Allegion plc

Good morning and welcome to the Allegiant first quarter 2025 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 remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. 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 first quarter 2025 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.allegion.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, everyone, and thanks for joining us. Q1 was a strong start to our year and I am proud of the execution of the Allegiant team and grateful for the longstanding partnership with the finest distribution channel partners in the industry. This was another demonstration of the resilience of our business model as we expanded our industry leading margins and continued to invest in our business while returning capital to shareholders. I'm pleased with the top line growth in Q1, especially in the Americas driven by the non-residential business. Over the past year, the Americas team produced mid single digit growth and solid margin expansion, which we believe speaks to the resiliency of the model, our broad end market exposure, and the depth of our relationships with channel partners and end users. We continue to take advantage of our business's strong cash generation, returning cash to shareholders, and growing through accretive acquisitions. Our consistent cash flow and pipeline of opportunities positions us well for additional capital deployment that creates long-term value for our shareholders and drives performance through the cycle. We're exiting Q1 with solid momentum, and we're executing our long-term growth strategy while remaining agile. We are affirming our 2025 full-year outlook for adjusted earnings per share of $7.65 to $7.85, and I'll be back later to provide more color on our markets and outlook. Please go to slide four. Let's take a look at capital allocation for the first quarter, starting with investments for organic growth. As you may have seen from our Consumer Electronics Show announcements earlier this year, Schlage recently unveiled its first ultra-wideband solution. The Schlage Sense Pro Smart Deadbolt is set to transform home access, delivering a hands-free unlocking experience that combines ultimate convenience with trusted security for homeowners. Paired with a personal phone, its ultra-wideband technology can understand intent to enter and unlock a door for an authorized user precisely as they approach it. The Schlage Sense Pro will also allow homeowners to voice control the lock and set up automated routines via smart home platforms and devices. We are set to release the Schlage Arrive Smart Wi-Fi Deadbolt, our first push-button keypad deadbolt equipped with built-in Wi-Fi. It provides a simple and secure connected solution that is an easy upgrade for first-time smart lock users and those looking to add smart security to more doors throughout their home at a more affordable price point. Both of these innovative new offerings complement our leading Schlage and Code family of smart locks and are also backed by the Schlage name, which just earned the title of America's most trusted lock brand for the sixth year in a row. SensePro and Arrive are expected to hit U.S. markets later this year. Turning to M&A, Allegiant has closed three bolt-on acquisitions since the start of 2025. In the Americas, we acquired The Next Door Company in February, growing our specialty door solutions portfolio to include new custom configurations for industrial, commercial, and institutional buildings. In Allegiant International, we acquired Lamar, expanding our security and accessibility solutions in Australia. Lamar offers door entry systems, handles, and digital locks for residential and multifamily markets, and its channels and go-to-market approach complement our own, offering new opportunities to scale. On April 1st, we acquired Trimco, which bolsters our non-residential Americas portfolio with premium and patented door hardware solutions that are highly specifiable, ranging from architectural pulls to mechanical locks, latches, and strikes. We see continued opportunities to grow inorganically this year as our pipeline remains active with companies that align to our core and can leverage our channel strengths. As you heard from us on the call in February, Allegiant continues to be a dividend-paying stock. We announced our 11th consecutive increase to our dividend at the beginning of the year. And in Q1, this dividend amounted to approximately $44 million. Lastly, we made share repurchases in the quarter of approximately $40 million. We remain committed to balance consistent capital allocation with a clear priority of investing for growth. I look forward to updating you as we progress through 2025. Mike will now walk you through first quarter financial results.

Thanks, John, and good morning, everyone. Thank you for joining today's call. Please go to slide number five. As John shared, our Q1 results reflect strong execution from the Allegiant team, delivering another quarter of margin expansion with mid-single-digit top-line growth. Revenue for the first quarter was $941.9 million, an increase of 5.4% compared to 2024. Organic revenue increased 4% in the quarter as a result of favorable price and volume led by our non-residential business in the Americas. Q1 adjusted operating margin increased by 150 basis points as volume leverage, favorable mix, and acquisitions were accretive to margins. Price and productivity, net of inflation and investments, and inclusive of transactional effects was a slight margin tailwind in the quarter. Adjusted earnings per share of $1.86 increased 31 cents or 20% versus the prior year. Operational performance, favorable tax, and accretive capital deployment more than all set a slight headwind from interest and other. Our Q1 tax rate benefited from discrete items that historically occur in the back half of the year. We still anticipate the full-year tax rate to be in the range of 17 to 18 percent, with the first half rate being similar to the second half rate. Finally, year-to-date available cash flow was 83.4 million, which was up nearly 250 percent versus last year. We continue to effectively manage working capital and generate strong cash flow. I will provide more details on our balance sheet and cash flow 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 our respective regions. Organic revenue grew 4% in the quarter, which included volume growth of 2.9% and price realization of 1.1%. Acquisitions drove 2.2 points of growth in the quarter, primarily related to businesses we acquired in 2024. Currency was a headwind in Q1 of eight-tenths of a point, bringing the total reported growth to 5.4%. Please go to slide number seven. Our Americas segment delivered strong operating results in Q1. Revenue of $757.8 million was up 6.8% on a reported basis and up 4.9% on an organic basis. Organic growth included both favorable price and volume in the quarter. Reported revenue includes 2.3 points of growth from acquisitions and a slight currency headwind. Pricing in our Americas business was 1.1% in the quarter. The company has taken multiple price increases and surcharges beginning at the end of February and continuing into April. And as a result, we expect price realization to accelerate through the year. Our non-residential business increased high single digits organically as demand for our products remains healthy. Our residential business declined mid-single digits in the quarter. As we previously mentioned on our year-end 2024 earnings call, we did expect Q1 to be impacted by some pull ahead of purchases by customers into Q4 last year. Electronics revenue was up low double digits and continues to be a long-term growth driver for Allegiant. America's adjusted operating income of $220.9 million increased 12% versus the prior year. Adjusted operating margin was up 130 basis points, as favorable volume leverage and mix were accretive to margins. Price and productivity, net of inflation and investments, and inclusive of transactional effects were neutral to margin rates. The tailwind from transactional effects is primarily related to our Mexican operations, where a portion of our local costs were favorably impacted by the year-over-year decline in the peso compared to the U.S. dollar. Please go to slide number eight. Our international segment delivered revenues of 184.1 million, which was down three-tenths of a percent on a reported basis and up nine-tenths of a percent organically. Acquisitions were a tailwind this quarter, positively impacting reported revenues by 1.8%. Currency was a headwind in the quarter, negatively impacting reported revenues by 3%. International adjusted operating income of $18.8 million decreased 2.6% versus the prior year period. Adjusted operating margins for the quarter decreased 20 basis points as we had a slight headwind from price and productivity, net of inflation, and investments. Please go to slide number nine, and I will provide an overview of our cash flow and balance sheet. First quarter available cash flow was approximately $83 million, up $59.5 million versus the prior year. This increase is driven by higher earnings, lower capital expenditures, and improvements in working capital. I'm pleased with the strong start to the year. and we continue to expect available cash flow conversion to be 85% to 90% of adjusted end income for the full year. Next, working capital as a percent of revenue improved, primarily due to increased inventory turns as we continue to focus on working capital efficiency to convert earnings to cash. Finally, our balance sheet remains strong, and our net debt to adjusted EBITDA is at a healthy ratio of 1.6 times. 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.

We are reiterating the 2025 outlook we introduced last quarter as we still see the same fundamental outlook led by our non-residential business in the Americas region. Non-residential markets, particularly the institutional verticals, remain resilient. The late cycle nature of our business along with our backlog and specification activity continue to support our outlook. As Mike noted, we did expect some residential softness following the stronger Q4 and see markets remaining soft given uncertainty on tariffs and interest rates. As we said in the past, our America sourcing practices are largely in region. While our America's residential business primarily produces and sources in Mexico, the vast majority of these products are USMCA compliant. America's sourcing from outside North America is relatively small, with China at less than 5% of COGS, and a collection of smaller exposures from all other countries cumulatively at 5% to 10% of enterprise COGS. Our company estimates tariff costs of approximately $80 million in 2025, and we expect to offset tariffs at the operating profit and EPS level on a full-year basis, primarily through pricing actions. Accordingly, Our 2025 full-year EPS outlook includes the impact from tariffs enacted as of the 22nd of April of this year. Given recent volatility in tariffs and foreign exchange rates, we're not updating our revenue outlook for those assumptions. However, we see potential upside to our revenue outlook if current tariff-related pricing actions and foreign exchange rates persist. Please go to slide 11. In summary, Allegiant is off to a strong start in 2025. I'm proud of our team's execution as we remained agile in a very dynamic environment. Notably, we were honored in the quarter with the Gallup Exceptional Workplace Award for the second consecutive year. Our leaders and our team of highly engaged experts drive our culture forward, creating a solid foundation to deliver exceptional results for our customers and our shareholders. Our people are a key differentiator for this company. As we move into Q2, we see positive internal indicators in the America's non-residential business, and we will remain agile should conditions change. One final note, Allegiant has an upcoming Investor and Analyst Day in New York to share more on our growth strategy. If you're interested in attending our May 6th event, please contact Josh or Joby to register as soon as possible. With that, we'll take your questions.

We'll now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. In the interest of time, please limit yourself to one question and one follow-up. To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Joe Ritchie from Goldman Sachs. Please go ahead.

Hey, good morning, guys.

Morning, Joe. Hey, Joe.

So I guess I'll start with the tariff question. So thank you for giving all the details. Great that it's included in your guidance for the year. I was just wondering, as you kind of think about the progression of those tariffs and the surcharges that you mentioned, Is there any kind of mismatch we should be thinking about where either you're putting through pricing ahead of some of the tariff impact or vice versa? Just anything around those dynamics would be very helpful.

Yeah, thanks for the question, Joe. As you know, the tariffs went into effect, the largest ones, early April, and they were effective immediately. We took actions in the month of April. Those are announced and in the marketplace. We announced them earlier this week, and they're effective here in April, at the end of April. You can consider, if you think about a lag, you could see a month-ish of a lag between the tariff impacts, which were immediate, and our pricing actions. We still expect for the full year, and this is the important thing, for a full year, we'll cover those costs of the tariffs. But as you think about the second quarter, there could be a little headwind. You know, we talked about that month-ish of that lag. So as you think about this for the year, think of it as neutral, but think the second quarter could have that month impact.

Okay, great. That's helpful, Mike. And I guess just to fall into just the tariff discussion, if, in fact, something changes and I think, you know, things are changing by the day, how do we then think about the pricing actions that you're taking and then do they just immediately come up? Like, how are you guys then thinking about, you know, that dynamic as well?

Yes. Joe, this is John. I think that's on everyone's mind. And given the volatility, just like Mike mentioned, we take our time to analyze each one of these enacted tariffs. It's a lot of detail and a lot of information to sift through. And so we'll remain agile, and we stay committed to affirming the full year guide that we just shared with you. That's the best way to think about it. It's anybody's guess on which way things go from here, but we'll remain agile as we have so far and remain committed to covering any costs at the OI and the EPS level.

That's great, John. If you could just sneak one more in just on non-res. Great to see the growth this quarter. You did call out that there was potentially a pull ahead in the fourth quarter, potentially I just am wondering, could you guys determine whether there was any kind of pull ahead in one queue as well, just from the fact that these tariffs were going into place and so maybe there were some orders that were placed? I'm just trying to understand how you felt about the growth that you saw this quarter and in the outlook going forward.

Yeah, Joe, let me wind the clock back. The Q4 comment was specific to residential, not non-res. And, you know, the dynamics there with the customer concentration on the residential side, and we watched their ordering behavior very closely. It was our own speculation that there was probably a mid single digit million pull ahead in Q4 on the resi side. Non-res, you know, is a book and ship business with pretty short lead times. We've been watching like hawks to see evidence of pull ahead. You know, the whole industry does typically an annual price increase right around the 1st of March. So do some people get some orders in before the price increase? Yeah, of course. That happens every single year. But we're watching very carefully on the non-res side, and we just don't see a lot of evidence for any large pull ahead at this point.

Okay, great. Thanks, guys.

The next question comes from Tim White from Baird. Please go ahead.

Yeah, everybody, good morning. Thanks for the time and the details. Maybe just kind of the first question, just on the institutional side, have you seen any sort of changes in how you know, certain verticals of an institutional, you know, call it healthcare, government, those types of areas have kind of changed CapEx priorities or, you know, kind of thought about, you know, kind of funding just given, you know, some of the, you know, commentary coming out of Washington in those areas?

Yeah, I think, Tim, it's important. It's a good question. And I think it's important to remember, you know, Doors, frames, locks, door hardware, this is late cycle business. Once a project starts, it tends to finish. And so I'd say those verticals, health care and education, have still been growing. They've been resilient. We still see that. And again, I think the late cycle nature of our business continues to support our outlook. If you look back to 2024, particularly for the education vertical, new issuances of municipal bonds was at a record high, very strong growth. Those bonds now take a couple of years, honestly, to work their way through shovel-ready projects and things. So I think those bonds tend to have a pretty long tail. And again, I think... We can't just react to every single headline that pops up day to day. And, again, I would highlight what we see in the non-res space right now. Again, the institutional verticals are resilient. The aftermarket is very resilient. And I'm proud of our performance in the aftermarket. I think we have been gaining some share there just with better performance and a better product portfolio. So that's what's all coming together from our view to reinforce the guide this year.

Okay. Okay. That's, that's helpful. Thanks a lot for that. And then just on the tariffs, you know, if you, if you would kind of look at your, your kind of China and, and I guess other country kind of sourcing, how, how would you think you frame up relative to your competitors? I'm just curious if you're kind of on the lower end, you know, relative to your peers, if you're kind of on the higher end in the middle, kind of, how would you kind of assess your relative kind of supply chain versus your competitors here in the U S?

Yeah, for sure. I don't know. I'm not the guy to speak to their supply chains. But I would say in general, what we see on the residential side is by and large, the industry imports. That's from a range of countries. We import from Mexico, vast majority under USMCA compliant products. We have been reducing our China exposure with the investment of the new plant in Corredero, Mexico that we've talked about probably for the last two years now. And so that's kind of automatically continuing to reduce China and build up a better supply chain there in Corredero. On the non-res side, I'd say our impression is our largest competitor probably has a footprint pretty close to ours and generally you make and source in region. Some of the smaller competitors on the non-res side, I could surmise they're a bit more import heavy than we are, but that's just a guess. I don't know for sure.

Okay. Sounds good. Thank you, guys, for the time.

Thanks, John.

The next question comes from Jeff Sprague from Vertical Research. Please go ahead.

Hey, thank you. Good morning, everyone. Hey, John. Hey, good morning, John. Not to make you reiterate what you said on the institutional markets, but just the comment about specifications. How good of a leading indicator have you seen that over time? You know, you seeing strong specifications, for example, might seem at odds to kind of the ABI and things of that nature. So maybe just a little bit more color on how you try to you know, sort out what the market signals really are here?

Yeah, it's a fair question, and there's a reason why we don't publicly disclose a KPI or anything around specifications because it's quite varied. Specifications on a large megaproject could be a couple of years before realized revenue. Specifications on a small project, renovation, something like that, could be months. And so it's, it's always a little bit different, but for us internally, it is a good indicator of capturing project business. And it is something that we, we do use to drive our own activity, uh, within the company. So, um, it's, it's helpful. Is it, um, a linear relationship that you can count on quarter to quarter? No, that's not the right way to look at it for us. It's just a general gauge of activity.

Uh, appreciate that. And then, um, Also understand you don't want to move the revenue target around with everything so fluid every day. But would it be reasonable to assume that you're really looking at sort of an upside revenue case, but maybe some pressure on margins, right? I don't know if your goal on tariffs is to offset dollar for dollar or at the margin rate, right? But if it's dollar neutral, it's margin negative. Again, maybe we're splitting hairs, but just wondering how you think about, you know, how the year might progress from a revenue versus margin standpoint.

Yeah, Jeff, thanks for that question. As we think about it, we offset it at the dollar basis, so at the OI and EPS level. So if there's substantial tariffs, that would be margin rate, potentially margin rate, impact negative tariffs. but it's the dollars that we're going to offset. That's consistent with what we said at year end, and we still feel that way. So your question was spot on. That's how we're thinking about it from a margin rate. You can do the tyranny of the math to come.

Yeah, no. Yeah, no, I get it. I think a lot of people forget that math, numerators and denominators. So I just wanted to be clear on that. And then just one other quick one, speaking of margin rates, Even taking out the $3 million from Mexico, I think that America's margin in Q1 is the best Q1 margin you've ever printed. I guess the mix is positive with ResiWeek and Electronics strong, but anything else you would say about the margin rate in the quarter, mix within mix or something else going on there that supported that level of margin?

Yeah, really pleased with the margin performance in Q1. And frankly, over the last couple of years, we've done a really good job of driving productivity in the business as well, which helps the margin performance. One item I will highlight for you is our non-residential business, as you know, is a more profitable product line than the non-res is more profitable than res. And so you have to consider that when you look at margin rates. Obviously, non-res growing, residential declining. So that's the one I'll call out for you.

Right. All right. Thank you.

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

Hi. Good morning. Clearly, a really good start to the year. I just want to understand what the framework is as you think about Q2 and expectation setting. I think you talked about maybe there's a little bit of a price-cost timing impact, but just from the demand side also, sounds like no real pull forward, really strong volumes in Americas in Q1. And so, is it really just a margin sensitivity? Just given, you know, strong beat in Q1, no raise at this point in the guide, any first half, second half framework would be helpful. Like, you know, is it sort of roughly 48% first half of the year on EPS and anything there just to kind of help level set on how things are pacing in the first half?

Yeah, thanks for the question, Joe. I would say, honestly, when you model us, and you've heard me say this before, get the full year first and then work on the quarters. I did call out earlier the concept of that monthish lag price cost. I think it's important for you to consider that. Absent that, we're not calling any pull ahead from Q2 into the first quarter. So I think the key thing for you to consider is that item I mentioned earlier. Get the full year and then consider that in your model. And then also the tax rate. We did have an unusual tax rate in Q1. So in my prepared remarks, you know, I mentioned about first half is similar to second half. That is different than normal for us. So when you model that, just kind of take that into consideration.

Got it. That's helpful. And then can you just spend a little bit of time on the go-to-market and distribution and what might be a little bit unique about kind of locks and contract hardware dealers? Because I think there's some attention on the degree to which there's pull forward or whether there's just stocking ahead of price increases. But how much of the business would generally be stock and flow nature versus this is spec in and the short cycle nature of it is just dependent on the timing of when the project meets the products, but it's not exactly... you know, stock and flow?

Yeah, Joe, it's a good question. And I think it's part of the secret sauce of Allegiant. If you look at our, and in my opinion, the industry's finest field sales and marketing team, You split those folks three to one, three folks working on end user demand generation through architectural design, through end user consulting on complex spaces, et cetera. And then that demand generation helps pull our products through the channel. We, and generally as an industry, we operate on short lead times. You know, this is a book and ship business. I would say that pull strategy makes it quite similar for the majority of our distribution partners. Like I mentioned earlier in the Q&A, watching very closely to see evidence of any pull ahead or any inventory builds, and on the non-res side, we're just not seeing that at this point. I'd say with our largest distribution partners on the non-res side, we do watch sell-through. Sell-through has been very healthy. And so at this point, just not seeing evidence of any large inventory build. But again, very volatile time. So premature to do anything different than we did on the outlook. And that's how we would see it. Book and ship business.

Got it. Thank you. The next question comes from Brett Lindsey from Mizuho. Please go ahead.

Hey, good morning, all. Good morning, Brett. Yeah, I wanted to come back just to pricing and trying to understand the timing and the magnitude here. Has all the price you need to offset the $80 million now been announced with this second April round of price, or should we expect more actions to ramp and feather through the balance of the year?

I would answer it this way, Brett. We will always announce to the channel first. And we made that announcement based on the tariffs that are in place today. I think that's the key clarifier. So anything that the president announced or the administration announced already in April, we've taken the actions. And that's in the marketplace now.

Got it. And then I guess just maybe the mechanics between list price and surcharge, you did flag the surcharge path as well. I guess, you know, what does the composition between those two pricing levers look like? And then I guess at what point do you just assume the tariffs are maybe structural and you begin to convert some of the surcharge to list over time? Just try to understand the mix there.

Yeah, that's fair. We did opt for surcharge rather than list price changes at this point. To your second question on when do we assume, well, we're not assuming. We're watching and monitoring the tariff environment. I think the amplitude of the volatility and the continual nature of the volatility just has us focused on remain agile, do our analysis, make sure we understand our exposures and our impact. and then work with our channel partners to mitigate that impact. That's what we've done so far. That's why we're confident to reiterate the guide today. And looking forward, I think that's the best way to think about us. We will remain agile and resilient.

All right, appreciate the insight.

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

Hi, good morning. Maybe wanted to focus first of all on the residential market in the Americas. And I guess two parts to that. One is what are you seeing in the replacement market demand right now? You know, leaving aside the pre-buy and hangover that had happened and leaving aside Greenfield, which is weak. What are you seeing kind of on the fundamentals and sell out in the replacement market? And also on market share in residential, I would think there's quite a good opportunity to take domestic share because of the struggles that a lot of the importing rivals will have. Is that something you're pushing your sales force to do, or it's more around the margins are lower, so you're kind of just happy with your share as is?

Okay, yeah, thanks for the question, Julian. I would say A year ago or nine months ago, we were very hopeful for a better outlook on U.S. residential, but with persistently high mortgage rates, affordability is still a challenge in the country, even though we know there is a housing shortage. There is that dynamic still there, but mortgage rates are still high. Tariff uncertainty and construction costs are a wild card right now. Resi, as we mentioned earlier in the prepared remarks, we expect to just kind of continue to remain soft. I'd say maybe bouncing along the bottom until there is a notable catalyst to change that. Our residential business is probably 70% aftermarket, 30% new build. I think that's round numbers we've shared for a while, and that I think still holds. In terms of other imports and cost advantages or disadvantages, I think it's really premature to put too much stock into that right now just because of the very volatile nature of the tariff environment we've been in. So time will tell on that. Where we've been focused, as you saw in the presentation, is on the electronic side where we feel we're an innovation leader. We are differentiated. We continue to bring differentiated product to market. and drive growth in electronics. And these recent two new products, new front door locks, I think you might even be a customer for one of them because they're very, very exciting, good innovation, good technology, premium products.

That's helpful. Thanks very much. And then as we think about the profit outlook, I think the price, productivity, net of inflation and investment, that sort of aggregate line in your profit bridge was around zero in the first quarter. And I think there was some consternation in Q4 when it was a headwind. So understand it's a lot of moving pieces there, particularly now with tariffs coming in. But should we assume that you can kind of keep that line sort of around zero for the balance of the year? Is that sort of the aspiration with the surcharges and all the rest of it?

Yeah, thanks for the question, Julian. That's exactly how we think about it, right? Price and productivity covering that inflation and investment, right? So think of it as neutral for the year. We had a challenge Q4. I addressed that on that call. but felt confident in the ability to get it back to the normal, you know, neutral that I just mentioned. You saw that in Q1. Expect that to be that for the full year. Quarter to quarter, it could ebb and flow like you saw Q4 last year. I also mentioned in Q2 the timing lag. But for the full year, think of it as a neutral number like you mentioned.

That's great. Thanks very much.

The next question comes from Chris Snyder from Morgan Stanley. Please go ahead.

Thank you. I wanted to just follow up, start with a quick one on the mechanics of the guide. So if I'm understanding right, the revenue guide does not assume any uplift for incremental or for price action or surcharges, I guess, related to the tariffs. But the operating profit guide does reflect that. those price actions.

Yeah, if you read the press release, that's explicitly stated in the release, Chris, so you have it correct.

Thank you. I guess when we've talked to people in the channel lately, we've heard about project paralysis on a lot of, I guess, probably be a new green field with just uncertainty around price and cost, hard to do quoting and bidding and things have slowed. You know, I guess, do you not think that that will impact your volumes this year? Or is it like you were saying earlier, you know, we're so late cycle that that would hit us? Or any maybe slowdown in new projects would hit us in the out years. Any color on that would be helpful. Thank you.

Yeah, very fair question. And certainly I'd say as interest rates rose in recent times, you did see some of that on the private finance market, private projects. might have gone through planning phase, might have gone through design with the architect, and then just press pause to wait for a bit more favorable financing environment. Late last year, we did talk about interest rates as a key swing factor. I think, as you mentioned, we hear evidence of a similar dynamic. So I'd say as... interest rates do come down as a more favorable investment environment comes about, it does feel like there's a lot of already designed, already planned projects that could go forward. We'll just have to wait and see what's the catalyst to get that environment a bit more favorable.

Thank you. I appreciate that.

Again, if you have a question, please press star, then 1. And our last question comes from Andrew Obin from Bank of America. Please go ahead.

Yes, good morning. Can you hear me?

Yes, yes.

Oh, good morning. Yeah, just to follow up on Chris's question, lots of consternation about potential recession a couple of weeks ago. These concerns seemingly have gone away. What are you guys seeing in terms of momentum uh in the channel uh and so far you know clearly you guys not calling for a recession uh you know what makes you confident uh in your outlook what are we seeing in april if you could give us some color there thank you appreciate the question andrew and i i'd say you know we don't guide quarters we're certainly not going to guide a month but um

If you looked at the progression of positive volume growth in the last few quarters of 2024, we exited 24 with good momentum in non-res. That momentum has continued thus far this year in non-res. And I think, again, it's a healthy aftermarket. It's a resilient institutional verticals. New products that Allegiant has brought to market contributing to the internal indicators that give us confidence in the four-year guide.

And maybe just to flip it a little bit, we were in Europe, and it seems a lot of optimism in Italy, actually, of all places. People talking about maybe a potential German recovery sometime in the second half. What are you seeing in Europe? What are you seeing in Chisa? what's the messaging from your German channel into the second half of the year? Thank you.

Yeah, great question, Andrew. Love talking about international because, again, that business unit continues to perform well in the face of kind of flattish markets. In Europe, I would say Germany with the political upheaval they had at the end of 2024 – slowed down pretty dramatically. I do feel there is more optimism now as the new coalition gets built, a little bit more conversation about investment in the country. We'll see how that plays out, but it does feel better than it did in Q4, but I think still premature for us to change anything. We're just going to reiterate the guide. Italy, Chisa, you specifically asked. I'm really proud of that team. They've done a lot of self-help work on their portfolio and their factories. have been gaining market share as a result, so new products hitting the market. Very proud of them. Cheese is performing well, so thanks for the call-out.

But no near-term improvement in terms of macro in Italy?

I think the best we can say, Andrew, is, again, just reiterating the full-year guide is how you ought to think about it.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to John Stone for any closing remarks.

Well, thanks, everyone, for the great Q&A. We look forward to connecting with you in New York at our Investor Day, where you will hear a little bit more about our long-term growth strategy. And I would just leave you with I'm very confident that Allegiant is a high-quality industrial company. We have an important mission served by great people. And in my opinion, there are few secular trends more important, particularly in times like today, and that's personal safety and security. And that's what we do. So come see us in May in New York or join us for our Q2 earnings call in July. Be safe, be healthy, everyone. Thanks for the time.

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