Allegion plc

Good morning, and welcome to the Allegiant second quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the 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 Josh Pokowinski, Vice President of Investor Relations. Please go ahead.

Thank you, Jason. Good morning, everyone. Thank you for joining us for Allegiant's second quarter 2024 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 presentations we will refer to in today's call are are available on our website at investor.alegion.com. This call will be recorded and archived on our website. Please go to slide two. 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. Please go to slide three, and I'll turn the call over to John.

Thanks, Josh. Good morning, everybody. Thanks for joining today. I can sum up this call in this quarter with four words. Stable markets, strong execution. And that strong execution was by the entire Allegiant team and our distribution channel partners. That's the team that drove these record Q2 results. I'll briefly walk through some of the highlights for our quarter and an updated full year outlook, and then we'll share more on each of these later in the presentation. Allegiant Q2 revenue growth and margin expansion demonstrate the resilience of our business model. We see stability in demand, given our broad end market exposure and specification expertise. Our team continues to see strength in areas like institutional markets and data centers, further helped by our own investments in electronics and new product development. And as expected, we saw a return to volume growth and a seasonal bump in the quarter sequentially over Q1. We are accelerating capital deployment, returning cash to shareholders, and investing in accretive acquisitions. We've announced four acquisitions already this year with Krieger Specialty Products and Unicell Architectural in Q2. Overall, heading into the second half, we're executing at a high level. We're raising our full year guidance for reported revenue and adjusted earnings per share, and we're affirming our available cash flow outlook. I am very proud of how the Allegiant team is living our values while driving results for our customers and our shareholders. Please go to slide four. Allegiant continues to pursue balanced, consistent capital allocation for the benefit of shareholders and to take advantage of the strong cash generation this business drives. We are investing for organic growth. In April, we introduced three new lines of Schlage Indication Solutions, a best-in-class lock portfolio with trends that allow users to more easily see the status of a door. Developed specifically with K-12 schools and higher education security needs in mind, our new locks have some of the largest indication windows on the market and differentiated 180-degree views. They offer unparalleled functionality and durability for grade one fire-rated applications, in addition to tamper resistance and colorblind-friendly backgrounds. Combined, these features allow for quick confirmation that doors are secured, providing teachers and administrators peace of mind and time, their most valuable resource when it matters most, when every second counts. Allegiant continues to be a dividend-paying stock. For the quarter, this amounted to approximately $42 million in cash returned to shareholders. We closed two bolt-on acquisitions in our Americas region in Q2, Krieger Specialty Products and Unicell Architectural. Krieger is a leading specialty door manufacturer with expertise in highly engineered, acoustical, high security, thermal, and radio frequency applications. Krieger products complement our hollow metal portfolio and are used in a wide range of facilities including government agencies, data centers, concert halls, and healthcare. Unicell is a leading manufacturer of advanced glass wall systems that support privacy, safety, energy efficiency, and sustainability across institutional markets. This business is a natural extension of our core door and window systems portfolio of TGP, AD systems, and Stanley Access technologies. Both Krieger and Unicell expand our portfolio with fast-growing niche products for key verticals that will benefit from the strength of our spec writing capability and nationwide sales footprint. On a combined basis, these businesses are accretive to overall Elysian growth rates and carry Allegiant like EBITDA margins in the low 20s. Total purchase price represents a valuation of approximately 10 times 2024 EBITDA. We're very pleased with the recent acquisitions we've made, strong management teams that have come on board and a great cultural fit with the employees that they bring to Allegiant. We're excited for the future. Lastly, in the quarter, we made additional share repurchases amounting to approximately $40 million. I'm happy with the balance and shareholder-friendly capital allocation that you see here on the slide, and Allegiant continues to invest in the core, grow the business, and return cash to shareholders. Mike will now walk you through the second quarter financial results, and I'll be back to provide an update on our outlook and some final thoughts.

Thanks, John, and good morning, everyone. Thank you for joining today's call. Please go to slide number five. As John shared, our Q2 results reflect solid performance from the entire Allegiant team. We continue to execute at a high level, delivering another quarter of strong margin expansion with mid-single-digit top-line growth, driven by both price and volume. Revenue for the second quarter was $965.6 million, an increase of 5.8% compared to 2023. Organic revenue increased 5.2% in the quarter as a result of favorable price and volume. we saw strength across both our Americas and international regions. Q2 adjusted operating margin and adjusted EBITDA margin increased by 150 and 170 basis points, respectively, driven by price and productivity in excess of inflation and investments, as well as favorable volume leverage. I'm very pleased with the operational execution and margin expansion in 2024. Adjusted earnings per share of $1.96 increased 20 cents or approximately 11.4% versus the prior year. Strong operational performance, accretive capital deployment, and favorable interest and other more than offset the headwinds from higher tax. Finally, year-to-date 2024 available cash flow was $176 million, which was a 7.4% decrease versus last year. I will provide more details on our cash flow and balance sheet a little later in the presentation. Please go to slide number six. This slide provides an overview of our quarterly revenue. I will review our enterprise results here before turning to the respective regions. Organic revenue grew 5.2% in the quarter, comprised of price realization of 2.7% and volume growth of 2.5%. As I mentioned last quarter, we are seeing the business return to expected seasonality in 2024 versus what we experienced last year. As John discussed earlier, we're accelerating capital deployment and have made investments in inorganic growth in both our Americas and international segments. As a result, acquisitions drove almost a point of growth in the quarter. Currency was a slight headwind, bringing total reported growth to 5.8%. Please go to slide number seven. Our America segment delivered strong operating results in Q2. Revenue of $770.7 million was up 6% on a reported basis and up 5.7% organically as a result of favorable price and volume in the quarter. Reported revenue includes four-tenths of a percent growth from the acquisitions of Krieger and Unicell. Our non-residential business, inclusive of access technologies, increased mid-single digits in the quarter as end markets remained stable. Our residential business was up low single digits in the quarter, showing an improvement versus the declines in Q1. Demand for electronics in our Americas region remained strong. While electronics revenue was down low single digits in the quarter against a tough comparable, Our business has grown well above 30 percent over the last two years for both the quarter and year-to-date. America's adjusted operating income of $226.2 million increased 9.9 percent versus the prior year period due to solid top-line growth and strong operational execution. Adjusted operating margin and adjusted EBITDA margin for the quarter were up 110 and 130 basis points respectively. as we continue to drive margin expansion through price and productivity in excess of inflation and investments. Overall, our Americas team delivered another strong quarter. Please go to slide number eight. Our international segment had a solid second quarter. Revenues of $194.9 million was up 5.2 percent on a reported basis and up 3.1 percent organically. Price realization and strength in our electronics business drove the growth in the quarter. Acquisitions were a tailwind this quarter, positively impacting reported revenues by 3.2%, driven by the Dorcas and Boss acquisitions announced earlier this year. Currency, however, was a headwind of 1.1%. International adjusted operating income of $23.6 million increased 12.9% versus the prior year period. Adjusted operating margin and adjusted EBITDA margin for the quarter both increased 80 basis points. Volume and favorable mix are driving the margin expansion, as well as margin accretion from our acquisitions. Please go to slide number nine. Year-to-date available cash flow came in at $176 million. down 14.1 million versus the prior year. We did see year-over-year growth in the second quarter this year. However, the first half of 2023 was particularly strong as it benefited from supply chain lead time reductions. Next, working capital as a percent of revenue increased, primarily driven by higher receivables, as a result of the timing of revenue and collections within the quarter versus the prior year. Finally, our net debt to adjusted EBITDA remains at a healthy ratio of 1.9 times, consistent with where we finished 2023. It is worth noting that our gross debt and cash balances include the proceeds from our $400 million senior note issuance in the second quarter, which will be used to repay a $400 million senior note maturity in the back half of 2024. This results in slightly higher gross debt to adjusted EBITDA at the end of the second quarter, but has no impact on net debt to adjusted EBITDA. Our business continues to generate strong cash flow and our balance sheet supports continued capital deployment. I will now hand the call back over to John.

Thanks, Mike. Please go to slide 10. Allegiant is on track for record full-year revenue, adjusted operating income, and adjusted earnings per share in 2024. We're increasing our full-year outlook on reported revenue and adjusted EPS. tightening our organic revenue range and affirming available cash flow. We now expect the America segment to be up 2.5% to 3.5% for total growth and 2% to 3% organically led by our non-residential business. For international, we expect revenue to be up 3% to 4% in total, including a half to 1.5% organically based on a solid start to the year, particularly in electronics and software. All in for the company, We are raising total growth to a range of 2.5 to 3.5 percent. Organically, we're tightening the range by half a point on both ends to 1.5 to 2.5 percent. Based on our strong operational performance in the second quarter and capital deployment, we are increasing our adjusted earnings per share outlook by 15 cents to a range of $7.15 to $7.30. Lastly, we affirm our outlook on available cash flow to be in the range of $540 to $570 million. Please go to slide 11. Now, two years into my role at Allegiant, I want to take a moment to reflect. I feel very lucky and very humbled to have stepped into such a great team in business. We overcame supply chain and inflationary disruptions and are now putting up record revenues and margins. We have two new factories ramping up production smoothly and safely. We have successfully integrated the largest acquisition in Allegiant's history and have grown our business further with five additional bolt-on acquisitions. And earlier this year, we earned the Gallup Exceptional Workplace Award, an achievement that I would say is probably my proudest moment with Allegiant so far. It's helpful to step outside the market discussion of the moment, whether it's supply chain and inflation as it was two years ago or Fed policy and macro data today. With Allegiant, you'll find a resilient business model reflecting a strong value proposition as well as opportunities to further drive growth and reward shareholders. It starts with the front end and a spec engine that is always running and solving complex problems for our end-user customers, regardless of which non-res segment they're a part of. Plugging in bolt-ons like Krieger and Unicell into this spec engine creates additional value as we bring heightened channel access to their strong niche products and help them grow. Our industry-leading margins are the hallmark of a strong culture of execution at Allegiant. We have a long-standing track record of success on price and productivity that has created durable returns through the cycle. Allegiant's broad portfolio and in-market exposure and mix of aftermarket and new construction further adds to the resiliency of our business. Our consistent, balanced framework on capital allocation has allowed us to deploy approximately $280 million of cash flow year-to-date through accretive M&A and return of capital directly to shareholders. In summary, stable demand and strong execution by the entire Legion team and our channel partners drove record Q2 revenue and earnings per share results. We expanded margins and are accelerating capital deployment for the benefit of our shareholders, which supports our higher outlook for 2024. With that, let's turn to Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star, then two. Please limit yourself to one question and one follow-up. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Tim Weiss from Baird. Please go ahead.

Hey, everybody. Good morning. Nice job. Good morning. Maybe just my first question, just John, if you could maybe give us a little bit of color on what you're seeing on the spec side of the business within America is just, you know, color what you're seeing around like quoting and releases, you know, maybe anything specific on, on end markets and then any sort of variances that, that you guys might be seeing, you know, from new construction and kind of remodeling activity.

Yeah. Thanks. Thanks, Tim. Appreciate the question. And I think, Channel checks recently being out in the field with our sales teams and our end users and distributors would indicate pretty much what we said at the outset, that we're in what we would just call a stable demand environment, really driven by the institutional segments and the stability there. I think the specification activity is always on, just the way we said it in the prepared remarks. and our spec riders have the capability to flex to whichever vertical, whichever job that they need to. So whether it's an office building, whether it's a school, a university, a hospital, a data center, our spec riders can do it all. And so just think of that as a flywheel that doesn't stop. I'd say on just the demand side, Certainly, there's pockets of strength, pockets of weakness, like we've been saying for the last few quarters. That ebbs and flows depending on where you are or which vertical you're looking at. But in general, I think we would just stick with a stable demand environment, and we feel like our strength and our execution will differentiate us and will outperform the market.

Okay. Okay, that's helpful. And then just on M&A, I'd say historically – the pace of M&A has been kind of uneven at Allegiant. It's kind of come in clusters in the past. And, you know, you've closed four acquisitions year to date. And I'm just wondering if that represents a change in the underlying pace of activity from your perspective, you know, where we should expect, you know, a lot more kind of tuck-in activity or if that is just kind of a function of timing again. And really what I'm asking is, Should investors start to think about a much more regular cadence of M&A going forward for Legion on an annualized basis?

Yeah, that's a great question, Tim, and I appreciate that. And I would just reinforce we are really pleased with the acquisitions we've tucked in this year. Every one accretive to EPS right out of the chute. We talked a little bit, gave a little bit of an indication on the kind of valuation that we were looking at here in the Americas recently. And I'd say way back to as I first stepped in the seat, we talked about orienting Allegiant more towards growth. We do want to be acquisitive. We don't want to become a serial acquirer that just wantonly buys anything. We want to be very strategic. We want to play to our strengths. We want to have acquisitions that complement our portfolio and bring benefits to our customers. We want to have returns that are accretive to our shareholders. And so, you know, each acquisition, each deal is going to take on a life of its own. And so the timing is going to be what it is. But I would say in terms of activity, our view would be my view would be the environment for strategics like Allegiant is better than it was a year or two ago. We don't see that changing in the near term, and we do see a good pipeline of opportunity. So I think you can look forward to seeing more quarters like you've seen these last couple from Allegiant.

Okay. Okay, great. Thanks for the time, and good luck on the rest of the year. Thank you.

The next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Hey, guys. Good morning.

Hey, Joe. Hello. Hey, maybe we touch on America's margins to start off. It's about the best margin we've seen in some time. And I'm just wondering on the sustainability of that margin going forward, what are the key levers? Especially impressive, given that you have margin dilutive mix coming through on the access tech business. And so any color that you can provide on the go forward would be helpful.

Thanks for the question, Joe. We've been talking about this for some time. Our business, the way we manage it, we drive pricing to cover inflation. We're going to drive productivity to fund our investments. And in aggregate, that price, productivity, investments, and inflation dynamic is a net positive for us. We've shown that over many quarters now. We expect that to continue. From a pricing perspective in the Americas, that non-res business, it's very sticky. So we feel comfortable about the resiliency of the margin profile. And that productivity DNA that we have, we expect that to continue. So I would expect us to maintain these margins that you see. There was that temporary decline in 21 and 22 where we had supply chain challenges. that's kind of behind us now and we're in a good place. And I think from here, think of a Legion that you've known us over the last decade, where we're going to be driving that price and productivity to, to maintain and expand margins.

Yep. That's a, that's helpful. Uh, and John, maybe just, uh, just along that point, you know, we have seen some commodities deflate, uh, to start the year. I'm just curious, like, what are you seeing in your core commodities, and how do you see the cost side of the equation evolving as we progress through the year?

Yeah, it's a good question, Joe, and I think, you know, you had some rather extreme volatility in 21-22. That volatility for sure has dampened, and I'd say lately it's kind of been not much of an event. You know, you see little blips up and down, but generally within a range that's not concerning to us either way, deflation or inflation on the raw mat side. And as Mike mentioned, I think we've got a whole host of pretty exciting productivity projects in the pipeline. for our factories, and then, again, two new factories ramping up that are going to drive more productivity in a couple of parts of the business that need it. So I'd say ROMAT has been stable enough recently. We don't see anything dramatic on the horizon.

Okay, great. Thank you.

The next question comes from Joe O'Day from Wells Fargo. Please go ahead.

Hi, good morning. Thanks for taking my questions. Hey, Joel. Hey, can you start on the international side? I think this is the first quarter of volume growth in a couple of years. And so just in terms of expanding on what you're seeing there and confidence that things could have turned and expectations for volumes as we move into the back half of the year.

Yeah, it's a great question, Joe. I'm glad you asked this. We've been dying for the chance to brag on international because we think they've been performing extremely well. I would call your attention to over the past couple of years, there has been some intentional pruning in international just to exit a couple of underperforming businesses. So let's not forget that. The acquisitions made recently have been contributing favorably to growth in international as well. The demand for electronics and our software solutions has remained strong in the high single-digit range in international. Those businesses continue to outperform. And then I'd say even portable security, after many, many quarters of very tough end markets, turned positive on volume here in Q2, so really happy for them. They've done a great job managing margins over the past year, year and a half in really tough volume environments, and that turned positive as well. Overall, I would say there's been just a ton of self-help work going on on the mechanical side of our international business, in addition to continued strong demand and strong performance by our electronics and software teams.

And then also, I wanted to get your views on institutional in Americas. I think maybe some kind of contrasting data points out there when we look at the Dodge Momentum, institutional looks soft. I think recently had the AIA come out with new forecasts for 2025. It's actually got institutional up 4%, so pretty good. So I guess when you look at spec activity, when you peel back anything you understand about Dodge Momentum, just overall in terms of direction on institutional and if you see sort of tailwinds, headwinds there based on spec activity.

Yeah, it's a good question. And certainly we watch the same leading indicators that you referenced. They have been pretty volatile. Some of them have been flashing negative for a long, long time now I would say, in general, our view would be the institutional segment has less volatility than maybe parts of the commercial segments. It's a bit more stable. And I think something else to look at that maybe wouldn't make it into an ABI or a Dodge Start is municipal bond issuance. which is up about 30% year-to-date versus prior year period, which goes to funds, school budgets, and things like that. Just something else to think about in terms of what's driving the activity, whether it's new construction or expansion or repair and maintenance aftermarket type activity that's going on. I'd say the headline from the beginning of the prepared remarks is still the best takeaway. Joe, we see... stable demand, but we feel like we're executing at a very high level.

That's great. I appreciate it. Thanks.

The next question comes from Julian Mitchell from Barclays. Please go ahead.

Hi, good morning. Maybe just the first question around the operations kind of guidance on the EPS tailwind. So you raised that, I think, at the high end and the low end, the organic growth guide is unchanged. So maybe just help us understand kind of What moved around in that was just some conservatism and a cushion that you don't need anymore, given we're at the halfway point of the year. Did something move around in terms of, say, expectations on cost inflation? Any help on that, please, why that kind of operational guide has moved up for the year?

Thanks for the question, Julian. If you look at our first half, we're doing quite well on the margin front. And we've been talking about, and I mentioned it earlier to the earlier question, just driving that price and productivity, the actions we can control to push margins. And we feel we've made good progress. So although organically we tighten the guide, we feel that the margin performance has really performed well. And so we did raise a nickel, as you see, in our operational performance.

That's great. Thank you. And then maybe just my follow up question would be around if we think about the residential outlook, you know, surprising, I think, to see a positive result there in the second quarter. Maybe just update us, you know, how you're feeling about that market. The sort of consumer discretionary side seems very weak more broadly, understanding, though, that LOX is not that discretionary. So maybe just some color on resi expectations for the year ahead.

Thank you. Julian, this is John. That's a super insightful question. And I think A couple of different things going on in Rezzy. You're right. Secondary home sales are at really low levels, really depressed levels. Housing completions has kind of maintained a decent pace. We're hearing some better growth sentiment from large national builders. Interest rates, though, mortgage rates are still quite high, depressing some activity. So You sum all that up, we feel really good about how our resi business has executed the first half of the year. That being said, you know, still a bit of a cautionary outlook, a bit of a flattish outlook is what we're contemplating. And then any, you know, relief in the interest rate environment would definitely be a positive for us. And I think that seems to be what the broader market is waiting for.

That's great. Thank you. The next question comes from Brett Lindsey from Mizuho. Please go ahead.

Hey, good morning. Congrats on a great quarter.

Thanks, Brett.

Hey, just a question on the electronic locks performance. Better than I expected, the two-year stack did accelerate versus Q1. Would you attribute that to the improvement in the mix of the end markets, so multifamily, commercial, softer, institutional a little better, or are you just seeing broader adoption across some of the different verticals?

Yeah, Brett, it's a really good question. And I appreciate you, you know, looking at the comps and the two-year stack. It is relevant to talk that given the tail of those supply chain disruptions that we dealt with through first half of 23, et cetera. Demand is still strong and it is broad-based, I would say, is the other conclusion. You know, we see electronic locks being adopted in education, being adopted in healthcare, commercial office, multifamily, et cetera. It is broad-based adoption. The demand is still strong, and I think one of the key underlying growth drivers is still the leverage of the smartphone wallet, mobile credentials, digital credentials, digital identities that are now just increasing both the security of the access point as well as the convenience. which is right up the middle of our seamless access and safer world strategy. You hear things from large university customers of ours that inbound students just flat out refuse to carry a key or a plastic card these days, and a smartphone is a natural extension of their persona. So I see still tailwinds there in terms of electronics demand and adoption. and the work that we're doing in our hardware, the work we're doing in our software, as well as credential technology, really feel like Allegiant is in a leading position here in the space and can continue to drive growth and good results.

That's great. And then just to follow up on the sales performance between new versus aftermarket, I understand you lose track of it at some point through the channels, but just curious if you had any granular color on how new construction versus aftermarket performed that you could glean through, you know, whether it's locked categories or some other metrics?

Yeah, it's a good question, Brett, and I think the most accurate way we can describe that is still think of us as roughly a 50-50 mix and that those two 50s are not pinpoint precision numbers. You're right, you know, selling through distribution and in some cases two-step distribution you do lose sight of exactly where that goes. And I would say it probably also depends on where you are in the Americas. If you're in a place where there's net migration, like a Texas or a Florida, a new construction is probably more than 50% right now. If you're in some more mature markets, regions, Midwest or Northeast or whichever, maybe it's more heavily weighted towards aftermarket. That's That's why I'd say on balance and in aggregate, it's still appropriate to think of us as about a 50-50 mix. The other thing I would say is that once you spec yourself into a large institution, university campus, school district, et cetera, that makes that aftermarket business really sticky. And so, you know, break fix, repair maintenance, new wing or whichever expansion, like for like, replacement is quite prevalent. And that's another important tailwind on the electronic side because we're seeing some early adopters of electronic locks now upgrading to a recent model after installing locks just, you know, six, seven years ago. So a faster replacement cycle is also showing up these days.

Appreciate the insight.

Thank you.

The next question comes from David McGregor from Longbow Research. Please go ahead.

Good morning. Thanks for taking my questions. Pretty solid quarter, so congratulations there. Thanks very much. Yeah, I guess we're going to be talking about tariffs a little more here over the next few months, so I was wondering if you could just remind us, you know, what was the tariff burden to earnings last time around, and what's changed since in terms of reshoring suppliers and and maybe what percentage of your North American COGS would now be sourced outside of North America?

Yeah, tough to break all that down. We'll see if Mike has anything to add, David. But this is John. I'll start. I'd say for any global company like Allegiant, tariffs in general are not helpful, right? That's not helpful to a company like Allegiant. I would say I'd call you back to, you know, the – near-shoring that Allegiant invested in with our new factory in Corredero, Mexico. The ramp-up is going well. Our people are safe. They're focused on quality. The numbers are coming through just like we thought. Great culture, great team down there. And that's for a lot of our residential products are manufactured between Corredero and a manufacturing campus in the Baja area that we have. I'd say that investment did significantly de-risk our supply chain, made our supply chain more resilient in terms of some product supply that used to be single sourced and outsourced in China. And so we've acquired the IP. We can produce that product wherever we want to now. We have that flexibility since we own the design, as well as shorting the supply lines, obviously sourcing it close to home. I would say now is not really the time to speculate about any future tariff regimes. We need to just wait and see how the policies evolve. But in terms of supply chain resiliency, I think the investments we've made over the past 18 months or so have been very well placed and are delivering the kind of results that we'd like to see. Mike, anything you'd add?

Yeah. If you remember, David, we tend to manufacture in the regions. that we sell, right? So if you think of our America's business, most of our non-residential business is really manufactured here in the United States. We do have some operations in Mexico, as John mentioned, but we don't have a large supply chain where we're manufacturing our product in Asia and shipping it over here. If it's sold in the US, we tend to make it here as well. Got it.

Thanks for that detail. And just as a follow-up, I guess obviously not any inventory in the specified business, but just wondering what you're seeing in terms of channel inventory in the commercial and the retail space.

Yeah, it's a good question, David. And I think we operate and our distribution channel operates in a made-to-order environment. And so in general, our channel does not hold a lot of inventory. unless that's specific to their business model where they, you know, a particular distributor will want to hold some whatever unique or rare, rarely ordered SKUs just to be that provider of choice in their market. So, you know, lead times over the course of 2023 progressed back down to the two to four week range for most of our products that our channel is used to. ordering patterns have adjusted pretty well, I think. And so I guess what I would feel like is similar like you saw with the Legion's seasonality, Q1 to Q2, I think just kind of a back to a more normal environment on the inventory side. And that's how we feel internally as well. I think our own inventory turns are up modestly this year. We feel good about that, you know, good working capital discipline there. So my sense is our channel would feel the same. Got it.

Thanks very much. Good luck.

Thank you.

Before we end the call, we'd like to give one more opportunity to ask a question. As a reminder, to ask a question, please press star, then 1. There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to John Stone, President and CEO, for any closing remarks.

Thanks very much, everyone, for joining. Appreciate your time. I think, in summary, stable demand, strong execution by the entire Legion team, and it's worth the call out. What I would feel is probably the best field sales and marketing team and distribution channel organization in the industry. Very proud of how they've executed Q2. Very proud of our Q2 revenue and EPS results, and we definitely feel like Allegiant's best days are still ahead. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.