All right. Thank you, everybody. Chris Knight, our U.S. Multi-Industry Analyst. Super excited to have Allegion with us today. We have Mike Wagnes, CFO, Josh Pokrzywinski, IR, who is quite familiar with this stage, I have to imagine. Thank you guys for coming. Thanks for having us, Chris. Oh, absolutely. I guess, you know, access control, it's an industry with great pricing power, really premium margins. I guess, what is the moat here that keeps the industry consolidated, you know, kind of restricts new entrants and allows everyone to generate strong margins? Yeah, if you look at our industry, there's two players, especially in North America, who are able to outfit the building with the suite of products necessary to hit all elements of the building. We are blessed to be one of those two. As a result, it's a highly configured, specified product. Part of our unique front end, and our front end is different, we create demand by influencing the architect and the end user, and we pull product through the channel. By creating that demand the way we do, we're able to get a sticky installed base, a sticky end user relationship, and that gives us the pricing power and really the ability to maintain end user relationships and customer relationships for our products. Can you talk a little bit more about that specification-writing process and how it differentiates Allegion and, you know, maybe one other competitor that can do it? Yeah, so what we do, if you think about the building code, right, there's many different sections of the building code. For door hardware, we actually write this specification. Our employees write this specification on behalf of the architect. What that enables us to do is to write in the type of products that we sell in order for us to win the product. That spec engine, write more, win more, is a real competitive advantage that really two players in the industry have. The spec engine alone is part of the sauce, but it's coupled with the expanded products that we have. If you think of our brands of products that we offer, we are the market leading brand in the premium space, as well as long install base and relationships with end users. It's all three of them that enable us to create that unique advantage. When you think about the spec engine in particular, think of it as you write and you do the work that the architect doesn't like doing to give you a leg up to win that product or project. It's a unique advantage that we have, and it really is something that allows, there's only one other player in the industry that really has the strength that we do. It creates a great rational industry dynamic. Yeah, it's a real true moat. I wanted to ask about how AI could impact this. You know, on one hand, I would imagine you guys would be very well positioned to bring something like that to the market. You have all the data, all the spec writing. On the other hand, I wonder if it could also make that specification-writing process less burdensome for the architects, and then maybe they don't need to outsource it as much. If you think about an opening and the way we sell, it's very consultative. It's consultative. I mentioned the word end user and architect multiple times. It's more than just writing the spec. It's being able to know what that should be and working with your end user to give them what they need. It's a consultative process. As a result, AI will enable the market leaders to become more efficient. It doesn't, it's not something that makes me concerned about disruption because if you don't have those relationships with the end users, the installed base, and the product offering, it's just AI technology. You really need all of it together. I look at AI as an opportunity for the leaders to be able to leverage that technology to make us more efficient in the process, not so much a competitive disruption that I'm concerned about. Yeah, no, that makes a lot of sense. I guess one thing that I've struggled with is to think about Allegion, you know, in the context of the broader non-res cycle. You guys talk about, you know, we could lag a start by 12 months-1 8 months, you know, doors go in super late. You also sell through distribution. If I kind of like plotted your growth, it feels like it tracks more like, you know, in line with non-res rather than at some, you know, year or 18 months delay. I mean, feel free to push back if that's wrong. How do we, how should we think about that? If you look at starts data, I would say look at starts, lag it that year. Put in place, obviously, in the case of Dodge, that's a little later in the cycle. You wouldn't lag it as long. The thing I would share is that our product is one of the last elements that go into the building before the certificate of occupancy is granted. That's important because we're a small portion of the cost of a building. However, it's not worth it for the GC to try to value engineer out the product or try to get a different alternative. It allows us to have part of that great pricing power and that stickiness that we have. It's not worth it at the end of a project to try to change out the hardware. As a result, that's what makes our business kind of that small part of the overall building footprint, but the cost of failure is not worth it for a GC to try to find an alternative. Yeah, no, I appreciate that. America's margins have been a phenomenal story and profit driver for the company. I think up about 500 basis points last three years, above 2018 and 2019. I have, despite dilutive M&A, you know, not much volumes, tariff headwinds. I guess, one, can you kind of talk about, you know, obviously you guys have great pricing power. Can you kind of talk about the drivers of margin expansion? Also, is it getting harder now with America's in the roughly 30% range to continue to expand the margins? Yeah, so our Americas business, just to give you some history, we ran into some challenges with our supply chain in 2021 and 2022, and we did see a dip in our margin rate. Since 2022, we've been steadily recapturing some of that margin decline. Over the last three and a half years, we've really done a real good job of getting back to expanding margins the way you've known us to do over the last decade and a half. There are a couple elements that drive that. Number one, we are blessed with a high variable contribution margin business. As we get volume, we leverage it extremely well. If you look at our first half results, our non-residential business has done well, and as we have that volume, you see that margin expansion and that ability to leverage volume. A second element of our business is we do a pretty credible job of managing the inputs. You'll hear us every quarter on an earnings release say we're going to drive pricing and productivity to cover the inflationary impacts and fund our investment. The thing about our business and our performance over the last three years is we've had good margin expansion. We'll call it about 100 basis points a year over the last three years. At the same time, we've increased our R&D expense 1.2X in absolute dollars, and as a percent of revenue that's also increased. We're growing our margins while investing in our business. I think moving forward, that ability to leverage that volume and that high contribution margin should continue, and we should continue to expand margins. We'll always continue to invest in our business for long-term growth. Yeah, kind of speaking of investing in the business, maybe on the M&A side, you guys at the most recent investor day raised the M&A contribution to about, I think, two points per annum now. You've completed a number of deals over the last year. I guess, can you kind of talk about some of the acquisitions the company's done and why are you making M&A a bigger piece of the story? Yeah, over the last, I would say, 18 months, you've seen an acceleration in our M&A activity. This year in particular, it certainly has accelerated versus last year, but it really started to pick up in last year. What you're seeing is our ability to take existing businesses that we have and the strengths we have, and when we make acquisitions, we can complement our existing portfolios such that we drive more value than if that acquired company was on its own. Josh and I visited a couple of our facilities here in Southern California yesterday before the conference. Both of these businesses, non-residential products that are sold through the same channels that we sell through to the same customers. We're able to specify these products like the existing portfolio. Now these acquired businesses are able to benefit from our 600-person sales force in North America to drive accelerated growth for them. I think any time that we can leverage the existing strengths we have with the acquired companies, we're able to drive value, whether that's leveraging the North American non-res sales force I mentioned we saw earlier today, or technology. We made a sizable acquisition for us, ELATEC, in the third quarter. Here you have a case where Schlage is one of our brands, a premium brand in the industry. Everyone probably in the room knows it. ELATEC both provide cards and readers. This makes us even stronger in that space. This is a high growth, high margin business. It's a way of saying it. It's a way of executing our strategy, buying high quality companies and making them better under the Allegion umbrella. Appreciate that. We've seen a lot of bolt-ons over the last couple of years. It's been about three years since you guys bought Access Tech. Do you feel like now is the time or enough time has passed that you could start looking at bigger, more transformational deals, or should we continue to focus on the bolt-ons? Yeah, if you looked at Allegion, I'll give you some history. The largest deal we've done in our 15 years here at Allegion is Access Tech. That's a $900 million acquisition. The second largest was the ELATEC I mentioned. We just closed on that this quarter, a little under 400 million USD equivalent. That kind of gives you an idea of what a large deal is for us, right? Our acquisition strategy is not multiple billions from an acquisition. They're more in, if it's going to be big, you could see it somewhere between ELATEC and the Access Tech. That would be big for us. Most of our acquisitions are the singles and doubles that complement so nicely with our existing portfolio. The ones we announce, you can, when you look and read the press release, I hope you all would say, yeah, I understand why Allegion would own it, that they would be the rightful owner of an asset like that. From a size perspective, I think that you have an idea of the relative transactions we look at. Transformational deals in the multiple billions is really not where we are as a business. Yeah, no, I appreciate that. Maybe moving over to the markets, I know I felt like the last couple of years you guys have taken a more pragmatic view on resi and have been right. On Q2, you guys were talking to better non-res, maybe even modestly into the back half. We've since seen some of the leading indicators get better, whether it's Dodge or what have you. I guess, how do you see activity shaping up across non-res? Yeah, so non-res, we've been talking about it all year in our earnings releases. Non-res has been pretty good this year. What you see is non-res has been weak. If you think about 2021, 2022, 2023, and 2024, it was a little weaker market, Chris. Now you see it start to accelerate out of that weakness. Historically, if you think of non-res, it doesn't decline deeply, but it could be soft for a while. Now we've turned, I think, the corner where you're back to a growth period. Historically, markets there have been growth for a while as well. I do think that you're at a point where non-residential is really showing some health, right? It's the leading driver of our growth this year as a company. We expect, if you look at our outlook for the year, we expect non-res to be that growth driver for us. I think we're positioned nicely as the premium player in the category to take advantage of these strong markets. I appreciate that. If we look over the last couple of years, you've had the institutional side being steady and positive, and the commercial side being steady and not positive. When we see this positive rate of change, is it that both sides get better, or is it really that the commercial piece gets better and institutional kind of stays the same? If you look at our business, I think there's a couple of things. Institutional certainly has been really healthy for us. Think of our business as K-12 education as the biggest institutional markets. That's driven by local funding for local projects. Your local school district is going to put and build schools for your schools when they're needed, and you're going to fix product that breaks when it's needed in the K-12 education school. That's our largest market. In the case of commercial or multifamily, it's a function of they've been bad for a while. You no longer have the headwind of commercial office being so weak, so that may be not muting the strong results you see in institutional. The last piece I'll just call out is it's not big for us, but data center has been a nice tailwind for growth. One thing that has me encouraged is I talked about the specification-writing process earlier in the presentation. Our specs for data center are really strong, so what that makes me feel is that the next few years should have strength in the data center. It's not a short-term, more a long-term growth driver, which I really like. Data center is growing nicely, although it is off a very small base, but it's a pocket of positivity from the non-residential markets side. For us, our North America business has about 20% of our revenue in residential. Residential has been weak for us for a while. We are tied more to aftermarket, so roughly 2/3 of our business was aftermarket. You could think a big driver of that would be existing home sales, and that's something that's been weak for a while. It's not something I'm concerned about as far as a future headwind, but it's probably not going to turn until we have some favorability in rates, right? Interest rates, which will help existing home sales. No, I appreciate that. I wanted to follow up on institutional, you know, your biggest vertical, an incredibly stable market. Historically, it seems to move slower than commercial. I guess the question is, is there a risk that institutional decelerates or softens into 2026? Because it does tend to react slower to commercial. There is maybe some government tangential, even in education or healthcare, there may be a tangential impact there. Any thoughts on that into next year? Yeah, I'll touch it briefly. I'll have Josh talk to some of the data. The thing about institutional, right? I talked about the K-12. A big driver of that school funding is municipal bond issuances. Josh, why don't you kind of share with the team? Yeah, absolutely. The impacts there. Good question, Chris. If you look at our institutional business, a lot of that is funded really at the local level. If you think about K-12 spending, that's stuff that happens really at county and city type levels. Municipal bond issuance, if you've looked at what that's looked like over the last 18 months- 24 months, has been very healthy. Some of that you see normally in an election year. There is some, I'll call it medium-term seasonality to that. Even the momentum into 2025 has been really strong. Those are not dollars that get spent in real time. Those take a decent amount of time to stretch out. Relating back to what Mike said earlier, it's not a market that has really high highs, really low lows. It tends to be pretty stable. The funding is stable and fairly localized as well. You mentioned maybe some of the fiscal nuance that may be in there. I know ESSER comes up from time to time for folks. At the federal level, there's really just not a ton of exposure. Most of where that funding comes from comes from the local level. When you factor in then that it's also an enormous installed base where we have these end user relationships going back decades and generations, you're going to have aftermarket too that's also pretty stabilized. You're not going to ignore a broken lock on a front door of a school for the price point that that costs. It tends to be a very moderating effect through cycles. Your funding is also in a good place. Really no loss of momentum that you would see in the forward-looking data. I really appreciate that. I wanted to follow up on data center. Maybe not a lot of doors, but I have to imagine access control is very important in the data center. I guess what allowed you guys to break into the market? Did it just become a bigger focus for you versus five or 10 years ago? When you think about data centers, there's actually more openings than you think, and it's very secure. Security is paramount in a data center. You could see them really valuing the premium product. What we do is we partner with the end user tech companies, as well as the architects, to create a standard. That standard is the standard that the specification is written after so that when the project is built, we're able to win the project. It's part of that demand gen engine that we have in the front end of the business to help us be strong in that data center space. It is a rich mix, so it's a good mix for us when you think of the type of products. Security is paramount. Whenever complexity and security is really important, Allegion does very well. That tends to be the buildings that we do well in. Appreciate that. If we look at the first half of the year, we saw better Americas growth, non-res doing really well. I guess, what gives you guys confidence or conviction that that's end demand turning and not a little inventory pull forward ahead of tariffs? Yeah, if you think of our non-residential business, it tends to be a made-to-order business where we sell mostly through a channel called the contract hardware channel. Think of these businesses as not a stocking distributor, but more someone who services demand that we create. They take inventory for a short time and then they install it on the project. As a result, the nature of that business doesn't have contract hardware distributors carry much inventory in general. We feel comfortable that our business in the first half of the year is a function of underlying demand for our products and not some timing associated with stocking levels. We also had some supply chain challenges a few years ago where we learned the importance of really touching base and talking with our channel partners. We've done a better job probably now than we did three or four years ago of really understanding what their inventory positions are. I feel we're positioned well to capitalize on the demand and that this is not a temporary, our first half was not a temporary pull ahead. If you recall in the first quarter, right, you asked that question on the earnings call, hey, we feel good about our demand. Second quarter, you didn't see a drop in underlying demand that there wasn't that pull ahead. I would say it's probably the nature of how the channel works and how they hold inventory that's different than per se, like our residential business, which goes through big box. It is a little more stocking there. You guys, I think it was Q4 when you kind of said maybe there's a little resi pull forward. I think it came out in Q1. You feel like that side's clean now? I do. Residential, and these are big customers of ours, and you could see it in the order size. We had a very strong Q4 last year. We knew that was a market demand. We told investors it's not quite as strong as you think, so that when Q1 was a little weaker, no one was surprised, right? We told you it was going to happen. I think that's behind us. When you think about residential now, it's not strong, right? It's not a sluggish market, but I don't think we have any channel destock concerns right now. Appreciate that. Allegion, great track record on price. We're starting to see, I guess, or we just never stopped seeing cost inflation. Tariffs are continuing to come through. We saw broadening on the 232 metal tariffs a couple of weeks back. Does that impact your, or materially impact your gross tariff exposure? Is it something that you would expect a price for? Yeah, as a company, we've been pretty consistent in this. We're going to, we feel the tariff pressures, and we're going to offset them by pricing in the marketplace. We're going to make it neutral on an OI dollar basis. We're not looking to profiteer off our customer base, but we are going to pass along the inflationary pressures. This is volatile. In the first quarter, we gave our assumption based on the tariffs that were in place at that time. Second quarter, we updated it. It was less. Each quarter, we'll come back and tell you what our expectations are. I think the thing I want all investors to understand as they talk to us is we expect to offset this on the OI dollar level, right? This is something we've been consistently saying so that as there are changes in tariff rates, depending on what they are, we're going to act quickly in the marketplace to adjust our pricing. Our industry is as well. This is not a case where only Allegion is facing these dynamics. Our competition is too, and they're putting in pricing actions. It's a rational industry. Each player has their own inflationary impacts. They make sure they pass it along. As a business, I would expect us to offset it on the dollar basis. We'll continuously update you because it is volatile. The administration changes regulations regularly. We just adapt. We're flexible, and we'll take the necessary changes on the pricing side. You guys have historically, particularly on metal, opted for surcharges. You can kind of put them through quick, not much lag. Is it fair to assume that that will remain the case? Our business historically, if you've known us for years, we were a list price type of company. In the tariff environment, we are forced to be a little more nimble, a little more flexible and agile. We've been using surcharges. Surcharges allow us to get pricing in the marketplace quicker than on a list price. That's what we've been doing mostly this year. It allows us to adjust up or down depending on the market dynamic. I expect that to continue until we have a little more stability in the operating environment we're in. I think it's a good mechanism to allow us to react quickly so that we're not in a situation where we fall multiple months behind. We're going to be quick to make sure that as we have these pressures, we act accordingly. Appreciate it. Just following up on price, is it more difficult to get price in resi, you know, where you're selling into big box? The second piece of it, do you sense any pricing fatigue in the market in that, you know, everyone just has been continuing to increase prices? As tariffs keep going higher, it's just more price. Yeah, and in the case of the residential business, historically, I think it's fair to say, we've mentioned this before, we do get more pricing in non-residential than resi, right? It's that unique front end where we specify the product and we have the end user relationship. That's a non-residential element to our business. We do get more pricing in the non-res. At the same time, in an inflationary environment, we make sure that we try to combat inflation as best we can in all elements of our business, such that in totality, we feel comfortable saying that price and productivity will offset inflation and investment. We've done a pretty good job of that this year, as we've demonstrated. Appreciate that. Just one more thing, Chris, you asked about pricing fatigue. Maybe it's just a good context on the non-residential side. One of the last things that go in right before someone takes occupancy, or said differently, right before they might get cash out of a project, to hold that up over something that is a very low single-digit percentage wouldn't really be prudent on their part. It doesn't mean that the totality of pricing doesn't show up anywhere. There's not some cumulative effect, but security hardware, I don't think would be the tip of the spear. Yeah. No, I appreciate that. Obviously, you guys are mostly Americas, and I think everyone here probably tracks America's construction quite closely. International, you know, a little bit harder to track. Can you just kind of talk about whether the Europe business or the APAC business, kind of how activity is trending there? Yeah, our international business, it's a great self-help story. For those who followed Allegion over the last decade plus, you would know our international business being a flat operating margin business 10 years ago. We've done considerable work to improve the existing business, as well as kind of change the portfolio to be a much healthier business that today we are an industry standard margin business. Our international business is the same as our peer set. Think of it as that mid-teens EBITDA margin percentage, which is dramatically better than breakeven it was 10+ years ago. As a company, we are a Western Europe, Australia, New Zealand, and Southern Europe as a predominant part of our offering internationally. Co-driven markets, Western markets. As a result, those markets have been sluggish for us the last few years. The thing that has me so encouraged is our business 10 years ago in these current markets would be down, high single digits, margins really challenged. Today, our guide is flattish in a weak top market or flattish in a weak market environment with margin expansion that you see in the first half. We're performing at a much higher level than we have historically. This is something we've been doing over the last four or five years and have done a great job. No, I appreciate that. I guess maybe moving over to the electronic secular opportunity, can you talk about what that means for Allegion, where penetration rates are today and where you think they can go? Yeah, so we outlined this in our investor day that we had in May. I would say our business is able to outgrow market, right? We get a growth tailwind coming from electronics. Electronics in our industry is not like LED lighting where it's a massive increase for a short period of time. This is a steady tailwind over time to growth where electronics will grow, let's call it high single digits over the long term, better than the mechanical so that you can get like a point of outgrowth from electronics. This is something that has been, over the last decade, we've experienced this and we expect to continue. If you think of whether it's university or multifamily, here you have vertical markets that are mostly mechanical installed base today. In time, it's becoming more and more electrified. In the case of a multifamily unit, if you're in a new high-rise multifamily in a big city, you probably have electronics. If you think of a four or five story in Indiana where we're from, that's going to be retrofitted. It has not occurred yet. This is a long cycle of steady growth tailwinds, but it's not something that's a massive three-year you get your growth and then it's a headwind over time. Think of it as long tailwind to grow. Appreciate that. Is the useful life different of the product? Because on one hand, I think about electronics, I'm like, they cost more, so maybe you want to not replace them as regularly. On the other hand, I would imagine that technology curve could actually shorten the useful life. Chris, you're totally right. If you think of electronics, much shorter useful life and up to double the sales price. Whenever we make a unit of sales of electronics, that is great for us. Shorter life, double the price. In addition, this is the element that's great as well, technology will cause end users to take working units and change. If you were an early adopter of an electronic lock in a school a decade ago, you didn't have the ability today to use a digital credential on your phone. There are customers that are upgrading the initial technology to the new existing e-lock portfolio that is mobile and credential capable. It's a combination of useful life as well as technology advances. All of that, I think, gives the market leaders, you know, Allegion being one of them, but even other large players in our space, an advantage as technology increases. The incumbents are even in a better position. Appreciate that. I want to talk about the competitive environment on the back of Trump tariffs. You guys have a couple of bigger European players. I think you've said that their production base could be similar, but you've talked about maybe opportunities versus smaller, lower cost foreign players out there. Is that mostly on the resi side? How should we think about that? Certainly, in our industry, the opening price point or the low price point has historically been imported from Asia. Very little, I would say, it doesn't have the amount of configuration as the premium price point. We're not as strong in that market environment. We've always been strongest where it's a premium product. In the current environment, that would be subject to tariffs. It remains to be seen yet how that plays out, but it only puts us in a better position than where we were six months ago from a pricing. At least our business, when you think of us, think of us for North America, predominantly manufacturing in North America for North America sales. We have a big footprint in Mexico, but that's USMCA compliance. When you think of our North American business, it's a very North American footprint. That's why from a tariff perspective, we've provided the numbers to you all. It's not massive for us, right? I do think our footprint is in a better shape than, frankly, it was 10 years ago. I'm up on time. Appreciate all of that. Thank you guys for coming. All right. Thanks, Chris, for having us. Thanks, Mark. Thank you. Thank you.