Allegion plc (ALLE) — Q4 2019 Earnings Call Transcript

Thank you, Anita. Good morning, everyone. Welcome and thank you for joining us for Allegion's Fourth Quarter and Full Year 2019 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 investor.allegion.com. This call will be recorded and archived on our website. Please go to slides number 2 and 3. 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 most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections. The company assumes no obligation to update these forward-looking statements. Today's presentation and commentary include non-GAAP financial measures. Please refer to the reconciliation in the financial tables of our press release for further details. Dave and Patrick will now discuss our fourth quarter and full year 2019 results and provide an outlook for 2020, which will be followed by a Q&A session. For the Q&A, we'd like to ask each caller to limit themselves to one question and one follow-up and then reenter 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 saw modest revenue growth in the fourth quarter, with the Americas showing strength while Europe and Asia Pacific struggled. The Americas achieved organic growth of 6.8% for the quarter, supported by both non-residential and residential sectors. The EMEIA region experienced market softness, and our operational transition from Turkey to Poland negatively affected revenue and operating income. The challenges of such a move are significant. Despite some impacts from this transition, we are now in a better position after leaving Turkey. Asia Pacific faced weak markets, particularly in Australia, along with declining conditions in China. Electronics in the Americas grew by over 12% in the quarter and increased by more than 10% for the year. We view electronics as a long-term positive trend as many products become more connected for ease of access. In the U.S., the non-residential market remains strong, while the residential market has improved. However, EMEIA and Asia Pacific continue to face market weaknesses, which we expect to persist in the near future. Adjusted operating margins increased by 30 basis points in the quarter and 70 basis points for the full year, mainly driven by the Americas, which saw margins up 120 basis points for the year. We had good volume leverage, and the inflation impact on price productivity was favorable. In the fourth quarter, adjusted EPS grew nearly 5%, resulting in an approximate 9% increase for the full year. Available cash flow rose by almost $14 million to $422.6 million for the year. Overall, I'm satisfied with our results for 2019, as we achieved solid revenue performance, improved adjusted operating margins, robust adjusted EPS growth, and substantial available cash flow. Revenue for the fourth quarter was $719.5 million, marking a 2.4% increase, including 3.5% organic growth. Currency challenges and the impact of divesting our business in Turkey offset some of the organic growth. The Americas led revenue growth, balancing the weaknesses in EMEIA and Asia Pacific. Adjusted operating margin rose by 30 basis points in the fourth quarter, reflecting significant margin growth in the Americas despite declines in Europe and Asia. Adjusted earnings per share reached $1.28, up $0.06 or nearly 5% compared to last year, driven mainly by higher operating income. Favorable share count and interest expenses mitigated the adverse year-over-year tax rate increase. This year, we're acknowledging Schlage for its innovation throughout its history, as 2020 marks the brand's 100th anniversary. We're excited to celebrate this milestone in ways that support the business and engage our customer base in both non-residential and residential sectors. Schlage has been providing security, style, and peace of mind for 100 years. From the first push-button lock introduced by Walter Schlage in 1920 to modern high-tech mobile solutions, our brand's dedication to door hardware is deeply rooted in security and innovation. The Schlage Encode residential lock, launched in 2019, received strong market acceptance, particularly because it was the first major manufacturer to offer a smart WiFi deadbolt. By year's end, it was recognized as a top product by tech influencers at CNET, Digital Trends, and Consumer Reports, among others. Just last month, it was named the best smart door lock to prevent intruders. Our Schlage Sense and Schlage Connect have also garnered accolades as some of the best smart locks available and top tech gifts. Together, these smart locks, alongside the Schlage Encode, have been acknowledged by tech experts as the best compatible with Amazon Alexa, Apple HomeKit, and Google Home. Being a powerful brand, we anticipate that Schlage will continue to excel in customer experience within our industry and redefine security solutions for seamless access. Last March, we shared our business strategy focused on seamless access and a safer world. Allegion has a robust internal innovation engine, creating award-winning products, including those highlighted and next-generation offerings like SimonsVoss and SmartHandle AX. Looking ahead, we see technology playing a crucial role in facilitating seamless access. I’d like to emphasize edge computing; our acquisition of ISONAS significantly advanced our edge device capabilities. Additionally, through Allegion Ventures, we are investing in companies that are innovating in authentication and people flow, such as Pindrop, Robin, and Openpath. I'm enthusiastic about the potential to add value by integrating existing Schlage products with the data and analytical strengths of companies like Openpath. We will continually seek opportunities to invest and partner, driving progress through internal and external innovation aligned with our strategic objectives: being the partner of choice, delivering new value and access, smart capital allocation, expanding core markets, and focusing on operational excellence. Access has been integral to our heritage for over a century, and seamless access will shape our future. Patrick will now outline the financial results, and I will return to discuss our outlook for 2020.

Thanks, Dave. Good morning, everyone. Thank you for joining today's call. Please go to Slide number 8. This slide depicts the components of our revenue growth for the fourth quarter as well as the full year of 2019. I'll focus on the total Allegion results and cover the regions on their respective slides. As indicated, we delivered 3.5% organic growth in the fourth quarter. Overall, we saw solid volume and price realization led by the Americas region. Price continued to remain strong, particularly in the Americas non-residential business. The impact of the divestiture of our business in Turkey, along with continued currency pressure in EMEIA and Asia Pacific were a headwind to total growth. With the fourth quarter performance, you can see where we ended up for the full year on revenue growth. Total top line revenue saw an increase of 4.5% for the year, and organic growth came in at 4.6% led by Americas at more than 6%. As indicated, Americas organic growth in the fourth quarter was higher than the full year results, while EMEIA and Asia Pacific were weaker. Please go to Slide number 9. Reported net revenues for the fourth quarter were $719.5 million. As stated earlier, this reflects an increase of 2.4% versus the prior year, up 3.5% on an organic basis. Adjusted operating income of $151 million increased 4% over the same time frame from last year. Adjusted operating margin of 21% increased 30 basis points. The margin expansion was primarily driven by solid operating leverage on incremental volumes in the Americas along with pricing and productivity outpacing inflation. Headwinds to margin performance include incremental investments which had a 30 basis point impact on adjusted operating margins. For the full year, the company experienced adjusted operating margin expansion of 70 basis points. Please go to Slide number 10. This slide reflects our earnings per share reconciliation for the fourth quarter. For the fourth quarter of 2018, reported earnings per share was $1.39. Adjusting $0.17 for the prior year restructuring expenses, integration cost related to acquisitions and benefits related to U.S. tax reform, the 2018 adjusted earnings per share was $1.22. Operational results increased earnings per share by $0.08 as favorable prices, operating leverage on incremental volume and productivity more than offset inflationary impacts and unfavorable currency. Favorable year-over-year share count drove another $0.03 increase, reflective of the $226 million of share buyback that occurred during 2019. The impact of incremental investments in the quarter was a $0.02 reduction, and unfavorable year-over-year tax rate drove another negative $0.03 per share impact. This results in adjusted fourth quarter 2019 earnings per share of $1.28, an increase of $0.06 or nearly 5% compared to the prior year. Lastly, we have a $0.42 per share reduction for charges related to restructuring, trade name impairments, as well as loss on divestitures in Turkey and Colombia. The loss on divestitures was predominantly associated with non-cash currency translation adjustments, previously deferred in equity and reclassified into earnings upon the sale of the divested businesses. After giving effect to these one-time items, you arrive at fourth quarter 2019 reported earnings per share of $0.86. Please go to Slide number 11. Fourth quarter revenues for the Americas region were $526.3 million, up 6.8% on both a reported and organic basis. The growth was driven by strong price realization and volume. Both the non-residential and residential businesses grew nicely and at similar levels to each other. The residential business had strong growth in the quarter attributed to new products and increased sales in the builder channel. Electronics growth for the quarter was just over 12% and was sequentially higher than the prior quarter. As Dave mentioned earlier, the full year electronics growth in the Americas was solid at just over 10%. Electronics products continue to be a long-term growth driver as consumers and end users migrate to electronics from solely mechanical products as a value, connectivity and convenience. Americas adjusted operating income of $153.9 million increased 16.8% versus the prior year period, and adjusted operating margin for the quarter increased 240 basis points. Strong volume leverage, along with price and productivity significantly exceeding inflation, drove substantial margin expansion. Incremental investments were a 40 basis point decrease to margins. With the outstanding Q4 performance, full year adjusted operating margins in Americas were up 120 basis points. Please go to slide number 12. Fourth quarter revenues for the EMEIA region were $149.6 million, down 5% and down 1.5% on an organic basis. The lower volume was driven by weakening end markets across the region. The impact of the divestiture of the business in Turkey and currency headwinds also contributed to the revenue decline. EMEIA adjusted operating income of $16.7 million decreased 25.8% versus the prior year period. Adjusted operating margin for the quarter decreased by 310 basis points. During the quarter, inflation exceeded price, plus productivity and currency headwinds continued to be a drag on margins. In addition, revenue declines also had a negative impact on operating margins. The plant relocation from Turkey related to the divestiture of that business drove additional costs in the quarter. The magnitude of the move, while anticipated, resulted in some operational inefficiencies that are likely to continue in the near-term future but are also expected to be resolved as we progress in 2020. These types of moves are extremely complex. And though we did experience increased costs, we are better positioned being out of Turkey in the long run. With the drag of the Q4 performance, full year adjusted operating margins were down 10 basis points in the region. Please go to slide number 13. Fourth quarter revenues for the Asia Pacific region were $43.6 million, down 16.6% versus the prior year. Organic revenue was down 13.4%. The decline was driven by continued weakness in Australian end markets, particularly on the residential side, as well as declines experienced in China, attributable to weaker end markets. Total revenue continued to be affected by currency headwinds. Asia Pacific adjusted operating income for the quarter was $1.9 million, a decrease of $4.6 million, with adjusted operating margins down 800 basis points versus the prior year period. Approximately $1 million of the income decline was attributable to inflation exceeding price plus productivity. Significant volume declines and unfavorable mix had a large impact on the reduced income and margin. We have initiated restructuring actions to lower the cost base and accelerate integration of the GWA business. These actions will better position us to address the market challenges in the region. Full year adjusted operating margins for Asia Pacific were down 180 basis points in 2019. Please go to slide number 14. Available cash flow for 2019 came in at $422.6 million, which is an increase of $13.9 million compared to the prior year period. The increase was driven by higher adjusted net earnings and improvements in net working capital, partially offset by increases in restructuring spend and capital expenditures. Looking at the chart at the bottom of the slide, it shows working capital as a percent of revenues increased based on a four-point quarter average. However, the year-end working capital as a percent of revenue was lower at the end of 2019, compared to the same point in time last year. As always, we remain committed to an effective and efficient use of working capital. We will continue to evaluate opportunities to increase available cash flow and minimize investments in working capital, increasing the velocity of asset turnover. I will now hand it back over to Dave for a view on our full year 2020 outlook.

Thank you, Patrick. Please go to slide 15. We continue to see favorable trends in our primary end markets in 2020. We also believe growth in the electronics portfolio will continue to outpace mechanical in all regions and we are well positioned to continue to take advantage of this industry trend. In the Americas, we see continued positive fundamentals in our nonresidential verticals. The residential end markets have rebounded and improved. We expect the general trend towards electronic products in both residential and nonresidential businesses to continue. With these expectations, we project organic revenue growth in the Americas of 4.5% to 5.5%. We are projecting Americas total revenue expansion to be 4% to 5% with a slight impact from divesting our business in Colombia. In Europe, markets have softened in Germany and Southern Europe and remained weak in the U.K. For the region, we project total and organic growth to be 1.5% to 2.5% led by our SimonsVoss and Interflex businesses. In Asia Pacific, we expect weakness in the Australian markets to continue particularly in residential. The market in China has also softened. With that backdrop, we expect growth in the region to be flat, both on a reported and organic basis with declines expected in the first half of the year and modest recovery in the second half on easier comparisons. All-in, we are projecting total revenue growth for the company at a range of 3% to 4% with organic growth between 3.5% and 4.5%. Please go to slide 16. Our 2020 outlook for adjusted earnings per share is $5.10 to $5.20, an increase of approximately 4% to 6%. As indicated, the earnings increase is driven by revenue growth and operational improvements as adjusted operating earnings are expected to increase 6% to 8%. Our outlook anticipates continued volume leverage and a positive equation for price, productivity and inflation. We also expect margin accretion in all regions for the full year but continued pressure in the first half for EMEIA and Asia Pacific. Incremental investments continue to be a headwind as we remain focused on accelerating new product development and channel initiatives, which we believe enable us to keep delivering above-market growth and allows us to take advantage of the shifting customer preferences for electronic products. The combination of interest and other expense is expected to be a slight positive to earnings per share. Our outlook assumes a full year adjusted effective tax rate of approximately 16.5% to 17%, an increase from 14.3% in 2019. It also assumes outstanding weighted average diluted shares of approximately 93 million. The outlook additionally includes a $0.10 per share impact from restructuring charges during the year. As a result, reported EPS is estimated to be $5 to $5.10. We are projecting our available cash flow for 2020 to be in the $450 million to $470 million range. Please go to slide 17. We are pleased with our 2019 performance, which saw top line growth that delivered organic revenue expansion of 4.6%, adjusted operating margins up 70 basis points, adjusted EPS growth of nearly 9% and strong available cash flow. And while it's not highlighted on this slide, we strengthened the foundational elements of Allegion's culture that will help drive our success as a company into this new decade. Safety and sustainability and engagement, in 2019 we were safer, reducing workplace accidents and their cost, which were already below the industry average. We were cleaner, reducing energy inputs and waste outputs and we were significantly more engaged, meaning our global employees are more committed to our vision and our work than ever before. As we look to 2020 and renew our commitment to safety, sustainability and engagement we are well-positioned to drive continued growth in revenue and earnings. We also expect to deliver solid growth in adjusted earnings per share and generate substantial available cash flow. Before we take questions, I'd like to take a moment to share some news with regard to the organization changes here at Allegion. Mike Wagnes will be assuming a general management role within the Americas business. Mike has been Treasurer and Head of Investor Relations since the summer of 2016. Since that time, Mike has served as a valuable voice for the shareholder community among the leadership team. As we move forward, Tom Martineau, Vice President Finance, for the EMEIA region will assume the Vice President, Treasurer and Investor Relations role. Many of you are familiar with Tom and know that he brings a wealth of financial experience and knowledge that will position him well as Allegion's primary representative to the investment community. I'd like to congratulate both Mike and Tom on their new opportunities. This transition has been completed, and you can begin contacting Tom for any investor-related questions on a go-forward basis. Now Patrick and I will be happy to take your questions.

Hi. Good morning. And thanks, Mike, for all the help in the last few years. Just wanted to follow up on the comments around the first half softness, particularly in the international regions. Just wondered if you could put a finer point on what that means for the earnings cadence through the year. Although you don't guide quarterly, I guess in recent years the first half has been around 45%, 46% for the full year earnings. Do you expect a similar ratio this year, or is it more back-end loaded?

I would see a similar ratio, but just as we kind of highlighted some continued pressure, particularly as it relates to the international regions with the softness in the markets, trying to recover some of the margin deterioration we experienced in Q4. The Americas business will continue to catch up with the same seasonality of the business from a revenue perspective, as you guys know, stronger Q2, Q3, but overall, similar type of profile, but weakness in the international areas.

Thank you. Then on the point you just made, you mentioned in APAC the restructuring initiatives, something we can understand what's happening there. Maybe just within the EMEIA region, help us understand how much of a surprise it was that inflation exceeded price plus productivity in Q4. And maybe what are the measures, if any beyond the Turkey plant relocation that you're implementing in the EMEIA region to turn that business around.

Yeah. So if we look at the European business from a margin perspective in Q4, I'd say it was disappointing operational performance, really driven from weakness in the end markets, particularly in Germany and the U.K. We saw some softness. And Germany, as you know, is a strong point for our business, particularly in the electronics side, with a higher margin profile. So we had somewhat of an unfavorable mix as well that negatively affected us. And then you throw on top of that some of the inefficiencies with moving the plant from Turkey to Poland and just trying to work through that, both from an operational perspective as well as supply chain, third-party providers. We will work through that. And it's going to take some time. But there will be some continued pressure on that. So we'll continue to work through that. Going forward, your question relative to actions, yeah, we will continue to evaluate our business and size it accordingly to market demand. But that's just the kind of continuation of what we're going to do to operate the business. So there will be some activity there to recover margins, particularly in the back half of the year.

Great. Thank you.

Hi, good morning, and congrats, Mike, on the new role.

Thanks, Josh.

My first question is on the Americas just on your organic guidance for 2020. It looks like the growth is slightly lower than the 2019 growth. But is that mainly due to the price maybe not being up as much and a pretty steady volume type of growth outlook? Just wondering how you're feeling about the cadence of growth in the Americas.

I feel really good about our performance in Q4, as we achieved strong organic growth of 6.8%. This puts us in a good position as we enter 2020. All indicators, as Dave highlighted, show that the end markets remain robust, especially in the institutional segment, which benefits our business. Looking ahead to 2020, as you pointed out, we may not see as strong a price profile. We'll continue to work on that, but with material input costs in a deflationary environment, it's likely we won't achieve the same price increases in 2020 as we did in 2019. However, I would still consider a midpoint guidance of 5% organic growth to be solid. We do face tougher comparisons in the latter half of the year, which may lead to a slight cautious approach. Nonetheless, I'm optimistic about our entry into 2020 given the market conditions and our performance.

Yes. That's definitely a solid growth there. And my follow-up is on the EMEIA region. You mentioned that the transition from Turkey kind of impacted you in Q4. Just wondering how much of the demand weakness was because of some of that transition. And how much of that would you say was the end markets in the quarter?

Good morning, Josh. First, the European end markets have definitely weakened. In particular, industrials and automotives, which we are strong in, have impacted our electronics businesses. Additionally, there has been a general decline in our mechanical segment due to regional weaknesses in the U.K., Italy, and other areas. This reflects clear market weakness. Secondly, while the move from Turkey to Poland is a positive long-term productivity initiative, it involved relocating a significant number of jobs and tools, as well as changes to our supply base, which affected our ability to serve customers and led to inefficiencies. As we look forward to 2020, we expect improvements each month. We are bringing on nearly 140 new roles in Poland, which will enhance productivity. From my experience in manufacturing, I believe we will see a steady improvement week-to-week and month-to-month, and I anticipate having this operation running smoothly by midyear.

All right. Thanks, Dave. Thanks, Patrick, and good luck on 2020.

Thank you.

Good morning, gentlemen.

Hey, Andrew.

Hey, Mike. Congratulations, and Tom, are you sure you want to come back? So, Mike, I appreciate all the assistance, and Tom, I'm looking forward to collaborating with you again. I have a couple of questions. First, regarding your work on the electronics side, do you have any updates? We've heard some concerns about second and third-tier suppliers. How confident are you in your supply chain for the electronic components related to the lock business as we head into the first and second quarters, given the current situation in China?

So, we have an outstanding supply chain team here. They've been working with the events in China and the coronavirus. I would say this, Andrew. Every week that China stays shut down will put pressure on our supply chain. Remember we typically produce in region, but we still draw a lot of sourcing out of China. Probably more concerned about second-tier suppliers, providers that could supply subcomponents to final assemblers. So, we're well out in front of this. I think the timing helped us a little bit with the Chinese New Year; we would typically stock up. But again, I looked at some reports yesterday out of China, only about 30% of the industrial workforce is back to work. It's really a function of how quickly this comes back up.

And Andrew, I would just add to that that kind of looking at it, we're not heavily exposed in region obviously, there will be an impact. But globally, you're probably looking at minor disruption in Q1. I think it's more of a Q2 and then the longevity of how long does this thing last. And but right now for a full year basis, the expectation is that there wouldn't be any impact relative to the guide that we've provided here.

Yeah. I just want to make sure that there's not like one chip that will shut down the production line for electronics. Just a question on the electronics, you guys have been doing great. How should I think about business mix for North America given the strength in electronics relative to mechanical, because I would imagine there is a margin difference? Thank you.

So the margin profile on electronic products, both commercial and residential, are similar to mechanical. But what you have is a higher average selling price. So there's more EBIT dollars, if you will, with that migration, and it is a favorable mix for us to the extent we can continue to drive that. And that's some of our incremental investments that we make to drive demand, particularly in electronics to put new products out to the market faster. It's centered around that because that is a favorable trend in both the industry and for Allegion.

That's fantastic. Thank you very much.

Hey, good morning. I echo my congrats to Mike and Tom as well. Two questions from me. First is Americas. Resi versus non-resi expectation within Americas organic growth guide. Do we assume they both grow at the same rate, or is there perhaps a delta driven by resi having to do some catch-up in the first half?

So I would characterize it as – as you know, we historically don't give specifics around outlooks relative to the residential non-residential businesses. So just take it in aggregate. There will be differences between the businesses as we progress. I would say this: If you kind of look at the residential business, the backdrop is more favorable from an industry perspective than what we were talking about three to six months ago. So we would expect that to be positive. And then new products like Encode are performing extremely well, and higher electronics growth in residential than the non-residential. So just think about it in those terms. And but overall, Americas is performing well from an organic perspective.

Got it. That's helpful. My follow-up is on the incremental investment spend of $0.15 that you provided. Is that spread – how is that spread out over the year the $0.15? And also is this all going into the APAC region, or is that more spread out across geographies?

No. The majority, similar to prior years, would be America-focused. We believe we have a lot of opportunities to continue to invest in the business. Again, it's centered around new product development and channel-specific initiatives where we have underserved markets that we believe we can continue to drive through our channel. So predominantly Americas, and the cadence of that, I would say fairly evenly split as we progress throughout the year is how you should be thinking about it. But overall, $0.15 is pretty much in line with what we've experienced in the last couple of years.

Got it. Thank you very much.

Yes. Good morning, everyone. Good luck, Mike. Tom, nice to have you back. I guess David, is there any way of talking about just what you're assuming for growth of the broader markets where you compete in 2020? Just some sense of what you've got in your guidance?

I would say we are seeing strong institutional growth. From 2019 to 2020, the market continues to strengthen, and this is reflected in our spec position and backlogs. With a focus on education, we see that bond issues across the country are being allocated to security, which is a positive trend. Additionally, there is a more favorable risk landscape complemented by electronics. The residential market was somewhat stagnant in 2019, but I believe there will be encouraging developments for Allegion in the Americas as we enter 2020. This includes new products and a full year of activity with Lennar, and we are committed to expanding this segment of the market.

Encouraging. And I guess, is there any way to quantify this Turkey to Poland? There's been a lot of discussion. We've been kind of talking around the point, but is there any way to put some numbers on what that meant to the quarter? And how you're thinking about the potential headwind here in the first half of 2020?

So the answer to the latter part of your question, yes, it will continue to be a headwind for the first half of the year, and I would expect by Q3, we're at a full run rate perspective in getting the realization of the benefits that we anticipated when we set forth in the move. So i.e., production should be smooth, and no disruption in the supply chain, et cetera. It was a drag on margin in the quarter as well as unfavorable mix and the deleverage associated with the reduction in organic growth.

Thanks. Good luck.

Thank you.

Hi. Congratulations to Mike and Tom. Tom, it's great to have you back. Regarding the electronics business in the Americas, could you break down which areas are contributing most to the growth? Are you seeing this in NFC? Are you starting to utilize power over Ethernet? Is the growth related to new products for access control or for doors and entryways? Also, how is Overture impacting your business? Can you clarify what's driving this better-than-expected growth on the electronics side?

I think number one, a great lineup of capabilities. I think two, you mentioned our spec writing capabilities, but it's really that installed base with technical mastery working with clients, could be the University of Michigan, could be Iowa Western Community College, it could be the University of Tennessee. Those products and capabilities come together in trusted relationships that help us grow. I would say things like ISONAS, our investment in multifamily, which can position itself in college dormitories. It's that trusted position in a market that wants to move keyless that is driving the growth.

All right.

Let me give you one other one too. Encode, the first WiFi lock, the battery sustainability there, our ability to get through some technical issues. And I think growth on our parts in terms of our mastery to be able to connect into the web of complexity that can appear in a residential home or a commercial institutional site, it's how things connect our teams have put a lot of work on. And I think as we unload out of the box and connect, we're doing a better job that builds customer loyalty.

When discussing the commercial side of electronics, are you focusing solely on institutional markets, or are there also areas like healthcare or new types of logistics that, while smaller initially, may be fast-growing? Are there specific markets where you're concentrating investments to achieve returns over the next two to three years?

I think our priority will continue to be heavily institutional-focused because of that installed base and our spec writing capability. Our things like the master key system, the ID, edge devices are already there. So the ability to upgrade that puts us in an A position. I'd say second, really doing I think a nice job on multi-family and mixed-use. You see a lot of movement into the intercity. Our ability to solve multiple problems for a developer, including keyless access, has given us some nice growth across the country.

Great. Thank you very much.

Hi. Good morning, everyone.

Good morning.

And thank you to Mike for all the help over the years. I guess the first question, just looking at the cash balance. Obviously, you've been growing nicely. You had announced that new share repurchase program. Just wondering if you could talk about the priorities for your uses of cash as we think about 2020 and beyond?

I would say, our uses of cash have been pretty clear. We like the organic growth, especially around the opportunity to seamless access in electronics. Second is M&A. We continue to work extremely hard on deals in what I call the mid-major area. And think about the future of how we can position Allegion stronger for electronics and capabilities that will help us realize this vision of seamless access. Yes, you did see our announcement authorized by the Board to increase the dividend as well as a reload of the stock buyback. Our message is that we want to make sure that our capital is put to work efficiently. And if that means returning it to shareholders, we pull that lever as well.

Great. Thank you for that. And then maybe just a question around you mentioned some channel investments. I just don't know if you can be any more specific if that's on kind of the specification side of the channel, e-commerce, big box, kind of what we should be thinking around the channel investments you highlighted earlier?

You hit one of them. We continue our specification is one of the strengths. Overture would be an investment to help give new tools to customers and our spec writer. And then relationships are important there, feet on the street that can help us grow and optimize that tool. Second, multi-family, we continue to see a strong market there that we've historically been under-penetrated. And like our electronic offering to be able to grow in that market, we put some investments back in residential because we see that market responding would be examples of how we're segmenting the market and investing.

Great. Thank you. Appreciate the color.

We'd like to thank everyone for participating in today's call, and have a great day.