Resideo at JPMorgan Conference: Strong Q1 and Strategic Growth Plans

On Wednesday, 14 May 2025, Resideo Technologies Inc (NYSE:REZI) participated in the 53rd Annual JPMorgan Global Technology, Media and Communications Conference. The company highlighted its robust first-quarter performance and strategic growth plans amidst a challenging macroeconomic environment. While Resideo showcased strong demand and operational improvements, concerns over tariffs and the Honeywell liability were also discussed.

Key Takeaways

• Resideo reported strong Q1 performance driven by demand in its Products and Solutions (P&S) and ADI segments.
• Minimal tariff exposure for P&S due to North American manufacturing; potential impacts on ADI due to Asian imports.
• The company aims to achieve a 2x leverage ratio and increase investments in operational excellence.
• ADI’s integration with SnapOne is ahead of schedule, enhancing synergy and e-commerce capabilities.
• Resideo reiterated its 2025 revenue and profit outlook, focusing on product innovation and strategic partnerships.

Financial Results

• Overall Performance:

- Strong Q1 performance with growth in both P&S and ADI segments.

- P&S organic growth accelerated to 6% in the quarter.

• Tariffs:

- Over 90% of P&S products sold in the US are exempt from tariffs due to USMCA.

- ADI faces potential tariff impacts due to third-party products sourced from Asia.

• Gross Margin and Cash Flow:

- P&S gross margin improved year-over-year for eight consecutive quarters.

- Expected cash flow generation of at least $375 million this year.

• Debt and Synergy:

- Targeting a leverage ratio of 2x.

- ADI and SnapOne synergy target is $75 million run rate exiting year three.

• Revenue:

- Resideo is a $7 to $8 billion revenue company.

Operational Updates

• Products & Solutions (P&S):

- Strong demand across air, security, energy, and water segments.

- New thermostat products aimed at both low-end and high-end markets.

• ADI (Distribution):

- Successful integration with SnapOne, ahead of schedule.

- Focus on e-commerce to enhance margins and efficiency.

- ADI has over 100 legacy stores in the US and over 40 in North America.

Future Outlook

• Growth and Investment:

- Resideo aims to grow ahead of the market cycle through innovation and partnerships.

- Increased investment in operational excellence.

• Capital Allocation:

- Prioritizing deleveraging to a 2x leverage ratio and returning capital to shareholders.

• Strategic Partnerships:

- Continued emphasis on ADI and P&S synergy to drive future growth.

Q&A Highlights

• Tariffs:

- Minimal impact on P&S due to manufacturing in Mexico; ADI may pass through costs from Asian imports.

• Macro Environment:

- Described as "neutral and anemic," but Resideo sees good customer demand and market share gain.

• Strategic Focus:

- Emphasis on operational improvements and customer engagement.

Readers are encouraged to refer to the full transcript for a more detailed discussion of Resideo’s strategic plans and financial performance.

Full transcript - 53rd Annual JPMorgan Global Technology, Media and Communications Conference:

Corey Carpenter, Internet Analyst, JP Morgan: right. Good afternoon. Corey Carpenter, Internet analyst at JP Morgan. Pleased to have Mike Carlett, Resideo CFO with me today. Mike and sorry, Chris Lee, Investor Relations also joining.

Thank you both for coming to the conference.

Mike Carlett, CFO, Resideo: Thanks, Corey.

Corey Carpenter, Internet Analyst, JP Morgan: So for those that are newer to the story, maybe if you could start with just a quick overview of Resideo and how the company has evolved since the Honeywell spin in 2018.

Mike Carlett, CFO, Resideo: Sure. In 2018 Honeywell decided to spin off a couple of pieces of the business ADI, which was a distribution business focused on commercial security integrators, and then a number of lines of business that were focused on the residential home management aspects when in a couple of different lines of business that we’ll touch on. So, you know, they put that all together, spun it off in ’18. And I think for the first couple of years, it was about bringing those things together, forming that new company. I think since then, you know, there’s been a lot of opportunities to fix the building blocks of the business to make sure we’re operating effectively and efficiently, maximizing the value of our manufacturing footprint, continuing to execute on our distribution strategy.

So I think that we’ve done a company has done a really good job that over the years as we’ve seen in margin accretion, some other areas. And so today I think now we’re well positioned for future growth, taking both that product development business and that distribution business and thinking about how we now go from a, you know, fundamental building blocks of management to really talking about how do we invigorate a little bit of growth in the business going forward.

Corey Carpenter, Internet Analyst, JP Morgan: So you reported earnings last week. Maybe what’s the quick recap of the quarter and just the key messages that you wanted to get across?

Mike Carlett, CFO, Resideo: Yeah, I think overall, look, we were very pleased with the strong performance in the first quarter. We saw positive growth at both businesses despite, you know, a uncertain and volatile macro macroeconomic market that we’re in. We had some weather impacts at the AI business that caused a lot of store closure days. But overall, we had strong customer reception demand to our new products. We’ve seen good traction.

And overall, we’re really pleased with the first quarter performance.

Corey Carpenter, Internet Analyst, JP Morgan: Tariffs and macro, full disclosure, I wrote the tariff questions before the tariffs changed a few days ago. But you gave us some really helpful stats and I think exposures in slides that you presented last week with earnings. But could you just talk through Resideo’s exposure on the P and S and ADI side and just what you’re doing from a mitigation perspective?

Mike Carlett, CFO, Resideo: Sure. And I’m going to answer the question before tariffs change tomorrow. So, you know, it’s a constantly evolving world. So, but I think what we’ve been pleased to see is as the tariff environment has continued to evolve and is at least somewhat stabilized, it looks like they’re at least mostly going down, not up at this point to the extent they are being adjusted. I think we’re really well positioned both, you know, on our own and also vis a vis our competition.

So at the P and S side, you know, we’ve got some significant manufacturing for North America specifically that’s down in Mexico. So we typically build in the region that we’re providing for. So we do some of our EMEA manufacturing in EMEA. We do the North American manufacturing in North America. And so in the North America base with the USMCA exemptions, over 90% of what we sell in The US is totally exempt from tariffs.

You know, we’ve got a significant amount coming out of Mexico. We’ve some other small pieces. So our tariff exposure on the P and S side is, as it sits today, minimal. Almost not worth talking about minimal. There’s a couple things that we bring in from China that that can have some small impacts, but it’s rounding errors type of thing.

So we’re really pleased with how that comes out. And we think we are in certain areas and certain product categories advantaged vis a vis the competition. And we don’t think there’s any areas where we’re disadvantaged. So really, really good now. You know, again, that environment might change at any time, but as we sit here today, we think that’s really good.

A little bit more nuanced on the ADI side where ADI, you know, over about three quarters of our business is selling third party product. And as we do that, you know, we are subject to where that third party product is being imported from. We have a pretty good feel where that supply chain is coming from, and we know that there’s about a quarter of it, a little bit less that comes out of Asia, especially out of China. And so as we think about that, we know that we are subject to those cost impacts impacting our suppliers, which would then we would expect them to pass through. Now we’ve seen a little bit of that so far, but not a lot.

And obviously with the changes over the weekend, we expect that to change again. But we would think that there could be as much as hundreds of millions of dollars of impact on our cost base. Again, as we said, we don’t think we’re negatively impacted because we’re distributing other people’s products generally and what we’re passing through is the same thing everybody’s be passing through. So while it could in the short term drive some price activity, which would then drive revenue, we think we’re trying to hold it margin dollar constant. And so we think would have very little impact on the bottom line.

We’ve talked to our customers. Our team has great relations with our customers about those price impacts and everybody’s ready for them. But again, I think with the significant decrease in those rates now it was for ninety days, what happens in ninety days, That book is yet to be written. But I think right now we’re in really good shape.

Corey Carpenter, Internet Analyst, JP Morgan: And then on macro, you just reported, as you mentioned, a strong quarter. You reiterated your ’25 outlook with those results. So certainly seeing resilience at this point. But maybe if you could just expand on what you’re seeing in the market and the behavior you’re seeing from your customers in recent weeks.

Mike Carlett, CFO, Resideo: Yeah, I think that overall the market, we would say is at best is still sort of neutral and anemic. A lot of our business is tied on the P and S side and on the residential exclusive brands products on the ADI side tied to the housing markets, both new build, the remodel and resale markets. And certainly the R and R side has not been great. We’re still in sort of a very neutral to down market, but we’re seeing within that really good reception to our products, good customer demand. We think we’re winning share in a number of areas.

We’ve been able to take some price and pass it through on a normal basis, not tariff related, just normal activity. So all that’s driving good healthy demand. One of the things we were really pleased to see is on the security business where we’ve had some headwinds. We saw that our largest security customer after years of going backwards quarter over quarter sort stabilized. You know, we’ll see how that, you know, story continues to evolve, but we feel really good with that relationship which also provides good.

So all in all, really good customer demand, really good sort of steady growth. And then in the short term, we see a little bit of odd behavior every week right now as the tariff things adjust as people might stock up. We saw very little of it in Q1, some small amounts. We saw a bit more of it in April, sort of like a bubble. So you saw a little bit of a wave come through in April, sort of reversed itself in May.

And right now, think as we’re getting to the May, it’s normal purchasing behavior that you had a little bit of noise through about a four week period as people were trying to think about what might or might not happen. But right now, pretty normal activity.

Corey Carpenter, Internet Analyst, JP Morgan: Okay. I think we’ve covered tariffs and macro at this point. So shifting to the actual business starting with products and solutions, you’ve four segments, air, security, energy, water. Just if you could distill the business down into the key product offerings in the primary end markets for these segments.

Mike Carlett, CFO, Resideo: Yep. The vast majority of our products through all four of those lines of business are in the residential market and mostly in North America. There’s a little bit, you know, some that happens in Europe, but mostly North America and Europe are the two primary markets. Within the air category, it’s a lot of thermostats. There’s also other pieces of air purification and dehumidification.

But think about it as the Honeywell Home brand. We licensed that brand still as part of the spinoff. We you know, we are the market leader on the thermostat side of the business despite some of the high end things that you see out there that are, you know, very sexy. You think about the entire product category. We are the market leader on the thermostat category with the Honeywell Home brand.

On safety and security, you know, have the First Alert brand. Resideo bought First Alert about four years ago now, three and a half years ago. That’s been a great acquisition, come together really well. So smoke and fire has been good. And then we’re on the security side as well with security products on intrusion and detection moving into video surveillance and analytics.

On the water side, think about it as water controls, valve control, also leak detection. And then energy is the one that’s a little bit of an outlier where there’s a lot of OEM products that we’re providing to people that do heat pumps and boilers, which you’ll see in Europe. You’ll see it up in the Northeast a lot. We’re providing some OEM products that go into those manufacturing pieces. Most of what we sell, we’re selling to the professionals.

So if you take that OEM piece out, we’re selling to the professional installer, the electrician, the HVAC supplier, the plumber that’s doing that work. We get it into their hands through a variety of different channels, through the traditional distribution channel. We sell it through retail. At retail, you know, a lot of what we sell at retail, we talk about the retail channel, but it’s still the professional buying at retail. If you think about, you know, like the Home Depot contractor and what Lowe’s does with their contractor aspects.

And then we’ve got really good relationships with the top 20 homebuilders in The US as well where we work right with them to put our products into their homes. So, you know, a lot of different ways to get the product into the hands of professional, but if you just think about that professional, that contractor who’s installing those products, that’s our customer. That’s we’re trying to reach out to. It’s not a DIY product. There’s a little bit of DIY aspects to it.

It’s on the shelf and, you know, some of those retailers, they’ll see it there, but that’s not the primary focus. It is about the professional and supporting the professional as they do their installs.

Corey Carpenter, Internet Analyst, JP Morgan: So early on you talked about shifting kind of more to growth. P and S, the organic growth accelerated to 6% this quarter. Maybe if you could frame what the key priorities are for driving growth in P and S this year and then maybe more specifically on the quarter, what drove that performance?

Mike Carlett, CFO, Resideo: In the quarter, very much customer demand. A little bit of price, but across the board, across all four categories, across the majority of our channels, we’ve just seen good customer demand, you know, across well, there’s always going be, you know, some spots. There are strengths and weaknesses, but very consistent performance across all the lines of business, which was great to see. As we think about the rest of this year going forward, we want to maintain those great customer relationships that we have, continue to grow those, and then focus on our new product development efforts to both refresh our existing product categories and as we go through that, then think about future opportunities for additional product development.

Corey Carpenter, Internet Analyst, JP Morgan: Just from a macro perspective, my question was what indicators are the best proxy for customer demand? It sounds like residential housing market, you’ve already answered. But maybe another way to ask it is if the market did slow not the housing but from a broader macro perspective, just how do think about the resilience or the cyclicality of the P and S business in particular?

Mike Carlett, CFO, Resideo: Yeah, I mean clearly it’s a cyclical business, but we believe we can outperform the cycle through the efforts that we have from the great customer relationships that we formed as we think about going forward, our ability to continue to produce differentiated products to continue to capture share. So, you know, we believe we’re outperforming the cycle, but we are to move somewhat with the cycle. You think about when our products get installed, they get installed when a house is built, they get installed when you do a remodel in your house, they get installed when you buy a house and you go in and do some work on it. So we are going to follow those. We do have a lot of levers in the company from a cost standpoint.

We’re investing, you know, tens of millions of dollars in R and D and marketing. Now, clearly we want to continue to invest that for the future growth, but in the short term, if we have to pull levers, if we felt like it was important to do that to protect the balance sheet, to protect the overall performance, we have plenty of levers to pull. I think if anything that we believe would be short term, think we would be thoughtful about when and if we pull those levers. But if we saw some long term changes in the demand cycles and the volume cycles, we’ve got a number of things we can do to protect the bottom line.

Corey Carpenter, Internet Analyst, JP Morgan: So gross margin for P and S, it’s improved year over year eight consecutive quarters. How have you affected this change and just how do you think about the runway that’s still ahead?

Mike Carlett, CFO, Resideo: Yeah, a lot of it has been about optimizing the manufacturing footprint and the supply chain both from a footprint aspect itself, as well as just bringing some better performance aspects. Volume helps. Having more volume running through the factories also helps from that standpoint. So all that has worked together. And I minimize that.

It’s a one sentence answer to a lot of great work by a lot of great people on our supply chain team and our manufacturing teams to go forth and make these things happen. But we’ve got a really good team that’s been working really hard the last couple of years to make those changes. That’s the most important things that we’ve been doing.

Corey Carpenter, Internet Analyst, JP Morgan: So last one on P and S, then we’ll move to ADI. New product innovation, key priority for you. Maybe if you could just expand on what you’ve done and then what can you tell us about the product roadmap ahead?

Mike Carlett, CFO, Resideo: I’m going let Chris answer this. Chris has a ton of passion around new products, so I figured since he’s sitting here, we’ll let him answer that one. Thanks,

Chris Lee, Investor Relations, Resideo: Mike. I think it starts with our leader in the products and solutions business, Tom Saran, who when he joined about eighteen months ago had a vision and strategy to bring out waves of new products over multiple years that address a couple important things. One, it addresses the years of underinvestment that Mike referred to earlier and helping us to regain market share in parts of the market where we may have ceded that share. And I think you see that strategy tactically playing out with some of the new products that were recently introduced. For example, the Focus Pro thermostat that was targeted at the low end of the market, we’re seeing really good adoption there.

And all the signals would point to that we’re taking share and not cannibalizing our own base, which then gives us real good momentum for other releases later this year in the thermostat line, including one that’s targeted to the high end of the market and to compete directly with Ecobee and Google Nest. And we’re really excited about that product just because I think the form factor and the features and functionality really address what the marketplace is looking for today. But I think if you take that ethos and extend that to other parts of the product portfolio, it’s the same type of strategic and tactical thinking if it’s in some of the water products, if it’s in the security products, the safety products. There’s a wave of products that are slated to come out this year. And it’s not just going to be a one hit wonder.

There’s going to be multiple new products in the next several years, which could include net new products or perhaps entering different markets or adjacencies as we think our products can add value. And then building off of what Mike said about how this extends the margin expansion, we’re really with that healthier factory and an improved supply chain, we can eke out more margin with greater volume being produced. But also given the differentiation of the new products, we also think we can achieve price. So I think there’s a combination of a lot of good things here that with our continued execution and leveraging our size and scale, I think we’re going to capitalize on it.

Corey Carpenter, Internet Analyst, JP Morgan: Great. So we’ll move to ADI. If anyone does have a question, feel free to raise your hand as well. But company roots in ADI in commercial security, but you’ve expanded to other verticals over the years. Before we jump in, maybe could you just recap ADI’s footprint today, what it looks like from a product and a geographic perspective?

Mike Carlett, CFO, Resideo: Sure. ADI, not dissimilar to P and S, mostly focused on North America with a pretty good presence in EMEA and then some small bits and pieces around the rest of the world. From a geographic footprint, over 100 legacy ADI stores in The US, over 40 legacy Snap stores in North America, probably U. S, Canada with a number of stores in a number of countries in EMEA and Europe and a very strong e commerce platform. Actually, couple e commerce platforms.

Think about it again, Snap and ADI coming together, each one with their own e commerce platform as we work to bring those together. So, strong geographic footprint, strong e commerce footprint, mostly North America based. Still ADI’s legacy being in that commercial security integrator, but growing over the years to touch on ProAV, to touch on Datacom, to touch on residential, entertainment, and automation, which is where the Snap integration made a ton of sense to bring those two companies together.

Corey Carpenter, Internet Analyst, JP Morgan: ADI has also seen a nice pickup in organic growth in recent quarters. You mentioned last week that trends picked up late in 1Q and into early April. What do you attribute that recent momentum to? And is this an industry wide thing or more of a share gains thing or both?

Mike Carlett, CFO, Resideo: I think it’s a bit of both. I think earlier in the first quarter, that’s why I was talking about some of those weather impacts. And so we saw more store closure days in January and the February this year than in any time in the last decade. So that clearly was a bit of a drag. It wasn’t huge.

Was about a 1% drag on the top line, but clearly that impacted us during the first part of the quarter. That sort of went away. We’re seeing really strong project growth on the security side of the business on the commercial side. That has continued to be a bright spot. The project pipeline is very, very large.

We’re winning a lot of that. So not only is the project pipeline strong, our share gain, our share of those projects is also doing really, really well as ADI continues to execute from an operational excellence standpoint to be the provider of choice. When you’re selling, spec ed products, it’s all about who can best meet the needs of that installer, that integrator, that professional. And ADI in many ways is the provider of choice because they operate so well. The e commerce part of the business has been growing really, really nicely.

And we see more and more shift in the dealer behavior to buying through e commerce. It’s interesting. I think most of us would talk about buying online as something we started doing a decade ago. But I think those businesses have been historically still walk into the store, but we really have seen over the last year or two a migration there and ADI has invested a lot of money, a lot of resource into the e commerce aspects of the business, which we think is really good both for the integrator and for us it’s easier for them to buy. It’s easier for them to see and manage their business and it’s more effective and efficient for us to serve them through that channel.

Corey Carpenter, Internet Analyst, JP Morgan: ADI acquired SnapOne last year, which you alluded to and you’re familiar with very Could you just talk, remind us the strategic rationale, where you’re at with the integration process and how that business is performing?

Mike Carlett, CFO, Resideo: Yes. So, you know, Snap and ADI, as I’ve said a number of times, we met each other years ago when Snap was going through a recapitalization. And we said back then, this was 2017, boy, it might make a lot of sense to put these two companies together. ADI focused on that commercial professional. SNAP focused on the residential professional.

But both of us, as we thought about our long term growth plans, talking about getting into each other’s territories, SNAP very much an e commerce business. ADI was more of a brick and mortar business moving into e commerce, SNAP moving into brick and mortar distribution. So a lot of those things made a lot of sense to bring the businesses together. Taking those SNAP SNAP was very much an exclusive brands company, but taking those exclusive brands and exposing them to the customers that ADI had created a lot of growth and synergy opportunity as well. So that was all the underwriting case about why it makes sense to bring these together.

We’ve been thrilled with how the two companies have come together. Rob and his team Rob runs ADI and his team have done a phenomenal job of integrating the businesses. The leadership team consists of, you know, almost half and half legacy SNAP professionals and ADI professionals over the entire organization. The organization now we brought the sales teams together in Q1. That was sort of the last leg of the stool.

So at this point it’s one organization. We don’t talk about the org as Snap and ADI. It’s just one organization. There’s the sales team, the product team, the accounting team, one org. Now there still is different go to market activities.

There’s sort of the legacy Snap storefronts and ADI storefronts, the legacy e commerce platforms. And we want to make sure that as we bring those together we do it thoughtfully in a way that personalizes the experience for the different integrators. So as they come in, they’re not getting bombarded with things that are not interested in. Each one’s gonna have their own sort of view of what’s interesting to them and we’ve got to bring that together thoughtfully. So we’re working on that.

It’s a couple year journey, but I think the initial six to twelve month work, I’d say we’re ahead of schedule both from an integration standpoint and a synergy standpoint. And now comes the longer grind of bringing together the DCs, bring together the stores, bring together the e commerce footprint, bring together all so that we end up down the road as one brand, one business. But what’s great is it’s one organization working towards that goal today.

Chris Lee, Investor Relations, Resideo: One other thing to just add, I think it’s important. We’re ahead of our synergy targets that we’ve committed to, to the Street. I think to remind everyone, was a $75,000,000 run rate commit exiting year three. We’re ahead now and we think that we could either bring that amount in earlier or exceed it or perhaps do both.

Corey Carpenter, Internet Analyst, JP Morgan: Great. So two of AEI’s initiatives, which you’ve alluded to, e commerce and exclusive branch. Maybe update us on the progress you’ve made on both and just how they could potentially enhance the margin profile of the business over time.

Mike Carlett, CFO, Resideo: Yeah. I mean both are really important parts of that journey. Obviously on exclusive brands our margin rates are much higher than third party products. That comes with the offset. There’s a much higher R and D expense and marketing expense for those products.

We are the products supplier to ourselves. We don’t ever envision being a company that is majority exclusive brands. We love relationships with all of the suppliers that we have and we want to continue to support them. But we look for opportunities where we see there’s a gap in the market, where we don’t think that other providers are meeting the needs of the integrators and those integrators are telling us that where we can add value. We look for those opportunities and where we have them we’ll continue to invest in exclusive brands and capture that more margin.

We’re going to do it in a way that we can add value, have a high level of belief that we can meet the needs in a way that makes a lot of sense for both us and the integrator. And again, those are significantly higher margin products to us. So that continues to be a journey that we’re on. And the online piece of the business by definition is more margin accretive to us because it’s just more efficient. Now that doesn’t mean people buy online, but the part of the store and the sales team is still incredibly important.

You might end up buying every week online, but that doesn’t mean you don’t go into the store once a month to talk to your partner behind the counter and ask, tell me about this new product or tell me why I should pick product A or product B or tell me what’s going on with this new product launch or this problem that’s out there. And so the role of the store we don’t believe is going away. The role of the salesperson is not going away. But e commerce as a transactional tool, an informational tool is going to continue to grow in importance. It also provides a little bit more price stability.

There’s less negotiating online, if you will. So we like that aspect. It allows us to get a more stable margin as we go through that. And again, it’s just a more effective and efficient way of managing it. And we think it’s a competitive advantage.

We think the way we can talk to our dealers, the way we can provide alternative products, the way we can provide suggested products as they shop, the way all provide opportunities for it to continue to optimize that footprint.

Corey Carpenter, Internet Analyst, JP Morgan: So we’ve gone through P and S now, now ADI. So maybe just to wrap it up before we go to some financials on the segments. Could you talk about the synergies between the two different segments and is there opportunity to do more there?

Mike Carlett, CFO, Resideo: Yeah. Well, beginning synergy is that ADI is the biggest customer of P and S and P and S is the biggest supplier that ADI is. So from that standpoint, it’s a it’s a very close relationship. They work very closely together on on the products that we sell exclusively through ADI or some that are nonexclusive, the P and S products to bring that and make sure we’re meeting that customer experience on then joint way. So that that is the primary way we think about it.

As we think about, you know, the exclusive brand product platform on residential home automation and some of the home AV as it ties into the platforms that P and S has, we believe there’s still opportunities there to continue to bring things together. The businesses operating platforms are sort of separate. They’re different business models. One’s a distribution business, one’s a product business. So there is some separation on things like the go to market activities.

We think there’s the supply chain teams work closely together. The sourcing teams work closely together. There’s no manufacturing at ADI. Obviously it’s all third party or JDM or contract manufacturing. But again, looking for those best practice opportunities, those teams work very closely together to think about how to optimize those opportunities.

All

Corey Carpenter, Internet Analyst, JP Morgan: right. So going to the financials, you reiterated your 25 revenue and profit outlook last week. Could you talk about what’s giving you confidence in that at this point of the year and maybe this point in the year, excuse me, and maybe speak to some of the key assumptions you’re making around macro and tariffs.

Mike Carlett, CFO, Resideo: So, as we said, we’ve continued to see very good demand from our customers. We’re seeing little volatility in that. It’s consistent. We’re continuing to see good project flow at ADI. We’re continuing to see good customer demand across all channels of P and S.

So outside of some significant macro recession, I think your team just reduced their likelihood of a recession. Noticed that. So that’s good. Listen, they might be out there. But even in that, again, I think our market that we serve directly has already been in a bit of a recessionary environment for a number of years.

New housing’s chugging along. It’s not doing great. It’s not doing badly. Resale, remodel is definitely not where it’s been. And so even in a recessionary environment, we don’t think there’s an overly significant impact on our business as we look forward.

And, you know, worst case tariffs as they exist today is there’s some pricing upside. You know, as we think about passing that through, you know, our assumption right now has been there’s going be little of that activity outside of what we’ve already seen. That’s the assumption, but, you know, odds are there’ll be more than we’ve said. That’s going to provide revenue upside. It’s sort of, you know, it’s not organic growth in my opinion.

It’s not good growth. It’s just price growth. And the way we think about that is we’re generally looking just to offset margin dollars. We’re not trying to preserve margin rate. So we might see some margin rate degradation in that world, but we wouldn’t see any dollar degradation.

We feel that’s the best way to be fair to our partners, our customers, not result in a way where we’re taking advantage of the situation to make more money. We would look to just pass through the dollar impacts that we have through price, but that would provide revenue upside for sure, likely little impact on the bottom line.

Mike Carlett, CFO, Resideo: Makes

Corey Carpenter, Internet Analyst, JP Morgan: sense. And then just beyond some of the moving parts of this year, how do you think about the longer term growth opportunity or margin framework for the business in a normalized environment?

Mike Carlett, CFO, Resideo: We definitely think, think as I mentioned earlier, that we believe our businesses should be growing ahead of the cycle and advance of the cycle. We think the investments we’re making in new product development, as you heard Chris talk about it at P and S provide us opportunities to grow in our existing product categories, to grow adjacencies to those product categories, to look for new product categories to enter into all of us, which should provide us opportunities to grow ahead of whatever that cycle is. Similar to ADI, the investments we’re making from an e commerce standpoint, the investments we continue to make on meeting the needs of the customer, being the best partner for them as they think about installing all their projects. We think both of those position us really well to continue to capture share out there. And whatever the cycle is, the cycle is we’ll deal with it.

You know, we’ll protect the bottom line with all the levers that we have to pull, but we do view the opportunity to grow the top line and that should be positive from a margin standpoint. You know, what we’ve done over the last few years as we fixed the bottom line, as Chris mentioned, you know, we’ve we’ve underinvested a bit in some of our new product. I don’t think that’s a secret to anybody as we focus on really fixing some of the fundamentals of the business. This year we took some of that incremental margin dollars and we invested it in OpEx. So you wouldn’t see as much bottom line operating margin accretion as you might expect.

But going forward, we think that was a stair step change in our investment levels. We don’t expect that stair step change every year. So we think we’re at a much better investment level right now. We think it’s the appropriate investment level. Again, there’s always opportunities to invest more.

I’ve never heard a product team that didn’t want more money and more resource, but we’ll always evaluate that and determine what we’re evaluating. But we do expect as we go forward to take the incremental margin accretion, the incremental top line growth and see it grow the bottom line both from a dollar standpoint as well

Chris Lee, Investor Relations, Resideo: as an operating margin standpoint. Yeah. One other thing to add there, I think it’s worth saying to remind everyone that Resideo is a 7,000,000,000 to $8,000,000,000 revenue company with significant scale in the market as evidenced by some of the market share leadership positions. And our brands are very well known and have great brand equity. These are brands like Honeywell Home, First Alert, Control4, and then ADI is a share leader in that security and low voltage marketplace.

So I think there is a lot of ingredients here to help set up that growth and the greater margin expansion downstream.

Corey Carpenter, Internet Analyst, JP Morgan: So one on capital allocation, Just you’ve made a number of acquisitions which we’ve discussed. You’ve also made some divestments over the years. What are your current priorities on the capital allocation side?

Mike Carlett, CFO, Resideo: Our first priority is always invest appropriately in the business. Just make sure we’re continuing to think about the long term health of the business, what are the investment opportunities we have, making sure we’re not cutting back where we shouldn’t be cutting back. So it’s just like, you know, blocking and tackling. I think from there we’ve been very clear that we want to see deleveraging of the business. We want to be operating this business with 2x leverage.

We think that’s the appropriate target leverage for the business. We’re a bit above that right now because of the Snap acquisition, but we generate a lot of cash. You know, this year’s guide is at least $375,000,000 of cash. You know, Q1 is always a use of cash, but the rest of the year we’ll be generating a lot of cash. We feel very comfortable with that number.

And so as we think about building that cash balance, when we get to the middle of next year, you know, we’ve got clarity that we can get down to 2x. So as we think about getting there, you know, the debate in the boardroom is always going to be, you know, returning capital to shareholders. What are the M and A opportunities that are there? We have a very disciplined approach to M and A, as you saw in the Snap deal where, you know, we talked about $75,000,000 of synergy on a company that had $100,000,000 of EBITDA. That’s a huge number.

Those are the type of things that, you know, if they’re there, we’ll think about them. And certainly as we think about the long term, you know, certainly keeping an eye on returning capital to shareholders is something that’s always on the list and in the boardroom debate.

Corey Carpenter, Internet Analyst, JP Morgan: So CD and R made an investment as part of the SnapOne acquisition. They purchased more shares last week. Could you talk about this relationship and their level of involvement with the company?

Mike Carlett, CFO, Resideo: Sure. Let me clarify last week. They actually the ownership transferred last week. As they announced in November, they entered into a forward purchase agreement with UBS. And so those shares have been being accumulated by UBS, we believe, through Q1.

We don’t know the exact dates, but the way the program works, as far as I understand it, is UBS be accumulating those shares under that forward purchase agreement. And then last week was when they actually transferred from UBS over to CDNR. So there wasn’t like it was a big $100,000,000 block trade last week. With that being said, you know, CDNR’s position is they have two board seats. Nate Sleeper, who’s the CEO of CDNR sits on our board.

John Stroup, who’s one of their operating partners sits on our board. They’re great in the boardroom. I mean really bright people, provide great insight. But that’s really the extent of the relationship. Cloyd is, you know, they are a company that looks to deploy capital.

I think they believe in the story as shown by investing an incremental $100,000,000 through the open market. I think they’re going to continue to be supportive of the company. And I think over the long term, they obviously want to deploy capital. If there’s opportunities there that makes sense for them and for us, we’ll certainly talk to them as a provider of capital. But if we don’t need it, they certainly won’t be providing capital for no reason.

And we’ll continue to have a great relationship with them in the boardroom.

Corey Carpenter, Internet Analyst, JP Morgan: All right. Assuming no questions, we will wrap up with a higher Just would be great to hear the one or two things you’re most excited about that you think could be most transformative to the business in the years ahead. Then also on the flip side, what you think could be the most underappreciated part of the story? What is the most underappreciated part of the story?

Mike Carlett, CFO, Resideo: I think let me take the second one first. And I’m not sure it’s underappreciated versus overly complicating, which is this Honeywell liability. And I think, you know, people see this Honeywell liability and they get scared by it and they don’t understand it and it causes all kinds of chaos on the GAAP income statement and the balance sheet. And I think we’ve done a good job recently and I think more and more getting people comfortable that, a, you know, as the company grows, it’s less material, but b, it’s just the hundred $40,000,000 of cash a year. And that while it’s confusing on the face of it, if you can sort of digest it and disaggregate it, if we can take that noise out of the story, I think that then provides people the opportunity to really dig in and understand the base business.

And I think that that noise for the last six, seven years since the spin around that liability has really been a constraint on how people understand the business. And I think, you know, to the extent we can help explain that, I think it causes, quote, the underappreciation of the business. And with that said, you know, what gets me most excited is, this was a spin for Honeywell. I think we’ve talked about ADI. It’s been a great business for years.

The P and S side of the business was a number of different lines of business that got brought together. It wasn’t a single operating entity. It’s taken a number of years. If you add in this COVID chaos and the supply chain chaos that came out of it, it’s really taken a while for the company to really get that P and S org positioned for success on a future growth basis, a margin management basis. We’ve done a really good job with that.

This wasn’t me. It wasn’t Chris long before we got here, but we’re beneficiaries of I think that part of the business has been really well positioned to now partner with ADI who’s been well positioned. And then the new product initiatives that we’re launching, the thoughts about the future growth. I think that while every company talks about growth, I don’t think it’s been core to our DNA. And I think really it’s becoming core to our DNA of what are the growth aspects, what are the growth levers of the business, really focused on both that NPD on the P and S side as well as continuing to be the operationally excellent partner of choice on the ADI side creates a real synergistic opportunity to drive performance and growth going forward.

So that’s, you know, listen, I’ve been here nine months and I’m much more excited now than when I walk through the doors. I get to learn more and more about the opportunity and the story that’s out there.

Corey Carpenter, Internet Analyst, JP Morgan: Great. Well, thank you all for joining us.

Mike Carlett, CFO, Resideo: Thanks, Corey.

Chris Lee, Investor Relations, Resideo: Thanks.

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