Resideo Technologies, Inc. Common Stock 2026 Q2 Earnings Call

Thank you for joining us for Resideo's second quarter 2026 earnings call. Joining me on today's call is Tom Surran, Resideo's Chief Executive Officer. We would like to remind you that this afternoon's call contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Resideo's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings.

In addition, we will discuss non-GAAP financial measures on today's call. These non-GAAP financial measures, which can sometimes be identified by the use of adjusted in the description of the measure, should be considered in addition to, not as a substitute for, or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP financial measures is included in the financial data workbook, which is accessible on the investor relations page of our website at investor.resideo.com. Unless stated otherwise, all numbers and results discussed on today's call other than revenue are on a non-GAAP basis. With that, I will turn the call over to Tom.

Thank you, Chris, and thanks to everyone for joining us today. Before I speak about the quarter, the entire team would like to thank Jay Geldmacher for his service as CEO over the last six years. During his tenure, Jay applied his operational and technical expertise to help Resideo to get where we are today, both strategically and operationally. Jay led us through two major acquisitions, the recent spin, and provided a steady hand through a dynamic market condition. Jay's interactions with customers, partners, and employees have created a tremendous company culture and strong, enduring relationships that will benefit Resideo for a long time. Also, earlier today, we announced Shane Harrison as Resideo's next CFO. I had the opportunity to work with Shane during our time together at FLIR Systems, so I know firsthand the kind of leader we are bringing into Resideo. Shane is highly capable, dedicated, and execution-oriented.

He consistently took on challenging assignments, delivered exceptional results, and was a major contributor to FLIR Systems' success. He combined strong financial and strategic capabilities with sound judgment, a willingness to dig into details, and a focus on getting things done. I also know him to be a person of high integrity and someone who works extremely well with others. Shane Harrison will be joining us on September 1st. As you are aware, we completed the ADI Global Distribution spin-off on August 3rd. As in prior releases, our discussion of the second quarter results, however, will be at times on a consolidated basis as the Products & Solutions and ADI business segments both operated under Resideo in the second fiscal quarter of 2026. As usual, we will also discuss the results of each segment on a segmented accounting basis.

As has been the case in the past, these segmented results do not include a full allocation of corporate costs borne by the business as a whole. Finally, there is also information in our earnings material that refers to Resideo's standalone results, which are presented as if the ADI spin-off was completed on January 1st, 2026, and include adjustment to certain financial line items to reflect management's estimates of what our results would have been. We have provided a bridge from P&S segmented results to Resideo's standalone results in our earnings release. Starting with our third-quarter financial statements, we will classify ADI as discontinued operations for that quarter and all prior periods. I will discuss Resideo's consolidated second quarter results before I hand the call over to Chris T. Lee to speak about the balance sheet, cash flow, and ADI.

Chris T. Lee will then hand the call back to me to speak about the Products & Solutions segment results and Resideo's 2026 standalone outlook. In the second quarter, we were pleased with the continued execution demonstrated by the entire team as we exceeded the high end of the second quarter outlook ranges for all metrics, both the consolidated and business segment level. Total revenue grew 2% year-over-year to just under $2 billion, a new quarterly record. Total adjusted EBITDA grew 19% year-over-year to $249 million, another new quarterly record. Adjusted EBITDA includes the favorable impact of $27 million of tariff refunds during the quarter, primarily received by ADI. Total adjusted earnings per share grew 26% year-over-year to $0.83. Overall, we are pleased with both the top and bottom-line performance for Resideo in the second quarter.

Now let me hand the call over to Chris T. Lee to discuss the balance sheet, cash flow, and ADI.

Thanks, Tom. Total reported cash provided by operating activities in the second quarter was $148 million versus the $200 million generated in the same period last year. The year-over-year decrease was driven primarily by approximately $45 million in payments for non-recurring business separation activities and settlements, including the termination of the Honeywell Tax Matters Agreement. There was also a $20 million use of cash for higher cash interest paid. The decrease was partially offset by higher net income and less cash taxes paid. Consistent with our Investor Day messaging, Resideo started de-leveraging on August 3rd, paying down $900 million of outstanding principal under the Term Loan B credit facility. We expect to make an additional repayment of approximately $200 million on the Term Loan B credit facility in the third quarter, following completion of the post-closing cash adjustment under the separation agreement with ADI.

With respect to the ADI segment, we have provided its second quarter segment results in our press release. ADI has announced that it will be hosting its second quarter earnings call tomorrow morning and will speak about its results and outlook in more detail on its earnings call. ADI will present its results derived from Resideo's accounting records and presented on a carve-out accounting basis. On behalf of the entire Resideo management team, we would like to congratulate Rob and the ADI team on the completion of the spin and their new life as a standalone public company. They will remain an important partner to Resideo. Let me hand the call back over to Tom to discuss the Products & Solutions segment results and Resideo's 2026 outlook on a standalone basis.

Thanks, Chris. The Products & Solutions segment continued its strong operational execution despite soft housing trends and inflationary input costs. The team achieved another quarter of year-over-year revenue growth and the 13th consecutive quarter of year-over-year gross margin expansion. Products & Solutions reported revenue growth of 4% year over year, including an approximate 35 basis point favorable impact from currency. Revenue grew across substantially all of our sales channels and product families, driven primarily by volume from customer demand. Let me walk through our performance by primary sales channel. First, in the retail channel, we experienced another quarter of strong year-over-year revenue growth, driven primarily by increased volumes for higher value products. Adoption of our combination smoke and CO detectors and our new thermostats continues to be strong and ahead of our expectations.

Our point of sales volumes at our key accounts continues to be strong and is supported by healthy levels of channel inventory. In the OEM combustion channel, also reported as energy category, posted its seventh consecutive quarter of year-over-year revenue growth against a tough comparison. Growth was driven primarily by continued demand for higher priced products, primarily in EMEA. In the HVAC distribution channel, revenue returned to year-over-year growth. Revenue growth was driven primarily by volume, led by another quarter of strong customer adoption of the Honeywell Home ElitePRO, our new premium smart thermostat. Demand continues to exceed our expectations and has resulted in our increased presence in the high-end connected segment of the market. In addition, our new dehumidification and water filtration products increase our category penetration and continues the positive momentum generated from the execution of our strategy.

Conditions in the residential HVAC market remained stable versus last quarter. Our channel inventory remained healthy and increased modestly from the prior quarter. The electrical distribution channel had another quarter of year-over-year revenue growth, driven primarily by volume. We saw continued demand for our BRK branded non-connected safety products, primarily in the maintenance, repair, and operations market, but also the manufactured housing market. Our content per new residential built home remained stable quarter-over-quarter amidst a continued soft market for new home builds. Revenue from the security distribution channel was flat year-over-year, given the continued soft market for security installs related to the resale of existing homes. OEM security sales were down slightly year-over-year due to reduced volumes with a large OEM security customer. This was in line with our expectations for the quarter and with our strategy to focus on higher margin branded business.

Moving on to profitability. Our gross margin percentage was 43.6%, up 70 basis points year-over-year, and up 100 basis points sequentially. Gross margin expansion was driven by volume increases, favorable manufacturing and supply chain variances, and tariff refunds, partially offset by product sales mix. We also incurred inflationary input costs, which we do not believe are permanent, but are only partially offset by the price actions we announced last quarter. P&S segmented adjusted EBITDA grew 6% year-over-year, due primarily to higher gross profit dollars. As discussed at our recent Investor Day, R&D continues to be approximately 5% of total segmented revenue as we invest behind new product launches and speed to market. Operating expenses increased due primarily to higher legal settlement costs.