Good morning and welcome to the Allegiant fourth quarter 2024 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 note this event is being recorded. I would now like to turn the conference over to John Pokowinski, Vice President of Investor Relations. Please go ahead.

Thank you, Drew. Good morning, everyone. Thank you for joining us for Allegiant's fourth quarter 2024 earnings call. With me today are John Stone, President and Chief Executive Officer, and Mike Wagness, 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 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. Thanks for joining us. Q4 marked the end to another solid year of growth and strong execution by the entire Legion team. We've demonstrated the resilience of our business model, expanded our industry-leading margins, and accelerated capital deployment to invest in our business and return cash to shareholders. I'm pleased with the top-line growth in the fourth quarter and 2024 as a whole, especially in the Americas, where we've delivered mid-single-digit growth for the past three quarters as comparisons have normalized. Over the past year, we have primed the portfolio and the organization to grow faster, especially as our business continues to benefit from the stability of our institutional base. We accelerated capital deployment in 2024, returning cash to shareholders and growing our business with accretive tuck-in acquisitions. Our strong cash generation, balance sheet, and pipeline of opportunities continue to position us well for future capital deployment to create long-term value for our shareholders. We're encouraged by trends in our America's non-residential business exiting 2024 and we'll share some additional market perspectives when we discuss 2025 outlook later in the call. Please go to slide four. Let's take a look at capital allocation for the full year. Allegiant Mark 2024 with meaningful product launches that demonstrate our deep customer understanding, and the strength of our R&D effort and market-leading brands. Throughout the year, you heard us speak to a few of these. The Schlage XE360 Series, our next-generation commercial electronic lock family that supports the latest credential technologies across multifamily and commercial markets. Schlage's new smart lock integration with Airbnb, which was yet another industry first for our company. And the Schlage Indication Solutions, a best-in-class lock portfolio that allows users to more easily see the locked or unlocked status of a door specifically designed with K-12 school security in mind. Lastly, the von Dupren 70 series, a new product line that's leveraging more than a century of expertise in developing high-performance exit devices to meet the safe entry and egress needs of customers today. We're very proud of these and many others that you may have also heard about. Simon's Voss in Germany launched AX2Go, supporting mobile smartphone-based credentials across both iOS and Android phones. And notably in Q4, Allegiant became the first security solutions provider to support mobile credentials on Wear OS by Google smartwatches. Look for more announcements like these in 2025 as Allegiant continues to build on our legacy and invest for organic growth. Allegiant executed M&A, amounting to $137 million in 2024. This included five bolt-on acquisitions spanning our core markets. In Allegiant International, we added boss doors and door cuts to our portfolio, expanding how we go to market and expanding our electromechanical product portfolio. In the Americas, we added Krieger specialty products, Unicell architectural, and sauce door hardware, which increased the breadth of highly profitable specialty offerings in our non-residential portfolio. All of these are leveraging Allegiant's strengths, like spec writing capability and expertise, our manufacturing distribution scale, and strong customer relationships. We're very pleased with the accretive returns they bring to Allegiant. We continue to see opportunity to grow inorganically in 2025 and have entered the year with a very active pipeline. This was recently marked by our acquisition of the Nextdoor Company in the United States and the announcement of our intent to acquire Lamar in Australia. We'll share more on both of these bolt-on acquisitions in our Q1 call. Elysian continues to be a dividend-paying stock, and earlier this month we announced our 11th consecutive increase to our dividend. As we've shared before, you can expect our dividends to grow commensurate with earnings over the long term. Lastly, we made share repurchases in the year, amounting to approximately $220 million. dollars. We remain committed to balanced, consistent capital allocation with a clear priority of investing for growth. We have an active pipeline that complements our core mechanical and electronics portfolio and leverages our channel strength. I look forward to updating you as we progress through the year. Mike will now walk you through fourth 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 Q4 results reflect solid performance from the Allegiant team, delivering another quarter of margin expansion with mid-single-digit top-line growth. Revenue for the fourth quarter was $945.6 million, an increase of 5.4 percent compared to 2023. Organic revenue increased 3.5 percent in the quarter as a result of favorable price and volume. We saw strength within our America segment, with international organic revenue down slightly in the quarter. Q4 adjusted operating margin increased by 10 basis points, driven primarily by volume leverage and favorable mix. Price and productivity net of inflation and investment was a slight headwind in Q4, but strong for the full year. I am pleased with the 70 basis points of operating margin expansion for the full year 2024. Adjusted earnings per share of $1.86 increased $0.18, or 10.7%, versus the prior year. Operational performance, favorable tax, and accretive capital deployment more than offset a slight headwind from interest another. Finally, full year 2024 available cash flow was $582.9 million, which was a 12.9% increase versus last year. We continue to effectively manage working capital and generate strong cash flow. I'll 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 3.5 percent in the quarter which included volume growth of 2.9 percent and price realization of six tenths of a percent price realization stepped down about a point in the fourth quarter versus q3 largely due to timing of rebate accruals in the america's business compared to prior year for the full year the enterprise had solid price realization of 2.4 percent, and as we think about 2025, we expect continued price realization. Acquisitions drove two points of growth in the quarter, and currency was a slight headwind, bringing total reported growth to 5.4 percent. Please go to slide number seven. Our America segment delivered strong operating results in Q4. Revenue of $750 million was up 6.4 percent on a reported basis and up 4.6 percent on an organic basis. Organic growth included both favorable price and volume in the quarter. Reported revenue includes 1.9 percent growth from acquisitions and a slight currency headwind. Our residential business was up high single digits in the quarter. The quarter was stronger than expected as some of our residential customers pulled in purchases ahead of inflation and tariff uncertainty. We believe underlying residential markets likely grew more in line with the previous couple of quarters. As a result, Q4 revenue was benefited by approximately mid-single-digit millions of dollars. Our non-residential business increased mid-single digits organically in the quarter as institutional end markets remained stable. We did not have pull ahead within our non-residential customers. Electronics revenue was up low single digits compared to Q4 last year. As we discussed on prior calls, electronic comparisons in recent years have reflected the timing of supply chain disruptions in prior years. America's adjusted operating income of $205.1 million increased 8.9% versus the prior year period. Adjusted operating margin was up 70 basis points as a result of favorable volume leverage and accretive acquisitions. Price and productivity, net of inflation and investments was a slight headwind in Q4, but strong for the full year. Please go to slide number eight. Our international segment had a tough fourth quarter driven by a challenging macroeconomic environment, particularly in Germany, which is our largest market internationally. Revenue of $195.6 billion was up 1.5% on a reported basis and down seven-tenths of a percent organically. Acquisitions were a tailwind this quarter, positively impacted reported revenue by 2.4 percent. Currency was a slight headwind in the quarter versus prior year. China was also a headwind to international organic growth. We took additional steps in the quarter to exit our already small operations there. In total, we had approximately $5 million of revenue in full year 2024, which represents a slight headwind to 2025 organic growth. International adjusted operating income of $30.9 million decreased 4.3% versus the prior year period. Adjusted operating margin for the quarter decreased 100 basis points. While price and productivity exceeded inflation and investments, margin declines were due to lower volumes. Please go to slide 9, and I will provide an overview of our cash flow and balance sheet. 2024 available cash flow came in at approximately $583 million, up $66.5 million versus the prior year. This increase is driven by higher earnings and improvements in working capital, partially offset by higher capital expenditures. Working capital has a percent of revenue improved as we continue to focus on working capital efficiency to convert earnings to cash. We saw improvements in both inventory turns and DSO this year, which drove the improvement. Finally, our balance sheet remains strong. 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. Last quarter, we provided some initial market commentary for 2025. Today, I'd like to focus specifically on our institutional markets to provide more perspective on what's one of the main drivers of our business. Allegiant holds an enviable position in the industry here with strength in our sales footprint, our specification capabilities, and our relationships with channel partners. We win business by solving complex problems for end users and working closely with architects with whom we've had decades-long relationships. As we start off 2025, we continue to see indications of stable growth in our key market segments. A key source of funding, as indicated by new municipal bond issuance, remains healthy following a very strong 2024, and you can expect these bonds will be spent over the next several years. Dodge institutional indicators also support volume growth as square-footed starts have been in positive territory. The institutional markets are still growing, partially offset by known pockets of softness like commercial office and multifamily. Please go to slide 11, and let's walk through our outlook for 2025. Total Allegiant revenue growth to be 1% to 3%, and organic revenue growth to be 1.5% to 3.5%. includes approximately one point of acquisitions, which is largely carryover from 2024, and approximately one and a half points of headwind from foreign currency, primarily in Allegiant International. In the Americas, we expect organic revenue growth to be low to mid-single digits, with growth coming from both our non-residential and residential businesses. For Allegiant International, we anticipate that organic revenue will remain relatively flat. As Mike mentioned earlier, macroeconomic conditions in our international markets, particularly in Germany, continue to be weak. We're estimating an adjusted earnings per share outlook in the range of $7.65 to $7.85. This represents growth of approximately 1.5% to 4% over the prior year period, inclusive of a significant headwind from tax rate, which is estimated to be 17.5% in 2025 at the midpoint. You can find more details in the appendix. Lastly, our outlook on available cash flow is 85% to 90% of adjusted net income. Consistent and disciplined approach to capital deployment in this outlook assumes $86.7 million in average diluted shares outstanding, inclusive of anticipated share repurchases in 2025. Allegiant's M&A pipeline is active, and we anticipate allocating additional capital to acquisitions this year. However, this outlook does not account for any further acquisitions beyond the recent announcements we've shared on Nextdoor Company and Lamar. One more item of interest that I'd like to cover, given the evolving headlines in recent weeks, is tariffs. Our guidance includes the currently enacted tariffs on imports from China, and at the enterprise level, we import less than 5% of our cost of goods sold from China. We're taking a combination of pricing actions and sharing those costs with our suppliers to minimize the impact. Our guidance does not include potential tariffs that may be enacted on Mexico. We source approximately 20 to 25 percent of cost of goods sold from Mexico primarily related to our residential business in the Americas. Should tariffs go into effect, we anticipate taking pricing actions to cover the higher costs and expect to offset the dollar impact at the operating income and earnings per share level. Please go to slide 12. In summary, Allegiant delivered a record year in 2024, a year marked by consistent execution, solid margin expansion, and balanced capital deployment. These results are a testament to our team of highly engaged experts who, together with our distribution and channel partners solve complex problems for end-user customers and work tirelessly to make the world safer. We expect 2025 will be another opportunity to showcase the strength of this team. And with the consistency and discipline we have in investing for our future, Allegiant is primed for more growth. With that, we'll be happy to take your questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star and then two. If you are using a handset, please pick up your handset before pressing the keys. At this time, we will pause to assemble our roster. Our first question today will come from Jeff Sprague of Vertical Research. Please Scott, go ahead.

Thank you. Good morning, everyone. And I guess the old adage, patience is a virtue, still holds. I wonder if we could just address first just kind of the price, cost, productivity, investment equation. I think that's the first time that's flipped negative, maybe since you've reported it. But can you give us a little color on maybe just kind of headline price costs or maybe what was going on in investment spending in the quarter to drive that change?

Yeah. Hey, Jeff, can you hear me?

I got you loud and clear, Mike. Thanks.

Perfect. Sorry about that. So if you think about pricing in the quarter, it did step down, like we shared in the prepared remarks, but that was a function of timing of our rebate accruals. It wasn't core pricing driven. Core pricing was still decent. If you remember in 2023, our volume was more first half loaded, right? And so as we got through the end of 23, we took down those rebate of reserves. In 24, it was actually a positive development. Our volume accelerated in the back half of the year, and especially Q4, you saw the volume. So we had to make some adjustments to those accruals. I think the key takeaway for me is pricing was still decent in the Americas, of course, led by non-residential, which was strong. And as we think about 2025, continue to expect to see pricing and productivity in excess of inflation and investment on a dollar basis. So that equation that you're comfortable for the full year, we expect that dynamic to continue next year.

Great. Thanks for that. And, Jonathan, thanks for the color on the terrace, obviously, on everyone's mind. I guess one other element is just the sourcing of steel or other metals, steel and aluminum. anything you could add there on, you know, where you're sourcing for your U.S. plants and if there's any particular risk that you've identified there?

Yeah, that's a good question, Jeff, on these steel and aluminum derivative tariffs. Initial look through that, the impact is very small, doesn't even have two commas in it. We've still got more analysis to do on that, But I'd say our non-residential business is largely sourced and produced in the United States. So we don't anticipate a big impact from those additional tariffs on steel and aluminum.

Okay, great. Thanks. I'll leave it there. Much appreciated.

Your next question today will come from Julian Mitchell of Barclays. Please go ahead.

Hi, good morning. um maybe just the first question around the um adjusted sort of operating margin that's embedded in the guide so we had pretty good margin expansion most of last year um it sort of dried up a bit in the fourth quarter partly because of that price dynamic that you've discussed um for the full year 25 are we sort of assuming it's a few tens of basis points of margin expansion that's in the guide? And is there any kind of acceleration in there year on year in the back half versus the first half? Thank you.

Yeah, thanks for the question, Julian. If you look at the guide, right, we give EPS all the below the line items. And then as you pick revenue, you can back into the margin expansion. We do expect to have margin expansion in 2025. And as you think about the framework that we gave previously, the last two years, 23, 24, extremely strong, 230 basis points of margin expansion. If you think about 2025, that third year in that framework, I'd expect to be at the lower end of that framework we previously gave of the 50 to 100 basis points. And when you back into the implied guide, you can kind of calculate that. With respect to timing, I would just, you know, share 2025 will look similar to 2024 from a normal seasonality as we progress throughout the year.

That's helpful. Thank you. And then just within the America's organic sales guidance for 2025. Is it sort of embedding, you know, residential up kind of low single digits, non-residential organic sales up mid single digits, and then electronics, you know, is that getting back on track for kind of decent growth in 25? I think it was down low single in 24.

Yeah, we would expect non-residential to be the stronger of the two, as you would think from our prepared remarks. We don't give exact figures, resi versus non-resi, but you could think the non-residential being the stronger of the two. And then for electronics, I think we're back to a normal comparison. So you can expect to see electronics growth outpace the mechanical like we've shown in the past. So you could see electronics growth certainly be better than the overall America's growth.

Great. Thank you.

Thanks.

Our next question today will come from Joe O'Day of Wells Fargo. Please go ahead.

Thanks for taking my questions. On the margin commentary and what's implied in roughly 50 bps of year-over-year margin expansion, can you just touch on that kind of across the organization? Should we think about both segments seeing year-over-year margin expansion, maybe America's leading that, and then a little bit of corporate leverage on top of that?

Yeah, sure. Thanks for the question, Joe. Obviously, if you think about Allegiant, the enterprise can't get there without the Americas. So we expect the Americas to have stronger margin expansion. If you think about international, though, we do expect to expand margins there this year. And then from a corporate, every year we have just like a normal increase of a few percent for regular inflation. So you could take the actuals for the current 2024, so the past 24, and just increase it by a few percent for inflation.

Got it. And then just in terms of the international growth guidance in 2025, can you touch on the China component to that and what is embedded within that in terms of any headwind as it relates to the exit there and timing around being done with those actions?

I'll just share, like we had in the prepared remarks, the revenue was only $5 million in 2024. So as you think about a headwind for 25, it kind of sizes up that it's small.

Got it. Thanks very much.

Our next question today will come from Tim Weiss of Baird. Please go ahead.

Hey, guys. Good morning. Hey, maybe just on the non-res business, you know, it sounded like you in your prepare remarks were a little bit more confident or saw some things in the quarter that, you know, you thought developed positively. So maybe just talk a little bit about some of the quoting activity that you're seeing. And I guess if you could kind of thread that into, you know, how do you get to kind of the upper end of the America's Guide, you know, for 2025 on the revenue side?

Yeah, thanks for the question, Tim. I'd say the non-res side of the business in the Americas did accelerate in 2024, a bit better than we had originally contemplated. Volumes picked up a little bit, like Mike talked about, and that's carried on into 2025. That momentum has carried on. I think our spec activity supports that view. Other indicators, like we showed on Dodge starts on the institutional side, the earliest of the early indicators, Dodge momentum has been reading a little bit favorable, So just the project work that we're seeing on the commercial side, the sell-through that our channel partners are sharing with us, the volume outlook just feels a bit better than it has in recent months. So it's a good end to 2024 and a good start to 2025 on the commercial side of the business.

And I guess what would you need to see? Would it just be like this needs to continue, you know, kind of through the year to get to the upper end? I'm just trying to kind of gauge what you'd kind of think about and kind of guardrails in terms of, you know, what gets you to kind of the lower or the higher end of that revenue guide in America.

Yeah, you know, Tim, we give an outlook there. It's a range. Clearly, we're only, you know, a month into the year, right? So let's see how this year progresses before we think about changing to upper end. I'd share with you on the residential side. we obviously we think that will not be as strong as the non-residential side so obviously if that is better than we anticipate that could help but overall that core institutional part of the business has remained stable for quite some time on the non-res side and we we expect that to continue okay okay that's helpful and then it sounds like you have a pretty uh pretty healthy pipeline, you know, in terms of M&A deals.

And I guess if you just kind of look through the filings, I mean, it does seem like the M&A that you've done, you know, kind of in 2024 is accretive to margins. Is that a similar makeup to, I guess, what's in the pipeline? Or is there a little bit more variance within the margin profile of potential deals?

I think, appreciate the question, And, Tim, I think, you know, we can't speculate on deals we haven't done yet, but I would say the M&A environment is good. It's healthy. I think we have a lot of interesting targets, very high-quality targets in the pipeline today, working hard on those. Will every single one be accretive to industry-leading margin business like Allegiant? You know, maybe not, but I think, you know, don't lose sight of we will be disciplined on our acquisitions. But I do see, you know, if I was ended 2024 happy with our progress on M&A, I could see myself ending 25 very happy on M&A.

Okay. Sounds great. Thanks a lot for the time.

Thank you.

And our next question today will come from Brett Lindsey of Mizuho. Please go ahead.

Hi, good morning. Thank you. Hey, I want to come back to the organic sales outlook, the one and a half to three and a half, and really the non-res side of that. How are you thinking about commercial versus institutional? Do you see growth in both those areas? And then is there anything to think about in terms of the phasing of that growth, first half or second half? Is it fairly level loaded year over year, or is there some front end or back end waiting?

Yeah, I'll address the phasing, and then John can talk to the vertical markets. With respect to the phasing, kind of look to 24 as a more normal year. And so I wouldn't say that this is a back-end loaded year vis-a-vis what we just put on the board for 2024.

Yeah, I think on the non-res side, as we showed, a bit of a focus on the institutional verticals, education and health care, supported by very strong issuance of muni bonds in 2024. That segment is still growing. That is where Allegiance Business is a bit more heavily weighted, so that's quite favorable for us in the commercial verticals. Still a mixed bag, I would say. Data centers, as everyone knows, is growing very rapidly. Allegiant has a very good and very rapidly growing business there, supported by rapidly growing specification activity. On multifamily, obviously rather soft on the new construction side. On commercial office, major metro areas, again, this is mature, bad news. Still a bit soft, but, you know, we're encouraged when we hear return-to-office mandates and things like this, so there are reasons to start to think about flirting with a bottom on those segments, and we'll just have to see, as Mike said, we'll have to see as the year progresses how those other verticals start to shape up.

Okay, great. And then just to follow up on the tariffs, and this is specific to Mexico, you talked about some of the pricing mitigation actions. I'm just curious, what would the mechanics of price look like? Would these be normal list prices, or would they be surcharges, any color in the nature of that?

So I think we would have to evaluate once something gets implemented, Brett. I mean, it's difficult to speculate on the unknown and just give you some hypotheticals. So I would just summarize it with, you know, we would see ourselves implementing pricing actions. There could be a mix of pricing actions to be able to offset the dollar impact on the operating income and the earning per share line. I think that's the best we can give you at this point because, again, it's just hypothetical at this point.

Appreciate the detail.

We have just one final question in queue, and that question will come from Chris Snyder of Morgan Stanley. Please go ahead.

Thank you. I wanted to ask about the Q4 tariff pull forward. I think you said mid-single-digit millions for America's Resi, if I heard that right. So maybe, like, 2% to 3% kind of tailing in the quarter, if I'm math right. I guess the question, one, how do you size that? You know, how can you kind of pinpoint that number? And then the second is, like, is the expectation that this tariff pre-buy continues into Q1? You know, are you seeing that here, you know, kind of halfway through the quarter?

Thanks for the question, Chris. You know, if you think about our residential business, we grew at the high single digits, and that was, frankly, more than you would expect based on underlying market demand. So our best estimate is, hey, there's about, you know, mid-single-digit millions. So if you back that out, you're looking at maybe a low to mid-type growth for resi. It's not precise. It's an estimate that we have, knowing that our channel partners in the residential business tend to be pretty large companies who place larger size orders because it's more concentrated than on the non-res side. I think for me the more important thing is we didn't see this in non-residential where John talked about how we ended strong. With respect to Q1, I would expect that mid-single-digit millions to be a headwind to Resi. but if you think about Total Americas, that's not very big. So when you model it, just know that that's coming from Q1 into the fourth quarter of 24, but I wouldn't expect further pull-ad.

Thank you. I appreciate that. And then also appreciate all the color and the communication around the institutional business. I guess anything maybe that you could flag around the government exposure within institutional? I know education and health care are the largest verticals, but, you know, obviously, you know, just a lot of uncertainty out there on government, you know, buildings with headlines of layoffs, et cetera.

Yeah, it's a timely question and a fair one. I would say the majority of the project work that we see out there is coming from local funding sources, right, municipal bonds, local property taxes. That's what funds K-12 schools, as an example, rather than federal monies out of Washington. So it's fair to ask the question. I would just say the majority of our end-user customers are a little bit insulated from that because it's more local funding sources, property taxes, muni bonds, things like that.

Thank you.

At this time, we will conclude the question and answer session. I'd like to turn the conference back over to John Stone, President and CEO, for any closing remarks.

So thanks, everyone, again, for joining the call. I am very proud of the year that the Allegiant team and our distribution channel partners put on the board for 2024 and very excited to see us navigate our way through what should be a very favorable 2025.

The conference has now concluded. We thank you for attending today's presentation, and you may now disconnect.