Allegion plc

Good day, and welcome to the Allegiant fourth quarter 2022 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. Please note this event is being recorded. I would now like to turn the conference over to Tom Martineau, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, Jason. Good morning, everyone. Thank you for joining us for Allegiant's fourth quarter and full year 2022 earnings call. With me today are John Stone, President and Chief Executive Officer, and Mike Wagnus, 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. Before I turn the call over to John, I have a couple of announcements to share. Kevin Sawyer, who has been Allegiance Director of Investor Relations for the past six years, has been promoted to the role of Finance Director of our Commercial Americas business. This is a fantastic role for Kevin, who will now serve as our Senior Finance Leader for that business. And I want to express my thanks and appreciation for all of Kevin's support. I'm also pleased to announce the promotion of Joby Coyle to the Director of Investor Relations role. Most recently, Joby has been leading our America's Home Finance Organization. Effective today, Joby is the primary contact for our Investor Relations office. I will continue to lead the Investor Relations function. I would also like to share that Allegiant will be hosting a 2023 Investor and Analyst Day on May 2nd of this year. The event will be at our Carmel, Indiana facility, which is in the North Indianapolis metro area. A webcast option will also be available. Look for more details as we get closer to the event. John and Mike will now discuss our fourth quarter and full year 2022 results, as well as provide an outlook for 2023, which will be followed by a Q&A session. For the Q&A, we ask that each caller limit themselves to one question and then re-enter the queue. Now, I'd like to turn the call over to John.

Thanks, Tom. Let's go to slide four. And first off, congratulations to Kevin and welcome to Joby. Allegian delivered another outstanding quarter of operational performance. As we look at market dynamics, we continue to see strong demand in the America's non-residential segments as well as global electronics. Residential markets continue to be soft, with new construction slowing due to inflation and higher interest rates. International end markets are softening as a result of macroeconomic and geopolitical conditions. Our engineering redesigns and alternate supply actions are delivering results, and lead times are normalizing on our mechanical products. We're seeing continued improvement in electronic supply, although it's still short of the very strong market demand we're seeing for our products. Price productivity and inflation dynamic was positive again this quarter on both a dollar and a margin basis as we continue to combat inflation with pricing actions across products and channels. Consistent and efficient available cash flow generation remains a focus for our company. In 2022, we made the decision to protect our customers by investing in inventory, which resulted in a short-term increase in working capital. We're also accelerating certain strategic capital investments to deliver future growth. As a result, available cash flow in 2022 was less than expected. Lastly, to our 2023 outlook, which I'll speak to in more detail later in the presentation, shows revenue growth of 9% to 10.5%, with organic growth of 2.5% to 4.5%. Adjusted EPS on a recast basis will be up 5% to 9%. Mike will provide details on the recast in a few minutes. Let's go to slide five. Revenue for the fourth quarter was $861.5 million, an increase of 21.5% compared to 2021. Organic revenue growth was 11.4%. The organic growth was driven by strong price realization across the portfolio and favorable volume in the America's non-residential business, offsetting weakness experienced in the America's residential and international businesses. The Access Technologies acquisition contributed approximately 14% to total growth, and currency impacts remain a headwind. Adjusted operating margin and adjusted EBITDA margins increased by 310 basis points each in the fourth quarter. The increases were attributable to favorable price, productivity, and inflation dynamic, positive business mix, along with volume leverage associated with the Americas non-residential growth. These factors more than offset the expected margin dilution related to access technologies. Excluding the access technologies business, adjusted operating income margins were up 430 basis points. Adjusted EPS of $1.60 increased 49 cents or approximately 44% versus the prior year. Strong operational performance more than offset the unfavorable impact of higher interest expense and supported continued investments for growth. Please go to slide six. Building greater supply chain resiliency remains a focus for Allegiant. From redesigning our products to dual sourcing, we've taken the right actions to strengthen our company and capabilities over the past couple years. Today, this work continues as we are adding a 350,000 square foot manufacturing facility in central Mexico. This operation will boost in-region production for our America's business with core activities like stamping, plating, die cast, and assembly. Strategically, this new operation will increase our supply chain resiliency in a number of ways. The plant will be vertically integrated, as we will now build components and products in-house that were previously sourced. At the same time, we're driving more efficiency in our supply chain, increasing manufacturing capacity, and improving our future cost position. Production is expected to get started later this year, and we could not be more excited about this strategic investment. Mike will now walk you through the financial results, and I'll be back to discuss our 2023 outlook. Thanks, John, and good morning, everyone.