Allegion(ALLE) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Allegion plc's unaudited Condensed and Consolidated Financial Statements for Q3 and 9M 2023 and 2022 detail the company's financial position and performance Condensed and Consolidated Statements of Comprehensive Income Net earnings attributable to Allegion plc significantly increased in Q3 and 9M 2023, driven by higher operating income | Financial Metric (In millions, except per share) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $917.9 | $913.7 | $2,753.4 | $2,410.4 | | Operating income | $193.1 | $162.9 | $548.7 | $427.0 | | Net earnings attributable to Allegion plc | $156.3 | $114.6 | $421.8 | $322.7 | | Diluted net earnings per share | $1.77 | $1.30 | $4.78 | $3.65 | Condensed and Consolidated Balance Sheets Total assets and equity increased significantly as of September 30, 2023, while total liabilities slightly decreased | Balance Sheet Item (In millions) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,320.1 | $1,214.6 | | Total assets | $4,183.1 | $3,991.2 | | Total current liabilities | $649.8 | $703.6 | | Total liabilities | $2,951.7 | $3,046.7 | | Total equity | $1,231.4 | $944.5 | Condensed and Consolidated Statements of Cash Flows Operating cash flow significantly increased, investing cash outflow decreased due to prior year's acquisition, and financing cash flow reversed to an outflow | Cash Flow Activity (In millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $381.1 | $267.1 | | Net cash used in investing activities | $(83.4) | $(965.9) | | Net cash (used in) provided by financing activities | $(219.9) | $606.1 | | Net increase (decrease) in cash | $76.3 | $(115.7) | | Cash and cash equivalents - end of period | $364.3 | $282.2 | Notes to Condensed and Consolidated Financial Statements Detailed notes support financial statements, covering accounting policies, acquisitions, debt, equity, compensation, restructuring, and segment performance data - On January 3, 2023, the company acquired plano. group, a German SaaS workforce management solution business, 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 $915.2 million in cash; this business has been integrated into the Allegion Americas segment[20] - Total long-term debt stood at $2,005.1 million as of September 30, 2023, a decrease from $2,081.9 million at year-end 2022[35] - In October 2023, subsequent to the reporting period, Allegion Ventures invested $20.0 million in Ambient.ai, an AI and computer vision intelligence company[84] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and 9M 2023 financial performance, highlighting segment-specific demand trends and drivers of revenue and operating income changes Results of Operations - Three Months Ended September 30, 2023 Q3 2023 net revenues increased slightly to $917.9 million due to pricing, while operating income grew significantly to $193.1 million, expanding the operating margin to 21.0% Revenue Change Drivers | Revenue Change Drivers | Percentage Change | | :--- | :--- | | Pricing | 6.5% | | Volume | (7.1)% | | Acquisitions / divestitures | 0.1% | | Currency exchange rates | 1.0% | | Total | 0.5% | Operating Margin Change Drivers | Operating Margin Change Drivers | Margin Point Change | | :--- | :--- | | Pricing and productivity in excess of inflation | 3.2% | | Volume / product mix | (1.9)% | | Acquisition / integration/ restructuring expenses | 2.1% | | Currency exchange rates | (0.3)% | | Acquisitions / divestitures | 0.1% | | Total Change | 3.2% | Results of Operations - Nine Months Ended September 30, 2023 9M 2023 net revenues increased by 14.2% to $2,753.4 million due to pricing and acquisitions, with operating income rising to $548.7 million and margin improving to 19.9% Revenue Change Drivers | Revenue Change Drivers | Percentage Change | | :--- | :--- | | Pricing | 8.5% | | Volume | (2.4)% | | Acquisitions / divestitures | 8.3% | | Currency exchange rates | (0.2)% | | Total | 14.2% | Operating Margin Change Drivers | Operating Margin Change Drivers | Margin Point Change | | :--- | :--- | | Pricing and productivity in excess of inflation | 3.0% | | Volume / product mix | (0.6)% | | Acquisition / integration/ restructuring expenses | 0.3% | | Currency exchange rates | (0.2)% | | Acquisitions / divestitures | (0.3)% | | Total Change | 2.2% | Review of Business Segments Segment performance shows Allegion Americas with strong 9M revenue growth and expanded margins, while Allegion International had mixed results due to volume pressures Segment Performance | Segment Performance (In millions) | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | | | | | | Allegion Americas | $740.9 | $741.9 | $2,209.0 | $1,851.1 | | Allegion International | $177.0 | $171.8 | $544.4 | $559.3 | | Segment Operating Income | | | | | | Allegion Americas | $200.2 | $178.5 | $582.2 | $454.4 | | Allegion International | $15.7 | $14.8 | $40.2 | $47.4 | | Segment Operating Margin | | | | | | Allegion Americas | 27.0% | 24.1% | 26.4% | 24.5% | | Allegion International | 8.9% | 8.6% | 7.4% | 8.5% | - In Allegion Americas, Q3 revenue from electronic products increased by a high-teens percent, and for the nine-month period, it grew by approximately thirty percent year-over-year[112][114] - Allegion International's Q3 revenue increase was driven by pricing and favorable currency, partially offset by lower volumes, particularly in the Global Portable Security and China businesses[118] Liquidity and Capital Resources The company maintains strong liquidity with increased operating cash flow and primarily fixed-rate debt, expecting sufficient funds for future financing needs Cash Flow Summary | Cash Flow Summary (In millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $381.1 | $267.1 | | Net cash used in investing activities | $(83.4) | $(965.9) | | Net cash (used in) provided by financing activities | $(219.9) | $606.1 | - As of September 30, 2023, approximately 89% of the company's total outstanding indebtedness incurs fixed-rate interest[122] Item 3 - Quantitative and Qualitative Disclosures about Market Risk No material changes occurred in the company's market risk exposure during Q3 2023, with further details available in the 2022 Form 10-K - There were no material changes in the company's market risk exposure during Q3 2023[136] Item 4 - Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during Q3 - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures are effective[137] - No changes occurred in the company's internal control over financial reporting during Q3 2023 that have materially affected, or are likely to materially affect, such controls[138] PART II - OTHER INFORMATION Item 1 - Legal Proceedings The company is involved in routine legal proceedings, with no expected material adverse impact on its financial condition or results - Pending legal matters are not expected to have a material adverse impact on the company's financial results or condition[140] Item 1A - Risk Factors No material changes to risk factors from 2022 Form 10-K, except for new tax risks, including potential adverse effects from global minimum tax reforms starting in 2024 - The company could be adversely affected by changes in tax rates, new tax legislation, or additional tax liabilities, as tax policies are subject to significant change in various jurisdictions[142] - The implementation of global tax reforms, particularly the OECD's global minimum effective corporate tax (GMT) rate of 15%, is expected to increase the company's effective income tax rate beginning in 2024[143][144] Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The Board reauthorized a $500.0 million share repurchase program in June 2023, with no shares repurchased during Q3 2023 Issuer Purchases of Equity Securities | Period | Total Shares Purchased (000s) | Average Price Paid per Share | Approx. Dollar Value Remaining Under Program (000s) | | :--- | :--- | :--- | :--- | | July 1 - Sep 30, 2023 | — | $— | $500,000 | - In June 2023, the Board reauthorized the repurchase of up to $500.0 million of the company's ordinary shares, with no prescribed expiration date[147] Item 5 - Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q3 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended September 30, 2023[148] Item 6 - Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files SIGNATURES