Allegion plc

Good morning and welcome to Allergen's fourth quarter and full year conference call. All participants will be in a 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 and then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Wagnes, Vice President, Treasurer, and Investor Relations. Mr. Wagnes, please go ahead.

Thank you, Anita. Good morning, everyone. Welcome and thank you for joining us for Allegiant's fourth quarter and full year 2019 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 investor.allegion.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 2019 results and provide an outlook for 2020, 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 number four and I'll turn the call over to Dave.

Thanks, Mike. Good morning and thank you for joining us today. Allegiant experienced modest top-line revenue growth in the fourth quarter, with strength in the Americas offset by weakness in Europe and Asia Pacific. The Americas region had reported an organic growth of 6.8% in the quarter, driven by both the non-residential and residential businesses. The EMEA region saw markets soften. and the complexity of moving our operations from Turkey to Poland negatively impacted the top line as well as operating income. The level of effort in executing a move like this cannot be underestimated. While we did experience some impact from the transition, we are better positioned after leaving Turkey. Asia Pacific continued to experience weak markets in Australia, and saw deteriorating markets in China. Electronics growth in the Americas came in just over 12% in the quarter and increased over 10% for the full year. We continue to see electronics as a long-term positive trend as more and more products become connected for ease of access. As I look to our end markets, U.S. non-residential remains healthy. and U.S. residential has improved. As I mentioned, EMEA and Asia Pacific are experiencing weaknesses in the markets they serve, and we see that continuing in the near term. Adjusted operating margins were up 30 basis points in the quarter and 70 basis points for the full year. Margin expansion was led by the Americas region, which saw full-year adjusted margins up 120 basis points. Volume leverage was good during the year, and the price productivity inflation dynamic was positive. In the fourth quarter, adjusted EPS growth came in at nearly 5%, bringing the full year increase to approximately 9%. Available cash flow was up nearly $14 million to $422.6 million for the year. Overall, I'm pleased with our full year 2019 results. We saw good revenue performance, expanded adjusted operating margins, delivered solid adjusted EPS growth, and generated substantial available cash flow. Please go to slide five, and I'll walk you through the fourth quarter financial summary. Revenue for the fourth quarter was $719.5 million, an increase of 2.4%, inclusive of 3.5% organic growth. Currency headwinds and the impact of the divestiture of our business in Turkey offset some of the organic growth. America has led the way on revenue growth, offsetting the weakness we experienced in EMEA and Asia Pacific. Patrick will share more detail on the regions in a moment. Adjusted operating margin increased by 30 basis points in the fourth quarter as we saw significant margin expansion in the Americas with declines in Europe and Asia. Adjusted earnings per share of $1.28 increased 6 cents or nearly 5% versus the prior year. The increase was driven primarily by higher operating income. Favorable share count and interest expense offset the unfavorable year-over-year tax rate increase. Available cash flow for the year came in at $422.6 million, an increase of nearly $14 million versus prior year. increased adjusted earnings, and improvement in networking capital were the driving factors for the increase. Please go to slide six. This year, we're recognizing Schlage for its past, present, and future innovation. 2020 marks the 100th anniversary of the brand, and we're proud to celebrate this milestone in various ways that support the business, and engage the customer, non-residential, and residential audiences. As a legacy brand with a rich history, there is no doubt that Schlage is an important part of the Legion story. Schlage has been providing security, style, and peace of mind for the last 100 years. From the first push-button lock pioneered by Walter Schlage in 1920 to the high-tech mobile solutions of today, Our trusted brand's passion for door hardware is rooted in security and steeped in innovation. As you may recall, we saw a strong market acceptance of the Schlage ENCODE residential lock after it was introduced in 2019, especially because we were the first major manufacturer to bring a smart Wi-Fi deadbolt to the market. By year's end, the Schlage ENCODE was recognized as the best-in-class product consumer tech influencers at CNET, digital trends, and consumer reports, among others. Just last month, it was named the best smart door lock to keep intruders out. Highlighting the peace of mind Schlage is known to bring to homeowners across the globe. And it's not only And it's not the only one drawing recognition in the Schlage suite of products. Our Schlage Sense and Schlage Connect also continue to receive accolades in the smart home market as the best smart locks you can buy and the best tech gifts. Collectively, these smart locks, along with Schlage Encode, have been recognized by tech experts as the best to work with Amazon Alexa, Apple HomeKit, and Google Home. As a powerful brand, we expect Schlage will continue to set the bar for customer experience in our industry and redefine what's possible with security solutions for seamless access. Please go to slide seven. Last March, we announced our business strategy centered on seamless access and a safer world. Allegiant has a strong internal innovation engine. creating award-winning products like the one you just saw, as well as overture for specification workflow and next-generation products like the Simons Voss Smart Handle AX. As we look to the future, we see the opportunity for technology to drive progress in seamless access. What I'd like to highlight today is edge computing. We made a leap forward in edge devices with the acquisition of Isonis. It was a good technology move. And through Allegiant Ventures, we're investing in companies that approach authentication and people flow in new ways. Companies like Pen Drops, Robin, and Open Path. I'm excited to see the ways we can create new value and access by carrying Schlage products and the data and analytical capabilities of a company like Open Path. You'll see us continue to look for opportunities to invest, partner, and drive progress through internal and external innovation that aligns with our strategic pillars. Be the partner of choice, deliver new value and access, smart capital allocation, expand in our core markets, and focus on enterprise excellence. Access has been a part of the company heritage for more than 100 years, and seamless access will define our company going forward. Patrick will now walk you through the financial results, and I'll be back to discuss our full year 2020 outlook.