RESIDEO TECHNOLOGIES, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Quarterly Performance: Total net revenue ~$1.8B, up 19% year-over-year. Total gross margin 28.9%, up 200 basis points year-over-year. Total adjusted EBITDA $168M, up 23% year-over-year. Total adjusted earnings per share $0.63, up 34% year-over-year.
• Tariffs: Resideo is agile in mitigating tariff impacts, with phased price increases and evaluating manufacturing shifts. For Products and Solutions, ~90% of goods sold in US are produced in Mexico facilities or sourced from Mexican suppliers (98% USMCA compliant). For ADI, phased price increases on tariff-impacting exclusive brands starting Q2 2025 and on non-USMCA covered products in H2 2025.
• Product Launches: Strong demand for Honeywell Home FocusPRO thermostats and First Alert VISTA H series. ADI launched nearly 100 new products post-Snap One acquisition, and at Integrated Systems Europe Trade Show, won 9 best of show awards.
• Gross Margin and EBITDA: Gross margin expansion and EBITDA generation underpinned by growing operating income, efficient factory utilization, and new product sales.

Segment Performance

• Products and Solutions: Achieved 6% organic revenue growth year-over-year. Gross margin was 41.4%, up 190 basis points year-over-year. Introduced new products like Honeywell Home FocusPRO thermostats and First Alert VISTA H series security products. Revenue contribution from this segment was part of the total ~$1.8B net revenue.
• ADI Global Distribution: Achieved 4% organic revenue growth year-over-year despite two fewer selling days, with 7% organic average daily sales. Gross margin was 21.6%, up 360 basis points year-over-year. Reported 29% year-over-year growth in net revenue, with strength in commercial product categories and e-commerce.

Guidance

• Reaffirmed 2025 full-year outlook, not tightening ranges due to market uncertainty.
• Second quarter 2025 outlook: Total company net revenue in range of $1.805 billion to $1.855 billion, total adjusted EBITDA in range of $175 million to $195 million, total company fully diluted adjusted earnings per share in range of $0.51 to $0.61.
• Phased price increases: ADI to raise prices on tariff-impacting exclusive brands in Q2 2025; Products and Solutions to increase prices on non-USMCA covered products in H2 2025.

Risks

• Tariff policy uncertainties impacting cost and pricing.
• Macro-economic environment impacts on customer behavior and demand.
• Foreign currency fluctuations affecting financial results.

Question and Answer

Q: Hi, great. Thank you very much. Good quarter. I wanted to kind of zero in on pricing a little bit. Rob, how many understand pricing in ADI and what I mean by that is this environment kind of one of your classic inflationary environments where distributors tend to do well, and you can hear pick up price, which will then help margins, help profitability. So is that the way we should think about, what we're seeing as far as tariff related increases? And then maybe, Tom, I'll kind of ask you this as well. On the P&S side, I know it's a different story, but as you look to get price, do you anticipate any type of demand impact or are you seeing kind of any sensitivity to your ability to maybe push through some of that pricing? Thanks, guys.

A: Yes. I'll go first. Great question, Ian. That is the probably the question of the day. I would say similar to what we saw in high inflationary environments. I mean, as you heard in the commentary or the opening remarks, we've taken the price increases that we have been given today from our suppliers and we have asked those through in a phased approach. We've also taken number of other commercial actions with our suppliers to first and foremost to be able to completely mitigate all, tariff related impacts both on our third-party business as well as our exclusive brands. So we're we feel that we're in good position today based on what we know. At the same time, we are being very prudent, if not thoughtful, based on the complexity of the environment, multiple variables in play, and have built those you know, built those impacts into our guidance going forward.

Q: Great. Thanks so much for taking my questions guys and echo the comments. A really nice quarter. Jay, can we just go back and maybe double click on the comments you made about really no buying ahead, no customer hesitancy? I just want to make sure I understand, is that a March quarter comment? Is that relevant for the month of April as well? Can you maybe just double click on things like linearity in the month of April for P&S and ADI. Just so we better understand kind of how things or how buying behavior, if at all, changed in the month of April, where there was obviously a lot of volatility relative to March, where there was just less volatility? And then I have a follow-up, please. Thank you.

A: Thanks, Erik. I'm going to let both Tom and Rob respond to their individual businesses. But as I stated in my comments, during Q1, it was minimal as I said. And we saw not -- very little from the standpoint of pull ahead. And, there's a little bit of it there. But the demand seems strong still. And I'll let as I said, I'll let Tom and Rob comment on each one of their businesses, which I think will be helpful from a color standpoint.

Q: Hi. This is Hannah for Amit. Just curious, when the macro environment improves and housing turnover picks back up, how much leverage is there in the model on gross margins? And do you see these getting comfortably above 30% when the end markets do improve?

A: Hey, I think overall that we continue to think we have structural improvement opportunities on the P&S side to continue to grow gross margin. We're not going to specifically guide gross margin for the future, but we do think is regardless of the market conditions that are out there, as we continue to execute and control what we can control, we do think we see opportunities for ongoing gross margin, accretion, both from our structural improvements, the launch of new products. As Rob mentioned at ADI, some of the new product investments on exclusive brands and the things we're doing at ADI to drive hard. And so we are optimistic they will continue to see gross margin improvements, certainly for the next few years as we continue to execute without setting a specific goal out there or a specific number.