Good day, everyone. My name is Stefan, and I'll be your conference operator today. At this time, I'd like to welcome you to the Legion second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, and if you've joined via the webinar, please use the raised hand icon, which can be found at the bottom of your webinar application. At this time, I'd like to turn the call over to Josh Pokowinski, Vice President of Investor Relations.

Thank you, Stephan. Good morning, everyone. Thank you for joining us for Allegion's second quarter 2026 earnings call. With me today are John Stone, President and Chief Executive Officer, and Mike Wagnis, Senior Vice President and Chief Financial Officer of Allegion. Our earnings released, 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 thanks for joining us second quarter results were driven by strong organic growth in the americas and we see continued momentum in non-residential indicators our specification activity has been robust for several quarters and includes the breadth of our core institutional markets cyclical improvement in commercial verticals like office and multi-family and strong growth and data center which is still small compared to some of our legacy markets but will continue to gain relevance as that installed base grows and fuels aftermarket over time i'm also pleased with the return to america's margin expansion in our international segment we made progress on the erp challenges experienced in the first quarter consistent with our expectations we saw strong sequential margin improvement and expect to build on that in the second half of the year however demand is weaker in several of our European markets, including Germany, which is our largest market, and we have taken additional restructuring actions in response. With respect to our full year, we're raising our reported revenue outlook to 7.5% to 8.5% and our outlook for organic revenue growth to 3.5% to 4.5% based on stronger expected demand in the Americas, partially offset by weaker international demand. We are raising our adjusted EPS outlook to $8.85 to $9. I'll provide additional details on this later in the call. Please go to slide four. Let's take a look at capital allocation starting with our organic investments and ongoing demand trend for electronics. Higher education offers a clear example of continued secular growth in electronics. As demand for mobile technology increases on college campuses, these customers are moving from plastic cards and mechanical keys to contactless mobile credentials provided and managed by Allegion. This also drives large-scale hardware modernization. In a recent example from our team, two flagship university deployments turned into multi-million dollar opportunities for our company, stemming from thousands of Allegion reader and lock upgrades paired with system-wide Allegion credential standardization. we also see off-campus housing and property managers adopting the same approach extending secure seamless access from the campuses where students learn into the communities where they live and connect these upgrades deliver real benefits simpler credential management and updates lower installation costs faster integration and improved security and convenience for the end user as mobile credential adoption spreads across core institutional markets our organic investments positioned Allegiant to capture these hardware upgrade cycles, driving deeper customer loyalty and long-term electronics growth and shareholder value. Turning to M&A, we spent $70 million in acquisitions in the first quarter and did not complete any acquisitions in the second quarter. We continue to cultivate a pipeline of opportunities that complement our portfolio. Allegiant paid $47 million in dividends and we repurchased $120 million of Allegiant shares in the second quarter. And as we've said in the past, you can expect Allegiant to be balanced, disciplined, and consistent with capital deployment, oriented towards profitable growth and driving long-term returns for shareholders. At current share price levels, we do see attractive valuation in our shares and expect to remain active in the second half. However, consistent with past practice, our outlook does not include additional share repurchase. Mike will now walk you through second quarter financial results.

Thanks, John, and good morning, everyone. thank you for joining today's call please go to slide number five revenue for the second quarter was approximately 1.2 billion dollars an increase of 12.7 percent compared to last year organic revenue increased 6.9 percent in the quarter driven by strength in our america segment the enterprise organic revenue increase was driven by both price realization and volume q2 adjusted operating margin was 24.2 percent up 50 basis points compared to last year price and productivity net of inflation and investment and inclusive of transactional fx was favorable by 11.8 million dollars and was a 30 basis point tailwind to margin rate buying leverage was also a tailwind to margin rate in the quarter this favorability was partially offset by acquisitions which were a 30 basis point headwind to margins i'll provide more details on revenue and margins within each of the regions adjusted earnings per share of two dollars and forty cents increased 36 cents or 17.6 percent versus the prior year operating income inclusive of acquisitions drove the majority of the year over year eps growth with a slight tailwind from tax and share count partially offset by interest another finally year-to-date available cash flow was 260.8 million down 5.3 percent from the prior year i'll provide more details on cash flow in the balance sheet a little later in the presentation please go to slide number six our america segment delivered revenue of 918.6 million which was up 11.8% on a reported basis and up 8.9% on an organic basis. Our non-residential business increased high single digits organically, driven by price and volume growth. Demand for our non-res products remains healthy, and as John mentioned earlier, spec activity continues to be strong. Our residential business also grew high single digits, driven by both price and volume. resi growth in q2 was particularly strong in electronics which can fluctuate quarter to quarter electronics revenue for the segment was up low teens for the quarter as both res and non-res were strong on a year-to-date basis electronics grew high single digits consistent with our long-term expectations in addition acquisitions contributed 2.9 points of growth in the quarter america's adjusted operating income of 276.4 million increased 12.5 percent versus the prior year adjusted operating margins were up 20 basis points in the quarter price and productivity net of inflation and investment and inclusive of transactional effects was favorable by 10.8 million dollars and was a 10 basis point tailwind to margins the transactional foreign currency headwind of 2 million related to the prior year benefit that we disclosed in q2 last year volume leverage was a tailwind to margin rates and acquisitions were a 40 basis point headwind as expected please go to slide number seven our international segment delivered revenue of 232.9 million which was up 16.2 percent on a reported basis but down 1.2 organically the organic revenue decline was the result of weaker demand in some of our markets including Germany, as John discussed earlier. Net acquisitions contributed 14.3% to segment revenue. Currency was also a tailwind, positively impacting reported revenue by 3.1%. International adjusted operating income of $28.8 million increased 9.9% versus the prior year. Adjusted operating margin for the quarter decreased 70 basis points. price and productivity net of inflation and investment was 120 basis point headwind to margin rate in the quarter volume de-leverage was also a headwind to margins these declines were partially offset by an 80 basis point tailwind from acquisitions margins did increase 440 basis points sequentially as the company worked to improve production rates following the ERP disruptions experienced in Q1. Please go to slide eight, and I will provide an overview of our cash flow and balance sheet. Year-to-date available cash flow was $260.8 million, down 5.3% versus the prior year. The cash flow decrease was primarily driven by timing of sales, which were stronger later in the quarter, resulting in higher receivable balances at quarter end. For 2026, we still anticipate our ACF conversion will be approximately 85 to 95 percent of adjusted net income next working capital as a percent of revenue increased in the second quarter due in part to acquired working capital as well as higher receivables just mentioned finally our balance sheet remains healthy with net debt to adjusted EBITDA at 1.6 times I will now hand the call back over to John thanks Mike please go to Slide 9.

Midway through the year, we are raising our organic revenue growth outlook to 3.5% to 4.5% and adjusted earnings per share outlook to $8.85 to $9. We're raising our reported revenue outlook to 7.5% to 8.5% based on changes to the organic growth range. You can find more details on our outlook in the appendix. In the Americas, we're raising our organic assumption to the higher end of mid-single digits, reflecting pricing associated with increased inflation as well as a healthier demand environment, primarily in non-res. We announced pricing actions in the quarter to cover the higher inflation we were experiencing and will continue to monitor the tariff and input cost environment to cover additional inflationary pressures if needed. As we said in the first quarter, we expect America's margin expansion in the second half. Our outlook does not include potential iepa refunds due to uncertainty on future refund timing and as we prioritize communicating with our customers first we would not expect any potential iepa refund to have a material impact on eps for international we expect to catch up on production impacts from the erp implementation during the remainder of the year and while we expect better revenue and margin performance in the second half weak market demand in europe particularly germany supports reducing our full-year outlook to a low single-digit organic decline. We're also truing up inorganic assumptions around FX and a modest reduction to M&A contribution as those businesses faced weaker markets this year as well. In total for 2026, we expect to deliver high single-digit to low double-digit EPS growth in line with our long-term earnings framework. Consistent with prior practice, the outlook does not include the benefit of future capital deployment, and as a result, the outlook assumes a share count of 85.9 million shares. Please go to slide 10. In summary, Allegiant delivered double-digit revenue growth, high teens adjusted earnings per share growth, and returned capital to shareholders. We see momentum building in our largest market, which gives us confidence in our organic growth potential over the next several years.

The Allegiant team expects to continue delivering on our commitments and driving value for shareholders and with that we'll take your questions we will now begin the q a session for today's session we'll be utilizing the raised hand feature if you would like to ask a question simply click on the raised hand button at the bottom of your screen once you've been called upon please unmute yourself and begin to ask your question you'll be able to ask one question and one follow-up question thank you we'll pause for a moment to allow the queue to form our first question will come from tim weiss from robert w bard and company please unmute your line and go ahead

hey guys uh good uh good morning nice uh nice job can you hear me just want to make sure i figure this whole tech thing out um okay great um yeah thanks so i i guess maybe just first question i guess you know particularly on the on the volumes in north america i mean it it seems like Like the quarter itself was better from a volume perspective for you guys. I'm just kind of curious what was better relative to your expectations. And what is your expectation for America's volume in the second half of the year?

Yeah, Tim, certainly we had a real strong second quarter from a volume in total revenue. The quarter itself was as strong as I can remember in some time. uh there was strength across both res and non-res uh res demand has been really solid and we feel uh will continue to have strong demand patterns moving forward when you think of 26 and 27 residential um certainly stronger than we expected you know high single digit at the higher end of that obviously with the close to 9% organic, that was a little stronger. That was driven by electronics. The one item I would note for Allegiant here in the second quarter in the Americas, we did put a price increase out in the market at the end of May. That does result in customers ordering a little in advance of that. So that led to the stronger June. You could have seen a little pull forward as you think of q3 into q2 but not much i mean underlying demand is in the high singles when you think about the second quarter maybe just not as high as nine for the segment but overall really good demand and as you think moving forward non-res feel real good uh in the case of residential encouraged by the quarter we just had, I would say the outlook doesn't assume that level of performance moving forward. I think we're a little prudent to not take one quarter and then extrapolate that as a trend moving forward. So I think there's more modest assumptions in residential in the outlook, although feel good that great to see a residential business growing as strongly as it did in the second quarter.

Okay. Okay. That's helpful. And then I guess maybe just stepping back, is there any way to put numbers or any sort of, you know, kind of color or trend around what you're seeing from like a spec quoting activity and how that's kind of tracked the past three to four quarters? I'm just trying to get a better kind of visual or understanding of how that, you know, specifically that non-res spec activity has changed over the last three to four quarters and, you know, what that might be, you know, what that might mean for volumes as we think about, you know, 2027 here.

Yeah, Tim, this is John. It's a good question. And I think certainly you picked up on the commentary from Q1 where we said spec activity was strong to even very strong. That strength, that momentum has continued through second quarter. It's as strong as I've seen since I joined the company. And we're very encouraged by it. And I think certainly we feel it supports our outlook for the current year. And with specs generally indicating or being a good indication of project work and revenue in the next 12 to 18 months, as we said, we feel that this lays a good foundation for organic growth and non-res for the next couple of years. We don't release specific numbers around spec. I think it's not prudent to do that because the line of sight to revenue is always a little lumpy. So better just to let you know, like we said in the prepared remarks, we see broad-based strength across the core institutional verticals. We do see cyclical recovery and commercial verticals. AIA consensus came out this week that indicates some acceleration in the commercial space into 2027. So there's more signal than noise at this point for what feels like improving non-res demand.

Appreciate the color. Thanks, guys. Good luck.

Thank you. Our next question will come from Alexander Virgo with ISI Evercore. Please unmute your line and go ahead.

Yeah, thanks very much. Good morning. Hopefully you can hear me. Yeah, morning. Good morning. Thank you. I wondered if you could talk a little bit about Europe and the evolution of demand there. I think one of your main competitors last week actually reported accelerating growth in Europe, albeit low, slow. So I just wondered if you could give us a little bit of comment there around some of the drivers of the difference in performance and perhaps a bit of color around that deceleration or deterioration that you called out, especially in Germany.

Yeah, very fair question and something we've been watching pretty closely. I think when you look at our exposure in Europe, primarily southern Europe and overweighted in Germany, if you look at Germany, GDP growth forecasts sequentially been taking that down with every update in the last six or nine months. And we're feeling that, you know, I think confident in the businesses there. They're good businesses. Our electronics businesses in Europe are very strong. Great margins, been good, good growth. The macro backdrop in Germany has just been worsening. And so that does have an outsized impact on us in our mechanical businesses, largely exposed to southern Europe and countries like Italy and Spain have been hanging in there consistent with our expectations. It's not great, like you say. It's not huge, but hanging in with expectations, it's just been the sequential decline in demand in Germany that's had a bit of an outsized impact on us.

Okay, that's really helpful. Thank you. And just as a kind of extension of that, I guess, the pricing side of things and the pricing that you've obviously been able to push through in the Americas is encouraging to see. I'm guessing that the weakness in the broader market in international makes pricing a little bit more difficult. So I just wondered if you could just maybe talk a little bit about the second half and how we might think about that. Thank you.

Yeah, certainly. If you think about our business, our pricing ability in North America, particularly non-residential, is our strongest across the company. I would expect, though, to see positive pricing. And as we talked about in the prepared remarks, we're also really focused on driving cost actions. So as you think about the margin performance for the international business, you should see expansion in the second half of margins. And that would be a combination of pricing, but as well as restructuring and cost activity to drive better margin performance.

Brilliant. Thank you very much.

Thank you. Our next question will come from Rafe Jadrasich with Bank of America. Please unmute your line and ask your question.

Hi. Good morning. Thanks for taking my questions. Good morning. morning just to start uh can you just talk a little bit um about the obviously the acceleration on uh america's residential like how do you think about kind of quantifying the pre-buy relative to the sell through right there and um just how do we think about potentially the cadence as we go through the the back half of the year yeah if you look at our performance in the second quarter for res really strong electronics and that's driven by consumers and retail channel and point-of-sale was good so inventory

levels at retailers are at normal levels right so this is not a big stocking order underlying demand was strong in the quarter in the first question I try to you know address this uh this is one quarter where we saw this super pleased i think the activity is getting was stronger in the quarter but the outlook doesn't assume that just yet right we want to see a few more quarters of positivity in addition just be cognizant as you think about the prior year comp q3 last year was particularly strong so as you think about resi as we progress q3 last year was strong that's a tougher comp okay that that's very helpful and

then um in terms of the input cost environment can you just talk about how that um evolved maybe over the last three months or so obviously there's a lot of puts and takes with uh 232 and steel prices i think last time you were talking about maybe a 30 basis point margin rate headwind but dollar neutral one percent of revenue in terms of the the the um input cost pressure like is that still the case or uh has that shifted at all yeah i would say as we think about our business tariff and inflation right tariff is a form of inflation and what we're going to do is we're going to manage

those inputs we're going to drive pricing and productivity such that we're going to cover the inflation in the investments uh what you saw in the second quarter is we're back to expanding margins and covering obviously the the cost uh basis q1 a little pressure in the americas q2 back to expansionary margins from ppii i do expect for the full year we will be neutral to slightly positive on PPII in the Americas, that would be obviously expansionary in the back half. And then finally, as you think about the quarters, just take a look at the prior year comps as well.

I mentioned earlier about Q3, but in general, think of it as all the costs that we know about are in the outlook as inflation, and we've taken the necessary pricing actions to ensure that we can cover it great thank you thank you our next question will come from jeffrey sprague with vrp please unmute your line and ask your question hey good morning everyone um hey john i just wondered if you could uh shed a little more light on sort of the nature and scope of the restructuring that you're doing in europe and is that uh is everything you plan to do in flight there and maybe some you know some color on the savings or expected savings on the other side of the actions.

Yeah, Jeff, I'll start and ask Mike to chime in a little bit too. With regards to the restructurings and the cost actions we took, a couple of different flavors there. Some of it was capturing acquisition cost synergies from acquisitions we made a year ago. Some of it though, admittedly, was just in response to softer demand environments that have persisted for a little bit and just reducing the overall cost structure in a couple of those segments. In terms of how to think about it from a more quantified perspective, let me ask Mike just to add in a couple of comments.

Yeah, so Jeff, if you think about the benefit, think of it as 10 million annually of cost benefit. We'll get the full run rate in Q4. The actions though have been addressed. They're already completed and it's going to, you're going to have a partial quarter in Q3. Q4 is the full quarter. And then as you think of the first half of next year, you're going to get the tailwind from the carryover. But just from a full year amount, think of it as 10 million annually, a benefit.

Great. Thanks for that. And then just back to Rezi one more time, or at least only one more time from me um was there anything going on with uh i don't know new product launches or anything that caused the stimulation of demand you said you know there was no unusual you know inventory build and point of sale seemed good but like you know um just again curious it it seems like a surprisingly strong number yeah jeff i i think you know consistent with the prepared remarks and mike's answer earlier it was uh stronger than we expected in the quarter i do think it was driven by electronics the new product launch was a year

ago that was q3 2025 and and mike mentioned you know that's what drove what's going to be a strong or a tough comp as you look into second half of this year but i think you know we're running our playbook we're running our strategy and it's it's working we got great um electronic products out there you know our resi business is 70 weighted to aftermarket and about 30 on new build new build is still weak um and you know there's no no denying that you can see what the home builders are are reporting and and their commentary out there but the point of sale in retail like like mike said uh has has been pretty strong and and strong because of electronics okay got it thank you very

much thank you our next question will come from joseph ritchie with goldman sachs please unmute yourself and ask your question joe your line is unmuted uh please go ahead and ask your question okay in the meantime we'll move on to tomo sano from jp morgan please unmute your line and go ahead hi good morning everyone hi tomo thank you for taking my questions um i'd like to double click on america's non-residential high single digit growth in second quarters uh could you give us

more color on the by verticals uh let's say universities office multi-family uh john you talk about a little bit about the theater centers how should we uh look at the the second half outlook for those drivers as well thank you yeah tomo really good question and and you know non-res certainly uh largest part of allegiance business and and demand has been improving the the momentum is good the forward-looking signals around spec activity and the aia consensus is favorable so we feel good about that um you know in the in the slides in the prepared remarks you saw a bit of the breakdown between pricing and volume growth. I would say consistent with what we said on the spec activity, the project work, our customers' backlogs are very much broad-based, and you do see some cyclical recovery in commercial verticals like multifamily and office that have been depressed for the last few years. They're improving our institutional verticals. Healthcare has been strong, education hanging in there. You know, we highlighted some of the work going on within higher ed, just as a few pinpoint examples for you. But broad-based is the way we would talk about the acceleration in non-res demand. Data centers, you know, obviously very rapid growing space. It's small. It's probably approaching 5% of our non-res business at this point uh and and still growing very rapidly and that's you know that's a future installed base that uh will will generate aftermarket sales in the coming years so very excited about that too thank you john uh if i may follow up on data centers as this clients emerge as a new areas of technology driven demand how does allusion differentiate yourself uh for the customers and versus competitors, please? Yeah, that's a great question. And I'd say really, really proud of our America's field sales and marketing team, our spec writers, our end user demand generation playbook is exactly what we're doing here. And I do feel we're the best at it. So getting in early in the design phase, creating end user standards that meet code, meet specification, have all the SKUs available that meet the specifics around data centers. A really important acquisition we made two years ago now, Krieger Specialty Products, is bringing very high technology doors, in fact, that are a new space for us but are really helping in the data center vertical. So create the specification, create the end user standard, and then meet the delivery expectations with all of these SKUs in very short lead times as the projects go. And now, as these hyperscalers build new campuses, we expect to be there.

Thank you. I appreciate it.

Thank you. Thank you.

At this time, I see no callers in the queue, so I'll hand back to John Stone for closing remarks.

Well, thank you all for the engagement and the great Q&A, and we look forward to connecting with you on our Q3 earnings call in October.

Be safe. Be healthy.