Great. Good afternoon. Thank you for joining us. I'm Tim Weiss, and I cover building products here at Baird. And we're delighted to have Allegiant join us again this year at our Global Industrial Conference. Allegiant is one of the world's largest manufacturers of mechanical and electromechanical locks and security products. From the company, we have President and CEO John Stone up here with me on stage. We have CFO Mike Wagness. And then we have Josh Pokerzinski, who's VP of IR here in the front row. So there's going to be a few prepare remarks from John, and then we'll hop into Q&A. Apparently that TV doesn't work.

No worries. Great. We'll get through it. I think you know the safe harbor statement, so we'll skip that. And just real quick, for those of you who might not be very familiar with Allegiant, just a quick description of our revenue split here that that you see on the screen. As Tim said, we are a pure play in security and access products. We are a house of brands. You might know us through our lock brand, Schlage, Panic Exit Devices, Von Dupren, Closers, LCN. These would be some of our flagship brands that are probably more familiar to most people than the company name Allegiant. We concluded 2024 right around 3.8 billion in revenue. Split would be something around 80-20 Americas to our international segment. Our international segment is primarily focused on Australia, New Zealand, and Western Europe, and then the Americas is North America focused. These are our markets, so I would say non-residential in the Americas is by far our largest segment. this would include the institutional verticals like health care education higher ed etc there would be commercial verticals in there that for us would encompass office multifamily retail data centers would be in that commercial vertical as well and then we also do have and it's it's about 20 25 percent of America's businesses in the single family res space that's primarily our Schlage brand that comprises front door and interior door hardware. Then we do have Allegiant International and again I talked about the geographic exposure there. I would say our strategy is such that as we look at growth going forward you can expect the geographic exposure for Allegiant to remain rather consistent. That it's North America, it's West Europe, it's Australia, New Zealand focus for us and then lastly a bit of the secret sauce if you take a casual look at a legion i hope you're impressed with the operating margins that we deliver i'd say it is best to breed in our space by a by a pretty fair distance and some of that secret sauce is up here on the slide that you see so we have a unique front end where we are out generating end user demand for our product We use that demand to write specifications for buildings. We spec in our own products. We use that end-user demand to then pull our products through our distribution channel. It is a very resilient, very powerful business model. There are literally only two other companies in the world that have a similar business model at the kind of scale that we do. So a good industry structure, and I think we continue to invest in the various elements of the moat that you see here on this page. And that's it for the prepared remarks, Tim. I think let's get into the Q&A. Yeah, no, that's great.

Thanks for those. Anybody can raise their hand if they have a question, or you can email session1 at rwbear.com. So maybe just spend a moment kind of on the overall kind of growth strategy for Elysian. I mean, has anything really kind of changed or evolved since you've become CEO? i mean you've always had this really good north american business it's an oligopoly great margins um i think volumes have probably been a little weaker since covid relative to what they were pre-covid but just kind of anything anything kind of just on the overall growth strategy and any changes or evolutions there yeah i appreciate the question tim i think some key things are are different since i i joined first would be investment for organic growth that be our top growth priority and if you look at allegion from 2022 to today we've expanded operating

margins quite a bit well north of 200 bips at the same time we're expanding those operating margins we have invested even more in r d so we took r d as a rate of spend in that same time period from around two and a half percent of sales to now north of three so operating margins expanding but we're investing more in new product development the product vitality and the pace of new product launches has accelerated and I think that is now and will continue to be a good driver of organic growth in the core business the other key change I think you've noticed we've done 14 bolt-on acquisitions in the last two years so really stepped up the pace there we've been disciplined with respect to the targets that we've been prospecting and sourcing for potential acquisitions, disciplined on returns, and disciplined on a strategic fit. So every single one of these acquisitions has bolted on directly to one of our existing business units. It's in a geography where we've got distribution channel strength, where we've got brand strength, where we've got a critical mass of talent, and in some cases has literally been a lift and shift of product into one of our existing erps that happens in a matter of days or even weeks and so quick capture synergies uh very happy with the bolt-on m a progress that we made i think that's has been a contributing factor to the the share price appreciation this year and we'd expect that to continue as we look forward okay i guess like when you when you think about kind of growing you know the variance between growing volume four or five percent kind of pre-covid to kind

of flattish you know kind of post-covid slight growth is it you know the fact that the the end markets pre-covid were all kind of growing but to varying degrees and and now kind of post-covid you've seen all this kind of choppiness and so you know you have one that's down one that's flat one that's up and they kind of keep oscillating you know i guess like you know you can look at at it from agron it doesn't look like you're growing but then you know when you kind of go between you know that next level it just seems like it's really kind of like a sinking issue and so i guess a is that correct and then b you know when do you think we could start to see all these end markets kind of re-sync and grow again yeah it's it's an interesting look so you know

allegiance spun out of ingersoll ran right at the end of 2013 if you take the time period of like 14 to right before the pandemic non-res was in that five to seven kind of ish growth residential was also growing very nicely too at that time take 2020 2021 out if you will they were kind of weird years just with the pandemic and the very quick snapback recovery post that non-res has continued to grow it's been a very resilient business for us it's attributed to a lot of contributing factors residential though has been decidedly different it's been soft for the last three years so rather than growing at a five to seven or a mid single digit percent like it was 14 to 19 it's been flat ish to even down low single and I think market-wise that's been the biggest difference in those those two chunks of time non-res continues to grow nicely and we're seeing that this year as well i think also with just a little bit of help on volume on the non-res side we're able to continue to generate you know mid-30s kind of operating leverage on that volume which has helped take best in class margins even higher led by the non-res business as we look forward into 2026 like we shared on our third quarter call just a few weeks ago from a market condition standpoint we see market conditions non-res continuing to grow resi still being kind of flattish as what you uh you could expect um out of a legion okay and i guess when you when you think about just maybe just help us with the lag because you know the institutional market is is probably your largest market it's probably a richest mix in terms of products going through that and you know there's a pretty big lag in terms of when you know that business starts to recover and when you kind of put your products in so I guess what's the outlook on the institutional side if we just kind of started to see that kind of pick up and there's a kind of a multi-year tailwind here or is it been pretty strong the last couple years and and you just kind of see a continuation of that yeah institutional has been stable growth last couple of years and and you're right to call out we are by our very nature a late cycle business if you think of any construction project the last thing you're going to do is hang the doors seal the doors and secure the doors so we're late cycle on a project basis and then late cycle overall as a business I think institutional segment continues to just stable growth as a segment as a vertical it would not have the kind of extreme feast or famine right that you might see in some other industries so you know if we say strong okay that could be in the high range of mid-single growth if we say weak that could still be low single-digit growth in a space like the institutional vertical if you go to the commercial side of our business while you're right it's not you know a particular commercial building won't be as product dense yeah as an institution like a hospital or a school would be but it makes up for that just in terms of addressable market size so you know a little bit of uptick in in commercial like we've seen recently with spec activity in commercial office which has been very depressed for the last couple of years some signs of life here recently just with tenant turnover and tenant fit out in major metro areas that had gone silent for for a couple of years with work from home and all that so you know a little bit of pickup there would be a great tailwind for us the only other thing to call out data centers is very fashionable to talk about I would say you know we do write specifications for most of our non-res work the spec writer that's doing an elementary school or a commercial office or a multifamily building also has the skills and capabilities to develop and write specs and end-user standards for the who's who of hyperscaler data centers so we we do that too it's a small part of our business of course it's been growing very nicely so nice to see that tailwind in the commercial part of our business.

Can you spend just this, I think it kind of gets overlooked, just on the specification side, can you just talk about what that actually means, how it works, and if I can recall from a long time ago, you guys have a lot of spec writers in the market.

It's hard to kind of, it's like speaking a different language to go between these two different multiple different vendors and things so just can you just talk about the advantage that you have there absolutely how you invest in it yeah and mike you ran our non-res business in the america so i miss anything please just just jump in um for a i came from a 20-year career with john deere so coming from off highway and farm machinery into a business where you literally spec your product into the building and then push it or pull it through the channel with that was uh amazing to watch it work and I would say it is an incredible competitive advantage. There's really only one other company in the world that goes toe-to-toe with us in that capability. How it evolved over time was doors and door hardware are immense in the amount of detail. It's very intense in the amount of changes, change orders that happen over the life of a construction project to the point where architects just don't want to deal with it anymore. So they literally outsource it to Allegiant and to our largest competitor, by and large. The capability it takes to write those specs is difficult to develop. We have a dedicated apprentice program where we bring in highly talented civil engineers, train them on how to write specs, and they do that as a great entry-level career into the company. We have invested enormously in software tools that provide cloud-to-cloud connection from our system called overture into Revit which is a very popular civil engineering tool for the architects so real-time data interchange we've invested in AI tools to help automate parts of writing specs and there are whatever a handful four or five continuous improvement projects that we're doing on that that software tool in any given year would also say as you think forward how to maintain and even widen the the moat that comes out of that for any machine learning model or AI model to work it's got to have a very large clean robust data set underneath it and there's only two companies in the world that have that data set so if anybody's going to figure out how to leverage AI to write specs for buildings it's it's going to be the two leaders in the industry today the spec then turns into recognized revenue at some point in the future it is the end-user demand generation tool but that time to revenue can be nine months for a multifamily complex or three years for a large sports stadium or a large hospital complex so it's not something that we disclose a lot of numbers around because it's difficult to give you line of to what exactly that means but the the power of it is immense in in terms of adding value all the way upstream in the design phase of the project and throughout all the changes and then ultimately at the point of use all these millions of skews that we manage we also delivered to the project in like 10 day lead times so made to order business that we've generated the demand for sometimes a year or two in advance quite powerful quite sticky and and quite a high barrier to entry I would say into our space yeah I mean you mentioned AI I mean we've been asking this question kind of throughout the conference but just I guess are you investing in kind of AI on the spec writing you know side and I guess what are other examples of kind of AI investments that you've made and any specific outcomes you'd point to yes it's a great question so certainly on the end market uh area again we we write specs for we've developed end user standards for the hyperscalers and their data centers so whatever you believe about that capex cycle and outlook we are late cycle in that too so i i think um nice tailwind but overall small part of our business then i'd say internally we're doing all the things you would want us to be doing so investing in AI tools to help automate elements of spec writing we've got the data sets to do that others don't we're putting AI where it's appropriate in our factories and our manufacturing facilities computer vision systems to ensure quality and safety etc we're using generative AI tools for office function efficiencies like you would expect us to do even something is that sounds as simple as digitizing purchase orders because we have thousands of contract hardware distributors as direct customers we get purchase orders and lots of different formats with lots of different sometimes even handwritten names for the same piece of hardware and this is our industry digitizing that into machine readable language is something that we've done and the the efficiency gains are pretty amazing. They're a game changer for our space. The last thing I'd have you look at, please go visit our website, look at Allegiant Ventures portfolio. So on the further reaching technology side of how will AI impact the world of physical security, we've made two very notable investments recently. You look on the cap tables that we're on, they're with companies like Insight Partners and Andreessen Horowitz one was a company called ambient AI the other one is a salon robotics take a look at what these two companies do their category leaders in their space and Allegiant has a position on the cap table and therefore front row seat to see how these technologies play out in the realm of physical security and how these particular companies do in their space So very excited about that from a further reaching front row seat on technology.

I guess, you know, speaking about technology, just kind of the electromechanical, you know, kind of business, just kind of big picture, kind of where is that today? And how would you kind of discern, you know, the adoption levels within kind of the residential market versus, you know, kind of the non-res market? because i mean it's obvious you know we use a lot of stuff residential and you see digital things but there's a lot of digital i think that's that's kind of in the non-res space so just kind of where are you on those adoption curves in both of those end markets yeah so adoption is accelerating i'd say in in both segments and what you tend to see is um one of the advantages of our residential business is our partnership with the megatechs with the smartphone manufacturers So Allegiant, I mean, a company our size, we definitely punch above our weight in our relationship with Apple, Google, Samsung.

We're a trusted innovation partner to help them expand the shoreline of what they can do with their wallet. And so we were the first to integrate student IDs, employee IDs, resident keys in the Apple wallet. We're the first to integrate both Google Wearables and the Google Wallet with the resident key. So, again, those kinds of technologies, those kinds of near-field tap-to-unlock technologies that you start to become more and more commonplace in increasing adoption on a home front door, translating into the commercial space of electronic locks, where spec data would also tell us adoption is increasing rapidly. and makes us confident in the outlook when we talk about our growth entitlement and why we can grow above GDP or above market by a point it's because of this electronics adoption and our innovation leadership in the space commercial e-locks are not new but think of it on a development continuum of 15 years ago it was offline electronic locks prox card or whatever would get in the door security improvements electronic architecture improvements to wired solutions that's still kind of state of state of the art today where a control panel is controlling maybe four doors or there's a dedicated door controller on a single door to lock and unlock where the puck is going and where a legion is skating to is real-time connected locks we've introduced that family some months ago we're exceeding our business case for 2025 excited about where that's headed we hosted our first developers conference just two weeks ago bringing in video surveillance companies and physical access control building automation companies to teach them how to integrate quickly with our new connected locks that now is going to be done in hours instead of months that it used to take back in the wired solution or offline days so big efficiency improvements for for the industry I think that's where innovation is going I feel we've carved out a good leadership position on the new commercial ELOC family and we feel that this idea of a point of outgrowth and allegiance growth entitlement is very much intact we're saying you're talking about you know

hours versus months I mean is that the installation of the projects well that's that's the actual system being able to discover and talk to the lock and make the lock and unlock decision we do that at the door um the connected lock can do it without the added interface of a panel so there's a lot less low level code that has to figure out how to talk to each other okay okay um and then i guess you know on the software side you know you've talked a little bit about implementing more software kind of selectively and certain verticals i guess how do you decide which verticals you want to kind of play in from a software perspective versus maybe you know do

you know kind of work in more of like a partnership or kind of an integrator you know type model um you know that's been there historically yeah it's a great question and i think from a legacy standpoint our interflex business in germany um very successful fast growing good margins has been doing access control time and attendance workforce management for large enterprises for a long time so leave that as its own entity so to speak we expect to continue to grow that it's primarily custom designed for European working environments European labor laws and things like that so kind of a regional product in the Americas we see historically underserved verticals like education, like multifamily as spaces where a legion would have a right to play and a right to win. And not only the core mechanical hardware and electronic hardware, but also the controlling access control software. We've made investments organically for access control software for multifamily with our tool known as Zentra. That's been in the market for a little over a year now, growing very rapidly. We like having that. we acquired this year a company called Gatewise that does electronic access at the gate for car parks or the perimeter entrance for multifamily and now Allegiant has the ability to go to multifamily with the full solution set and we can also go a la carte so it doesn't matter does Gatewise or does Zantra or does the ELOC lead the sale we can offer all of that or we can offer pieces as we go so So I like our position there and I do feel we have a right to win. The other software acquisition we made was a company called Waitwhile. They do virtual queuing. This could be today, think of something like a Costco. If you're a Costco shopper and you're going to get some auto work done, get your tires changed or something like this, you use your Waitwhile app through Costco to get your point in the queue. You can go shop, you get real time updates and really the only thing you lose is time in the line is their their value prop what we see going forward with wait while is just imagine connecting that virtual queue that they set up to an encrypted credential that hits your smartphone wallet and gets you in the door so an easy use case might be think about a university that has hundreds of professors that needs need to have office hours before big exams and you've got an electronic locking system throughout the faculty buildings you want to control that you want to keep people safe but you also want a perfectly seamless experience for the student when it's their turn to show up so wait while gets you in the queue attaches a slague credential that gets you through our electronic lock at the right time then through wait while the university gets just reams of helpful data to help them plan their access and and their operation better so excited to see what we can do with that and just think about our software strategy as being continuously developing and acquiring software that differentiates our hardware we're not off to find far-flung speculative adjacencies we're not off to find software for software's sake this is software that is connected to and adds value to Allegiant Hardware is what we're pushing for there. And excited about the potential.

I mean, maybe just on the M&A side, I mean, you have done a lot of smaller tuck-in acquisitions. You know, what are the two or three criteria that you're really kind of looking for in assessing? You know, does it have to kind of fit with your spec? Does it, you know, have to, is there kind of a, you know, market expansion type way? Like, what are kind of the two or three things that you're really looking for when you're doing these deals?

Yeah, great question. And I'm really pleased with the step up in M&A that we've done, and I think you can look for us to continue that. From a management bandwidth, we can continue the pace we've been on. From a balance sheet, you see at the end of the third quarter presentation, after roughly almost $600 million spent this year on acquisitions, net leverage is at 1.8 turns. So we feel pretty good about balance sheet capacity. We will never put our investment-grade credit rating at risk as we may tap the balance sheet for accretive acquisitions. But the best material we've got out there is our Capital Markets Day from May material. It will show you our view from a product category segmentation on parts of our industry that are still less consolidated or even more fragmented. There is roll-up potential there. you can look for us to be disciplined on you know what are we looking for has to fit our strategy we're a pure play in security and access it has to generate creative shareholder returns so you know you could think on an ROIC north of the cost of capital very quickly on some of these mechanical deals maybe in year 3 to 5 at the far end on some of the more electronics or software transactions but still accretive returns for our shareholders and then good cultural fit on the people side so strategic fit good returns good cultural fit and bolting onto one of our existing business units the only other constraint I'd ask you to remember when you think about a legion and the acquisitions is the geographies that we're looking in addition to the product categories are where we are today so this is western europe this is north america this is australia new zealand we are not looking for an acquisition to provide a beachhead into a new geography that's that's not contemplated at this point what about like the margins you know i mean you've you've i think what's surprised us a little bit is you know not just the pace of the mna activity but also the margins of the companies that you're acquiring kind of before integration even so how important is is the margin aspect of it it's very important and i'd say that's part of being disciplined in the mechanical space for sure but also in the technology space you could imagine in in any industry when you look into high technology or software there's frequently more sizzle than there is steak so we'll proceed very prudently on on that and yeah we're proud of the margins we generate in our industry and I don't think our M&A strategy is going to put those at risk.

Great, well we're out of time so please join me in thanking the Allegiant team for being here. Thanks everyone for attending.