Resideo Technologies at Jefferies Conference: Strategic Moves and Spin-Off Plans

On Wednesday, 03 September 2025, Resideo Technologies (NYSE:REZI) presented at the Jefferies Mining and Industrials Conference 2025. CFO Mike Claret provided a strategic overview of the company’s recent achievements and future directions. The discussion highlighted record Q2 results and the anticipated spin-off of ADI, aimed at allowing each business unit to pursue distinct strategic priorities. Despite external challenges, Resideo remains optimistic about its growth trajectory.

Key Takeaways

• Resideo reported record Q2 results, driven by strong performance in both ADI and P&S.
• The upcoming ADI spin-off is set for the second half of next year, aiming to unlock greater value.
• The company is focused on maintaining a near investment-grade credit rating and reducing leverage.
• Operational improvements and new product introductions are key growth drivers.
• Resideo is mitigating tariff impacts through strategic pricing and supply chain adjustments.

Financial Results

Resideo’s Q2 results showcased record performance, with ADI experiencing double-digit growth and P&S achieving higher single-digit growth.

• P&S gross margins reached 43% last quarter, with an aim for an additional 300-400 basis points of margin expansion.
• The company financed the settlement of an IRA liability with 1.2 billion dollars in debt and 400 million dollars in cash.
• Resideo targets a net leverage close to two.
• Growth is expected to slow slightly from Q2 to Q3, with ADI’s 10% growth not seen as sustainable.

Operational Updates

Resideo is advancing operational improvements and strategic acquisitions.

• ADI’s integration of SnapOne is progressing well, with expected synergies of at least 75 million dollars over three years.
• An ERP system implementation at ADI caused temporary disruptions but is on track.
• P&S is optimizing its manufacturing footprint and supply chain.
• New product introductions are enhancing market share and margins.
• Transition to the eighth edition of connected devices, driven by regulatory compliance, is underway.

Future Outlook

Resideo’s future plans include significant strategic initiatives for both ADI and P&S.

• The ADI spin-off is anticipated in the second half of next year.
• Both ADI and P&S are expected to grow at mid-single-digit rates for the rest of the year.
• Resideo aims to set both businesses with a near investment-grade credit rating.
• ADI is exploring opportunities in datacom, pro AV, and residential markets.
• P&S plans to expand in air, safety and security, energy, and water product lines.

Q&A Highlights

Key insights from the Q&A session included:

• ADI is a leader in low voltage security and high-end residential AV.
• ADI’s digital experience is a significant differentiator in the commercial market.
• P&S is focused on operational improvements.
• Resideo is addressing tariff impacts through pricing and supply chain strategies.
• Capital allocation priorities include maintaining a near investment-grade credit rating.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Jefferies Mining and Industrials Conference 2025:

Chirag Patel, Analyst, Jefferies: So we’re starting up here. This is the 11:30 session with Resideo Technologies. My name is Chirag Patel. I cover the machinery, multi, and distribution space here at Jefferies, along with Steve Volkmann. But we’re welcome to host Mike Claret, the CFO of Resideo, in the room with us today.

So it is being webcast, I believe. So that’s also positive here. But Mike, thanks for taking the time. But I kind of just want to start out with an overview of the business and kind of just touching on a little bit about record results in 2Q And then just what were some of the key metrics that were kind of involved there? A lot in the first question there.

But let’s start there.

Mike Claret, CFO, Resideo Technologies: Yes. So for those not familiar with the story, Resideo was a spin off from Honeywell about nine years ago now. And when it was spun off, they really took two pieces of their business. Honeywell decided they’re getting out some of the residential things that they want to do. And they took our ADI distribution business that’s focused on commercial, low voltage, around security products, access control, some other things also with adjacent markets around datacom and pro AV, and took that business along with a number of product lines that they had and formed Resideo out of that.

And so for the last eight or nine years, the company’s been operating under that auspices, done really well in a number of areas. There’s been some relationships, some legacy agreements with Honeywell that put a little bit of headwind that we’ve recently settled. We’ll talk about that, I’m sure. But really, the business operates in a couple different segments. ADI is a distribution business servicing commercial integrators doing, you know, again, low voltage security.

And the products and services really focused on control and sensing of residential things that are of the home, not in the home. So if you think about security systems, think about the fire and safety, you think about energy management, you think about water, all those things that are part of the infrastructure. If you think about a home as a system of systems, then we service those systems of the home that are there. The business has been forming really well over the last few years. You know, I’ve been been there about a year.

ADI bought SnapOne a little bit over a year ago, and I joined coming out of that acquisition. So I’ve learned a lot about the business since I’ve been here, but I’ve really done a lot of things really well. There’s been really good gross margin improvement. We’ve made some investments in r and d. And overall, I’ve seen really good top line results.

So, you know, ADI with double digit growth in q two, P and S with higher single digit growth on both sides, really driven by sound execution, driven by continued market share gains, continued by, you know, within the product side of the business, a lot of new product introduction that we’ve been doing in our safety, security, air areas that have been driving some of that market share gain despite a overall macro environment of housing and residential and macro. That really has not been, you know it hasn’t been worsening, but it certainly has not been improving lately.

Chirag Patel, Analyst, Jefferies: Right. And actually, that’s the part that was kind of interesting to me was that with the underlying market trend that’s been so soft. The execution was very key there. Can you kind of help me out with the idea of was it volume based, market share? Can you break out the pieces of the pie for me a bit?

Mike Claret, CFO, Resideo Technologies: Sure. A little bit of all of it. So there was both there was volume growth at both ADI and P and S along with pricing. And so if you think about both businesses, despite a, relatively soft residential market, our product organization continues to execute really well. Our launch of our FocusPro thermostats, our launch of our connected fire and smoke products, so some NPI that has been a while coming that we’ve gotten in the market has been really well received has allowed us to capture some share out there despite, you know, a, you know, again, a relatively anemic top line.

I think people get confused between anemic and degrading. So, you know, it’s not good, but it’s not like it was getting worse, I think. So I think, you know, despite that, we’ve seen volume increases in what has been a challenged market. On top of that, we have taken some price action. Some of that caused by some of the tariff activity that’s out there by SIN to offset that.

We’re not trying to grow our margin result. We certainly wanna offset any challenges we have, which aren’t huge, but we have some Mhmm. Like everyone has. And then we also some areas of business, we do have some pricing power that we elected to go get some improvement from. So P and S saw that.

And at ADI, we continue to see just really strong performance from our deliverables to the professionals. So at ADI, we are servicing over 120,000 installers and professionals that are installing our products. Our delivery, our execution is second to none in that market. We’ve made big investments on the digital experience side, which have allowed us to capture some share there. And overall, that market really is a bit different.

So while we talk about the residential impacts on the product side, the ADI market more driven by that commercial low voltage. And there’s a lot of things going on in the security and surveillance space that are driving some positive market actions. That’s not quite the challenging environment that exists on residential.

Chirag Patel, Analyst, Jefferies: Understood. And then I guess keeping it towards the near term for a second, any sort of nuances we should be mindful of as we’re thinking about the upcoming quarters?

Mike Claret, CFO, Resideo Technologies: Yes. We still remain very confident in the guide that we have out there. That guide does show a little bit of slower growth of both businesses continuing to grow, but that growth slows down a little bit from Q2 into Q3. ADI 10% growth was great in Q2, but we don’t think it’s a consistent 10% grower. We do think it should grow above the cycle.

In Q3, we do have one headwind that we mentioned out there. When I was back in 2020, you know, the Y2K, we put a new ERP system in place in my old jobs. I swore I would never do another ERP system implementation, and we just did one at ADI. We had to, you know, our system there was 40 years old. It was AS 400.

And it’s gone really well. And when ERP system implementations go really well, they still present a headwind against them. We had to close the stores for a couple days for data conversion. The folks behind the counter that have been used for, you know, decades of clicking, you know, pressing control alt to do something now if they click a button. And so they have to go through that training exercise.

So that provides some some headwinds. So we do have that. But that’s baked into the guide. Mhmm. And so we feel really good about the guide, and we think we’ll still continue to see good growth.

And then as we go through the rest of the year, we do anticipate continuing to grow at, you know, good mid single digit ranges at both businesses.

Chirag Patel, Analyst, Jefferies: Excellent. I guess the moving to the strategic side of the equation and the announcement for the timing of the ADI spin off, can you kind of walk us through the decision process of that? And then what are you expecting the separation will unlock overall?

Mike Claret, CFO, Resideo Technologies: Sure. You know, when when the company was spun off by Honeywell, they really took these two businesses. And I understood why they put them together at time, but they really didn’t belong together. And so one’s a distribution business primarily focused on commercial selling right to integrators. The other is a product business with lots of NPI manufacturing base selling in a completely different way to the residential market.

So really different capital structure, different business models, different go to market activities that happen to exist under common ownership. Not a lot of integration is going on between the businesses. There is a customer supplier commercial relationship that’s in the single digits. You know, single digit percentage of ADI sales are P and S’s product, single digit percentage of P and S’s sales are through ADI. So there’s that commercial relationship.

Other than that, operationally, these two things exist very, very stand alone. And that causes confusion to the market about why does Resideo exist, why they are under common ownership. And so we always talked about separating the businesses, least for the last, you know, five, six years Mhmm. That have been there. One of the things that was done to Resideo or that Honeywell put in place when they spun Resideo off was a indemnification agreement where Resideo was indemnifying Honeywell for their environmental liabilities.

These were not Resideo’s environmental liabilities. These were Honeywell’s environmental liabilities, but it’s basically a financial instrument where Resideo reimbursed them. Came out to about $35,000,000 a quarter of cash payment. That was the cap. The the gap accounting was very confusing.

I don’t wanna get into it. But the the cash impact was $35,000,000 a quarter. For the company, there were covenants around that IRA agreement that would restrict the company from doing a bunch of things strategically. So even though the company contemplated separating the businesses, that IRA prevented them from doing so. So any decision around separating the businesses would first have to be governed by some resolution to that IRA.

On top of that, you know, as the company was going through its transformation, as it was really developing itself as a stand alone business, Particularly in the product business, there was a lot of execution things around operations that had to be fixed. The company’s done a really good job with that. You can see the improvement in margin. We’ll talk about that. But, you know, we also had to feel good about both businesses to be able to operate stand alone if we got there.

So those were the two big things. We were able to reach an agreement with Honeywell to settle that IRA liability. They were kind enough to to reach an agreement with us to do that. We settled we announced the settlement. We actually did settle it on August 13.

Mhmm. So that’s now been funded, been settled. We financed that with a combination of $1,200,000,000 in debt and about $400,000,000 of cash from the balance sheet. So that’s removed all the restrictions that were in place around us. In conjunction with that, we did announce the separation because, again, as we think about these two businesses, other than that commercial relationship, there are different businesses, different comps, different capital structures.

And we really think allowing them each to be freed up, to be able to tell their story independently, to be able to allocate their capital independently, go make decisions as independent businesses will allow them to be more successful as they go forward. They’re not overly restricted being under common ownership, but it is clearly confusing. It clearly makes some decisions around capital allocation a little bit more complicated, and putting them out there on their own will definitely free them up to be the great companies that they expect to be.

Chirag Patel, Analyst, Jefferies: Excellent. The timing of the ADI spin?

Mike Claret, CFO, Resideo Technologies: Yeah. And first, you know, it’s funny. We talk about it as a spin. I thought there was a separation more than a spin. Spins have this negative connotation sometimes, like there’s a good company and a bad company or we’re getting rid of something we don’t want.

These are, you know, within Resideo, relatively equally sized business. P and S or ADI actually has more revenue. P and s has more profitability. The business models are different. But we really just view this as a very amicable breakup of of a couple businesses.

The spin we announced as a nine to twelve month process, we said we think it’ll be, you know, sometime in the second half of next year. Hopefully, it’s earlier in the second half of next year than later. We’re going through all the work that has to be done. And while, again, there’s businesses operate very independently, there are a number of entitlements that you have to deal with. Everything from, you know, in Europe, they operate on a common SAP platform.

And we have one HRIS system and lots of legal entity things that we need to get through. So lots of work to be done. I think everybody knows the process you have to go around this. You have to file. You have to get stand alone financials, carve out financials, file your SEC reporting.

So all that work needs to be done, which creates really that time line of when you can execute against it.

Chirag Patel, Analyst, Jefferies: Understood. And then I guess talking about the idea of the revenue aspect of ADI and kind of integrating the Snap on acquisition, Can you walk us through what’s happening on that front? How is that integration process happening? What are kind of the synergies you’re already benefiting from and seeing?

Mike Claret, CFO, Resideo Technologies: Yes, it’s funny. So I came from the Snap side. And I remember back in 2017, Snap was owned by a PE firm. We were going through a recapitalization. We were going through that process.

It was the first time that I actually met Rob who runs ADI. And we walked out of that meeting in 2017 and said, Boy, we should put these companies together. Not because they were servicing the same end markets per se, but because we had very, very similar business models, very similar philosophies servicing integrators, professionals that were installing our products, selling directly to them, solving those professionals’ problems in a variety of ways. We were looking at commercial market as a growth opportunity at Snap. ADI was looking at residential audio video as as one of their adjacencies we’re looking for.

And so we saw some opportunity to accelerate that as we move forward. And then from 2017 to 2024 is how long it took to actually make that happen. And so in June 2024, we completed that transaction. It’s been about a year. The integration has gone really, really well.

Rob and the leadership team at ADI have done a really good job of taking best of breed from both businesses, putting his leadership together with folks from both teams and really executing really, really well. In fact, they’re at the the big CEDIA Consumer Electronics Show this week displaying jointly, which is great. And so the integration has gone well organizationally. We still go to market a little bit separately. You know, there’s a lot of work to do to bring sales platforms together, to bring store operating platforms together.

While we’re going through this ERP at ADI, that’s gonna free us up to then bring the Snap piece onto that at some point in the future. So today, there are still two different go to market platforms, but we really operate the business as one. We brought that together really well. The next two big steps, one is bring together that actual go to market activity. And the second is a lot of real estate optimization to go through where we’ve got two stores in one market or, you know, our distribution, our DC footprint needs to be consolidated and combined.

We announced when we did the transaction that there would be $75,000,000 of synergy over three years. And I think we’re very confident that it’s at least $75,000,000. We hope we can drive it higher than that, and we think we’re gonna get it sooner than the three years because things are going really, really well. That synergy is everything from, you know, low hanging fruits such as a cost of not having two public companies, you know, some of those things that come out. We think there’s a lot of synergy on the revenue side where we take the Snap exclusive branded products and open them up to all the ADI customers.

And that cross sell activity has also seen a lot of benefits. And then finally, you know, again, that real estate and longer term things we have to bring footprints together is the last piece. That’s going take a little bit longer to get all the way through, but we feel really good about the synergy that we’re generating out of this.

Chirag Patel, Analyst, Jefferies: And I remember at Snap, there was a bigger push on getting a proprietary product and increasing that volume.

Mike Claret, CFO, Resideo Technologies: How has that been progressing as well? Really well. So Snap, you know, I joined Snap a decade ago and it was exclusively proprietary products. Over time, we then expanded the footprint to start selling some third party products. ADI was very, very heavy on third party products.

They had some exclusive brands. So bringing these two things together has really allowed us to benefit from both. Our exclusive brand products are still, you know, they’re a portion. We’re never gonna be a majority exclusive branded product at ADI. We are a distributor at heart.

We’ve got great relationships with a lot of third party suppliers. We wanna be the best partner to them that we can be and continue to sell their products. But where we identify market gaps where we don’t think the existing products are really meeting the needs of the markets and we don’t think the companies that are out there are going to drive those needs and our customers, those professionals are asking for solutions that don’t exist, we’re going to look to our exclusive brand product catalogs and really look for things that we can drive. And that’s mostly around the software solutions. If you think about the hardware side, a lot of what we do on the hardware side is JDM, contract manufacturing, and where we add a lot of values in the software layers that we bring, the remote management capabilities, the control systems integration that Battle brings that allows the professionals to be more effective and efficient as they install these products and support those products.

Chirag Patel, Analyst, Jefferies: Understood. And sticking with the ADI business for a few minutes here, just trying to get the idea of what’s differentiated about the value proposition in the commercial markets that ADI is bringing to the table versus any of the other competitors

Mike Claret, CFO, Resideo Technologies: that I are out think to start, what’s been there and continues to be there forever is ADI is an operationally excellent company. They think about the customer first. They have a customer first ethos that drives everything they do. And so they wanna continue to be the provider of choice to customers and then understanding those customer needs and delivering against them. So, you know, our store footprint of having over a 100 ADI stores plus the 40 Snap stores in The US provides those local touch points to products available where customers need it, when they need it.

I think on top of it, the biggest thing that ADI has been doing really, really well is on the digital experience side. They’ve made significant investments over the last three or four years. We continue to make significant investments to really drive that digital side. And so what’s important to know is we’re building an omnichannel platform. This isn’t a, you know, separate e commerce business and storefront.

It really is a omnichannel platform. And so many, many, many of our professionals buy through all the channels we have. One day, they might order online to pick up in store. They might buy a product online that gets delivered to a job site. They need to return it.

They need it that day so they go run to the store to pick it up and make that exchange. They still value the relationship they have with the folks behind the counter in the store to talk about new product initiatives and be able to hear about solutions to problems that are out there. And so it’s that whole experience. But having the digital piece of it is really, really important. I I laugh sometimes.

You know, I saw this at Snap. We saw it at ADI. We’ve all been buying personally online for years and years. But I think a lot of the professionals, you know, that have been operating these businesses for decades have just been in the habit of, you know, what do I do in the morning? I wake up.

I go to the store. I buy the product I need for that day at the store. And so the shift to digital has been slower in those markets than it has even the consumer world. But over the last four, five, six years, there has been a changing the guard there. Mhmm.

You’re seeing more and more folks coming in, buying online, looking for that. You know, I want inventory availability. I don’t wanna walk into a store and see something’s out of stock. I don’t have to call Jimmy behind the counter and ask about it. And we have been at the cutting edge of those digital experiences and driving a lot of initiatives there that are really beneficial.

Chirag Patel, Analyst, Jefferies: We talked about the idea of 120,000 integrators that you kind of work with on the ADI side. I’m always interested in knowing that integrator, how much of the wallet share do you guys capture currently? What’s the opportunity look like? How do you kind of address that as we go forward?

Mike Claret, CFO, Resideo Technologies: Yes. I think it really depends upon the categories you’re in and what that integrator is. So there are some integrators where we capture almost all of their wallet. We have all the products they need. We used to say on the SNAP side, on the residential AV, we have just about every product that an integrator needs to do a residential job, and therefore, our opportunity is to capture a 100% of their wallet.

Same thing at ADI, I think within certain ones, the product categories, certain product lines we have, we have everything the integrator needs, and so we should have the opportunity to capture a 100% of their wallet. As you think about bigger integrators that are servicing more than the low voltage security side and looking broader and broader, we have some of the products it needs. That’s some the adjacency opportunities and growth opportunities we have is continuing to enhance our product suite, bringing more and more products to market so we can fill more of that wallet share. But within the the core of of, you know, low voltage security surveillance, within the core of residential high end AV, we have all the products that people need. And now within the 120,000 integrators, there are some where we have a 100% wallet share, and there are some where we have point 1% wallet share.

And we’re looking to grow that. We value those relationships, and we’re continuing to grow it. But keeping that great relationship with the folks that we have huge wallet share, really important, and then growing it with the rest of the folks also really important.

Chirag Patel, Analyst, Jefferies: Understood. And then if we can move to the Products and Solutions side for a second here. What’s kind of the road map to your I think you guys had about 43% gross margins in the last quarter. What’s the road map to the 300, 400 basis points of margin expansion that’s been targeted?

Mike Claret, CFO, Resideo Technologies: Yes. First So of all, I think it’s interesting to go back to strategic the fact that we talked about ADI and P and S separately, that’s why we’re strategically separating the businesses because they are just different conversations. As you talk about P and S, you know, one of the challenges that that Resideo had when they got spun off from Honeywell is the P and S side of the business was not an operating business within Honeywell. There was a number of different product lines and other number of different product categories that existed that sort of got slammed together. And for the first couple years, the company really struggled to get on top of how do we fix that and operationalize it.

And there was the company’s doing a lot of good things forward looking at that point, but they weren’t really looking internally, say, hey, gotta set the the structure up right. And about four or five years ago, our CEO, Jay Geldmacher, Tony, my predecessor, other folks on the leadership teams, really focus on saying we have to fix the operations of the business. And so a lot of the margin improvement we’ve seen, because you talked about 43%, it was not forty three percent three or four years ago, right? It was much lower than that. We’ve already seen 300 to 400 basis points of margin improvement.

We’ve had nine quarters of sequential year over year margin rate accretion driven by really operational execution. This is about, you know, combining these businesses together, optimizing the manufacturing footprint, optimizing supply chain, bring all of this together so it is operating as one coherent business. We’ve done a really, really good job of that. I think we’re probably about two thirds of the way through that work. There’s still a bit more to go, but we’ve got the path, we’ve got the people, we’ve got the organization in place.

It’s really now more about execution on that, where a couple years ago, there was still a lot of work to do to really even just get the muscle memory. Now that doesn’t get us all the way there. We’re already two thirds. That’s a part of the additional margin accretion. The other two pieces that are out there is, one, we’ve had some pricing challenges in a couple categories where our margin rates are just too low.

We’ve gone out there and just told folks, listen. You know, we’re not gonna get single digit margins on products, particularly on our OEM side of the business where we’re supplying, you know, valves and igniters to water heaters and heat pump type of things. And so we’ve just made a decision that if we can’t get the right price, then we’re not gonna keep those folks as customers. We’ve had a bunch of success on that. It’s not a big piece of the business, but definitely is incremental to the margin.

And then the other really big thing, probably the bigger thing, is our new product initiatives. So, you know, while we were very, very focused on fixing the operation of the business, we did not invest in MPI. We had to get the core foundation. We we invested, but not nearly at the rate we should be. You go back to the Honeywell days.

There’s a reason Honeywell spun these businesses off because we’re not core to Honeywell. They were underinvesting even prior to the spin off. So there’s been a long history of underinvesting from an NPI. You can see this year in our results, we’ve increased the amount of r and d that’s gone into the business because we’re investing in NPI. And we’ve had a number of good product launches.

Those product launches are, a, engineered to have higher margins b, because they’re newer products that have been built now where we’re getting on top of the MPI issue, we’re able to command a little bit better margin, a little bit better price. So all that MPI initiative that continues to roll out is the other piece of ongoing margin improvement that we expect to generate.

Chirag Patel, Analyst, Jefferies: Excellent. And then we did touch on tariff as a topic for a brief moment. I don’t want to think that we’re not going to touch on that again here. No, never. It’s a topical situation or every day it feels like it changes.

Where do we stand currently with both the impact to you guys and the mitigation efforts that you’re taking as well?

Mike Claret, CFO, Resideo Technologies: So we feel let’s talk again business a little bit separately. On the P and S side, we feel really good about our position right now. And there is one big thing that we talk about pretty openly. You know, most of our products that are sold in The U. S.

Are manufactured in Mexico. 98% of the products that are manufactured in Mexico and sold in The US are USMCA compliant. So as long as that exemption remains in force, then I think we feel really, really good about our position. We feel we’re advantaged. We think we’ve got a great position.

And I would tell you not a week goes by. It used to be a day, at least now it’s a week, that we don’t just ask, what are we gonna do if that goes away? How do we think about we’ve got lots of contingency plans. But obviously, that would be impactful to us if that exemption changed in some way, shape or form. But right now, we’re in really, really good shape about that.

Again, it’s not crippling if it goes away, but it’s impactful if it goes away as we think about it. But we’ve had to do very little mitigation around that given given the fact that that’s in place. The rest of the of our P and S, there’s a little bit that comes out of China, but not a lot. It’s de minimis in most ways. And so we haven’t seen much.

And the the de minimis piece that we have, we’ve taken a little bit of price to to offset, but, again, it’s been very, very small. There’s other mitigation activities that exist if we have to execute them. ADI, a little bit different. You know, there is a significant part of the business that does come out of China.

Chirag Patel, Analyst, Jefferies: Mhmm.

Mike Claret, CFO, Resideo Technologies: We have but it’s third party product, generally, mostly. And we are no more impacted than anybody else. So if you’re a Chinese manufacturer that’s selling in The US, whether it’s ADI, one of our competitors, somebody else that’s selling that, we all have the same cost impact. Nobody’s advantaged or disadvantaged. And so you just see all the distribution world basically raise or lower their prices based upon the impacts of those tariffs as they go.

We’re no different than anybody else. We haven’t had to do much yet. We’ve done some. Hasn’t been much. We expect there’s a bit more out there Mhmm.

But not a ton. And as long as that continues to be an environment where everybody’s sort of equally impacted, I don’t see how it’s not, then it it shouldn’t be significant. But it will cause some fluctuations in the performance as we modify our price to offset the impacts of those costs that are out there. Like every distribution business in the very short term, sometimes you get really short term positive blips because you raise your price when the tariff goes into place, and you still got product that you’re carrying at the lower value. And so you get a little bit of benefit.

We’ve had a little bit of that. It’s not material, but a little bit of that’s been happening.

Chirag Patel, Analyst, Jefferies: How quickly do you are you able to price within that business?

Mike Claret, CFO, Resideo Technologies: Within thirty days. Okay. Not not the vast majority of the business within thirty days.

Chirag Patel, Analyst, Jefferies: Understood. Okay. Talking a little bit about the cash flow and the capital allocation part of the equation. I know there’s a split happening, but how to walk me through, one, how you see both businesses post split and what the strategy would be on both businesses

Mike Claret, CFO, Resideo Technologies: basically at this point. So before Post, let’s talk where we’re at now.

Chirag Patel, Analyst, Jefferies: Yes.

Mike Claret, CFO, Resideo Technologies: So what we’ve said and we continue to say is, you know, we want Resideo to have a near investment grade rating on its credit. What’s great, despite the fact that we had to go borrow a billion 2 and use $400,000,000 of cash, both Moody’s and S and P reaffirmed the company’s credit rating, which was awesome. Appropriate, but awesome. And, you know, we have a bit over three times leverage right now post that transaction. But to really maintain the leverage where we think it should be and maintain that credit rating, really should be pretty

Chirag Patel, Analyst, Jefferies: close to two. So that’s where we sort

Mike Claret, CFO, Resideo Technologies: of think about getting getting net leverage to around two Mhmm. Remains the priority. Now, again, we thought the opportunity to settle the IRA was, you know, once in a lifetime, so we had to do what we did. But our near term priority regardless of the spin is to get leverage back down to close to two. We weren’t doing the spin.

That’s what we’ll be talking about. It’s almost all we’ll be talking about. Mhmm. That doesn’t mean you won’t do some m and a around it, but you always have to have visibility in the cash flow and be able to predict with a high, high level of confidence that you can get back to down to two in a reasonable time frame. We think both P and S and ADI should have the same philosophy.

So going into the separation, our intention is to set up both businesses with the same credit rating philosophy, be near investment grade, have the right leverage. Now they’re different businesses. It might be slightly different on both too. But as we think about allocating the capital out, allocating the debt out, that’s where we’re going. Now we’re nine months away from actually doing it.

So things might shift and change around that, how we’re specifically gonna do it, what the specific levers we’re gonna pull. You know, that all remains to be seen. But at least our intention going in is to have both companies operate with near investment grade credit ratings on their debt with the appropriate amount of leverage and then execute against whatever strategies they have from there.

Chirag Patel, Analyst, Jefferies: Excellent. And then I did wanna talk a little bit about just the market dynamics and the way you guys sit in both businesses from a competitive standpoint as well. Let’s start first with the ADI business and what you’re seeing there right now, where you sit in the market environment, how much share is yours versus potentially a competitor?

Mike Claret, CFO, Resideo Technologies: Yes. I think if you think about ADI’s two core markets now, one is this low voltage security space, and they are clearly the market leader in that space. And then the other is the high end residential market as a result of buying the the SNAP business clearly the market leader on that high end residential space as well. We think there’s share opportunities. We think, again, as we invest in digital experiences, we think about the cross sell opportunities that exist.

We do think in those two cores, we will continue to see some beyond the cycle market growth. But we are, you know, pretty well established in both. You know, it’s the rule of big numbers, once you have a lot of share, growth becomes a little bit harder. And in both those businesses, I think, are both there. I think the real opportunity to ADI is the adjacencies that exist.

The the big adjacencies, really three, if you think about datacom space, you think about the pro AV space, and you think about taking the residential piece from know, where Snap was very much the high end and bringing it down to the upper middle market that’s there, all our adjacencies that we continue to explore and make investments in all of them to grow. And all of those, we have footholds, but they’re, you know, much more nascent. They’re much more early stage, and we think there’s lots of opportunity to grow in all three of those as we sit there. The market dynamics around ADI are a little bit different than on the P and S side. Again, ADI very much focused on commercial, but it’s a little bit less tied to commercial construction.

Everybody wants to tie to commercial construction. A lot of this is tied to the macro factors around security and surveillance that are out there, which are not necessarily tied to construction. There’s a one of our integrators is doing work for a bank. They did the same work for the bank three years ago. And this bank decided to take the surveillance they put in three years ago and rip it all out and put new surveillance in because now with the AI capabilities that are out there, with the analytical capabilities, you know, there’s a different world out there, and they figured that they need that incremental layer of security that’s out there.

And so there’s a number of things in there that are driving it. They’re a little bit outside the normal cyclical terms that are out there on ADI. So we think we’re gonna continue to benefit from that. We think we are. We think we’ll capture share in our core market, and we think there’s a lot of adjacencies to continue to grow through.

On the P and S side, it’s it’s very interesting. P and S, really, there’s four different lines of business within P and S. You’ve got air. You’ve got safety and security. You’ve got energy.

You’ve got water. They all have a little bit different dynamics. There’s different competitive sets in each one. There’s nobody that looks like Resideo on the P and S side that has that entire suite of products. Home is a system of systems.

Again, we’re thinking about combining all those systems from a control and sensing standpoint, And I think we’re really well positioned to do that. There are some product lines, thermostats as an example, we are clearly the market leader. There are some where we are a great market participant, security. We probably have not made the investments in security we’ve needed to make over the last five to ten years. We’re starting to invest there.

So we’ve probably been bleeding a little bit of share. Mhmm. And we think we know we have some shared regain opportunities within that. You take some of the air things that are outside of the actual control side of it, filtration, humidification, lots of opportunities to grow there again from an adjacency standpoint. And so within each one, there are some product categories where are clearly the market leader, and then lots of opportunities for adjacencies to continue to grow.

And nobody has the entire suite that we have that allows us to really go in and provide that entire solution to to the folks that are doing that work, the professionals. One of the things that does tie ADI and P and S together is we both think about the professionals, our customer. We go to market differently. We think about it differently, but the professional is the customer of both of these. These are products that are on both sides are professionally installed, vast majority of them.

And so we think about servicing the needs of that professional as the thing that really allows us to to be successful in both markets.

Chirag Patel, Analyst, Jefferies: Gotcha. And we touched on the idea of new product introductions and whatnot. Can we talk a little bit about the R and D spend that you’re putting into it? Are there certain hurdles that you’re looking at as you’re kind of making these investments?

Mike Claret, CFO, Resideo Technologies: I certainly hope so. There are. So, you know, I think that on one hand, we view the margin rate that we have on each business as indicative of how we should be thinking about spending at R and D. So if you have a, you know, a business that’s earning a 20% margin rate versus getting a 50% different requirements or different opportunities to invest, but also goes back with the market opportunity. I had an old CEO who taught me about buggy whips.

Right? It doesn’t matter if you’re the best buggy whip manufacturer back in 1910, they were gonna go out of business. Right? And so we think about both the margin rate that exists, but also what’s the growth opportunity of the market itself? Where is our position?

What is our right to win within that with the professional? And how do we think about all those, which then obviously drives an ROI calculation, which then talks about the various alternatives that are there. So, you know, when we look at the entire business, first of all, deciding your R and D investment, every board is gonna debate every single year because I guarantee you, in any given year, we could put $50,000,000 in and we could take $50,000,000 out. And it’s all about because it’s all short term, and the return on that’s longer term. So that’s all the trade offs that you have.

And so we look and say, this is how much we think we can invest given our capital requirements, given our desire to drive the business down to that appropriate investment level, given some of the m and a opportunities, given opportunities to return cash to shareholders, where do we think the right R and D spend overall? And then how do we allocate that R and D spend into the appropriate categories given the opportunities that exist in each one from a share capture and margin rate opportunity?

Chirag Patel, Analyst, Jefferies: Understood. We got a couple of minutes left here. Within the P and S business, can we discuss a little bit of the transition to the eighth edition connected devices? I was just the iteration of the next the upgrade cycle that we’re kind of seeing

Mike Claret, CFO, Resideo Technologies: Sure. Is

Chirag Patel, Analyst, Jefferies: what you’re kind seeing next.

Mike Claret, CFO, Resideo Technologies: Yeah. Think very specifically, the eighth edition is very much about smoke. And so that’s a regulatory UL regulatory issue. For some reason, they skip the seventh generation, which I don’t I don’t I don’t understand. They went from six to eight.

But it’s not really an upgrade opportunity per se. So it’s not a requirement. Maybe someplace or some zoning that requires you to upgrade it when you sell your home, but generally, it’s not. Whatever there, as long as it was compliant when you got it, it’s more about the opportunity to sell the next one. So this is about compliance with the next one that’s out there.

So now we take the opportunity as we were going through that to refresh the cycle, to add more connectivity to some of them. So a whole bunch of things that we’re doing. But as you think about the shift, not much of an upgrade. This isn’t, you know, TVs going from, you know, ten eighty p to four k, and people go running out and say, I need a new TV. This is really about, hey.

The next thing that’s sold has to be compliant. And so now we’re compliant with that. With all that said, there’ll be some upgrade opportunity. There is different pieces. And we definitely think about upgrade opportunities in a number of areas of the business as we’re thinking about MPI.

So if you can get the cost of a connected thermostat down low enough, when somebody’s thinking about replacing their thermostat, they might think about that opportunity. Maybe they wouldn’t think about connectivity because the cost differential is too high between a non connected and connected. But if you get the cost differential right, that upgrade opportunity definitely does exist more as you go out there.

Chirag Patel, Analyst, Jefferies: Excellent. Is there any part of the story that we’re kind of skipping over here, you know, at this point? Is there something that we want to make sure that

Mike Claret, CFO, Resideo Technologies: No, listen, I think that I think given the external constraints that were on Resideo from the time of spin really created a lack of awareness and understanding of the business. I think folks looked at the IRA, saw the word indemnification, environmental, and then they looked at these two businesses that didn’t quite belong together, they looked at what are the market comps for this business? Well, it’s really a sum of the parts thing. I think all that caused lots of people to, you know, just immediately, you know, tune out. And I think the opportunities we have now that we’ve settled that IRA, the opportunities to really allow these businesses stand alone is gonna free them up to be much clearer, have much better messaging to the markets and allow folks to really understand what’s out there.

And while we’ve seen a huge increase in the stock price, obviously, since we made all these announcements, I think, you know, if people look at it, everybody’s doing their own work and their own math, but if you think about this as a sum of the parts and you think about the market comps for each one and just sort of take those and put them out there, I don’t think many people would say the stock’s trading at a premium right now. And so I think there’s still a big opportunity for folks that want to invest in two really good companies. Again, we’re not spinning off something that’s that’s, you know, not wanted. It really just a appropriate separation of two businesses that that deserve to be on their own. We’re gonna do that.

We’re gonna continue to execute. Tom and Rob are both doing a great job executing. We have lots of execution, and I think those opportunities can continue to grow through market adjacencies, through NPI, through digital experience are all gonna continue to drive really good opportunities in the future.

Chirag Patel, Analyst, Jefferies: Excellent. We are out of time. So thank you so much for

Mike Claret, CFO, Resideo Technologies: the time. Thanks, Rob. Have a good one.

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