Allegion plc (ALLE) — Q3 2017 Earnings Call Transcript

Thank you, Keith. Good morning, everyone. Welcome and thank you for joining us for Allegion's Third 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 we 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 number 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 number 3. Our release and today's commentary include non-GAAP financial measures, which exclude the impact of restructuring and 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 third quarter 2017 results, which will be followed by a Q&A session. For the Q&A, we would like to ask each caller to limit themselves to one question and then re-enter the queue. We will do our best to get to everyone given the time allotted. Please go to slide number 4 and I'll turn the call over to Dave.

Thanks Mike. Good morning and thank you for joining us today. Allegion posted another solid quarter of operational results, delivering continued margin expansion and modest organic growth. For the third quarter, revenue was $609.4 million, an increase of 4.9%, reflecting organic growth of 2.7% as well as the benefit of foreign currency and acquisitions contributing to the overall growth. All regions contributed to organic growth. Americas saw organic growth of 2.8% in the quarter, supported by strong price and mid-teens growth in electronics. The Americas business continues to see favorable trends in end markets. However, constraints across the construction supply chain, including labor, continue to impact the completion of projects, which caused some variability in the timing of orders and shipments of our products. Europe had another solid quarter of organic revenue growth of 3.1%, led by strong growth in our portable security and SimonsVoss businesses. Our Asia Pacific business saw organic growth of 0.4%. Adjusted operating income of $134.6 million increased 6.2% versus the prior year. Adjusted operating margin increased by 30 basis points, as we continue to experience margin expansion driven by strong price and incremental volume in excess of investments and cautionary headwinds. Adjusted earnings per share of $1.02 increased $0.09 or 9.7% versus the prior year. Overall, I'm pleased with the operational performance in the third quarter. In addition, we're updating full-year EPS guidance. Adjusted EPS guidance is now $3.75 to $3.80, and reported EPS guidance is $3.21 to $3.26. Please go to slide 5. Before I turn the call over to Patrick, I want to take a little time to talk about Allegion's foundation for electro-mechanical convergence and connectivity. At Allegion, we blend the best elements of our mechanical heritage with the latest technology that provides the security our customers expect, along with the convenience and connectivity they desire. That's what allows Allegion to lead the electro-mechanical convergence in the security industry today. For instance, over the last twelve months, we have sold 1.5 million residential electronic locks. To best illustrate our leadership in convergence, this slide showcases the evolution of some of our residential products. On the far left, you see a Schlage Mechanical Deadbolt, something that most people listening today probably grew up using. Since 1920, when Schlage was awarded the first patents for cylindrical and push-button locks, we've been pioneering in home security since then. Now, our experts have been creating innovative smart locks for nearly 10 years, leading us to the products you see on the far right, our latest launch, the Schlage Sense Wi-Fi Adapter. This simple lock again provides Android and Apple users access to the Schlage Sense Smart Deadbolts from anywhere. No smart home platform is needed. We launched it in August along with Android compatibility for the Schlage Sense Smart Deadbolt. Just like our Mechanical and leading Smart Deadbolts, we're confident the Schlage Sense Wi-Fi Adapter will become a staple in the residential marketplace. We're equally confident in the bigger picture. Allegion's extensive base of mechanical and electronic solutions serves as a robust foundation and competitive advantage for our growth into the ongoing electro-mechanical convergence. 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. Please go to slide number 6. This slide depicts the components of our revenue growth for the third quarter. I'll focus on the total Allegion results and cover the regions on their respective slides. As indicated, we delivered 2.7% organic growth in the third quarter. Pricing was strong this quarter and was favorable in all regions. As a company, we remain disciplined in taking necessary pricing actions to help mitigate the impact of rising costs. As a result, pricing improvements have continued to exceed material inflation. During the quarter, acquisitions contributed 1% growth, and foreign currency was a tailwind, particularly in the EMEIA and Asia Pacific regions. Please go to slide number 7. Reported net revenues for the quarter were $609.4 million; this reflects an increase of 4.9% versus the prior year, up 2.7% on an organic basis. I was particularly pleased with the strong price performance in all regions. The total growth was driven by favorable currency impacts, in addition to the price performance. Adjusted operating income was $134.6 million, and adjusted operating margin of 22.1% increased 6.2% and 30 basis points respectively when compared to the prior year. The operational improvement was driven by solid price and productivity, which more than offset the impacts of inflation and incremental investments. The price performance allowed us to absorb and manage through the higher inflation we experienced. The business continues to deliver both organic growth and operational margin improvement, while continuing to make investments for future profitable growth. Please go to slide number 8. This slide reflects our EPS reconciliation for the third quarter. For the third quarter of 2016, reported EPS was $0.02, adjusting $0.91 for the prior loss on divestiture, restructuring expenses, and integration costs related to acquisitions, the 2016 adjusted EPS was $0.93. Operational results increased EPS by $0.09, with favorable price, operating leverage, and productivity more than offsetting inflationary impacts. Interest and other income were a net $0.03 per share increase, driven by non-operating gains. The combination of the adjusted effective tax rates and share count grew by a $0.01 per share reduction versus the prior year. The adjusted effective tax rates grew by a $0.02 per share reduction. The increase in rate is primarily due to the mix of income earned in higher tax rate jurisdictions. Share count reductions increased EPS by $0.01. Incremental investments represented a $0.02 per share reduction. These investments relate to new product development and channel initiatives, which allow us to grow faster than the market, expand our electro-mechanical presence, and increase our vitality investments. This results in adjusted third-quarter 2017 EPS of $1.02 per share, an increase of $0.09 or nearly 10% compared to the prior year, with the growth driven primarily by operational improvements. We have a negative $0.08 per share reduction for debt refinancing costs, acquisition, and restructuring charges. After giving effect to these one-time items, you arrive at the third quarter of 2017 reported EPS of $0.94. Please go to slide number 9. Third-quarter revenues for the Americas region were $455.2 million, up 4.4% on a reported basis and 2.8% organically. The modest organic growth was driven by strong pricing in the quarter as well as mid-teens growth in the electronics products, which offset the impact of timing of orders that was a positive benefit in the second quarter. The pricing performance continues to allow us to effectively manage the price-cost dynamic. On a year-to-date basis, the Americas region has had strong organic growth at 6.2%. Americas adjusted operating income of $137.1 million increased 3.6% versus the prior year period, and adjusted operating margin for the quarter decreased 10 basis points. The decrease in adjusted operating margin is primarily driven by unfavorable product mix and incremental investments. Please go to slide number 10. Third-quarter revenues for the EMEIA region were $125.1 million, up 7.5% on a reported basis and 3.1% organically. Revenue growth was driven by strong performance in both the portable security and SimonsVoss businesses, along with solid price performance. Currency tailwinds also contributed to total growth. EMEIA adjusted operating income of $10.6 million increased 45.2% versus the prior-year period. Adjusted operating margin for the quarter increased 220 basis points, driven by solid price, favorable leverage on incremental volume, favorable mix, and the currency tailwinds offsetting the inflationary impacts and incremental investments. Our EMEIA business had strong operating performance in the quarter as we continue to focus on areas that will drive us to a double-digit margin profile in that region. Please go to slide number 11. Third-quarter revenues for the Asia Pacific region were $29.1 million, up 2.1% versus the prior year. Organic revenue increased 0.4%, driven primarily by favorable pricing, as the drop in comparable notably in Australia and New Zealand muted the volume growth. Total revenue was also supported by contributions and currency tailwinds. Asia Pacific adjusted operating income for the quarter was $2.2 million, with adjusted operating margins up 130 basis points versus the prior-year period. Operating margin increases were driven by favorable pricing, productivity, and foreign exchange effects more than offsetting inflationary impacts. Please go to slide number 12. Year-to-date available cash flow for the third quarter 2017 was $136.3 million, which is a decrease of $15.7 million compared to the prior-year period. The decrease is driven by the previously announced $50 million discretionary pension funding payment that was made in the first quarter, partially offset by higher net earnings. Excluding the discretionary pension payment for 2017, available cash flow increased $34.3 million or 22.6% compared to the prior year period. Working capital as a percent of revenues and the ratio for the cash conversion cycle slightly increased in the third quarter 2017 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. As noted, we are updating our full year available cash flow guidance to approximately $300 million, which is net of the $50 million discretionary pension funding payment. Please go to slide number 13. I want to take this time to highlight the changes from our recent debt refinancing we previously announced. During September, we closed our refinancing of our credit facility and in early October, we issued investment grade senior notes, the proceeds of which we used primarily to redeem our previously outstanding high yield senior notes. Our outstanding debt, as a result of the refinancing, increased slightly. However, our debt to adjusted EBITDA remained approximately the same at 2.8 times and 2.2 times on a net basis. Our refinancing and upgrades with investment grade resulted in an unsecured capital structure with maturities extending approximately three and a half years and demonstrates our financial strength and strong cash flow characteristics. It also reduces our cost of capital and future borrowing costs, which enhances our ability to pursue accelerated organic growth as well as future acquisitions. Lastly, the refinancing will reduce our annual interest expense by approximately $13 million or $0.09 per share, a quarter which will be realized in Q4 of this year. 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 number 14. As noted on this slide, we are updating the revenue guidance in all regions. We are reducing revenue guidance in the Americas and Asia Pacific while increasing it in EMEIA. This results in revised guidance range for total revenue of 6.5% to 7% and organic revenue being revised to a range of 5% to 5.5%. If we look closer at the Americas business, end market fundamentals remain solid as we continue to see positive indicators in non-residential verticals and expect momentum in single-family construction to continue to support solid residential markets. However, due to constraints across the supply chain, including labor, the industry is experiencing delays in overall project construction which has an impact on the timing of our revenue. For the EMEIA region, we are raising both the total revenue and our organic revenue outlooks. European markets have started to rebound nicely and are being bolstered by continued general macroeconomic improvements such as high consumer confidence and low unemployment. For the first time in a decade, the GDP in all of our key economies are growing. Total revenue growth is also being assisted by currency tailwinds in the second half of the year. In the Asia Pacific region, electronics remain a key driver of the growth. Similar to EMEIA, the FX headwinds anticipated in the original guidance are not as prevalent. As we look out to 2018, we would expect end markets to continue to grow and expect organic revenue in line with our previously provided long-term forecast of 4% to 6%, which includes the benefit of electronics growth as well as continued performance in our channel initiatives. We are updating our 2017 adjusted earnings per share to a range of $3.75 to $3.80, this represents EPS growth of approximately 12% to 14%. This guidance includes a reduction of reported EPS related to debt refinancing costs and restructuring and acquisition expenses in the amount of $0.54. This brings our updated guidance for reported EPS to a range of $3.21 to $3.26. Included in the revised guidance is the assumption for the full-year tax rate to be between 18% and 18.5%. This guidance assumes an average diluted share count for the full year to be approximately 96 million shares. Please go to slide 15. Let me finish by reiterating that I am pleased with our third-quarter execution and results. As a summary, reported revenue grew nearly 5%, organic revenue grew nearly 3%, is up 5.5% for the year, adjusted operating margins increased 30 basis points. Adjusted EPS saw just nearly 10% growth in the quarter and is up almost 13% for the year. These results position us well to complete 2017. Now, Patrick and I will be happy to take your questions.

Hi, Josh.

Just maybe a bit of a follow up on some of the residential electro-mechanical products, and clearly the market is off a little bit in the past week or so. After picking up, I guess, with the Amazon Key announcing yesterday. I guess you guys have a lot of partnerships out there and have a pretty good leadership position, but how would you characterize some of these changes? And then could you give kind of a walkthrough of how this Amazon Key may be a future opportunity or why you guys are not part of that in the show partnership?

So, number one, we welcome the introduction of Amazon Key. We think this whole category is in its early stages, as we have said in the past, maybe 3% to 5% penetration. So, we like the opportunity having intensity in what we call the last mile in terms of this delivery. We think we are in a very good position with over 1.5 million locks sold a year that were installed in the residential category. We work with all players. We are encouraged to click on and look at our product offerings on Amazon; we have got the highest star ratings. Consumer Reports rates our e-lock as best in class, and we think it's opportunity plus. We continue to invest to be able to work with our open platform approach to be able to grow the category. So, I think there are a bevy of features that are loaded into our lock in terms of its design and robustness that gives us a leadership position. Whether it's Amazon, Google, Siri, Control4, there are a variety of operating platforms that we comply with, and we like our position.

But there is nothing proprietary in what's coming out with, I guess, the new Key platform that Schlage couldn't fit into eventually?

No. And I can confirm that we may be— with our presence in this marketplace, we may be a little more insightful on some of the opportunities and pitfalls as you are inviting people into the home. Remember some of the early challenges with voice activation on which side of the door? We think through these details and in this case maybe not being the first, but a follow will be a good position for us.

Got it. Thanks for that.

Thanks. Good morning, guys.

Good morning.

Can we maybe just touch on the Americas for a little bit? And if David, maybe you can talk a little bit more about the constraints that you are seeing on labor and on the project side. How much of an impact do you guys estimate that has happened this quarter? That it impacted this quarter and then as you think about the upcoming quarter, it seems like you are implying an acceleration in the Americas in your guidance, so maybe talk a little about what you are thinking about for Q4 as well?

So, we would say in the quarter maybe two points of overall growth. One of the things driving that, number one, if you have heard me over the last year, I have talked about constraints in the marketplace. Construction unemployment is at the lowest since 2001. There is clearly tightness in the job markets. We had our top distributors in Chicago early September, and the general consensus was their backlogs had never been higher and their ability to turn on had never been lower. They talked about constraints from the architectural level down to install, so there are clearly some constraints in the market. I would include also in that commercial doors normally would run two to four-week lead times; they are running long all year in the 8 to 12-week range. This significantly impacts our commercial. We hang all of our stuff on the doors. So that constriction appears. We think some of that will move through in Q4, if not, a constraint that is going away in '18 or '19. We actually think it pushes the expansion further ahead. I think as we look at '18 and the long term, we like our view in terms of the continued end market performance. We think about education, healthcare, and single-family. We like the continued expansion of that. We see some slowdown in multifamily. It's not one of our sweet spots. We actually think our lack of share in that position in electronics and some of the things we are investing in will give us growth. So that’s how we see it.

Okay that's helpful. I guess just a follow-up on that comment so is it fair to say then if it - from an end market perspective outside of multifamily you are not really seeing much of a slowdown whether there is some timing-related things that impacted the quarter and moving forward, do you expect to see the acceleration come back in like what's in Q4 and in the early part of next year? Is that fair?

It's extremely fair, and I would re-emphasize as we look to '18 and '19 and spend significant time understanding our end markets, we believe our long-term growth projections in 4% to 6% is sound. I think it also puts some challenges on the region in terms of the jobs we pick in that overabundance of backlog when you think about constraints in the marketplace. We will get sharper in making sure that we are putting our resources behind the jobs that we believe will move through.

Got it. That makes sense. One last question on pricing. I know that you guys were planning to cut through pricing in August fairly, it was a strong quarter, as strong as it was last quarter. Did you already thought to feel some of the impact of that pricing this quarter, or is that really more on the time for Q4?

And we benefited in this quarter. There will be some carryforward for the balance of the year, but the expectations you are probably not going to see a stronger price realization in Q4 as what you saw in Q3.

Okay, got it. Thanks guys.

Hey, guys, good morning.

Good morning.

So, I just maybe just an update a little bit on the investment spending. I see that recently the Americas business I think it had slowed down a little bit maybe versus what you guys had done in the first half. So, just an update on kind of what you expect to spend from an investment perspective in 2017 and then maybe any preliminary thoughts on 2018. Thanks.

Yeah, so we had—with we started the year, we had provided some original guidance with a range of $0.15 to $0.20 year-to-date. I think we are at the $0.11 year-over-year incremental investment spend. For Q4, for the full year, I would say probably at the low end of that guidance is a little bit lower. So, I anticipate Q4 to kind of be after it, maybe a little bit higher than what you saw in Q3. As we look forward to 2018, we will provide more specific guidance when we report Q4 results in February. But kind of we had indicated previously we look at it relative to market conditions, what are the opportunities, what's the capacity, can we accelerate things like electric products and adoption rates, those types of things. So, more color to come there we can balance that relative to market conditions. So, slower market would be in less investment, and that would kind of manage earnings going forward.

Okay, great. Good luck for the rest of the year.

Thank you very much. Just wanted to circle back on the labor source issue in the Americas, so I guess I find it interesting that you had raised your organic growth guide in the region slightly back in July; then you are lowering it today. So just trying to understand what point did you see a sudden shift in this aspect of constraints, and I guess what's your confidence level and visibility of the growth guidance for Q4? My guess is it implies volume growth of about 2% or 1.5% in the Americas in Q4. So I'm just intrigued sort of how quickly and when things really changed that they caused you to move from an increase in the guide to a reduction within three months.

So, if you look back on the year—first half of the year was pretty high. It doesn't mean that the product was always installed. So, we actually saw a deceleration in July, but I think as we would have said at the end of our Q2 call, we plan this business on a year-to-date basis. I think we are well within the range that we forecasted. We saw tightness in the labor market. Is that going to affect our projects? Ultimately, yes, but it clearly was evident in the first half of the year. I would also say this: there are some nuances to our business. Our strong position in K12 and college campuses sets us up for that strong first half. Their products have to be on-site to be able to take care of the summer upgrades, and that's part of how the business works, and if the labor availability would have been there, we would have shipped more products.

I would say, Julian, that we cannot look at the fun end of the business in terms of specifications. The bid code activity is still very strong; market conditions that the fundamentals we can have in change and that stay fairly consistent throughout the quarter. You know the follow up for billing revenue is more back-end loaded towards the quarter. You know the Q4 guide is a little bit higher than what we saw in Q3 on the basis of what we are seeing in the marketplace. I would also add: I think we worked extremely hard with our economic forecasters over the last four years. They have a view. I think we generally had good perspectives on the health of our end markets and are confident in our 4% to 6% growth going forward into '18.

Thanks, and then just one quick follow-up. I think pricing—sorry, not pricing, volumes mixed slightly negative in the Americas in Q3, even though I think non-resi outgrew res in the quarter, so maybe just give any color you can on the mix issue.

Yeah, now actually it went the other way. As we indicated, the really good growth on electronic products was driven heavily from the residential segments, so the residential business, which all of you know has a lower margin profile, actually grew. The non-residential segment that revenue growth was driven more by price, so that resulted in a negative mix between the two.

Great, thank you.

Hi, good morning. Just when we think of late July when you gave the updated outlook for the year, what was the expectation for volume in the Americas at that time? I assume it wasn't zero when you look at volume mix, but what is the way to quantify that or think about that relative to your initial internal expectations?

So, I have to go back and look at those specifics. On the slide, we give the revenue guidance; you got that down for there in terms of total reported and organic growth. So, the organic growth number of course included in that component would be the volume as well as price in pricing. I think we had it maybe a 150 to 200 basis points type of range, and so you deduct that from the organic growth and you kind of get the volume number. So, it was higher than what we were anticipating. Pricing actually being a little bit longer or so many better, and so always the change in the guidance, if you will, is all volume-related.

And that's all the stuff that's still in backlog or in your terms of being in a project and then just been pushed basically is the message or?

That is the clear message. I read some commentary coming out of Dallas and the Florida regions. This is not related to the hurricane, but just project delays that have been shown in '18.

And then just touching on capital allocation here, so limited M&A here year-to-date. You have talked about not building cash; you've got a buyback in place. How should we think about that?

So, as we have indicated, our capital deployment strategy is in a balanced, flexible, disciplined approach—our process is what I indicated leads with investments in driving organic growth, then M&A, and then perhaps shareholder distributions. I would say particularly from the M&A perspective, very active pipeline, a lot of focus in the fire, and I feel fairly confident to put some points on the board here within the next three months, and so that's why you haven't seen a as long as we have some capital deployment. So, stay tuned more to come on that.

Okay, thank you.

Hi, good morning. It's Brett Linzey in for Jeff.

Good morning, Brett.

Hey, just wanted to come back to the pricing; obviously strong in the quarter again. I guess as you look at those pricing measures, is it primarily related to a price to cover inflation, or are you getting some help from new products or FX? Maybe some finer points there.

So, it's predominantly to cover inflation, so anything related to new products would come through in the volume side. So, when we calculate price, it's really year-over-year same products, and obviously, we have been fairly active and going forward with price increases. We have got better tools now to measure better alignments relative to incentives, etc. So, I think from an overall management perspective, operational excellence, we have done a very good job across the globe to try to maximize price to clearly offset the commodity price increases.

Okay, and then maybe just back to the end market. I mean cycle duration is obviously a big topic here as you unbundle both the commercial markets and your institutional markets. You look at your front lines—your project metrics. What are those telling you in terms of visibility into '18 between both institutional and commercial?

We see positives in education, healthcare. In our commercial, it will be about the same level as it was in '17. So, we see good opportunities, as we look at '18 in those verticals.

Okay, great, and thanks guys.

Hi, good morning everyone.

Good morning.

Hi, Dave. Two questions kind of hold a lot of this early. If you still have a look at the clues that you guys got, if I strip out the overall price inflation from currency, how does your strategy change overall going into 2018 being able to get better volume, not on the North America because I know that is a sign in the interest in market right now? If I look across the globe, how will your strategies change? Will you be able to push up more products and increase the volume?

So, in Europe, we are going to continue to push electronics and the bundling around projects. Some of the same channel initiatives that we deployed in the U.S. and the Americas, we believe have opportunity in Europe and the Middle East. That's big project-based that leads with our electronics. In Asia Pacific, continued growth again in electronics—we think our Mill Rate and SimonsVoss offerings, as well as the introduction of the Schlage electronic brands, puts us in a great position for growth. And in Asia Pacific, that's not only driven by new product introductions but the quality of our products—lots of electronics up there that have high failure rates. We really provide that Asian customer base with high-quality product that puts us in a good position.

So, one follow-up, if it's worth that—there is a lot of technology changes across the industry and across the region as well. So, if you look out into 2018, with all the current solutions out there, some alluded to August that won't be in the quarter, are there other solutions out there that you find interesting that you think could be a great addition to your product portfolio?

There are. I think if I look at a decade from now, connected buildings and connected institutions are going to create outstanding opportunity for our region to expand the penetration of electronic locks. We think the app portion and connectivity solutions in working with a variety of building control platforms are important better grounds, and we have got investment and top leadership going after that, including partnerships with Honeywell, Johnson Controls, Siemens, and Amazon, Apple, Google as well. These, I see yesterday's news in terms of the connectivity with Amazon we work with them every day as a supplier as well as a partner on connectivity.

Got it. Thank you.

Yes, good morning everyone. I guess I want to ask you a question, David, on the discretionary commercial market. I know this is an area where you have done a lot of work for some time, but this segment contributes to growth and maybe can you talk about how competitive conditions are impacting your discretionary commercial business? Thanks.

I would say in our channelized initiatives, working with locksmith and wholesale distributors continue to exceed our expectations. The competitive positioning is certainly there; we think we're in a nine-inning game, and we are probably in the fourth and fifth, so there is more work to be done. Our deployment of human resources will be completed this year, and we like the upside part of it. It also gives us confidence that as we move into '18, we will see the benefits of that.

And I guess just regarding your discussion about negative mix in the Americas. I know you have been focusing harder on Falcon and some of the lower price point brands. Are these gaining share, and if so, are you seeing any capitalization on the premium brands?

They are gaining share. I would like to think that, again, a position comes from our competitors. But as you see projects push out, one of the reasons they do push out is there is value engineering going on in the project because the price escalations by us and primarily steel. In commercial and institutional buildings, the general contractor will say, do I have the ability to trade off our premium brand to the Falcon brands? We think the work that we have done to solidify and enhance those brands helps us to grow. Remember historically, David, we just walked away from them. We said okay, it's value-engineered; they are not going with our premiums. Today, we stay engaged, and we think it helps us to grow.

Okay, thanks. Just one quick follow-up, in Europe, what was the organic growth excluding portable security in SimonsVoss?

I don't know the number, but I can get back to you on that.

Hi, guys, good morning.

Good morning.

Actually, I just wanted to clarify something you said. Did you say that non-residential was up mid-single and the residential was up low, or the residential was up mid-single and the non-residential up low single?

The question with the mix is that the volume from residential was up more when you look at the commercial business; that revenue growth was driven more by price, so that resulted in a negative mix between the two.

Was there any significant difference in the growth between the aftermarket and the new construction components of residential and/or non-res?

Nothing that we saw; there was any difference relative to the mix.

So, I think if it is like the labor constraint issue might appear more pressure in the construction piece of the business versus the other which is more consumer-driven.

I have had face-to-face discussions with general contractors as well as locksmiths and electricians, and they are all noting it.

Yeah, it just broad labor availability. I guess just the last question on demand in electricity, do you think that's relevant here at all—higher prices impacting the volume or causing any mix down?

I don't think that's happening at all.

Got you, okay. Thank you.

We'd like to thank everyone for participating in today's call. Please contact me for any further questions, and have a great day.