Peter Costa

Peter Costa asked if the Engineered Solutions segment is still expected to outperform the Service Center segment by 100 basis points in fiscal 2026, and if there's potential for upside to consolidated incremental margins in the second half.

Answer

President and CEO Neil Schrimsher indicated that while Service Centers might lead in Q2, Engineered Solutions could surpass them in the second half due to order backlog and project conversions. Director of Investor Relations and Treasury Ryan Cieslak confirmed the full-year assumption for Engineered Solutions outperformance remains in line. Mr. Schrimsher also agreed that potential for upside to incrementals exists, supported by broadening local accounts.

Peter Costa asked if Engineered Solutions is still expected to outperform the Service Center segment by 100 basis points in fiscal 2026, and if there's potential for upside to consolidated incremental margins in the second half.

Answer

Neil Schrimsher, President and CEO, indicated that Service Centers might lead in Q2, but Engineered Solutions could surpass them in the second half due to order backlog and project conversions. Ryan Cieslak, Director of Investor Relations and Treasury, confirmed the full-year assumption for Engineered Solutions outperformance remains in line. Schrimsher also affirmed the potential for upside to incrementals, driven by local accounts and Engineered Solutions.

Peter Costa from Mizuho inquired about the channel uptake and long-term opportunity for the new MVP and Primo product launches. He also asked about the expected timing for the recent increase in the ARR run rate to translate into accelerated quarterly service revenue growth.

Answer

Chairman and CEO Dick Soloway detailed the MVP cloud-based access control system, positioning it as a future strong growth contributor for both enterprise and smaller business markets. President and COO Kevin Buchel addressed the revenue question, stating that the company expects to sustain its 10% year-over-year recurring revenue growth rate, and potentially improve upon it, in fiscal 2026.

Speaking for Brett Linzey, Peter Costa of Mizuho Financial Group asked for an update on the BEAD program's impact and any associated political risk, as well as the current state of the M&A pipeline.

Answer

Executive Daniel Innamorato stated that BEAD funding is not expected to be a meaningful contributor until later in 2025. CFO William Sperry described the M&A pipeline as 'robust,' with opportunities of various sizes, noting that higher-multiple targets are justified by their strong growth and margin profiles.

Peter Costa, on for Brett Linzey, asked about the progress and trends in building out Allegion's international specification writing capabilities. He also inquired if the sunsetting of ESSER funding has impacted demand in the education vertical.

Answer

CEO John Stone explained that building international spec-writing capabilities is a strategic investment and currently in its 'early innings,' supported by acquisitions like Boss Door Controls and new talent. Regarding education funding, he stated that ESSER was not a significant tailwind for Allegion's products, so its conclusion is not a material headwind. He emphasized that school safety remains a high priority, with demand supported by strong municipal bond issuance.