安朗杰 (ALLE) 2017 Q1 法說會逐字稿

Good morning, and welcome to Allegion's First Quarter 2017 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mike Wagnes.

Please go ahead.

Thank you, Amy.

Good morning, everyone.

Welcome, and thank you for joining us for Allegion's first quarter 2017 earnings call.

With me today are Dave Petratis, Chairman, President and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion.

Our earnings release, which was issued earlier this morning, and the presentation, which we'll refer to in today's call, are available on our website at allegion.com.

This call will be recorded and archived on our website.

Please go to Slide #2.

Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law.

Please see our SEC filings for a description of some of the factors that may cause actual results to differ from anticipated results.

The company assumes no obligation to update these forward-looking statements.

Please go to Slide #3.

Our release and today's commentary include non-GAAP financial measures, which exclude the impact of restructuring, acquisition expenses and charges in current year and prior year results.

We believe these adjustments reflect the underlying performance of the business when discussing operational results in comparing to the prior-year periods.

Please refer to the reconciliation in the financial tables of our press release for further details.

Dave and Patrick will discuss our first quarter 2017 results, which will be followed by a Q&A session.

(Operator Instructions)

Please go to Slide 4, and I'll turn the call over to Dave.

Thanks, Mike.

Good morning, and thank you for joining us today.

Allegion posted another strong quarter of operational results, delivering above-market organic growth and substantial margin expansion.

We delivered organic growth and adjusted margin expansion across all regions.

For the first quarter, revenue was $548.8 million, an increase of 9.3%, reflecting organic growth of 8% as well as the benefit of acquisitions, partially offset by foreign currency.

Our strong organic growth was led by the Americas, which grew 10.3% in the quarter, as both nonresidential and residential businesses expanded nicely, supported by favorable end markets and continued returns on our strategic investment.

The nonresidential business growth was also aided by delayed shipments in the prior year related to an ERP implementation.

EMEIA organic revenues grew at 1.3%, and our Asia Pacific business saw organic revenue growth of 4.8%.

Adjusted operating income of $100.7 million increased 19% versus the prior year.

Adjusted operating margins increased by 150 basis points, as we continue to demonstrate margin expansion from incremental volume in excess of investment headwinds.

As stated earlier, all regions showed improvement in adjusted operating margin.

Adjusted earnings per share of $0.73 increased $0.12 or 19.7% versus the prior year.

Overall, I'm very pleased with the strong revenue growth and operational performance in the first quarter.

In addition, we are raising our full year EPS guidance.

Adjusted EPS guidance is now $3.60 to $3.75, and reported EPS guidance is $3.57 to $3.72.

Patrick will now walk you through the financial results, and I'll be back to discuss our full year 2017 guidance.

Thanks, Dave, and good morning, everyone.

Thank you for joining the call this morning.

If you would, please go to Slide #5.

This slide depicts the components of our revenue growth for the first quarter.

I'll focus on the total Allegion results and cover the regions on their respective slides.

As indicated, we delivered 8% organic growth in the first quarter.

The strong organic growth reflects healthy markets in the Americas, continued strength in driving electronics growth and the company's focus on channel initiatives.

The favorable comparable, driven by last year's ERP implementation, was also a factor in the strong growth.

Pricing was favorable in the quarter in all regions, as the company remains disciplined in taking necessary pricing actions to help mitigate the impact of rising commodity prices.

During the quarter, acquisitions contributed 2% growth, and foreign currency was a headwind, particularly in the EMEIA region.

Please go to Slide #6.

Reported net revenues for the quarter were $548.8 million.

This reflects an increase of 9.3% versus the prior year, up 8% on an organic basis.

I was particularly pleased with the outstanding organic revenue growth from Americas, which adds strong growth in both the nonresidential and residential businesses, as we continue to deliver above-market growth.

We also had good price realization in the quarter, offsetting the currency headwind seen in EMEIA.

Adjusted operating income of $100.7 million and adjusted operating margin of 18.3% increased 19% and 150 basis points, respectively, when compared to the prior year.

All regions delivered improved adjusted operating margins.

The operational improvement was driven by solid incremental volume leverage, price, productivity and product mix, which more than offset the impacts of inflation and incremental investments.

I'd also note that we improved our industry-leading adjusted EBITDA margin to 21.1% in the quarter, an improvement of 130 basis points versus the prior year.

All regions improved on this metric in the quarter.

The business continues to execute at a high level, demonstrating both strong organic growth and operational margin improvement, while continuing to make investments for future profitable growth.

Please go to Slide #7.

This slide reflects our EPS reconciliation for the first quarter.

For the first quarter of 2016, reported EPS was $0.60.

Adjusting $0.01 for the prior year restructuring expenses and integration costs related to acquisitions, the 2016 adjusted EPS was $0.61.

Operational results increased EPS by $0.17, as favorable price, operating leverage and productivity more than offset inflationary impacts.

A decrease in the adjusted effective tax rate drove a $0.05 per share increase versus the prior year.

The decrease in rate is primarily due to favorable impacts from discrete tax items, including the benefits from the recently adopted accounting standard on share-based compensation.

These discrete benefits more than offset unfavorable changes in the mix of income earned in higher rate jurisdictions.

Next, a reduction in the number of outstanding shares drove a $0.01 per share increase.

Moving on, incremental investments were a $0.04 per share reduction.

These investments relate to new product development and channel initiatives, which allow us to grow faster than the market, expand our electromechanical presence and increase our vitality index.

Next, interest and other income were a net $0.07 per share reduction.

This was primarily attributable to the positive impact from the sale of nonstrategic marketable securities during the first quarter 2016 that did not repeat in Q1 2017.

This results in adjusted first quarter 2017 EPS of $0.73 per share, an increase of $0.12 or approximately 20% compared to the prior year, with the growth driven by operational improvements and organic growth.

Continuing on, we have a negative $0.02 per share reduction from acquisition and restructuring charges.

After giving effect to these onetime items, we arrived at the first quarter 2017 reported EPS of $0.71.

Please go to Slide #8.

First quarter revenues for the Americas region were $407.6 million, up 12.3% on a reported basis and 10.3% organically.

Strong organic growth reflects above-market performance, driven by our new product and channel initiatives, as evidenced by mid-teens growth in electromechanical products.

As noted on the chart, we experienced double-digit growth in nonresidential products, driven by strength across the portfolio, as we continue to see solid performance from our organic investments.

Delays in shipments in the prior year related to an ERP implementation also contributed to the increase.

Residential revenue also grew mid-single digits, with continued strength in electronics.

Americas' adjusted operating income of $107.8 million increased 17.7% versus the prior year, and adjusted operating margin for the quarter increased 120 basis points.

The increase of adjusted operating income and adjusted operating margin was driven by incremental volume leverage, price and productivity, offsetting the impact from rising inflation and incremental investments.

The operational increase, while absorbing incremental investment spend, demonstrate excellent performance by the entire Americas team.

Please go to Slide #9.

First quarter revenues for the EMEIA region were $118.4 million, down 0.1% and up 1.3% on an organic basis.

The reported revenue decline was driven by currency headwinds, which offset the contributions from price realization and acquisitions.

The SimonsVoss business continues to perform well and saw strong growth, especially in the dock region.

EMEIA adjusted operating income of $8.5 million increased 2.4% versus the prior-year period.

Adjusted operating margin for the quarter increased 20 basis points, while price and productivity more than offset the impacts from inflation, investment and currency headwinds.

We continue to see margin expansion despite the inefficiencies we experienced associated with the previously announced restructuring plan to optimize our manufacturing footprint in the region.

The complexity of the move is challenging.

As a result, the benefits we expected to realize are delayed.

Please go to Slide #10.

First quarter revenues for the Asia Pacific region were $22.8 million, up 9.6% versus the prior year.

Organic revenue increased 4.8%, driven primarily by solid growth in the Australia and New Zealand region, as we are seeing good traction on our channel expansion initiatives.

Total revenue was also supported by favorable foreign currency impacts and contributions from acquisitions.

Asia Pacific adjusted operating income for the quarter was $0.6 million, with adjusted operating margins up 260 basis points versus the prior-year period.

Strong volume leverage and improved operational performance led to the adjusted operating margin expansion.

Please go to Slide #11.

Available cash flow for the first quarter was negative $48.7 million, which is a decrease of $40.5 million compared to the prior-year period.

The decrease is driven by the $50 million discretionary pension funding payment that was made in the quarter, partially offset by higher net earnings.

Working capital, as a percent of revenues and the ratio for the cash conversion cycle, increased in the first quarter 2017 when compared to the prior-year period.

The increase is primarily driven by planned increases in inventory levels in certain areas to improve customer fulfillment requirements and the inventory build related to the EMEIA manufacturing move.

We remain committed to an effective and efficient use of working capital.

Lastly, we are affirming our full year available cash flow guidance of $300 million to $320 million, which is net of the $50 million discretionary pension funding payment.

I will now hand the call back over to Dave for an update on our full year 2017 guidance.

Thank you, Patrick.

Please go to Slide #12.

As noted on the slide, we are affirming our 2017 guidance for revenue and increasing our earnings per share guidance.

We are holding the revenue guidance growth at 5.5% to 6.5%, both on a reported and organic basis.

Our view of end markets remains favorable.

We continue to see positive indicators in institutional and commercial verticals.

In addition, we expect solid residential markets as the momentum in single-family construction continue.

We believe that our organic investments, combined with our ability to execute, will continue to deliver better than market growth.

We are raising our adjusted earnings per share to a range of $3.60 to $3.75, an increase of $0.05 on both the low end and the high end.

This represents adjusted EPS growth of 7.8% to 12.3%.

The $0.05 increase is related to nonoperational items.

The guidance includes a reduction of reported EPS related to restructuring and acquisition expenses in the amount of $0.03.

This brings our updated guidance for reported EPS to a range of $3.57 to $3.72.

Included in the revised guidance is an assumption for the full year tax rate to be between 18.5% and 19.5%.

The guidance continues to assume outstanding diluted shares of approximately 96 million.

Please go to Slide 13.

Let me finish by reiterating that I'm very pleased with our first quarter execution and results.

As a summary, total revenue growth of over 9%, organic revenue grew at 8%, adjusted operating margins increased 150 basis points, adjusted EPS by nearly 20% growth in the quarter.

These are strong results and position us well for the full year.

We are affirming our guidance for revenue growth and available cash flow, and we're raising our EPS outlook.

Now Patrick and I will be happy to take your questions.

(Operator Instructions) Our first question is from Rich Kwas, Wells Fargo Securities.

Just on the investments for the quarter, was that more weighted to the Americas versus other parts of the world?

Yes.

It's heavily weighted towards Americas.

That trend will continue.

As we kind of indicated last time, it's probably 80:20, Americas versus rest of the world.

Similar ratio for Q1, and we'd expect that to continue throughout the balance of the year.

Okay.

And then just on near-term as it relates to -- as we think about seasonality with Q2 and whatnot, you have a tougher comp in the Americas given you recaptured the sale of the last year second quarter from ERP.

Patrick, any thoughts there?

Any additional color we should think about and put under consideration as we look at the balance of the year?

I would -- we had a strong quarter.

As we indicated, some of that strength, just driven primarily from the -- not only growth and the initiatives and the returns on investments we're making, but some of it because the easier comparison because the delayed shipments last year, as you're aware of.

Tougher comps in Q2, but markets remain fairly strong and tracking towards the organic revenue growth we had indicated at the beginning of the year, 6% to 7% for the full year.

Probably a little bit because of tough comps in Q2, I would anticipate a lower revenue growth.

But the outlook for the full year still remains fairly positive, just given the activity in the marketplace, response from our customers, order intake, et cetera.

Okay.

And then last quick one.

Dave, just on M&A, so you did a small doors acquisition earlier in the year.

As you think about the business portfolio, what are the sorts of assets that you're seeing out there that are attractive?

And how would you characterize multiples?

And how motivated are you to add more door assets to the portfolio?

So first of all, I'd say, overall, the pace here is active.

Second, we continue to favor the electronics space.

We continue to be -- work to understand to how we can strengthen our door offerings.

Clearly, the Republic move helps us from a regional basis.

We think that's important, and we'll continue to try and strengthen that out across North America.

But that was the value of Republic, is getting closer to our customers.

If you remember, our field crap business heavily centered around Cincinnati, with a couple of mud centers.

The door business requires closeness to customers, and that acquisition really helped us to buy operational assets that helps us grow faster.

The next question is from David MacGregor, Longbow Research.

Congratulations on a good quarter in the Americas, but I wanted to just maybe dig in a little bit on the European business.

And David, can you just kind of unpack that relatively flat growth in Europe and just talk about the puts and takes that you saw in the quarter?

And then as well, I guess, while we're in Europe, just do you expect the timing of the benefits from the Italian restructuring if they're running behind?

What's -- can you give us an update in terms of how you think about the timing of those benefits flowing through?

Sure, David.

First, when I think about overall Europe, extremely pleased with our long-term progression.

We've come a long way since 40 months.

Extremely pleased with the growth of SimonsVoss.

It was an acquisition in electronics that we targeted, and the performance of that business is strong.

Third, some of the moves we made in terms of the restructuring, especially around our CISA business, are very complex.

I'm talking running SKUs of over 600 and the total base of over 3,000 SKUs.

That change improved our overall profitability, but put some complexity into the supply chain, and we'll work through that for the balance of the year.

I'd emphasize, with that move, we will have some money -- we built some backlog that we'll work through as we go through the balance of the year, but overall feel good.

The complexity or challenge is optimizing that supply chain.

And with that number of SKUs, it doesn't come overnight.

So how should we think about EMEIA growth in the second half of the year?

I would, in line with our projections, low single digits, with any momentum coming out of the SimonsVoss and the adoption of electronics, and then improving our operational capabilities.

The next question is from Joe Ritchie of Goldman Sachs.

So my first question, maybe touch a little bit on the raw mat headwinds that you saw this quarter.

It seems like it was a pretty big headwind across the board, and you're able to offset that with price, but I'm curious to hear how you think that progresses through the year.

So you're right.

We've seen a significant movement in commodities across the board.

The biggest impact for us relates to steel, brass and zinc.

Steel, year-over-year, is up, at least at the end of the quarter, over 40%.

And it's moved since then, another like 20%, so significant movements.

And as you indicated, we've been able to move faster in price to offset the commodity headwinds.

What I would see through the balance of the year, just kind of given where the current commodity prices trade today, is continued pressure on the cost side.

It will escalate a little bit in Q2, Q3 because if you recall, we hedged some of our exposure on a forward-looking basis.

And so we're protected.

And to the extent the commodity prices stay in place for an extended period of time, the exposure becomes greater.

So continued pressure, Q2, Q3.

The comps get a little bit easier in Q4 because that's when we start seeing big movements in the cost base.

But we will endeavor to mitigate that, offset it, et cetera.

And that's our current plan through pricing actions.

Got it.

That's helpful, Patrick.

And just maybe that -- is the base case there that price cost stays positive as we progress through the year?

Or is it possible that in the next quarter or so, you could go negative there, and then you'd make it up in the back half of the year?

It could be a little negative, but I would think we'd be neutral to slightly up is the expectation, certainly as we look on a full year basis.

Got it.

That's helpful.

And maybe if I could sneak in one more.

When I went and visited you guys, spent time with you guidance at ISE West, it seems like you guys were really excited about the -- your ENGAGE platform.

I'm just wondering, like how much opportunity is there with the platform?

How much is that adding to your share gains in recent quarters?

Just maybe expand more strategically, that would be helpful.

So when we think about ENGAGE, and as we communicate, think about our overall electronic growth, which is low double digits, it's clearly a differentiator in the market.

We think there's opportunities in the commercial, institutional and multifamily space, where we can differentiate our mechanical capabilities with electronics, with ENGAGE.

And what we're selling there is convenience, ease-of-use and centralized control over the locking systems, and we think that's an opportunity that we talked about at Investor Day that we'll roll for the next decade.

The next question is from Tim Wojs at Baird.

I guess, my question, Dave, just if you could look at non-res and maybe talk about what you're seeing in maybe some of the larger verticals?

We've been hearing that institutional is starting to really gain some steam.

So I'm curious if you're seeing that.

And then just how we should think about the impact of institutional on mix and margins through the year?

I feel good about the institutional demand, the healthcare demand.

Our spec writing capabilities or our spec writing abilities are robust.

That's how I describe it.

You can see some variation across different geographical regions in North America, but it's strong.

And it's a bellwether, I think, as we talked about it at Investor Day, as we look at over the next '17 and '18, maybe even a little steam picking up in education.

Healthcare, we think '17 will be a good year, and then some softening as we move into '18.

And commercial office, because of high occupancy rates, have continued to roll.

So we continue to stay positive.

Concerns?

Ability of labor to put equipment in place, architectural firms to be able to work through the design phase.

And that's been a concern all along, professional and construction laborer to be able to put in place, I think, will continue to be a cap or a drag on growth, which puts more importance on our self-help initiatives to be able to grow.

And is there any way to think about institutional versus commercial mix and the value of a door opening in one vertical versus another?

The institutional mix has a higher concentration of SKUs and higher value for us.

So if, internally, you prioritize one opportunity or the other, we're always going to go stronger on the institutional side.

The next question is from Jeffrey Kessler at Imperial Capital.

You talked about resi being mid-single digits, which has declined slowly and stabilized over the last couple of years, but the overall Americas being, obviously, growing faster than that.

Can you talk about, and particularly as we saw at ISE West, both the mortise and the cylindrical, and the -- what we call the ENGAGE platform, what type of growth you're getting in that mid-market area that is transforming from mechanical to electromechanical?

Because clearly, if resi is not growing at 15% anymore, something else is growing at 15%.

And that growth is leveraged by our position in electronics.

Really pleased with the residential electronic growth.

We think our ENGAGE platform and our investments we're making to go after multifamily strengthens our offering, where we have some deterioration in terms of res performances in the opening price point segments of the market.

And it's not that we couldn't get more aggressive there.

We think there's better places.

So you balance that out.

Mid-single-digit growth for resi is levered for faster growth from electronics, and we're just not aggressive on the opening price point.

I think that will continue to be -- the opening price point will be a challenge.

As you look at the need for new home constructions, there's some big gaps in the opening price points of the market.

This begs the question of what type of growth you're getting in the mid to -- small and mid-commercial market as well as the multifamily and institutional -- smaller institutional market, I should say, when it comes to the ENGAGE platform.

That must be growing faster than mid-single digits.

It's probably, if you balance that out, it's clearly up there in the teens.

I would characterize it as this, Jeff.

Our single offering, Schlage locks, through e-commerce and wholesale, are what leads the sales growth today.

But our best opportunity are in these connective systems, and that's what we're going after in multifamily.

Underserved by Allegion -- that segment of the market has been underserved by Allegion historically.

Can those -- and just finally, a quick follow-up on broadening that particular set of technology out there, to what extent is that applicable to the institutional -- the larger markets that are out there, including institutional health care, doctors' offices, accountants, things like that?

I want to make sure I understand your question.

As our electronics evolved -- our ability to be able to better serve that?

I think when you think about college campuses, we look at as a growth driver, think about residential dormitories, we've got cited examples where we've been successful.

That's going to continue to grow.

I think as we try to go into what we call project-based business, and more effectively compete with a total Allegion package, we think that's opportunistic.

And then as we get into the commercial buildings, our NDE, with the cylindrical and mortise capability, gives us the ability to offer a total package solutions on the interior doors.

This is what we would say is the mother lode of opportunity in our core markets.

Okay.

Because that's what we got really excited about at ISE West, the ability to start putting those NDE products on the insides of these places.

It's clear opportunity for us.

I think we're well-positioned.

Remember, when we first came out with the NDE, we were first out there, but we needed that mortise.

And it tightens up that offering pretty nicely to go after these interior doors and, again, offer a very elegant solution to a building operator that he can get away from keys.

The next question is from Rizk Maidi at Berenberg.

My question is on pricing really.

So pricing was up plus 1.1% in Q1, and your largest competitor in Europe improved pricing by 2% in the quarter.

How should we think about this?

Are you pushing for more volume in the quarter?

And also, how should we think about pricing for the rest of the year, given that there are 2 other big players trying to be aggressive in the U.S. as well?

So I would characterize it as every year, we -- particularly in Americas, we go out to price increase in Q4.

And so we start realizing the benefits basically beginning of the following year, as a lot of the activity is price-protected, if you will.

So what you saw in Q1 was in line with our expectations in the market.

We are not -- I'd say we're competitive in the market.

We're not being overly aggressive from a discounting perspective, either on residential or nonresidential products.

I would anticipate the pricing improvement to continue throughout the course of the year, maybe get a little bit better than the 1-point improvement that we saw in Q1.

And that kind of continued throughout the course of the year.

I would also add, our European competitor has a larger exposure to steel with their larger steel door business.

So they've got to pull that lever just to stay even with the escalation of steel prices.

I see.

And then just quickly, secondly, on the EMEIA division.

So a 0.1% volume growth in the quarter, and I think you benefited from 2 extra working days there.

Is there something that we should be aware of there in terms of issues beyond the supply chain issue in Italy?

Just building on my comments, we've made big gains in terms of our overall profitability.

Part of that came from a repositioning of the supply chain that we're still working.

We were really encouraged by the growth in SimonsVoss.

As we move our exposure to the DACH influence markets, those are better growth markets than our traditional Mediterranean exposure.

So overall, we were pleased with the quarter, especially in terms of the year-over-year improvement, and know that we have work to do in terms of shoring up that supply chain.

And you'll see that come throughout the year.

The next question is from Robert Barry at Susquehanna.

I don't want to harp too much on the pricing, but just a follow-up.

I think the pricing is still better in non-res versus in resi, right, the sort of big-box?

They were actually fairly equal in Q1.

But normally, you're right.

I mean, we get -- we have the ability to push price a little bit stronger in non-res than res.

Got you, okay.

I mean, I was going to ask, given the context of non-res being so strong, but it sounds like it wasn't really that big a deal.

Just a housekeeping item on the cadence of the investment spend.

I think you were expecting it to be higher in 2Q and 3Q in the Americas.

Is that still the case?

That is still the case.

As we continue to invest in both our channels and new products, there's, obviously, carryover from the prior year.

But funding the new initiatives starts to really ramp up more so in Q2, Q3.

So you see a little bit heavier investment in those quarters relative to Q1.

I would add.

I continue to like our opportunities to grow organically through these investments.

I believe, every quarter, we build our credibility in terms of making bets and getting returns on those bets.

And we're still opportunistic in terms of our view that we can make those investments and grow the top line and get great leverage.

Yes, make sense.

David, maybe just one big picture question.

I mean, it seems like things are firing on all cylinders.

If you were to -- but you also have a pretty healthy growth expectation kind of baked in.

At this point, where would you say there's potential upside to your outlook this year, and just to keep a balance to where do you think the downside risk is at this point?

So I think upside, number one, would come through share gains through our initiatives.

I believe pretty strongly that the overall market is capped by labor install, design capabilities.

So our ability to execute, which I've got a pretty high level of confidence on.

Second, some of the questions Jeff touched on, the electronics growth look at us to get even more aggressive in promotion of our ENGAGE capabilities.

Multifamily, we think these are opportunistic.

On the downside, you've just got lots of potential shocks out there that can dampen consumer demand and confidence, and that's on a global basis.

So you've got to have -- I think you've got to be aggressive in terms of opportunities we see, and then be ready to act.

And from my perspective, that's part of being in the construction service industries.

Things can change quickly.

I think we're -- we review with a discipline to make sure that, where we can -- where things are going right, we can go faster.

And if they're not, we adjust the change.

The next question is from Julian Mitchell at Crédit Suisse.

Just, I guess, my questions would be, just within the Americas market, specifically, if you'd seen any change in the pace of ordering or pipeline activity regarding customer spending over the past 6 months.

Or it's been fairly steady?

And then secondly, whether the delays -- some of those delays in the European restructuring have affected your near-term views on the desirability of doing acquisitions in the EMEIA region over next sort of 6 months or so.

First, in the Americas, it begins with our quotation and specification capabilities, the pulse of that, feel very positive about that.

The tone and tenor of the market is as solid as I've seen since 2006 and '07.

We want to reemphasize that.

I mean, we've come through some pretty dark days since the collapse, and the tone and tenor of the market is as robust as I've seen since the collapse.

We still are not at peaks.

In education, we would say 88% to peak.

Healthcare's at 85%.

Commercial office is robust.

We'd put that at 99%.

But you look at that in context, we think great opportunity for us to go out, take the investments, the new products and go out and grow in the marketplace.

So feel good about things.

Your -- these types of businesses can ebbs and flows.

And I think, again, it's the ability of the labor to put it in place.

The European question, I continue to be positive on overall Europe in terms of our position, electronics accelerating and us continuing.

A huge amount of change has gone -- taken place in Allegion Europe, and we will continue to be opportunistic in terms of looking at that through acquisitions.

Again, these are more the string of pearls, small acquisitions.

As we think about Europe, we think about it in 3 dimensions.

How can we improve our technology?

How can we move north and improve our northern exposure, which are typically healthier markets?

And how can we improve our spec writing and channels to market?

So you have to take a long-term view there.

We continue to build relationships in terms of that acquisition pipeline, but feel good about the positioning.

At $0.5 billion of revenue, we've got a lot of room to grow in Europe.

We have another question from Jeffrey Kessler at Imperial Capital.

When most people think of Europe, they're thinking of obviously 2 of your largest competitors over there.

I actually tend to think of Spain as your competitor there.

And I'm wondering if you believe, at this point in time, technologically, you have the capability to go head-to-head with your Spanish competitor there, who's obviously, from an [aid] point of view, is probably too expensive for anybody to take on right now?

But from a competitive point of view, this is kind of where you have to break through with SimonsVoss?

So we admire our Spanish competitors.

They've got a good business.

Their positioning is different than ours.

We're much more successful in the educational, institutional, healthcare.

They're much more active, light commercial, hotels.

And so, in the morning, at Allegion, we have to wake up and understand who we are and go after those markets.

With that said, as we invest in new products, we go after some of those segments thereafter and continue to leverage our growth outside of these dock areas.

That's our best opportunity to grow, but that's how I describe it, Jeff.

Okay.

So the amount of cash you intend to develop, is there tweaking to your cash conversion ratios that you're making throughout the year, depending on business conditions, and what you feel you're going to need to invest in?

I mean, do you have a -- has the plan changed?

Is the plan changing now from what you talked about perhaps 6 or 7 months ago with regard to how much cash you wanted to come down to the bottom line?

So no change in the outlook in terms of our available cash flow for the full year.

The long-term target is to continue to drive cash flow to be at 100% plus of net earnings.

Feel good that that's sustainable, given the low investment requirements, particularly in working capital and CapEx.

So we'll continue to drive that.

And the deployment of the capital, as we indicated in Investor Day, is we've got certain things that are designated, whether it be CapEx, dividends, debt repayment, et cetera, but we've got a big bulk of capital available for strategic investments, either through M&A or opportunistic share repurchase.

And we'll continue to look at those opportunities as we progress throughout the year, but no change relative to our short-term or long-term guidance in terms of cash generation going forward.

This concludes our question-and-answer session.

I would like to turn the conference back over to Mike Wagnes for any closing remarks.

Thank you.

We'd like to thank everyone for participating in today's call.

Please contact me with any questions, and have a great day.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.