Allegion plc (ALLE) Earnings Call Transcript & Summary

Hello, good afternoon, and thank you for joining us for Allegion's 2023 Investor and Analyst Day. I'm Tom Martineau, Vice President, Investor Relations and Treasurer. I'd especially like to welcome everybody that made the trip and that's here live with us at Carmel, Indiana facility as well as those that are listening on the live webcast. Just for a reminder, the presentation today will be recorded and archived on our website at investor.allegion.com. The presentation we will refer to today is also available on the same website. So now what are the most anticipated parts of the presentation, the forward-looking statements. So statements made today that are not historical facts are considered forward-looking statements pursuant to safe harbor provisions of federal securities law. Please refer to our most SEC filings for some of the factors that may cause actual results to vary from projections. The company assumes no obligation to update these forward-looking statements. Done. We will be using some financial non-GAAP measures discussions in today's presentation. Please refer to the reconciliation tables in the presentation for further information. At Allegion, safety is our passion. And up on the screen, you'll see a couple of our key metrics that we think to fund that, what we believe are industry-leading safety metrics for the company. To ensure everybody's safety, I do have a couple of announcements or requests in an emergency and a need to evacuate the building, please use the closest exit, which would be out these doors and you're going to see it in the middle of the hallway and exit straight out the back of the building, there will be people there to help guide you. In the event of inclement weather, please find -- take shelter in either one of the 2 stairwells that you'll also find exiting the back of the room, either on the left or on the right. This is a tobacco-free, smoke-free campus. And then if you need the bathrooms, you're going to get used to this. It's out the back, down the hall to the right, you'll be able to find it. We're very excited to share our Allegion story with you today. You'll be able to hear from our CEO, John Stone; our CFO, Mike Wagnes, as well as our regional leaders, Dave Illardi and Tim Eckersley. We will have an opportunity for Q&A at the end of the presentations. I'll circle back then with more instructions on the Q&A session. With that, let's jump right in, and I'd like to welcome John Stone, President and CEO of Allegion to the stage.

Tom said it very well. Good afternoon, and thank you all so much for the investment in your time that it takes to be here with us. I think we've got a great program for you both here in the room as well as at our technology center later this afternoon. As I shared with many of you there in the meet and greet time, the technology center, we're very proud of. We're going to put the actual engineers doing the work, doing the designs in front of you. We don't have paid actors for presentations. It's just the real folks. So please ask them questions, they would really be happy to answer that. So 4 years since Allegion's last Investor Day, we're excited to get this back as a habit, let's just say. And a little bit about me first, maybe to start, as I'm a brand-new face for some of you and still a very new face for a lot more of you. Former Army officer. I'm an engineer, I had about close to a 20-year career with John Deere, where it played a rather a key role in helping John Deere advance more highly automated machines pushed into artificial intelligence. And then my last posting with Deere was leading a $12 billion P&L for construction, forestry and power systems equipment. I'm sorry, when mic is cutting out a little bit. Maybe I'll turn this way instead of just turning my head. But led that division of John Deere to, I think, probably record results in terms of revenues and margins and also made some strategic investments in their own excavator line as well as battery electric systems for zero emission machines. CONEXPO, CES would be proof points, if you want to take a look at that work. Got attracted to Allegion, really wasn't necessarily looking for an opportunity, but the hook for Allegion was this whole idea and you see it in tiny font underneath our logo there of pioneering safety. I'm a mission-driven person. The mission of pioneering safety is personal. It's work I'm proud of. It's work this entire team is proud of. And just overall, very, very grateful to be here. So let's get into it. I love this slide. Pictures say a thousand words and kind of how we'll talk about Allegion today through two lenses. One would be we've got a great legacy, some of the brands in this portfolio have a legacy dating back over 100 years. And while our company is just about to turn 10, the legacy, obviously, is much, much longer than that. but will take a lot of time and talk about how we're going to secure the future of this great company, what we're going to invest in, how we're driving growth and how we're driving your returns. So the picture that says a thousand words is super imposed there. You have one of Walter Schlage's original patents right next to a text editor showing some of our embedded code that goes into one of our electronic locks, to monitor the signals, monitor the performance of the lock and the status of the lock and report that to the end user. So quite an interesting parallel of 100 years' worth of technology. So who are we? Who are we at Allegion? I think most of you are familiar with us. A lot of this should look familiar, and that's part of building on our legacy, leading pure-play provider of security and access solutions. So we have many iconic brands, Schlage, Von Duprin, LCN, CISA, with strong market positions. By a fair margin, in fact, we have the industry's leading EBITDA margins and definitely intend on staying in that position. We have a very broad customer base, strategic partnerships across the spectrum that we need to enter into many customer verticals. We have expertise in key technologies that are helping transform physical security like the Internet of Things, electrification, cybersecurity and communications technologies. We have a healthy and growing services business that we'll talk more about later in the deck. This is going to become more important to Allegion's future. We have a highly engaged workforce very much focused on safety, just like Tom said in the intro, Dave Petratis would say be safe, be healthy at the beginning and the end of every meeting. I've taken up doing the exact same thing. If we keep our people safe, and healthy. They'll take care of this company and they'll take care of your investment. Leading presence, and we'll talk about how we do this through our own innovation, through industry association, through advocacy for codes and standards, but a leading presence shaping a transforming industry. And lastly, we'll talk capital deployment and how we're orienting our capital deployment for growth to drive returns for you. Next, I'd like to talk a little bit about ESG. It's very timely. We just released our annual report and our ESG report this week. And I'd say starting back in 2020, we published long-term goals. We've made great progress against these goals. On this slide, this is a snapshot of where we concluded 2022. Just color coded the slide, walking left to right here, the green would be our environmental goals, and this is just a couple of them, but very good performance. And likely, we're going to see line of sight to even increasing our long-term goal for reducing greenhouse gas emissions intensity, reducing water usage, good progress in the middle in blue, I think we've made some very good strides in being an employer of choice. So our DEI progress is good, but we're a long way from satisfied. We just finished at the end of June our most recent employee engagement survey, and we're at a 9-year high. I can tell you as a new CEO as an outsider coming into the company, replacing someone like Dave Petratis, it was part like really happy and part relief. If you know Dave, he's a big personality, a very charismatic personality and in many ways, personified Allegion. So really happy that what little contribution I could make there has continued that engagement going in the right direction, but very happy to see that. Shifting to governance on the right-hand part of the slide, I would say we already have a quite diverse Board of Directors. I'm very proud of that. It's a good group. We just upgraded the group, if you will, with the addition of Ellen Rubin, who brings a pretty fantastic background in entrepreneurship and technology. She joined in April. Also on our Board, and this is largely due to feedback from some of you from some of our largest and most important investors. We do have a separate CEO and Chairman role with an independent Chairman. Lastly, we do have a component of executive compensation tied to performance against these ESG goals. Now shifting to our vision and our strategy, and it's a simple slide, but I'd like to spend a little bit of time and talk you through it. Some feedback we got from 2019 was, we love the company performance, but we don't really understand what is the seamless access idea that you're talking about. Can you describe it for us? So in Army Guy language, let's talk through it. So enabling seamless access in a safer world. In short, what I'd ask you to think about is that means whoever possesses the right credentials, whether that credential is a metal key, whether it's an encrypted proximity card or whether it's through digital identity and mobile credential in your smartphone wallet, you will have the most convenient and secure experience possible while those without those credentials simply don't get in. Those three different types of credentials, cards, phones, keys, coexist all over the world today, and we can work with all three, another part of seamless. Strategy is that Allegion creates value as a solutions provider of security and access. That's where we're headed. So we concluded '22 with just shy of $3.3 billion in revenues, a high mark for the company, high watermark for the company. just over 22% adjusted EBITDA margin. So got back expanding margins. Mike Wagnes will talk about this more. We've got a ways to go, but we feel good about how we turn the corner on price cost. We feel good about how we further turned the corner on price, cost, productivity and investments. Mike will let you know where we're headed in the future, but things are starting to operate better. Take a look at our business mix and just recognize these are not super precise numbers. So if we're today 80-20, 80% Americas, 20% international. Within that, 70% mechanical, 30% electronics and software. In the middle, we'll talk by segment. And if we're 75 nonres, 25% res, within the nonres side, we're a bit heavily weighted towards the institutional segment. So think hospitals, think education, higher ed K-12 schools, large complex campuses where we really excel. Lastly, in terms of new construction and aftermarket, again, not a super precise number, but we would tend to fluctuate around 50-50 between new construction and the aftermarket. We'll talk more about some of the more interesting aftermarket drivers later in the presentation. But I would say what gives me confidence is the breadth of our portfolio the breadth of our distribution coverage, the way we can manufacture millions of SKUs in a made-to-order environment, we're able to react to whatever the market brings. If new construction is really strong, we can react with our specifications in consulting. If aftermarket is really strong, we can react with our manufacturing and our distribution strengths. Now speaking of the markets we serve, on a global basis. I'll just walk the slide left to right. So nonresidential mechanical, we would see us still growing, driven by things like U.S. funding for education, the Infrastructure and Jobs Act, monies that are still flowing through higher education, emergency relief fund, money is still flowing through for contactless and touchless technologies and universities. In the middle, growing more at a high single-digit rate would be our nonresidential electronics and software, commercial electronics and software, the convenience and added security that can come about because of digital identity and mobile credentials is driving this. The Internet of Things, connectivity, open ecosystems and open platforms are making adoption of these technologies easier for your building end users, hospitals, schools, university campuses, et cetera. I'll have a couple of case study examples to share with you to bring this home, particularly in multifamily settings, we're seeing an acceleration of adoption of electronic locks and other hardware in the aftermarket. There are a compelling business reason that we'll get into as to why that's a good thing to do for your apartment complex. Lastly, in residential, and this would have both in electronics and the mechanical mix, we would see a low single-digit growth environment going forward. So what's special about Allegion? How do we win? And I think I came from a special company, a much different company, but a very special company. I can tell you, without a doubt, Allegion is a special company. There are very few companies that could do what we do here. It starts with this right here. I'll give you some numbers. So in our regional sales offices across the United States, we have great coverage, but we also have a 3:1 mix. So 3 people in those offices, working on end user outcomes, understanding end-user critical outcomes building those end-user relationships, understanding what they need for security, for disabilities, accessibility, how rugged emergency egress, seamless access, et cetera, understanding their needs and then in a consultative way, designing and specifying in Allegion products to meet those needs. So it's not simply put product in a channel and hope it sells. This is a consultative business-to-business sales process and from the time of that engagement with the end user, whether it's, again, hospital, university, K-12 school district, et cetera, and the architect that's doing the design work, it could be 6, 12, 18 months or more before our hardware actually comes through the channel and goes into that particular building. So it's very interesting. Again, three people doing that for every one person doing more traditional channel sales. So our focus is clearly on the business-to-business consultative sales process of understanding these outcomes and then designing solutions that meet their needs. That then creates the demand that pulls our product through the channel. These spaces are complex and it literally takes millions of SKUs to meet the demand. You can't go into a hospital and say, I have designed a new electronic lock. They need a lot more than that. They need automatic doors, they need closers, they need readers. They need access control systems, millions of SKUs and even furthermore in a made-to-order environment. If you think about the time line of a construction project, if we're in early with the architect, providing the service, designing these complex entries, writing those specifications. And largely, these are skills that no longer exist in architecture firms. They come to us for that work increasingly in a paid way as a paid service. The construction project takes whatever time it takes. There's undoubtedly going to be delays and missteps in the process. And then when it comes time to install the doors and the door hardware, that's usually some of the last things that go into that building. We have to produce that, deal with that SKU complexity in a made-to-order environment. There are a very few companies in the world, you can count them on one hand that can do this at scale. Another key advantage in how we win is, again, as this trusted adviser. So three people, again, working on demand generation with end users and specification consultants, which, by the way, are some of the most impressive talent I've met since I've been at Allegion, trusted advisers with those decision-makers with the people who are advocating for industry standards. We have Allegion employees in these industry organizations, leading committees, advocating for good standard helping educate helping raise the water level of knowledge as to what is good, a safety practices. The pictures there tell a thousand words. And if you could indulge me for a bit, school safety, extremely important. It's a point of personal passion. My mother was a school teacher for 40 years. I was a product a small town in Arkansas in public schools. School safety is really critically important. Budgets go to schools. They invest in this every year, and you would still be shocked, Josh, you get the best seat here that something is seemingly simple as this, locked doors save lives, a tamper-proof visual indicator from the inside of the classroom at the status of the door. You can see it from a wide angle, lock doors save lives. This even works, if you are color blind. Advocating for simple things like this to keep our kids safe at school is something that really drives us, and we're excited to produce products like that, advocate like that for the schools and make sure that not only do we run a good business, but we serve a higher purpose. Threats don't always come in the form of needing a lock door. Just recently, a tornado went through Oklahoma, Sadly, several people perished in that tornado. It went through and write over Shawnee High School, where as I understand, the school volleyball team was having practice. I heard the sirens go off. Team goes to the tornado shelter that was there in that new building that we helped consult on got behind Allegion doors and Allegion door hardware, the gym was completely destroyed. There was nothing but the floor and debris left as they came out of the doors, but that volleyball team went home safe. Those doors did their job in a time of need. That moment of proof Allegion products, save lives. When you go to the technical center, you'll see some of the tests we do for that type of application, and it's impressive. It will allow you, but I would say don't just see the test and what we do, think of it as this is how much Allegion cares about keeping you and your kids and your family and friends safe. That's the commitment we make. Last piece on how we win. Last year, literally 6 days before I came in the job as CEO, we had closed on Allegion's largest acquisition in our history at $900 million purchase of Stanley Access Technologies. The title says, highly strategic combination. I would tell you that understates how I feel about it. This is going very, very well, retained all the key talent. The engagement of that team is very high. The alignment of our sales teams out in the field is going very well. You already know the story of automatic doors with a lesion hardware, a very complementary product portfolio. Recently with my mom in a hospital there in Arkansas where she had to have a procedure, all Allegion hardware throughout the hospital, all Stanley doors, but that's a rarity. We have nice complementary product portfolio, but also nice complementary markets. If you walk into a Walmart or a Home Depot or a Lowe's, chances are you'll walk through a Stanley door where Allegion might have a rather diminished presence. It's a nice opportunity for us. In these institutional segments, where Allegion hardware is very strong. Stanley Access Technologies probably has a pretty good growth opportunity there. The key thing, though, is this upfront specification demand generation engine that we have. Stanley had very little of that capability, we have a lot. So putting automatic doors into that demand generation engine upfront, specifying those into new construction projects, et cetera. Very excited about the long-term opportunities that provides. The last piece I'll highlight here is their high-growth services. So about 40% of the Stanley business is recurring services. And I would tell you if you look at what we talked about in Q1, the services part of that business is growing faster than the whole business. So we're really excited about that. We're excited about the potential that it holds for Allegion overall, but it's a great part, great add to the portfolio, and we're excited about Access Technologies and automatic doors going forward. Now let's talk growth, and let's look to the future. So these are our strategic priorities. I would say these are mainly a tool to help us organize internally. This is how I'll allocate talent. This is how we set priorities. I'm firm believer all the way back to my army days of a vital few priorities. So the most important highest return projects will get funded, we'll work on those. We will not die of indigestion by trying to do too much. We'll be focused and disciplined and execute very well. In these case studies that I'll show you, you'll understand the importance of the things that Allegion has been investing in over time to be a partner of choice. These are complex landscapes that our hardware operates in and needs to interact with. And I think we've got some interesting things to share with you there. We see a good potential, and we'll talk about it, both on the Access Technologies on the automatic door side as well as our core hardware business in Allegion to deliver new value and access, new recurring value at the point of entry with nominal fees each month for services that we can provide. And they're going into the market right now. And some of our largest and most discriminating customers are not only excited about them, but they're paying for them right now. Lastly is operate with excellence. And I'd say, certainly, during the COVID period, we had some struggles. Supply chain, we had some struggles. Inflation, we had some struggles. We're turning the corner on all of that and getting back to operating at a high level. We're not satisfied with where we're at, but getting back to operating at a high level. This is a growth trend that's been around for a little while, but what I would tell you is it's got new drivers and it's got legs. It's got a long runway still in front of it. So the industry adoption of electronics and access and security. We feel we're in a leading position, and we're also shaping this transformation of our industry. Just have a time line here to highlight this history of innovation with Schlage all the way back to Walter Schlage himself, 1909, like first smart home device patented where he patented a door knob that as you unlock it, it will turn the lights on in your house. So kind of interesting. I mean, not that profound today. But in 1909, that was pretty cool. That moves into the 70s and you start to see the advent of keyless technologies with proximity cards. And again, Schlage was an innovator there. Then you move into the '90s and the 2000s where the Internet becomes team, Internet protocol and the communications technologies start to make electronic locks pretty interesting for folks. Schlage was a leader there. We had the first WiFi Deadbolt compatible with Apple HomeKit. We will continue to do things where we are the first in the market. Now as this continues on, I would tell you what the driver is now and what we hear on practically every new construction project get involved with, again, very early in the design phase, writing specification, understanding requirements, but practically every new opportunity, at least the compatibility with mobile credentials is being requested. The convenience that's there, the idea that you can have multifactor authentication at every access point using a digital identity and mobile credentials, so convenience, but also added layers of security. This has really taken off. This is what we see continue to pull through Allegion electronic locks. I put artificial intelligence out there. I would tell you it's a dotted line for a reason that likely has some relevance to access and security in the future. I would say, it's not the highest priority for Allegion today in terms of technology investments. We have a lot to do with electronic locks, connected systems and the access software that knits all that together for our end-user customers. This is our view of adoption in this current state, and this is why we would feel the electronics transformation is still in its early innings, roughly 10%, maybe a little bit over 10%. So again, not super precise, but we feel a long runway of adoption in the key markets that Allegion operates in. And again, it's not just new construction that pulls these electronic hardware devices through. The examples we'll talk about can illustrate this well for us. How are we shaping the future of seamless access because we want to lead. We want to lead in this space. And I'd say it's 5 years now, Allegion Ventures just celebrated 5-year birthday, if you will. And I would compliment Rob Martins and their team, their entire history, two things: one, the quality of that portfolio, they picked winners. The value of that portfolio is quite attractive. Furthermore, we've invested in some really interesting technologies that are related to seamless access, and we're learning more about these as these startups continue to mature. So we look forward to continuing to invest in Allegion Ventures. It is a competitive advantage for us, we feel, in terms of technology understanding and engagement with very interesting entrepreneurs and start-up companies. The next box guiding standards and open ecosystem. So a lot of different standards organizations there. You'll hear more about this out at the Haygrove Technical Center. But Allegion employees are active in these associations. We have a very prominent voice in these associations. We're helping to shape standards going forward, both in the hardware space as well as in the technology space for the Internet of Things. We have been and will continue to create digital customer experiences. I have the overture tool highlighted here. You'll hear more about this from Dave Lardy in the Americas, and you'll actually see a little bit more detail out at the technical center. But think of this as a digital collaboration tool that cloud to cloud, if you will, the architect sends design files to Allegion specification writers. We take that. We do the heavy lifting of Division 8 in the building codes to specify the openings, specify the doors, specify the hardware, send that back to the architect, working with the end user, the whole way to make sure we understand what type of experiences, what type of critical outcomes they want to have in their building. So it's a very interesting tool. You'll learn more about it as you go through the presentation. Lastly, we feel that growing services capability in our portfolio there is very attractive for our long-term growth as well as the future of seamless access. Two case studies here for you, and this would be one to highlight the importance of working in open ecosystems and being that partner of choice. So Auburn University has been Allegion client for decades, let's just say, typically all mechanical products for a long, long time, made the choice for efficiency reasons, for student experience reasons, for security reasons to go to electronic locks and readers. That's our hardware. We supply that. On the campus, there was a combination of Lenel access control systems as well as Cbord access control and One card systems. We supply the mobile credential and ensure secure credential parity across both those systems regardless of whether the student has an iOS or an Android phone. That's not easy to do. And again, we're one of a very few companies in the world that can do this at scale. Next example here is on the multifamily residential side. And this we would feel is quite an underserved market, quite a fragmented market and has great opportunity for new value with electronic locks, readers and a very simple, easy to use, cloud native, mobile-first UI access control system. So think of the labor savings that an apartment building would get, if they don't have to hire a locksmith to go and change out mechanical locks every time a tenant moves. Think of the ease of digitally applying credentials to one mobile phone for the gym, for the pool, for the resident, for the tenant, visitor management becomes so much easier. This is an efficiency gain for that apartment complex. And it's a simple enough environment in an underserved vertical where we feel a complete turnkey solution from Allegion is the most efficient and most cost-effective way to deliver this value to the end user. We're working with a couple of pilot customers right now with great results so far in these early days. Okay. Next to last point. Obviously, a very large part of my responsibility is capital allocation, capital deployment. And so with your returns, driving my priorities, investing for organic growth. And again, a big proponent of a vital few. The best programs are going to win. They're going to get the investments, and that's how we will continue to drive above-market organic growth. We are a dividend paying stock today, and we will continue to be a dividend paying stock tomorrow. We do look to grow through acquisitions. We will see combinations, I think, of both complementary portfolios, like you saw with Stanley Access Technologies as well as Software as a Service that's related to seamless access and related to our hardware like you saw with Plano, high-margin, recurring revenue, Software as a Service or bolt-on acquisitions that fill portfolio gaps in the hardware space for us, too, good pricing discipline, and you can count on us to deliver a good ROIC. Lastly, of course, share repurchases. We will, at a minimum, buyback any creep from equity compensation and then other share repurchases as required or as needed. What I hope you heard today and what I hope you've seen from our recent quarters is we are returning to operating at a high level. We're returning to executing at a high level like we should be. Turning the corner on price/cost, beginning to improve inventory turns, coming out of this supply chain malaise and executing at a high level. Mike Wagnes will lay that out for what that means in terms of our financial performance and our outlook in the future. Electronics. This transition to electronics is the key growth driver. And while I've talked about and we see good potential for growing software and services revenues, I want to let you know very clearly, and this was in my very first town hall with all Allegion employees, this is not a from-to story. This is not Allegion trying to go from hardware to a software company, not the case. The magic here is, and. That the hardware, the electronic hardware, our ability to provide and manage mobile credentials in addition to master key systems in the mechanical world. That's where the magic happens for our end users. That's how we leverage our specification and consulting expertise. That's how we leverage what I feel is the best distribution partners in the world. Lastly, capital deployment with your returns in mind. Thank you very much. That concludes my remarks. We'll come back for Q&A. But at this point, I'd like to introduce Dave Illardi, who is our President for the Americas division. Dave, come on up.

All right. Thank you, John. Welcome, everyone, to our Americas headquarters here in Carmel, Indiana. As John said, my name is Dave Illardi. I lead the Americas organization, been with the organization now for 20 years, spent the last 15 years really focused in on the security industry parts of the company. Prior to taking over as the Americas President in 2022, I had the pleasure of being the General Manager for our residential business in North America. And really prior to that, spent a lot of time in our commercial part of our portfolio. So really excited to share a bit more with you about the Americas organization. Let's dive right in. When you think about the Americas, we're about a $2.5 billion business, focused across several key brands that we'll talk through on a couple of upcoming slides, but really in diverse end markets. You think about us really having that nonresidential-focused business, our automatic doors and service business and our residential business, it means we really capture quite an extensive wide breadth of our portfolio going into multiple end markets. In the center of this graphic, you'll see institutional markets are really our largest segment of our business. This is the K-12 markets, the higher education markets, healthcare markets, including what's going on in a lot of urgent care and medical buildings outside of the hospital space as well as some of the government work that we support in the market as well. What's really critical around that institutional market space as well is it's quite stable. It's quite stable as you think about some of the downturns and challenges that the market can deliver. And that end user relationship is where we really focus our resources on that John talked about earlier, whether that's with the end user or the architectural community, that institutional market really values that constituency as they think about very long-term investments in their buildings and minimizing the level of cost it takes to maintain and manage those facilities long term. Of course, we obviously operate as well in the commercial space, where you might have more of your traditional office environments, manufacturing environments and other types of buildings as well. And then our residential business is about 25% of the Americas. Think about this not only from a new single-family home construction part of the market, but the large consumer markets as well that we serve through retail channels and e-commerce channels every day. You really have this opportunity where we've expanded our portfolio quite dramatically. The acquisition of Stanley Access Technologies has really introduces this component of services, but that's not only the area. The bolt-on areas of ongoing innovation and development of our portfolio has allowed us to widen that breadth of lockering into the marketplace, whether it's mechanical offerings or that mobile credential that John talked about as well. Overall, the adoption rate in the Americas that we talked about of about 10% on the electronics gives us a lot of opportunity for continued growth. Today, about 25% of our business in the Americas is really coming from that electronics portfolio of solutions, while the rest is dominated more through the mechanical business. The installed base that we've created over decades of having those long end-user relationships really sets us up quite nicely for having a good balance between what we do from an aftermarket perspective and new construction, allows us to really be dynamic on what's coming as opportunities from the market. We can play through our distribution channels and through our relationships across both vectors of new construction and aftermarket. From a product category perspective, we look at our nonresidential business. You have both the mechanical component to that and an electronics component. It's the largest segment of what we do in the Americas. The LCN brand, the Schlage brand, the Von Duprin brand really help us solve for all of that complexity that was talked about earlier. The solutions required in noninstitutional -- or nonresidential institutional types of markets is highly wide. And whether you take a lock, an exit, a closer, the hinges and the accessories or the metal doors and frames that come into play in those markets, you have to have that breadth of offering to really say you can solve the opening -- solve any opening in that type of facility. And we heavily drive that through what we do in the mechanical portfolio. On the electronics side, we certainly have been electrifying locks for decades. So the Schlage brand really serves a key focus area in nonresidential electronics for us, but we're electrifying exit devices as well. Von Duprin exit devices have electronics in them, and we're going to continue to see that adoption across the portfolio as we grow into the future. I want to take a moment and talk a bit about automatic doors and service. The Stanley Access Technologies brand, obviously, that we acquired is a key segment of that. The leverage that we get across this portfolio that John talked about is going to help drive the service components and the automatic door business into the future. We have some great technology innovation. I'll share in a couple of slides as well around how we go to market in this area. But in that business, we're going to be able to leverage across multiple parts of the portfolio. Software and the Internet of Things platform. We just launched, you may have seen a press release last month around Zentra. This is that solution that we're trying to bring to market that helps solve multifamily aftermarket solutions. This is an area where we feel the market is fragmented, and the customer has been coming to us consistently saying, help me solve for access solutions in my property, help me deliver more value to my tenants, help me elevate what level of class of property I have for my -- for the rents that I can also achieve into the marketplace. That is powered -- powering a lot of the electronic hardware that goes along with it. So it's not just about software and getting that fee there on a recurring basis, but it powers the electronics hardware and helps drive and pull that into our solution. Some of you may recall, we acquired YONOMI. It's a brand that you see on the bottom of the chart as our Internet of Things platform. And we've continued to invest in bringing all of our hardware and solutions to be able to be connected and on to the Internet, help us drive that also into partners that want to integrate into our hardware. And so that's a key part of our product categories as well in that software and IoT segment. And then lastly, on the right-hand side, you see the residential portfolio, driven heavily by the Schlage brand. That is where we really drive home the innovation that comes from that, electronics and mechanical products certainly embedded in that residential market, really helping satisfy the consumer demand that we see coming through retail and then new -- single-family new construction. So the markets we serve. John talked about the total available market. About $20 billion of that is sitting in the Americas region. When we think about these markets, we really try to organize these in a way that helps simplify where we see the over long-term growth trajectory. Nonresidential and the mechanical space of that work, really growing at about a low single-digit level. In the electronics and software space around the nonresidential markets, that's growing more at a high single-digit growth level. So that's where we see good opportunities for our solutions to really be the leadership position that they are in to help drive growth in that transforming marketplace. On the residential side, there actually is both a mechanical and electronics element to this as well. Overall, growing at a low single digit rate. Electronics, when you think about the electronic smart lock component of that, certainly growing at the high single digit, near double-digit levels over the next foreseeable future as adoption of that business -- or adoption of electronics in the residential space continues to increase. So let's talk a bit about how we win in the Americas. I get pretty excited about how we go to market, and you can really think about it in three distinct ways. In the nonresidential space, we talked a bit about what happens in the new construction phase, but it's really about how we go from new construction all the way back to how you manage and maintain your facility long term as an end user. So our consultants in the field, the 3:1 ratio John talked about, build relationships with end users first. That is driven heavily into those institutional markets that we talked about earlier, where we're working with end users, that's the facility managers, at superintendents, that's owners, developers -- owner/developers in areas like multifamily, for example, where the intent is to help them build a standard on how they want to operate their facility, ensuring that we can meet all those requirements and complexity that comes from having different types of openings. Our experts are coming in and help and consult on what do you need from a fire code perspective? What do you need from an occupancy load perspective on a certain type of a room or a room like this versus a classroom versus an office has different requirements. And our teams are in a position to help consult on those standards that we want to set up the end user level. That translates right into the design side of a new construction facility, where we're working on behalf of the architect to take the blueprint of that building that has been designed and apply the Allegion solutions of hardware into every opening, one-by-one. It's a very tedious process, but it is a key critical value add and a competitive advantage for us in marketplace. We digitally transfer that information back to that architect and it moves into the new construction phase where a general contractor then is getting involved to bid out the work to the subcontractors. Our relationships and our strong channels now come into play. So that contractor is working with our channels of distribution, to provide back pricing for the hardware, deliver that to the job side. In some markets, they are installing it and helping provide services into that process for the general contractor. And then once that is turned over, that building is opened up, if you will, and turned it over to the end user, that end user wants to validate and have surety that what was designed, was specified in their request as their standard, made through that construction process all the way through. And they want to be able to know to maintain that facility long term, what is the hardware on there? And so we provide consultants into every phase of this process. And we stay with that end user long term to ensure that they're able to meet those needs long term for their facility. So that demand generation, really, as you see there, goes throughout the life cycle of the building. And it's a powerful advantage and competitive position we have in the marketplace that very few can really offer that level of service to each of these stakeholders in that process. When you think about automatic doors and service, the acquisition of the Stanley Access Technologies business, Access Technologies is a full service provider. So we designed the product, we innovate around that. There's new trends that continue to grow in areas of grocery store pickup, online delivery, new openings getting built into existing buildings, drive-thru really has changed quite a bit. There's new segments starting to be created there. And this is an important part of being a design and innovation player, a manufacturer. We then can go sell that. We do that ourselves. We also then can install that and then we can service it on the back end. And so they really bring a full-service approach to those automatic doors. And John mentioned this earlier, but I want to highlight it again, the demand creation that we create on that nonresidential side of our business is leveraged now through what we can do in the automatic door business. So we will drive synergies through that work. Lastly, on the residential side, right? This is very different. When you think about this, you have the consumer play here more than anything. And we really drive the Schlage brand across three dimensions: Quality, innovation and trust. And I think now 4 years consecutively in a row, we have been rated as America's most trusted lock brand in the Americas. And that's external research and analysis that's been done. And I'm very proud of that. Our teams are very proud of that. It comes through the design criteria that we follow. It comes through what happens from a quality and manufacturing perspective, and it comes through the ability to be leading in the technology and innovation space. So if you haven't had the chance to check out some of the products over there that have been launched recently from a smart lock perspective, this is where partnering with the large mega techs in providing that seamless access experience in residential has really begun in off over the long haul with this business. So the marketing activities, the consumer demand that we create there, the presence from a channel perspective to serve new construction and aftermarket and replacement work, a big part of how we win in the residential space. All right. Let's dive into a few of the key priorities. When we organize some of our initiatives within the regions, you'll see this both in the international business and in the Americas. We do it around these three focus areas. And the focus areas are, how are we growing seamless access and that vision we have created for the organization? How are we driving organic growth? And then where -- how are we playing around our business portfolio to continue to drive the margin, profitability and expansion of our portfolio long term? So in the seamless access space, I want to talk first around software. John mentioned it a bit earlier, it is a key differentiator for some key vertical markets that we believe drive more value than just having the business alone of partner. And when you combine the hardware and the technology that's built into the hardware with the software and create a full solution for the end user, we can drive more value in areas like multifamily and solve for some of those challenging problems that have been so far very fragmented solutions in place. And you see up there the Zentra mobile application that I talked about earlier. We're bringing that brand to market, and we're going to continue to innovate on how we bring that solution -- full stack solution for the end user. So they're not dealing with multiple parties in order to solve for services, access and management of the properties long term. Property managers get more efficiency out of that, building tenants, get more value out of the convenience of seamless access as they move about in that facility. I think John mentioned using credentials, like mobile credentials throughout the property and being able to provide access to visitors. All critical things that take time and wasted time for some of the property management needs of the owner. I'll jump to the far right because I mentioned mobile credentials. This is one of the most exciting areas for us. We are in a leadership position here. This isn't something we're developing or it's coming down in our long-range plans, it's here now. You can provide this to the marketplace today. So we're already activating our demand generation activities. We're activating our sales organization. We've got the great partnerships built with the technology players, for the mobile phones across all of those. And today, we're already starting to engage in how we launch and expand and scale this. And it's really an acceleration opportunity for this business, and it will continue to pull electronic hardware with it. So not only do you get the mobile credential, you also get the hardware and electronic locks to go with it. How are we moving so quickly? That comes from our efforts and investments in platforming and expanding our level of innovation across multiple device types. So platforming is very simple. You'll see some of this in our tour this afternoon, but it's quite simple. I'll boil it down to this. The level of connectivity platforms, level of hardware that we can share and reuse across multiple products. So we're not reinventing some of the technology and connectivity solutions that we've built with partners, we will embed those across multiple product types, and we'll be able to have a much more scalable solution that we can get to market faster. So getting the market faster is a key part of winning in this electronic space. Let's jump to driving organic growth. On the far left side, you'll see our strategy around being the partner of choice. John talked about that earlier. In the Americas, it really starts with our distribution channel. We are -- we recognize that we have to have the right relationships to win, both in the new construction space, but also in this area of electronics and aftermarket adoption. We've invested the time to build networks and integrators, locksmiths, contract hardware channels, wholesale aftermarket channels over decades to really be available and be able to solve for all of those ways that a customer may be seeking our products, especially in that nonresidential space. It also goes into the ecosystem side, on the technology side. So whether it's the Googles, the Apples, the Samsungs or even some of the physical access control providers that are integrating our hardware into their solutions, being the partner of choice is a key differentiator for us, and we want to continue to lead in being able to integrate products into that ecosystem. Overtur, in the center, I'd like to kind of call this how we've digitized the whole front-end process of demand creation. John talked a little bit about that as well earlier. I shared the journey we go through in the nonresidential space of going from the end user to the architect and back through. All of those stakeholders have an ability to collaborate across each other using the Overtur platform. We write the specs in that platform. We transmit that digitally to the architect. They provided the blueprints digitally to us. We worked within the system to apply those hardware sets. We then can have integrators, contractors, end users, architects, all working in collaboration on that project. Why is that important? It's really important. These jobs are so complex, they take years to build. We get everyone in a room related to the hardware and access solutions, and there's no hiding. Let's look at all the electronic openings and what needs to be done to make this a successful solution for the end user, we can quickly use our tool to pull that together, manage the scope for that project and ensure that we're giving the training, installation tools and support for that end user to put that product and solution quickly and make sure it's working right the first time. So we manage a lot of that complexity utilizing some digital tools that will continue to support us in the future. All right. On the right-hand side, talking about this connected data and service expertise. You may not be able to see it too well, but I want to talk about the photo. So all of us have experienced a service call or maybe a technician shows up telling you something is broken and says, I'm going to have to come back because I don't have the parts or I don't have the knowledge on how to repair this and -- or maybe even worse, they showed up flip the switch, charged you a few hundred dollars and said, wow, I could have done that myself, right, in some cases. So there is a -- we're investing, and we're continuing to move forward now. We have customers already using this tool today, where now a technician actually has a connected device. And over the last several years, our Stanley business has been selling controllers that already have smarts built in. Now we're layering on that, the software in the application to run the diagnostics, pull that information onto the device, technician knows exactly what the challenges are with that opening, can either provide services to that end user via the phone or can get on site already with the right materials, already with the right knowledge and skill set to repair that door more effectively and efficiently. It reduces the net level of nuisance calls for areas like a pebble in the track at the door or someone put a sign in front of the door. And those can be solved very simply for an owner. Whereas when we show up on site, we're bringing the most value-added service to that customer. And it's technology that's going to be very powerful to also bring data back into our organization and provide that to an end user around the health of their openings. So a really exciting area of growth for us as we continue to drive synergies and technology through even what is today a very service-driven business. I want to finally talk a little bit more around enhancing our business portfolio. We talked quite a bit around Access Technologies. That is a great healthcare example. The ICU doors, the perimeter access doors in a healthcare environment. We have a great opportunity to drive synergy with the legacy Americas team and demand creation engine. I know we've highlighted that quite a bit. But resiliency, I think, is another key item I did want to spend a little time talking about. We've all had great amount of lessons over the last couple of years from a manufacturing perspective on building greater resiliency in our supply chains, in our own factories as well. We announced earlier this year that we have been investing in building a new manufacturing facility in Central Mexico. That's part of building and having our own resiliency in-house in the region to support the region, but it's broader than that. We have been investing in automation, investing in efficiency tools to really get back to driving the margin position, profitability of the Americas business, and continuing to expand that as you think about us going forward. Obviously, we've been able to demonstrate some of that in recent quarters and excited that these investments are paying off and I think delivering the value that you would expect as investing in the company. Lastly, very open to continue to look for opportunities to expand inorganically just as much as we are driving the organic story. This doesn't just mean some of the bolt-on areas of our portfolio, but investing into more services and software as well. And then wrapping it up here, a couple of key takeaways. We have a strong team in the Americas with decades of expertise and experience, building those relationships with end users, architects, driving demand, a strong brand and presence built on trust in that residential business and a growing synergy with bringing in an automatic door, full-service provider of automatic doors and service into our portfolio. Really excited about the trajectory and the investments we've already made and the growth we see in electronics portfolio and some of those solutions that we'll deliver with taking hardware and software and bolstering that solution all the way to an end user. And we've already invested and see a greater level of resiliency. In 2021, we had a lot of challenges. And I think as we've seen over the last three quarters, we are stronger than ever. And I feel we've exited some of those challenges in a much better position to capitalize on where we're going into the future. So thank you for the time to spend a little bit on the Americas. I want to welcome Tim Eckersley up here to talk to you about the Allegion International business.

Thank you. Hi, everybody. It's great to see so many familiar faces in the room. I was last with some of you in 2019. I think we were in New York City. If I am not mistaken, weren't want Tom? Yes. At that time, I was actually running the business that Dave just talked to you about. I was in my eighth year of running the Americas business and man, I missed some of that. But I was asked in -- about two years ago to actually take them on board the challenges associated with Allegion's international businesses. And it's funny, one of the questions I get most often is what were the big surprises that you found when you started to run the international business. And the thing I always go to is that I always expected that the markets and the businesses were actually quite different. And the big surprise I had when I arrived and started to dig into our businesses across the world, is that for all of the things that matter, the businesses are exactly the same as our Americas business. And so I quickly became the Chief of dot connecting. All I was doing was connecting dots, connecting people, putting my arms around my Americas friends and helping the organization learn and understand how to better leverage the skills and capabilities of a very long and large and successful business in the Americas. So today, the international business arrives here as a much more focused organization, one that's aligned globally, the investments are aligned globally. It's leveraging a tremendous amount of the investments that have already been made in the Americas. I have great leaders in the local markets that understand what winning looks like and are holding their teams accountable and perhaps last but not least, delivering improved, predictable and sustainable business results for the company. Those things make me very proud. So let's jump into where our growth plan is. So in 2022, we delivered $741 million of revenue in a, I would call it a respectable 15.3% EBITDA margin. You guys have followed us for quite some time. You know our margin levels internationally have never been this high. And so despite the fact that we ran into a pretty significantly difficult macro environment in Europe and in Asia in 2022, being able to deliver north of 15% EBITDA in that environment, particularly with the issues we were felt really, really good. We have a strong and growing electronics and software business. Important to note that throughout the pandemic, 2021, 2022, the growth of both our Interflex and SimonsVoss business has continued through that malaise. We've invested in market-leading brands and entered into new channels in places like Italy, France, Spain, Germany, Australia, New Zealand, entering into new channels, taking a playbook out of my Americas history and building channel-based businesses in some of these countries. We focused on aligning our strategy with the Americas, which gave us the ability to drive synergies and accelerate our growth potential in our businesses. We're starting to get more creative and aggressive on generating demand. Both John and Dave talked about the demand generation engine of the Americas. We have adopted Overtur. We are going to begin to build some of those capabilities. Overtur spec writers, those are investments that we're making now in many of our core markets. And while 80% of our business happens to be in Europe, I will tell you, Europe and Asia remain very fragmented businesses that have plenty of opportunity for growth and that we can believe we can gain share both through acquisitions and our organic investments in almost every market we're operating in. So our product category, similar to what Dave talked about, my mechanical range -- it ranges across both residential and commercial. And depending on the markets that you're in, you could be in one or both of those. As an example, Italy operates across the spectrum from residential and commercial in their markets. On the flip side, Gainsborough in Australia is a pure residential play. So we have a little bit of both in some of those. Our electronic strengths are in Germany under the brands of SimonsVoss and Interflex. Both of these teams have done a tremendous amount of work over the last several years of expanding their business outside of their core German market. software & solutions is anchored by our Interflex business where their product strength and breadth is their portfolio of capabilities around not just access control, time and attendance and workforce management. Those are the key dimensions of their offer. And they also have a blue-chip customer base. So if you are a German industrial or if you're a German airline operator, pretty good chance that you're an Interflex customer. If you're a supplier to the automotive industry in Germany, a pretty good chance you're a customer of Interflex. And not only are you a customer of Interflex in Germany, but you've deployed Interflex in every country that you're operating in, and pretty significant list of blue-chip companies that they do work for. Recently, in January, we acquired a company called Plano in Germany. That was a business that we bought to support and develop further our workforce management platforms. It is a mobile-first cloud offer, and it enhances our ability to do workforce planning on -- in a mobile environment. And perhaps the biggest key competitive advantage that product gives us is the fact that now not only can managers plan their workforce but individual employees can plan their workforce on their mobile phone. They get sick, they have to go to the doctor, they can get on their mobile phone, and they can actually have somebody fill their hourly slot so that they can go to the doctor and do that knowing that the person that contacted put into that role is available, willing to work and has the skills to do the job. Enormously powerful in an environment like manufacturing. Global Portable Security is the final category of our business. It is the most unique in Allegion. It is exactly what it says. It's a portable security, meaning bikes, motorcycles and the like. We operate there under the brand names of Kryptonite, Trelock and AXA. Our businesses are in the U.S. and in Europe. And we do business in both the OEM space. So again, if you think about a car manufacturer, a bike manufacturer also has suppliers that supply right under their manufacturing floor. So a good piece of our business is actually supplying locks and lights directly on the bikes in the manufacturing environment for these big bicycle OEMs. But we also participate in a significant do-it-yourself retail environment both in Europe and in the United States. Perhaps the most exciting thing going on in global portable security is the advent of e-bikes. I'm guessing that at least some of you in this room have an e-bike or have seen them. They are taking off. They're growing very, very quickly, particularly in Europe and in the United States. And in the United States, they're also participating what I would call micro delivery activity. So downtown environments where you would have a cargo, a small cargo e-bike delivering for a company like Instacart or something like that. But if you think about an e-bike, generally, it will have a lock on it. And in fact, it most likely has two locks on it, doubles our business opportunity because you've got to lock up the battery and you got to lock up the bike. It normally has lights on it, usually front end rear lights on it. And it creates an opportunity because it has a battery to have some connectivity into it that builds then into our connected seamless strategy on a going-forward basis. So good opportunities for our business in global portable security. So looking now at our market size, roughly about $20 billion in our available markets. You could see similar portfolio of opportunity, as Dave talked about his nonresidential mechanical, low single-digit opportunities there. We think that there are -- and then if you go into the electronics side in the middle, high single growth opportunities there, our fastest growing market segment. And in addition to in electronics, in addition to SimonsVoss and Interflex, once I get into my strategies, this is where we're going to lean in hard on all the platform work that Dave was talking about that we're doing in the Americas to attack other markets like France, Germany, Spain, Italy, Australia, New Zealand, where we believe we can leverage technology and bring those things to market. Our Mechanical and Portable Security segments are expected to grow at a slower pace. However, here, we're leveraging our brands and our portfolio and our foot rate to get better scale out of those businesses. As an example, we can sell global portable security products in Asia. We're not currently doing that. We're not currently selling in Australia. So a pretty easy lift to go do some of those things for us as we go forward. And then finally, innovation and digital simplicity is also going to play a role in allowing us to grow faster in these lower or slower growth markets in residential and global portable security. So how do we win in the international business? Well, we're in the early stages, as I mentioned earlier, of creating demand for ourselves. We know the model, writing specifications, creating deep, long relationships with architects, building end user connections and then working with the channel is a proven model. We just have not yet deployed that in a big way in the international markets. However, even without that, today, we do have some strengths. In the electronics side, we are the innovation leader in the markets where we play in SimonsVoss, around Germany. We're also deploying a direct model. It allows us to bring those innovations faster to market and have less reliance on training and developing a distribution channel. On the mechanical side, we enjoy some of the same benefits that Dave has on his historic legacy businesses. We've got businesses that have been in their markets -- leading in the markets for over 80 years. We've got tremendous channel access which is particularly important in some of these European markets where the installer base for this work, it's not a huge DIY market in Europe. The installer base is very fragmented. Lots of small little operators are doing the work critically important to have good, strong channel relationships and channel capabilities. Finally, on the software solutions side, that the strength and the depth of our solutions portfolio is the key driver and key reason we tend to win. I've already mentioned the fact that we have the access control, we've got time and attendance, and we also have workforce management. You combine that with a robust API that is bringing in world-class technology partners for video management, visitor management and on and on and on, you get a very broad portfolio of deep solution that is one of the key competitive advantages to our business in software solutions. So while there are subtle differences between what Dave and I are doing in our markets, largely due to the maturity of the international market compared to where we are in the Americas. Our key priorities remain virtually the same as his, so they are the same, extend and grow our position in seamless access. Again, Dave is further along in his markets, but we've got a great opportunity to extend and grow our seamless access capabilities, drive organic growth in the business and continuing to enhance our business portfolio. So if I jump into each one of these separately, you'll start to get a sense of the work that's currently going on that is fueling our growth for the future. Under growing seamless access, it first starts by building and growing our software solutions business. The strength we're going to and are in the process of strengthening both SimonsVoss and Interflex through the development of cloud-based solutions. We're going to supplement our current license model in those two businesses and begin to attack market segments with a smaller software as a service opportunity for the marketplace. The acquisition of Plano in January gets us going on that path and on that journey. And we're already selling well over several million dollars of software as a service on a monthly fee in those businesses in Germany. We also need to, as I mentioned a minute ago, leverage the platform work that's going on in the Americas. 90%, 9-0 percent of the platform, hardware work that the Americas team is driving can be applied to the markets in international. It's only 10% difference is around either aesthetics, the mechanical connection with the actual mortise lock on the door or door thickness are the drivers that change that. Outside of that, I can reuse 90% those investments. And when it comes to software, the multiplier is even better, 99% of what we're doing in either the connectivity -- connectivity software or in some of the application software can be used and applied to my markets in international. What does that do? It reduce my cost. It reduces my execution risk, and it accelerates by time to market. And we have programs now in place to support growth in places like Australia, New Zealand and France, where we're not currently doing any commercial electronics, bringing those products to market in the next several quarters to accelerate our growth and opportunities there. Finally, we're going to leverage our heritage and credentials that John spent a good bit of time talking about to establish leadership globally in monetizing mobile credentials. There is only maybe three companies in the world that have the capability and the scale to monetize and drive mobile credentials globally, and we're one of those. And we're going to lead that space. And it becomes a lot easier when you're working on platforms that are the same everywhere in the world. John mentioned this as well, but I think it's an important point. In our electronics business, we have virtually no new tenders for either retrofit or new construction that don't have some requirement to either provide mobile credentials or be prepared and ready to deploy mobile credentials if they need it. It's happening now, and it creates a great opportunity for our business as well as Dave's business in the Americas. On the organic side, we're just getting started with Overtur. I'm super excited about the opportunities and how great this can be for our core markets. We have now deployed in Australia, New Zealand and the Middle East, the benefits of collaborating with architects, general contractors, end users and channel partners are already reducing errors, and reducing the number of change orders that come out of this process. These companies are getting off jobs faster and it's having a meaningful impact on the momentum that they can drive. I would also say that artificial intelligence and machine learning capabilities that have been early -- early capabilities that have been built into Overtur are also allowing me to leverage a low-cost specification model. So my specification teams, the people that write the specifications are all centralized in a low-cost country. Gives me speed, gives me lower cost and it gives me the ability to deploy specifications anywhere in the world using that team. Really powerful capabilities there. We're also developing new markets and new channels. So window, door, again, leveraging the channel work from my days in the Americas, Mr. over there smiling. He remembers that playbook. Entering new channels, windows and door OEMs. We were having a conversation around some of the demand that's coming in Europe for some of the new energy requirements. And a lot of the new windows and doors that are going to be put into these facilities to meet this new demand are going to have equally challenged and code-compliant hardware that gets attached to them. And we have been moving in into the OEM space in a very, very aggressive way. And finally, our geography, the fact that we're in so many countries gives us scale to take our offers into other markets. And I mentioned high-security cylinders that we do in Europe, we can bring into Australia and New Zealand. Similarly, portable security in Asia. Those all represent opportunities to take our SG&A base on a global basis and drive down the cost of deploying and driving higher growth in our business. And finally, enhancing our business portfolio. Dave spent a lot of time talking about SAT, fantastic acquisition for Allegion. I would never have had the ability to go buy a much smaller door -- or automatic door company in a European country. However, Allegion now owns the global leader in auto doors. I now have the obligation to build a global platform using that as a base. And our ambition level and our expectation is that we can build a manufacturing service and install business, just like SAT in many markets around the world. Some of that will be done by organically and some of that may be done inorganically. But we have the opportunity to take a very strong model that is represented in Stanley Access Technologies and bring that to many of our core markets. One of the other areas that we are leveraging from the Americas perspective is that they have a -- we have been investing heavily in front-end and back-end digital capabilities. Things that make it seamless and easier to do business with, transmit orders, understand the status of orders, enhance the experience customers have. We are in the process of replicating those same tools into the international market. Again, very little in unique requirements when you go about doing this. Sometimes you've got some language work to do. But for the most part, whether you're talking about a product management database or call center system or an order management automation process, those tools can be leveraged. And I am stealing everything from Dave that I can possibly steal and putting it into our business to simplify it, streamline it, drive down our costs. Finally, as we did with Plano this year, we will continue to manage a robust portfolio, a pipeline of acquisition targets that are largely around technology, largely around software and extending our position, but we also have quite a few bolt-on opportunities in our markets as well to add and supplement either a geography or a core part of the mechanical hardware as well. So we'll be looking at all of those things on a going-forward basis. So in conclusion, the transformation of the international business is underway. It's happening today. We have a sustained growth mindset across my entire business, good leaders in the field. We've demonstrated our ability to improve and sustain our margins, and we're not done improving our margins. There's still opportunity ahead of us. We're leveraging the Americas hardware and software platform work quickly establishing a comprehensive electronic commercial offer in markets that we do business in. We're investing and leveraging in digital tools, and while we're a bit behind the Americas on electronics, we have significant market opportunities awaiting us based on the brands and the position that we have in our core markets, and we're poised to capture that opportunity. The international business has never been in a better position to grow. I'm super excited about it. The leadership is focused on it. And I believe our best days are ahead of us. So I appreciate your time and your patience as I presented. I want to turn over the podium now to Mike Wagnes, our Chief Financial Officer.

Good afternoon, everyone. Thanks for joining us today. We're really excited to have you join us here at our facility as well as come to our tech center later today. So I'm Mike Wagnes. I'm the CFO of Allegion. Many of you know me as the -- when I was in my Investor Relations role. I've been with the company 12 years, the role I had prior to this, I ran our North American nonres business. I was the GM, Dave at home. I was the nonres GM. So if you think about what I'm here to present today, I'm going to take the strategy that we went through earlier today, and I'm going to build it into our financial framework. And our financial framework starts with creating long-term shareholder value for you. We think about it as returns for you, the shareholders. And it starts with organic growth. We're going to drive above-market growth. We're going to have accelerated growth coming from electronics, as you heard the team talk earlier today. We're also going to drive margin expansion. For us, margin expansion is in our DNA, and we're going to be driving that margin expansion moving forward. John talked a little earlier about some of the challenges we had with the supply chain, but I think those are mostly behind us, and we are back to drive the margin expansion. With the combination of growth and margin expansion, we're going to convert that earnings to cash, and that cash, we're going to deploy effectively to drive shareholder returns. If you think of Allegion with capital deployment, think of us as a double-digit EPS growth through the cycle. This slide is our historical performance since been. And as you can see, it's that mid-single-digit growth, organic growth, driving that double-digit EPS growth over the period from 2014 since last year. Admittedly, it's a little muted because of the results last year from supply chain, but we are in a much healthier position as you've seen in the last three quarters. So we're back to expanding margins. And if you look at the cash flow though less last year due to some investments we've made in inventory, as you saw last week in our earnings outlook, we talked about this year growing cash $100 million over what it was last year. So that formula for us, driving the growth, leveraging the margins to EPS growth and deploying the capital for shareholder returns that message we've talked to you about since we spun is still intact. One of the things about our business is the resiliency of the business as well as the margin profile. So Dave talked earlier about that institutional nonres business, that is a very resilient late-cycle business. You've heard us talk about this on our earnings calls that we're a late-cycle business, that gives us visibility to markets and how they move and their dynamic and change. It also allows us to have a more stable top line as a result of institutional markets, not having the choppiness as you think of other markets. So it's a very resilient business that leads to resilient and stable margins. Capital allocation, John spoke to earlier today. It starts with investment for growth. Dave and Tim both gave you the specifics for their respective regions, but we're going to drive above-market growth, capitalizing on the opportunity in electronics. For dividends, as you all know, our dividend has increased steadily since we spun out. We're now at a payout ratio of about 30%. Look for us to increase dividends commensurate with earnings moving forward. So 30% payout ratio is the right ratio for us. And look for us now to grow the dividends commensurate with earnings. M&A. John talked to it as well. We feel this is a good way to return or drive shareholder returns for investors. And I have a few slides coming up where we'll walk through that in detail. And then lastly, share repurchases. At a minimum, we're going to offset any dilution from incentive comp, and then from time to time, also as needed make additional purchases. This slide shows our capital deployment numerically. Over to the left, you'll see over the planning period there is approximately, let's say, roughly $1.7 billion planned in available cash flow. That is after CapEx as well as organic investments. And then over to the right, you see we have very minimal debt payments. We have a very healthy balance sheet. We have $100 million there that represents the revolver borrowings that we had at the end of last year and a small term loan repayment that we have on our existing term loan A. Obviously, the repurchase of the is illustrated there for repurchases. And then with the remaining $1.5 billion, think of it as 1/3 dividends and then 2/3 additional deployment available for shareholders, whether M&A being a big piece of that. In addition, rather, we have significant borrowing capacity. Our -- I'll go through this on our next page. Our debt-to-EBITDA is in a great place. Our leverage ratio and balance sheets are in a great place so we can borrow for the right acquisitions. This is our leverage profile over time. As you'll see, from time to time, we'll increase our debt for the right acquisitions. I'll draw your attention to '22. We bought SAT last year, Access Technologies. We levered up to 3.5x. We were able to drive that down a full turn by the end of last year by paying down some debt and growing EBITDA. So we are in a very healthy balance sheet. We're an investment-grade company. We expect to remain an investment-grade company that is important to us. It gives us access to the most cost-efficient capital for the enterprise. Organic growth investments, they're really important for us, right? So as we think of our organic growth investments, there's three areas where we focus these investments. Number one innovation. You've heard a lot about electronics. Electronics is accelerating for us, right? We're going to capitalize that and make the necessary investments in electronics in the business to take advantage of this market opportunity. Demand creation. The front-end demand creation activities that Dave walked through for our business, especially in the Americas is a competitive advantage. We will continue to fund those demand creation activities. Those are great return on investments, and they help lead to us having the competitive advantage we have in the marketplace. And then operational excellence. Operational excellence is more than just building a plant in Mexico. It is about driving operational efficiency using automation, driving productivity, which helps drive that margin expansion story, right? We are committed to driving margin expansion. You heard me on the call last week in our earnings call, we expect to see 50 to 100 basis points in margin expansion moving forward every year. This is part of those investments we're going to make in order to drive it. From an M&A perspective, you heard John talk about some of the priorities we're looking at. We're going to have a focused approach to M&A. It's going to be three priorities we look at for targets. One, does it expand the product offering, right? So Tim talked some of it in Europe as well as John talked about it as well. An example, and I'll go through some case studies on the next slide. If you think of Access Technologies, it gives us that product gap fill that we needed in that hospital. So a great add to fill that product gap that we had. Emerging tech and electronics. We will continue to look at acquisitions that drive the electronics growth opportunity that we see. This is a long-term growth driver for Allegion. Electronics is not something that's going to be a 3-year phenomenon. And then everyone -- full penetration, everyone's at full penetration. Think of this as a long-term opportunity, and electronics assets for us are going to be things that we desire and target. And lastly, software and services. We know that SAT or Access Technology is a great example of this acquiring a high-growth, stable service business. We love that asset in our portfolio. From a criteria standpoint, any kind of acquisition that expense or TAM, gives us a leadership position we can scale as well as we look for assets where there's clear synergies. You've heard us talk over the last year, the synergies of the spec engine in the nonres business with the Access Technologies business is a real asset we can leverage. And we're looking for transactions that we are able to leverage. And then from a financial profile, obviously need to have ROIC or we target having ROIC in excess of We got to return our cost of capital for the benefit of shareholders. And we love adding more recurring revenue. An example would be Access Tech as well as the Plano acquisition that Tim talked to. If you look at some spotlight of acquisition targets, I laid out three here to give examples of what you just saw in the previous page. SimonsVoss, that's that electronics and technologies business that we love. It was purchased in 2015 since we bought it, delivering double-digit revenue growth CAGR for us. So this is -- when you think of electronics, it's not just the Americas, it's also international, and this high profitable business is helping drive the higher margins you see internationally. AD Systems is a business here in the U.S. in Seattle. Think of it as a specialty door company that we bought in 2018. We've been able to double the size of that in five years by leveraging our sales channel in our existing business where we take that product, put it through our sales channel and really drive returns. And then, of course, Access Tech, love the business. We think that this business is even better than we announced it in April of 2022. And the synergies between both sales forces is a long-term growth driver for us. Which brings us to the money page, the organic financial targets. So this is excluding capital deployment. But as you think of the 3-year framework, look at revenue growth as a mid-single digit. This is above-market growth, driven by that double-digit CAGR coming from electronics. Now historically, you know our business. We're a little more back half than front half. So if you think about '24 and '25, a little more back half than front half on the top line. Of course, in '23, you saw our strong results last week. We'll be more 50-50 in '23. But as you move forward, think of it more along with historical levels, a little more back half. Margins we're going to be driving that 50 to 100 basis points of margin expansion each year. And we're going to do it two ways. Number one, we're going to be getting volume leverage on that high variable contribution margin business. And then two, we're going to drive pricing and productivity to cover the inflation and investments so that in aggregate both items will lead you to that 50 to 100 basis points of margin expansion. From an EPS, think of us organically as driving 8% to 10% EPS growth before deployment. And then from a cash conversion, roughly 90% to 100% of earnings, net earnings to EPS, and that is one of the dilution items, as you all know, is the difference between the book tax and the cash tax. I just walked through the organic framework. This is the framework on a long-term basis with deployment, right? So over to the left, you see the above-market growth, margin expansion driving the 8% to 10% organic EPS growth. But it's the ability to leverage that cash and deploy it effectively to drive the 10% to 13% returns inclusive of deployment with the dividend yield driving 11% to 14% returns for shareholders. So through the cycle, this is a double-digit returns business, which I'll conclude the finance section where I started. It all starts with creating shareholder return in once again, organic growth. We believe there is an opportunity to capitalize on electronics and software to drive above-market growth, and we're poised to take advantage of this market opportunity. We are the leading EBITDA margin business in the industry and look for us to continue to expand those margins, convert cash in a very resilient industry and margin profile to drive the shareholder returns of the double digits. So with that, I'm going to pause temporarily while we get ready for Q&A, and I'm going to bring Dave, John and Tim up with me.

All right. I think we're back. Just for the questions. We've got two microphone runners room. If you have a question, just raise your hand, they're going to find you. Make sure you wait for them, so that everybody on the webcast can hear the question as well. I'll be sure to introduce yourself, they'll hold the microphone while you're asking. At the end of the Q&A, we'll just have a few final remarks from John, and then we'll break. Just ask everybody to stay seated until the end of the webcast, and then we'll come back with more information that regarding those that are going on the tour. All right. Sounds good. So let's open it up. Who would like to start over here.

All right. Joshua Pokrzywinski from Morgan Stanley. So two questions. I guess, first, a lot of focus on the growth vectors, including inorganic, getting a lot more attention than I think we've seen for a while. Anything relative to the Americas nonres business margin dilutive, and that's just sort of the price of success. But like how do you guys view how wide that aperture is and that trade-off of growth versus margin coming high level and what you'd be willing to underwrite at different margin levels?

That's a really good question, Josh, and thanks for going first, I'd say. First off, I don't subscribe to the assumption that anything we do inorganically is automatically margin dilutive to Americas nonres. I think there are opportunities, particularly in these new technology spaces and around electronics and the software that interacts with those electronic hardware pieces that give us pretty interesting and compelling opportunities. And so I'd say that's not a given. I would also say, just like with Access Technologies, we did make a large acquisition that is dilutive to Americas nonres. But like you saw from Mike, Allegion has a history of expanding margins on a very regular basis. We have capability. We have muscle around that. We can do that. Access technologies is going to be no exception. We will be able to expand the margins of that business and continue to expand the margins of Allegion as a whole. So I think the aperture to that part of your question, just think about how we describe ourselves. We are a pure-play provider of solutions for security and access. That's our sandbox, and that's how wide the aperture is.

And then just a follow-up, a lot of discussion again on the electronics area of just kind of transcending credential. A lot of us in this room have one of these probably with a different logo in the back than you guys are used to seeing. Moving over to mobile breaks that ecosystem a little bit more, which I would imagine you guys love. Any way to give us some sensitivity on what this kind of before and after looks like as maybe some of these barriers to really getting the product out there around credential go to something a little bit more obliquitous.

Yes, great question, right up the middle of what we see as driving change in the industry. I would say our industry doesn't turn on a time, right? We don't change at lightning speed. And again, like some of the case study examples we talked about, a large complex university campus with a lot of legacy systems, and my first definition of seamless access, I used a metal key that gets in certain doors and not in others, an encrypted card like you have. And like I still have, I just don't need to use it because we have mobile credentials here at our campus with the mobile, the digital ID, they're going to coexist for a long time, and we need to be able to have solutions that meet those end user requirements and desired outcomes with all three of those particular technologies. But like you heard from Tim, like you heard from Dave, the end user pull for, at a minimum, the capability to be able to adopt mobile credentials is really prominent in our space right now. So I think that's what is continuing to pull electronic hardware through the channel. That's what's continuing to drive different tenants experiences and apartments, different student experiences at the university and efficiencies for those end users in their business. So the transition has legs. It won't be overnight. This is a multiyear mid- to long-term transition that we feel internally is a double-digit growth driver for our business.

Can I add one other -- just a quick point to the -- because the real disruption here is the breaking of the credential from the identity. And the old world that you're walking around with the identity and the one thing. In this new world, the identity gets owned to buy somebody different, mega tech, maybe even yourself individually, whereas the credential gets attached to that identity. So the ownership of the identity is one of the big questions. And of course, we're agnostic there. Some of the other companies that play here aren't agnostic, so.

Thanks for the presentation, everyone. I guess I just wanted to ask about the margin expansion. And just thinking back prior to the pandemic, you guys were generating kind of a 30% EBITDA margin and then through '21 and '22 that came off 300 basis points. Now you're talking about growing your margins, your EBITDA margins of 50 to 100 bps a year. Is the goal just to get back to that 30% EBITDA margin? Or is there an opportunity to go beyond that? And if so, could you just talk a little bit about that?

Yes. So if you think about our margin expansion, this is not just three years to get back. This is part of our DNA. We're going to expand margins. We're going to drive price and productivity to fund the investments and the inflation. So think of this as beyond that. You determine based on your model when we get beyond the historical peak. But if you look at that 3-year planning horizon, we should be back, as you saw on the chart, I showed EBITDA down less than $200 million over the on that EBITDA chart. So we'll get there over the 3-year period. And then we're going to continue to expand margins on the core business. Each business is going to drive that productivity and pricing discipline to get back that margin expansion mantra.

I think we have one over here.

Brett Linzey, Mizuho. So I just want to put a finer point on some of the long-term algorithm. You laid out the different segmentations of the market. I just want to clarify, does that include just volume itself. And then if not, how do you think about higher ASP and mix and price within that component, thinking about the long-term construct.

Yes. When you think of long term, long-term think of it as market plus for us, especially as you get out to 2025, it's more choppy to understand what market will be. Just know that we'll outgrow it driven by that electronics. Electronics gives you that ASP uplift as well, so where we are in that mid-single digit is going to be determined on market, but we will outgrow because of our ability to capitalize on this real opportunity in electronics.

Okay. Got it. And then you talked a lot today about the front-end demand creation. Just curious where you're at in terms of the continuum of investment. Do you think you're at the right level now? Does it need to step up over the horizon, any way to quantify that?

Yes, you'll see -- you'll have a couple of conversations at the tech center for those of you who get to go and hear a little bit more about the Overture tool. And so there's investments both in human capital on that front and also on the digitization of that front-end demand generation. So Dave and Tim have been really instrumental in leading programs that bring in young civil engineers, train them the specification writers, get them out to the field, get them with customers, learn how to do that job because that's a tough ramp. That's a tough skill set to build. So I think continued investments in both the digital experience as well as the human capital. And Mike categorized it right. I mean, these are high ROI people that we invest in. Thanks for the question.

And we'll just keep going back and forth, I guess.

Jonathan for Compared to your largest competitor, your R&D expenses are about 170 basis points lower as a percent of revenues. How should we interpret that difference? Are we more efficient with R&D? Is there a business mix difference? Are there differences in what you classify as R&D and how they classify their expenses? And should we expect that difference to narrow or stay the same over the next several years?

Yes. Jonathan, thanks very much for the question. Sorry, I need to turn a little bit this way so the microphone works. As an engineer, I can tell you, certainly, any engineering organization can do more with more. When -- if you join us at the tech center, you'll hear more about what Tim was talking about, what Dave was talking about on platforming, which is very powerful for us, very powerful for efficiency as well as speed to market with new designs. And yes, I would feel also that, again, speaking as an engineer, having grown up in those kind of organizations, a bit of a tight belt drives some of the most incredible innovations you can come up with. Too much money is bad for an engineering organization. So in terms of the accounting differences, I don't know. I don't know that it matters all that much. What I would say is we're proud of the product portfolio we've got. We lead with innovation, particularly in the premium price point segments of the markets we operate in. And we earn that premium through the quality, the design, the features, the robustness, the ruggedness that you'll see when you go out and watch the demos there. So overall, I feel very good. And if you look at our history, engineering headcount has gone up a lot more than the total dollars spent since spin from Ingersoll Rand. Vince, our CTO, will give an intro but I'll steal a little bit of his thunder that we have a very large engineering center, technical center in Bangalore, India, quite cost-effective center for us as well. And that is a taking us to new heights in terms of the amount and quality of new product development design we can do.

Tim or Jim?

Tim Wojs from Baird. Thanks for your presentation. First one I had, just on the software and the service piece. I mean, what is the business model, I guess, behind software? Like what are the unit economics to Allegion when you think about kind of the software, kind of accretion or the business model for you guys? And I guess maybe secondarily kind of high level, how do you kind of balance the open approach to kind of owning more software assets?

Yes. Great, Tim. Thanks for the question. I would say unit economics in simplest terms, just think of this again as commensurate with the economic value that the full stack solution is delivering. So at an apartment building, I don't need so many people. I don't need to hire a locksmith to come and change out all this stuff every time my tenants change. I can do it from a laptop or a tablet in an office, et cetera. So those cost efficiencies, we feel we can charge for. Think of it as a nominal fee per door per month. Similar on the automatic door side. Dave was talking about the efficiencies of -- technician efficiencies on our side that I know what the problem is when I go out to fix it. So first time right, I show up on the job, I fix the problem. And technician time is extremely valuable, right? You don't want to waste time just looking through a windshield. Also nominal fee per month per door. The benefit in that case is fewer false alarms. I'm not paying technician rates for something that was not really a downtime failure type problem. So simplest level, that's how I would ask you to think about it. High level, I would just say, again, you heard from Tim, a good proof point is the Interflex business that's been in access control and workforce management for some time now. Bolt-on acquisition with Plano to grow that at what I would say is a high-margin, recurring revenue level, and we're looking to do more of that. But the magic is still, what I would come back and make sure we walk away knowing this is not a from-to story. It's and. The hardware is the magic. The hardware is what's so hard, the specification, consultative sale, millions of SKUs made to order. I can't overstate the complexity of that and how hard that is, one of the main drivers as to why there's only a handful of companies in the world that can do this at scale. When you see that device has an assembly as that is a life-saving device, and we're producing multiple different SKUs and one's coming off the line every 30 seconds. So it's quite amazing to see how that's managed as a manufacturer, and I think that's really important for us going forward.

This is Vivek from Goldman Sachs. My first question is on total addressable market. The TAM went from, I think, 2019, it was $20 billion, and now it's $40 billion roughly. Just how much of it is really pricing related? What new end markets or verticals got added to it? That would be helpful.

So I think looking at the total market, I wasn't here in 2019. So I can't give you the quite detailed there. But I would say we engaged several external parties to take a rather expansive look at the markets we participate in and take a look at in the security and access space where we play, what's that addressable market. And again, we see it about 50-50 split, 50% in Americas, 50% in international. How much of that was price inflation? I don't really know. What I would say is you look at our total sales in either market against that total addressable market, we feel very good about the current position we're in and our ability to continue to drive above-market organic growth in that space.

I can add a little as well. If you think of 2019, we did not have Access Technologies or any of the addressable market that came with Access Tech. We also had a smaller software business. So as we think about the TAM, it gets a little larger as you think about some additional businesses we're in today. And so we were pretty narrow when we defined it in 2019 as we've expanded our offering, it does expand the TAM as well.