base we serve. This model continues to evolve with technology as security and access become electrified and digitized, a trend we expect to benefit market leaders like Allegion for many years to come. All of this allows us to deliver double-digit EPS growth through the cycle, as we outlined at our investor day in May of last year.

Digging into the quarter, our Americas business is performing very well. With continued momentum and spec writing trends through our demand generation engine, we expect non-residential strength to continue into 2027, which we will comment on later in the presentation. Residential has performed well in 2026 despite consumer headwinds from inflation and interest rates. However, these dynamics also make it difficult to forecast a strong recovery in the medium term. I am also pleased with another quarter of margin expansion in the Americas. We have managed inflation well thus far in 2026, primarily through agile pricing actions that continued in the third quarter. In international, we have resolved the ERP challenge we highlighted in Q1, and that business is back to normal operations and lead times.

However, as discussed last quarter, macro conditions are difficult across Western Europe, particularly in our largest market, Germany, and we continue to be focused on execution and cost management in our international segment. With respect to our full year, we are raising our reported revenue outlook to 9.5%-10.5% and our outlook for organic revenue growth to 5%-6% based on stronger demand and favorable price in the Americas. We are raising our adjusted earnings per share outlook to $9.05-$9.10. I will provide additional details on this later in the call. Please go to slide 4, and let us take a look at capital allocation, starting with our organic investments. In September, we launched the Allegion Optimize app in the Americas.

Optimize gives installers, end users, and our channel partners one tool to commission, configure, manage, and troubleshoot our connected products throughout their life cycle. We are rolling Optimize out initially across electronic door controls and e-locks, and we expect this app will ultimately manage our full non-residential connected portfolio globally. Offering a single app to cover management of multiple product categories is a first in our industry. Customers will benefit from faster, easier experiences with our intuitive interface that eliminates the friction of switching between multiple standalone apps for connected devices. Turning to M&A, we completed the acquisition of the Overly Door Company in early October for approximately $90 million. Overly manufactures specialty doors for acoustics, blast, bullet resistance, and vault security. Overly's high-security solutions serve commercial and institutional customers with strength across U.S. government, education, and healthcare markets.

Similar to our 2024 acquisition of Krieger Specialty Products, this complements our hollow metal portfolio with additional specialty products and regional capability. We expect Overly to add approximately one point to Americas revenues on an annualized basis at margins consistent with the overall enterprise. Recently, we also made a $40 million follow-on investment in Ambient.ai through Allegion Ventures. Ambient continues to prove the transformative potential of purpose-built AI and physical security, helping customers shift their security operations from reactive to proactive. This investment underscores our confidence in their technology, their leadership, and our increased collaboration. Allegion paid $46 million in dividends and repurchased $120 million of shares in the quarter. We see attractive valuation in Allegion shares and expect to remain active in share repurchase.

As we have said in the past, you can expect Allegion to be balanced, disciplined, and consistent with capital deployment oriented to profitable growth and driving long-term returns for shareholders. Mike Wagnes will now walk you through the third quarter financial results.

Thanks, John, and good morning, everyone. Thanks for joining today's call. Please go to slide number 5. Revenue for the third quarter was approximately $1.2 billion, an increase of 9.6% compared to last year. Organic revenue increased 7.2% in the quarter, driven by strength in our Americas segment. The enterprise organic revenue increase was driven by both price realization and volume growth. Q3 adjusted operating margin was 24.7%, up 60 basis points compared to last year. Price and productivity, net of inflation and investment, was favorable by $15.6 million and was a 50 basis point tailwind to margin rate. Volume leverage was also a tailwind to margin rate in the quarter. This favorability was partially offset by acquisitions, which were a 20 basis point headwind to margins. I will provide more details on revenue and margins within each of the regions.

Adjusted earnings per share of $2.60 increased $0.30, or 13%, versus the prior year. Operating income, inclusive of acquisitions, drove the majority of the year-over-year EPS growth. Additionally, benefits from interest and other and share count were offset by a headwind from tax. Please note, third quarter 2026 adjusted operating income and adjusted earnings per share exclude the favorable impact from IEEPA tariff refunds. You can find additional information regarding this in our press release and 10-Q, which were filed this morning. Finally, year-to-date available cash flow was $539.4 million, up 11.2% from the prior year. I will provide more details on cash flow in the balance sheet a little later in the presentation. Please go to slide number 6. Our Americas segment delivered revenue of $942.4 million, which was up 11.7% on a reported basis and up 9.1% on an organic basis.

Our non-residential business increased low double digits organically, driven by price and volume growth. Demand for our non-res products remains healthy, and as John Stone mentioned earlier, spec activity continues to be strong. Our residential business grew mid-single digits in the quarter driven by price, consistent with year-to-date trends. Electronics revenue for the segment was up low double digits for the quarter and continues to be a long-term growth driver for the business. In addition, acquisitions contributed 2.6% of growth in the quarter. Americas adjusted operating income of $283.8 million increased 12.6% versus the prior year. Adjusted operating margins were up 20 basis points in the quarter. Price and productivity, net of inflation and investment, was favorable by $13.5 million and was a 20 basis point tailwind to margins. Volume leverage was also a tailwind to margin rates. However, acquisitions were a 40 basis point headwind, as we expected.

Please go to slide number seven. Our international segment delivered revenue of $230.2 million, which was up 1.8% on a reported basis and down slightly organically as favorable pricing was offset by lower volumes. The volume decline was the result of continued weakness in Western Europe, as John discussed earlier. Acquisitions contributed 2.5% to segment revenue, and currency was a headwind in the quarter. International adjusted operating income of $31.9 million decreased 1.2% versus the prior year. Adjusted operating margin for the quarter decreased 40 basis points. Price and productivity, net of inflation and investment, was a 30 basis point tailwind to margin rate in the quarter. Net acquisitions drove a benefit to margin rates of 20 basis points. These benefits were more than offset by headwinds related to lower volume and unfavorable mix.

Please go to slide eight, and I'll provide an overview of our cash flow and balance sheet. Year-to-date available cash flow was $539.4 million, an increase of 11.2% versus the prior year. The cash flow increase was primarily driven by higher earnings. For 2026, we still anticipate our ACF conversion will be in the range of 85%-95% of adjusted net income. Next, working capital as a percent of revenue was 7.9%, consistent with the prior year. Finally, our balance sheet remains healthy with a net debt to adjusted EBITDA at 1.5 times. I will now hand the call back over to John.