ADI Global Distribution Inc. 2026 Q2 Earnings Call

Hunter, please go ahead. Okay, thank you, Hillary, and good morning, everyone.

Thank you for joining us for ADI's second quarter 2026 earnings call. On the call today is Rob Aarnes, President and Chief Executive Officer, Mike Carlet, Chief Financial Officer, Allie Copeland, Chief Operating Officer, and Marco Cardazzi, Chief Merchandising Officer. Before reviewing the quarter, I'd like to draw your attention to the forward-looking statements we'll be making in today's presentation. Statements other than historical facts made during this presentation 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 ADI's filings with the Securities and Exchange Commission. Company assumes no obligation to update any such forward-looking statements.

We identify the principal risks and uncertainties that affect our performance in our registration statement on Form 10 as amended and other SEC filings. In addition, we will discuss non-GAAP financial measures in today's presentation. 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 an isolation from, our GAAP results. The reconciliation of GAAP to non-GAAP financial measures is included as an appendix to this presentation, which is accessible on the investor relation page of our website at investor.adiglobal.com. Unless stated otherwise, all numbers and results discussed in today's presentation, other than revenue and gross profit, are on a non-GAAP basis. With that, I'll now turn the call over to Rob.

Thank you, Hunter, and good morning, everyone. Welcome to ADI's first earnings call as a standalone public company. Today marks the beginning of an important new chapter for ADI. At Investor Day in July, we shared our strategy, market opportunity, and long-term financial framework. On August 4th, we celebrated our first day of trading by ringing the opening bell at the New York Stock Exchange. We enter this next phase as an established, scaled business with category-leading positions, a differentiated omnichannel platform, and multiple avenues for above-market growth. As an independent company, we can move with greater speed and focus and allocate capital towards ADI's highest return opportunities. We believe this enables us to strengthen our leadership and create long-term value for shareholders. I want to thank our 4,100 team members around the world.

Their dedication to our customers and suppliers has built ADI into the company we are today and made this milestone possible. For more than 40 years, ADI has served professional installers and integrators who build the systems that make homes and businesses safer, smarter, and more connected. Our goal has always been simple, make ADI the easiest company to do business with and become our customers' indispensable partner of choice. We do that by listening to our customers, investing in the capabilities they tell us they need, and making the right products available where and when they need them. Before moving on to the results, I want to take a moment to thank Jay Geldmacher for his exceptional leadership and wish him well in retirement. I also want to thank Tom Surran and our colleagues from P&S for their partnership over the years.

We are grateful for everything we accomplished together and wish them continued success. Now on to our second quarter results and operating priorities. Mike Carlet will follow with a more detailed review of our financial performance and ADI's full year 2026 outlook. As a reminder, ADI operated under Resideo in the second quarter of 2026. So the results we will review today are presented on a carve-out basis. As you likely saw yesterday, Resideo reported ADI segment results. On that basis, ADI generated record quarterly revenue of $1.29 billion and segment adjusted EBITDA of $103 million, both exceeding the high end of the segment guidance ranges provided by Resideo on June 4th. Average daily sales increased 2%, while reported revenue increased 1% year-over-year, reflecting one fewer selling day and a difficult comparison against 10% organic growth in the prior year quarter. Overall, demand across our commercial markets remained resilient.

While residential audiovisual continued to reflect the soft U.S. housing environment. Approximately 70% of our 2025 revenue came from commercial end markets, where demand is driven largely by retrofit, replacement, and technology upgrades in addition to new construction. Growth was led by Datacom up in the low teens. Commercial security up in the mid-single digits and Pro AV up in the low single digits. Those gains were primarily offset by continued weakness in the residential audiovisual, where we have yet to see signs of meaningful recovery. That said, we are not standing still. We are strengthening the portfolio, investing in new products, and positioning ADI to capitalize when housing activity improves. Adjusted EBITDA on a carve-out basis was $86 million, up $30 million sequentially and down $9 million year-over-year. Adjusted EBITDA margin was 6.7%.

The year-over-year decline primarily reflected higher operating expenses, pressure from freight and tariff-related product costs, and business mix, partially offset by tariff refunds. I want to reinforce a few key points from Investor Day about the market opportunity and the capabilities that make ADI unique. Our core categories across security, fire and life safety, residential AV, Pro AV, and Datacom represent an addressable industry of approximately $65 billion in North America as of 2025. Our leadership in several of these key categories provides a strong foundation, and the market size and fragmentation create substantial room to expand. Our ability to capture that opportunity starts with the breadth of capabilities we bring to our customers. We help them design systems and select products, stage and kit orders, and coordinate inventory and logistics so the right products are where they need them, when they need them.

That end-to-end support helps customers keep projects moving, operate more efficiently, and has become an important driver of our share gains. That model begins with a deep understanding of how professional installers and integrators operate. We combine that specialized knowledge with local inventory, technical expertise, value-added services, and a scaled omnichannel platform. What sets ADI apart is how we bring these capabilities together at scale, tailor our model to how customers operate, and leverage an enterprise-scale supply chain. Our sales team is also a big part of what makes that model work. I am proud to say that Selling Power named ADI one of its 60 best companies to sell for in 2025 for the fifth consecutive year, reflecting the investments we continue to make in the people, tools, and training that help our team serve customers and drive growth.

Finally, another important growth pathway is exclusive brands, which represented approximately 18% of revenue in 2025 and carries a meaningfully higher margin profile. We have an opportunity to improve the trajectory by increasing exclusive brands attachment across our customer base. We are also expanding selected solutions into light commercial applications using better data and pricing capabilities to identify additional penetration opportunities. Combined with our product development capabilities, we believe these actions can drive a higher and more resilient exclusive brands mix over time. Together, these growth vectors support our long-term target framework of 4%-6% organic revenue growth. We believe we have a compelling strategy designed to translate that revenue growth into higher margins, stronger cash flow, and improve returns over the long term.

We have also been intensely focused on lowering our cost structure, capturing additional synergies from the Snap One integration, simplifying our footprint, and better aligning our operations. Three years ago, we kicked off a broad modernization of our technology stack to create a more efficient and scalable operating foundation. With the heavy lifting now largely behind us, we are bringing the next phase of that work together through One ADI, our company-wide roadmap to further enhance the customer experience and simplify how we operate. At the foundation of One ADI is the modern ERP platform we have now fully implemented, along with the enterprise data capabilities it enables. Together, they give us the visibility and operating backbone to consolidate systems and websites, standardize processes, optimize pricing, and modernize our distribution and store footprint while building the trusted data foundation to use AI more effectively across the business.

These initiatives support our expectation of delivering at least $80 million of annualized gross savings by the end of 2027. You will hear us talk about One ADI regularly, and we intend to keep you updated on our progress. At the same time, we will continue investing in the capabilities that drive long-term growth, including digital, our sales and technical teams, Pro AV, Datacom, and exclusive brands. As we execute against these priorities, we are equally focused on disciplined capital allocation. Our near-term focus is to reduce leverage and invest in organic opportunities. Over time, we will pursue disciplined tuck-in acquisitions where the strategic rationale, integration compatibility, synergies, and returns are clear.

Today, we are also initiating our full-year outlook for 2026, which reflects the current demand environment, cost actions underway, and investments supporting our long-term growth. We expect revenue growth to accelerate in the second half, with stronger average daily sales growth and improved standalone adjusted EBITDA margins compared with the first half, despite difficult gross margin rate comparisons to prior year. Mike will walk through the guidance ranges and the key assumptions in greater detail. In closing, we believe ADI is well-positioned for the opportunity ahead. Over the past two years, we completed the largest acquisition in ADI's history, modernized our technology platform, and prepared ADI to operate as an independent public company. Our focus now is converting those investments into a more efficient operating model, a lower cost structure, and stronger financial returns.