Allegion plc

Hello, and welcome to the Allegiant Q4 earnings call. All participants will be in listen-only mode. 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 or the one on your telephone keypad. To withdraw your question, please press star or the two. In consideration of the others, we ask that you limit yourself to one question and a follow-up. If you have additional questions, you may re-enter the question queue. Please note, this event is being recorded. And now I'd like to turn the conference over to Michael Ragnus, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Keith. Good morning, everyone. Welcome and thank you for joining us for Allegiant's fourth quarter and full year 2018 earnings call. With me today are Dave Petratis, Chairman, President, and Chief Executive Officer, and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegiant. Our earnings release, which was issued earlier this morning, and the presentation, which we refer to in today's call, are available on our website at Allegiant.com. This call will be recorded and archived on our website. Please go to slides number two and three. 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. Dave and Patrick will now discuss our fourth quarter and full year 2018 results and provide an outlook for 2019, which will be followed by a Q&A session. For the Q&A, we would like to ask each caller to limit themselves to one question and one follow-up and then reenter the queue. We will do our best to get to everyone given the time allotted. Please go to slide four and I'll turn the call over to Dave.

Thanks, Mike. Good morning and thank you for joining us today. Allegiant saw another quarter of strong top-line revenue growth with strength across all regions. The Americas saw strong volumes in the non-residential business, as end-market fundamentals continue to be positive, particularly in institutional verticals. EMEA and Asia Pacific saw organic growth rates in the mid-single digits. Acquisitions continue to contribute to total company revenue growth. Electronics growth moderated in the fourth quarter, with the Americas seeing approximately 7% growth. Residential electronics performed well. However, the non-residential electronics growth decelerated due to the timing of large orders. We had full-year electronics growth of high teens in the Americas, with strength in both parts of the business. We see the electronics outlook continue to be a long-term positive trend as more and more products become connected for ease of access. As I stated earlier, non-residential U.S. and markets remain healthy with particular strength in institutional verticals. We do see residential new construction softening, but we expect this to be mitigated by electronics and channel initiatives to drive above-market growth. The quarter saw continued inflationary pressures, which we believe will ease in 2019. Commodities have leveled off and we project to have another solid year in price realization with particular strength in our America's non-residential businesses. In the fourth quarter, we delivered nearly 10% adjusted EPS growth, bringing the full year expansion to approximately 14%. as we drove a robust 37% increase in available cash flow, which totaled more than $400 million for the year. Overall, I'm extremely pleased with the revenue performance in both the quarter and the full year. Additionally, while operating margin could have been better, I'm satisfied with the growth in EPS that we delivered in the quarter and the full year. Please go to slide five, and I'll walk through the fourth quarter financial summary. In Q4, Allegiant delivered strong top-line revenue growth. Revenue for the fourth quarter was $702.4 million, an increase of 12.4%, inclusive of organic growth of 6.7%. Acquisitions also contributed to the top-line revenue expansion, offsetting the slightly unfavorable currency impact. All regions grew organically. America has led the way with organic growth of 7.6% in the quarter, driven by strength in our non-residential business. The EMEA region saw organic growth of 4.3%, driven by performance in the Simons Voss and Interflux businesses. Asia Pacific had a nice quarter of organic growth, coming in at 4.6% against a tough comparable. Adjusted operating margins decreased by 130 basis points due to the deluge dilution related to acquisitions made in 2018. Excluding the impact of these acquisitions, the base operating margins were up 20 basis points. Inflationary headwinds continued to pressure margins and exceeded price and productivity in the quarter. The company is committed to driving price realization and productivity actions such that for 2019, The price-productivity-inflation dynamic is expected to be positive, helping to drive margin expansion across all regions of the business. Adjusted earnings per share of $1.22 increased 11 cents, or nearly 10% versus the prior year. The increase was driven by higher operating income, along with a favorable year-over-year tax rate. Available cash flow for the year came in over $408 million, an increase of more than 37% versus prior year. Increased earnings and the non-reoccurring 2017 discretionary pension funding drove the increase. Please go to slide six. Before I turn the call over to Patrick, I want to talk a little about some of the things we are doing in the connected home space. In 2015, Schlage was the first smart lock to respond to, hey, Siri, open my lock. Now, Schlage ENCODE is the first lock to work with the key by Amazon app and ring devices without needing a Wi-Fi hub. It's built right into the lock. With Schlage ENCODE, we took a different approach to development, starting first with the connected home platform and developing a lock around the desired user experience. The user-first approach is part of our strategic plan to develop and integrate with leaders in connected home platforms. In addition, we recently announced the Schlage Connect Z-Wave Plus enhancement and its compatibility with Ring and Schlage Connect ZigBee certified locks, which support home automation systems. Our deep experience in connected home security has made us a go-to partner for a wide variety of platforms and home automation solutions. including Amazon, Ring, Alarm.com, Google, and Apple. We will continue to build relationships to benefit consumers and accelerate adoption of SLEG smart products. Patrick will now walk you through the financial results, and I'll be back to update you on our full year 2019 outlook.