Allegion plc

Good morning and welcome to the Allegiant second quarter 2021 earnings 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 2. Please ask one question and one follow-up. And after that, you're welcome to enter the queue. Please note this event is being recorded. I would now like to turn the conference over to Tom Martineau. Please go ahead.

Thank you, Andrew. Good morning. Welcome and thank you for joining us for Allegiant's second quarter 2021 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 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 2021 results, which will be followed by a Q&A session. 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. Allegiant delivered a very strong quarter, and I would like to thank the employees of Allegiant for their contributions and efforts. Our employees are the greatest strength of Allegiant. Their dedication to safety and customer excellence is outstanding, and our teams have moved quickly to adapt to opportunities in a dynamic market. Before I jump into the financials, I want to give you a high-level update on recovery trends and the business overall. The pandemic has changed our world and created volatility throughout the last 18 months, both in terms of the economic contraction last year and the current economic rebound we are seeing. Starting in Q1 and accelerating in Q2, demand surged faster and stronger than expected. This is a positive sign and provides confidence in the sustainable economic recovery. In fact, Allegiant is already returning to pre-pandemic demand levels. At the same time, the robust demand is constraining the global supply chain's ability to fully meet the pull for labor and materials, especially electronic components. Allegiant has built a record non-residential backlog in 2021, which is a healthy sign of strong demand. And we believe Allegiant will be well positioned for the remainder of this year and for 2022. And another positive sign of recovery are America's electronics grew more than 20% in the second quarter. There was strong demand for electronic residential products. and in the non-residential retrofit, repair, and small project opportunities. Allegiant is not immune to inflation and the supply chain constraints impacting industrial markets. Allegiant navigated well during Q2, but these industry-wide constraints will persist for the remainder of the year and put pressure on margins for the short term. We will leverage the strength of our supply chain management capabilities as well as price to mitigate these impacts. During the pandemic, we were also able to restructure the business and make it leaner while keeping our front-facing and strategic investments. Allegiant is stronger exiting the pandemic than when we entered it. Now let's turn to the second quarter of performance for more details. Please go to slide five. I'm pleased with the company's second quarter results. We delivered strong performance in all areas. Revenue for the second quarter was $746.9 million, an increase of 26.7% or 23.8% organically. The organic revenue increase was driven by the favorable comparable created by last year's shutdowns, solid price realization from the price increase announced earlier this year, and the increased market demand, which returned to pre-pandemic levels. Currency tailwinds provided a boost to total revenue and more than offset the impact of divestitures. Adjusted operating margin increased by 70 basis points in the second quarter. The restructuring and cost management actions taken during 2020, along with volume leverage, have offset the accelerated inflation. We are also seeing costs creep back from reductions experienced last year during the pandemic. Mix is also a margin headwind due to our strong residential growth. Adjusted earnings per share of $1.32 increased 40 cents or 43.5% versus the prior year. The increase was driven largely by the expanded operating income, with some benefits also coming from a favorable tax rate and share count. Year-to-date available cash flow came in at $249.6 million, an increase of $146 million versus the prior year. The increased cash flow was driven by higher net earnings, along with improvements in networking capital and reduced capital expenditures. Please go to slide six. Last quarter, I shared with you Allegiant's build, borrow, buy approach to accelerating seamless access. Today, I want to briefly focus on the borrow innovation engine and our strategic pillar to be the partner of choice. Allegiant participates in recognized, secure, industry-leading platforms. We expand our reach through strategic relationships with recognized experts and tech innovators. And we leverage open standards. By doing this, we not only set up Allegiant as the partner of choice and a continued leader in the IoT marketplace, we also ensure Allegiant has its choice of strategic partners as well. Allegiant has a growing breadth of strategic partners. Megatex, software and product integrators, our venture portfolio, and technology alliance and industry consortiums. We are executing on our partnership strategic pillar, and here are a few recent examples. Allegiant was showcased at Apple's Worldwide Developer Conference. We are expanding our innovation with Apple in both the residential and commercial marketplaces. In the smart home space, Schlage will soon be growing its connected portfolio with a new device that allows people to easily and securely unlock their doors with just a tap using home keys for the iPhone or the Apple Watch. At the same time, we are extending our work with student ID in the Apple Wallet to offer more access control options to universities and colleges, enterprises, and their students plus employees. Allegiant renewed our engagement with the Matter Workgroup, a mega tech consortium. Through this partnership, we're working to establish a secure connectivity standard for the future of the smart home that will ultimately allow more seamless connections between more IoT devices. We announced Allegiant Venture Investments in both MinHouse and MAPT, Two startups driving new value in a post-COVID world through revolutionary experiences and technology. And we completed a brand new cloud-to-cloud integration with OpenPath, leveraging our engaged technology and Schlage NDE and the LE mobile-enabled smart locks. Through these partnerships, we're investing in promising innovation. We're leveraging developer-friendly APIs and open standards. Allegiant is building strategic, commercial, and technical relationships. We are collaborating with recognized experts who also understand and embrace how Allegiant creates value by securing people and assets with seamless access wherever they reside, work, and thrive. Patrick will now take you through the financial results, and I'll be back to discuss our revised 21 outlook and to wrap up.