Allegion plc

Good morning and welcome to the Allegiant second quarter 2020 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 Tom Martineau, Vice President, Investor Relations and Treasurer. Please go ahead.

Thank you, Andrew. Good morning, everyone. Welcome and thank you for joining us for Allegiance Second Quarter 2020 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 will refer to in today's call, are available on our website at investor.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 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 second quarter 2020 results, which will be followed by a Q&A session. We have a very tight meeting today. Please, for the Q&A, we would like to ask each caller to limit themselves to one question and one short follow-up, and then re-enter the queue. We would like to give everyone an opportunity, given the time allotted. Please go to slide four, and I'll turn the call over to Dave.

Thanks, Tom. Good morning, and thank you for joining us today. 2020 will go down as a year of dramatic change. The health and economic impact of COVID-19 will take the headline, alongside the social concerns related to inclusion and diversity. With these challenges comes needed reflection. Before I turn to business results, I would like to address these events and Allegiant's response to them. The tragedy of George Floyd's death has been on my mind, as well as the death of many who have preceded him. Black lives matter. Black lives matter, and we must level the playing field, understand bias, and work for equality. Prejudice and racism are intolerable, and we can and must do better. My executive leadership team has joined me in a journey of listening, learning, and reflection, and will continue building the right roadmap for allegiance. With our employees, we must also help build a better world with our voices, our minds, our hands, and our hearts. I expect the people of Allegiant and our businesses to be involved, to create positive change in our community and our company. And you can expect the same of me. This is the spirit and culture of Allegiant. In determining how we respond to social concerns, our value and code of conduct has been our lighthouse since the creation of Allegiant. and they will help us to improve inclusion and diversity at the company. In a similar way, our values and corporate business strategy has provided the foundation to respond to the COVID-19 pandemic, which will be with us for some time to come. Please go to slide five. Equipped with a culture of safety, a resilient supply chain, and operational discipline, Allegiant was in a position of strength facing the pandemic. Keeping our employees safe and healthy continues to be top of mind, and we're effectively leveraging safety and health as our true north throughout these uncertain times. My leadership team led the COVID-19 effort to ensure our company was responding in real time to considerable global complexity, and to meet the needs of our employees, customers, communities, and other stakeholders, as well as requests from public health officials. Cross-functional teams guided our health and safety efforts, production and operational decisions, work from home infrastructure, and best practices. We also created an Allegiant Safety Net program, giving production workers an extra day of pay per month to cover unexpected illnesses or family needs. I'm proud of the collaboration and communication between functions, which has been key to working productively and safely wherever we are. At the same time, Allegiant has turned its attention to giving back to communities across the world. While ensuring our employees had masks, we've also been able to donate thousands of masks to healthcare workers across the US, Mexico, and Italy. Knowing that people have a safe place to live is perhaps more important than ever. We've also continued our substantial commitment to Habitat for Humanity in 2020. There is no doubt our team members across the world are dedicated to serving others and doing the right thing. And taking care of our team members means they can in turn take care of their communities. Please go to slide six. Our enterprise excellence and discipline capital allocation strategies have served us well to weather the COVID-19 storm. We are delivering new value in access and safety as people deal with the realities of daily life in a pandemic. Our vision of seamless access and a safer world has never been more important. As an expert in security, Allegiant customers look for us for specific guidance when faced with new challenges. In the age of COVID-19, for example, new attention was brought to their need for a healthy environment in a variety of ways. First, proper cleaning and disinfecting procedures for door hardware. Second, surface technologies like silver ion antimicrobial coatings and new technologies with antibacterial and antiviral properties. Third, our touchless solutions are at the forefront of helping prevent the spread of viruses and reducing common physical touch points. From automatic door opening solutions and contactless readers to innovative door pulls, our products can help avoid hand-to-surface contact. Further, by integrating our Wave to Open and other innovations with identity management partners, we're able to enable seamless access through our partners of choice strategies. Fourth, our keyless solutions around the world are offering mobile and remote capabilities for access control and workforce management. In brief, customers around the world are looking for new, practical, and convenient solutions that help promote healthy environments and provide peace of mind. Our leading brands like Schlage, LCN, Von Dupren, Interflex, and Simon Voss, paired with the strength of our supply chain and integration partners, are meeting those needs. As we continue to navigate COVID-19 and other challenges, we will focus on our customers, our strategy, and the health and safety of our people. Our business has strong fundamentals and has proven the ability to execute. We will continue to monitor, evaluate, and adapt to market dynamics. Please go to slide seven, and I'll walk you through the second quarter financial summary. Revenues for the second quarter were $589.5 million, a decrease of 19.4% or 18.5% organically. The organic revenue decrease was driven by the economic challenges that arose as a result of the COVID-19 pandemic. Currency headwinds and the impact of divestitures of our businesses in Colombia and Turkey also contributed to the total revenue weakening. All regions experienced substantial revenue declines. Patrick will share more detail on the regions in a moment. Adjusted operating margins decreased by 260 basis points in the second quarter. The significant volume declines drove the margin reduction. We did see positive price, productivity, inflation dynamic, which was helped by reductions in variable and share-based compensation, non-U.S. government incentives, plus the impact of cost actions including reductions of discretionary spending, a freeze on non-essential investments and hiring, restructuring, and reprioritization of capital expenditures. Due to these actions, we saw sequential improvement during the quarter. Adjusted earnings per share of 92 cents decreased 34 cents or 27% versus the prior year. The decrease was driven primarily by lowering operating income as a result of reduced revenue. Favorable share count and other income offset some of the operational decline. Year-to-date available cash flow came in at $103.6 million. an increase of approximately $26 million versus the prior year. Improvement in net working capital and reduced capital expenditures more than offset the lower net earnings. Patrick will now walk you through the financial results, and I'll be back later to discuss our 2020 outlook and a wrap-up. Thanks, Dave.