Peter Costa

Peter Costa requested an update on the ADI partnership, focusing on end-dealer penetration and new introductions. He also asked if any incremental pricing actions would be necessary in the second half of the fiscal year to offset raw material pressures and whether the company was definitively price-cost positive in the quarter.

Answer

Kevin Buchel, President and COO, described the ADI relationship as "great," highlighting their role in introducing NAPCO to large dealers and their strong contribution to fire radio sales. Dick Soloway, Chairman and CEO, added that these introductions lead to valuable collaborations on special projects, enhancing innovation and solid growth. Regarding pricing, Mr. Buchel and Andrew Vuono, CFO, stated that no incremental pricing actions are currently anticipated for the second half of the year, as component costs are being monitored, and the existing price increases were positive in offsetting tariff and incremental costs.

Peter Costa requested an update on the ADI partnership, specifically regarding end-dealer penetration and new introductions. He also asked if incremental pricing actions would be necessary in the second half of the fiscal year to offset raw material pressures and if the company was price-cost positive in the quarter.

Answer

Kevin Buchel, President and COO, stated the ADI relationship is strong, facilitating introductions to large dealers and driving significant fire radio sales, though he expressed a desire for ADI to contribute more to locking sales. Dick Soloway, Chairman and CEO, highlighted NAPCO's internal engineering capabilities and hands-on service for specialized accounts introduced through ADI. Andrew Vuono, CFO, confirmed no current need for incremental pricing actions as component costs are stable, and prior price increases were positive against tariff and component cost increases.

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.

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.

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.