Allegion(ALLE) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1 - Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2023 and 2022, including income, balance, and cash flow statements, with notes on acquisitions, debt, and segment performance Condensed and Consolidated Statements of Comprehensive Income | Financial Metric | Three months ended March 31, 2023 (Millions USD) | Three months ended March 31, 2022 (Millions USD) | YoY Change | | :--- | :--- | :--- | :--- | | Net revenues | $923.0 | $723.6 | +27.6% | | Operating income | $171.0 | $117.0 | +46.2% | | Net earnings attributable to Allegion plc | $123.5 | $93.0 | +32.8% | | Diluted EPS (USD) | $1.40 | $1.05 | +33.3% | Condensed and Consolidated Balance Sheets | Balance Sheet Item | March 31, 2023 (Millions USD) | December 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Total current assets | $1,253.4 | $1,214.6 | | Total assets | $4,124.4 | $3,991.2 | | Total current liabilities | $668.5 | $703.6 | | Total liabilities | $3,079.8 | $3,046.7 | | Total equity | $1,044.6 | $944.5 | Condensed and Consolidated Statements of Cash Flows | Cash Flow Activity | Three months ended March 31, 2023 (Millions USD) | Three months ended March 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $69.0 | $20.5 | | Net cash used in investing activities | ($51.4) | ($6.3) | | Net cash used in financing activities | ($15.4) | ($104.9) | | Net increase (decrease) in cash | $4.8 | ($92.8) | Notes to Condensed and Consolidated Financial Statements - On January 3, 2023, the company acquired plano. group, a SaaS workforce management solution business in Germany, for initial cash consideration of $36.6 million. This acquisition is part of the Allegion International segment[19] - On July 5, 2022, the company acquired Stanley Access Technologies for $923.1 million in cash. This business has been integrated into the Allegion Americas segment and contributed $103.1 million in net revenues for Q1 2023[19][26] - Total debt outstanding was $2,121.9 million as of March 31, 2023, an increase from $2,094.5 million at year-end 2022. This includes various Senior Notes and borrowings under the 2021 Credit Facilities[32] - The company declared a quarterly dividend of $0.45 per ordinary share on April 13, 2023, payable on June 30, 2023[80] | Segment | Q1 2023 Net Revenues (Millions USD) | Q1 2022 Net Revenues (Millions USD) | | :--- | :--- | :--- | | Allegion Americas | $740.9 | $521.9 | | Allegion International | $182.1 | $201.7 | | Total | $923.0 | $723.6 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, noting a 27.6% revenue increase, improved operating margin, segment performance, and strong liquidity Results of Operations | Revenue Growth Driver | Contribution to YoY Growth | | :--- | :--- | | Pricing | +10.6% | | Volume | +4.4% | | Acquisitions / divestitures | +14.1% | | Currency exchange rates | -1.5% | | Total | +27.6% | | Operating Margin Driver | Impact on YoY Margin | | :--- | :--- | | March 31, 2022 Margin | 16.2% | | Pricing and productivity in excess of inflation | +2.6% | | Volume / product mix | +1.8% | | Restructuring / acquisition expenses | -1.3% | | Currency exchange rates | -0.6% | | Acquisitions / divestitures | -0.2% | | March 31, 2023 Margin | 18.5% | - Interest expense increased by $11.7 million compared to Q1 2022, primarily due to interest on new Senior Notes issued in 2022 and higher rates on variable debt[91] - The effective tax rate rose to 16.3% from 13.2% in the prior year, mainly due to a change in the geographic mix of income toward higher-tax jurisdictions[94] Review of Business Segments - Allegion Americas revenue grew 42.0% YoY to $740.9 million, driven by strong pricing, higher non-residential volumes, and the Access Technologies acquisition. Operating margin increased from 23.5% to 25.2%[97][99][102] - Allegion International revenue decreased 9.7% YoY to $182.1 million, impacted by lower volumes in Global Portable Security, unfavorable currency exchange rates, and a prior-year divestiture. Operating margin declined from 10.4% to 5.8%[97][102][103] Liquidity and Capital Resources - Net cash from operating activities increased significantly to $69.0 million from $20.5 million in Q1 2022, driven by higher net earnings and favorable working capital changes[108] - Cash used in investing activities increased to $51.4 million from $6.3 million, primarily due to the $36.6 million acquisition of plano and higher capital expenditures[108] - Cash used in financing activities decreased to $15.4 million from $104.9 million, mainly because the company did not repurchase shares in Q1 2023 (compared to $61.0 million in Q1 2022) and drew $30.0 million on its revolving facility[108] Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk exposure were reported for Q1 2023, with further details available in the 2022 Annual Report - There have been no material changes in the company's exposure to market risk during the first quarter of 2023[121] Controls and Procedures Management confirmed effective disclosure controls and procedures as of March 31, 2023, with no material changes to internal controls during the quarter - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures are effective[122] - No material changes to the company's internal control over financial reporting were identified during the first quarter of 2023[123] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings, none of which are expected to materially impact its financial condition or operations - Pending legal matters are not expected to have a material adverse impact on the company's results of operations, financial condition, liquidity, or cash flows[125] Risk Factors No material changes to the company's previously disclosed risk factors were reported for the period - No material changes to the company's risk factors were reported for the period[126] Unregistered Sales of Equity Securities and Use of Proceeds No equity securities were repurchased in Q1 2023, with $140.5 million remaining available under the 2020 Share Repurchase Authorization - No shares were repurchased during the three months ended March 31, 2023[128] - As of March 31, 2023, $140.5 million was still available for repurchase under the 2020 Share Repurchase Authorization[54][128] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files - The report includes standard filings such as CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1) and interactive data files (Exhibits 101, 104)[129][130][131]