Resideo Technologies, Inc. Common Stock Jefferies Global Industrials Conference 2026

Sure. Let's just get this a little closer. Hopefully, that picks up. The question is about OEM security and how that's changed. OEM security, we have two OEM businesses. One is OEM security, the other is OEM combustion. They're very different, though. The OEM security business is a business where we function as an ODM for one major customer, and that means we create a product, we invest our R&D, we do all the development, we manufacture it. We basically then put their brand to compete against our products in the market.

There was a trade publication that said, "Well, if you don't like that business, why do you like this other OEM?" The other OEM business we have is combustion, and that's a business where we create a component for a much higher level assembly to many of the companies that manufacture water heaters, furnaces, boilers, heat pumps. It's very different because this business is very low margin. It's margin dilutive, and it's been a business where we've exited many of the accounts, especially in the Europeans. But we had one remaining account, and at the end of 2023, beginning of 2024, we had announced that that customer was going to be exiting over the next two years. But that customer has remained with us.

What happened is we were in discussions about what the second half of the year were going to be and what our revenue deliveries were going to be. There was a substantial reduction that occurred, not at the time of the investor, but subsequent to that. Right before our earnings call, the week before the earnings call, we could not get to reasonable commercial terms on what our deliveries would be and what our pricing would be. As a result, there was a reduction in the revenue to the tune of $40 million-$50 million in the second half of the year. You can think about that, about a third in Q3 and two-thirds in Q4. Now, that business, as I said, was margin dilutive. The gross margin impact on it is about $10 million total. Okay? It would be proportional, of course, to the revenue.

But I think in the short term, that'll also be the EBITDA impact on those two quarters. But we scale our operating expenses, and we've talked before about being very disciplined about how we do our operating expenses, and they scale with our revenue. We will quickly and have already taken the actions to adjust our operating expenses so that there is not a long-term EBITDA margin impact on this. We have already taken the actions to restructure it. Unlike most OEM businesses, this customer consumes our operating expenses pretty aggressively. So we spend a lot of time on the R&D for them, a lot on sales, marketing, legal, everything. So it is easy for us to scale those with the reduction in the revenue.

Yeah, it was incorporated because we understood where the contract was going to go eventually. It probably will not go to zero-zero. There will be some residual, as always, on these contracts, support and replacement products. That is fine. But substantially, it will be gone by the time we get to the end of the time period we talked about at the investor day.

Right. There will be reductions year-over-year. We're expecting further reductions to occur in 2027. The good thing about this is we understand the relationship a little clearer. We're taking the actions that related to the reduction that we're seeing here in the back half, so that EBITDA doesn't carry forward. We'll be able to adjust our expenses for 2027, so that impact will not have a material impact going forward. Because, again, the gross profit on the account was very aligned with what our operating expense level on the revenue was.

Dan, let me just jump in because you asked the part of the question earlier that wasn't answered. Just to give everyone a sense of the size related to this large OEM security customer. The forecast at the beginning of 2026 was somewhere between $170 million and $180 million. They performed in line with those expectations for the first half of 2026. As Tom mentioned, we signaled a $40 million to $50 million revenue drop in the second half of 2026, which then puts the range exiting 2026 to be, if you use $45 million at the midpoint, call it $130 million, $140 million. Tom talked about some incremental headwinds in the first half of 2027. We think it's roughly a $15 million Q1 impact year-over-year, give or take, and a $10 million impact in Q2 year-over-year.

That's the extent of the visibility that we have today. Exiting Q2, that's probably somewhere, if you take the 25 off the 130, somewhere between $100 million and $120 million is the range that you guys could use for modeling.