Resideo Technologies, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Jay Geldmacher noted Resideo demonstrated solid execution in Q3, with record high adjusted EBITDA, net revenue within outlook range, and record adjusted EPS. Mentioned transitory macro and operational headwinds.
• Tom Surran discussed P&S's organic net revenue growth, 10th quarter of gross margin expansion, new product introductions like ElitePRO, and conviction in introducing differentiated products.
• Rob Aarnes highlighted ADI's organic net revenue growth, 6th quarter of gross margin expansion, ERP implementation progress, and Snap One integration progress.
• Mike Carlet provided total company financial results, adjusted EBITDA details, and discussed guidance adjustments for 2025 and outlook for 2026.

Segment Performance

• Products & Solutions (P&S): Net revenue grew 2% year-over-year, including approximately 1% favorable impact from currency. Gross margin was 43%, up 80 basis points year-over-year, marking the 10th consecutive quarter of gross margin expansion. Adjusted EBITDA grew 5% year-over-year. Key channels: retail saw strong point-of-sales volumes, OEM channel had low double-digit revenue growth, electrical distribution and security channels also grew, while HVAC was down due to a softer residential HVAC market. Introduced new premium ElitePRO smart thermostats.
• ADI Global Distribution: Net revenue grew 2% year-over-year, with 6th consecutive quarter of gross margin expansion. Gross margin was 22.6%, up 130 basis points year-over-year. ERP implementation in the U.S. business had an impact but is nearly complete. Snap One integration is ahead of schedule, with confidence in overdelivering run rate synergies.

Guidance

• Total company net revenue for 2025 is expected to be in the range of $7.43 billion to $7.47 billion, adjusted EBITDA $818 million to $832 million, fully diluted adjusted EPS $2.57 to $2.67, and cash from operations (excluding Honeywell termination payment) $410 million to $450 million.
• Q4 2025 net revenue outlook is $1.853 billion to $1.893 billion, adjusted EBITDA $211 million to $225 million, and fully diluted EPS $0.42 to $0.52.
• 2026 outlook is positive with anticipated year-over-year growth in organic revenue and adjusted EBITDA above current analyst estimates.

Risks

• Transitory macro and operational headwinds.
• Impact of HVAC regulatory change on the business.
• Challenges from ERP implementation at ADI.
• Uncertainties related to tariffs.

Question and Answer

Q: Can you quantify the impact of HVAC regulatory change and ERP side, and the delta in guidance?

A: Michael Carlet said headwinds are transitory, roughly similar impacts, and they caught the company by surprise in the quarter.

Q: Are HVAC headwinds going to bleed into 2026?

A: Michael Carlet said ERP will be behind by end of year, HVAC market bleeding slightly into next year but transitory. Tom Surran added HVAC market issues expected to be over by end of first quarter 2026.

Q: Talk about P&S growth excluding HVAC headwinds and strong areas.

A: Thomas Surran emphasized positioning in HVAC market with successful Focus Pro and new ElitePRO premium product, and strong performance in retail, OEM, safety products.

Q: Why are HVAC headwinds transitory and how they impact Resideo?

A: Thomas Surran explained excess inventory in HVAC market causing disturbance, but Resideo's products not discounted, and long-term position in HVAC is positive.

Q: Operating margins for each business into 4Q and long-term outlook?

A: Michael Carlet said continued gross margin expansion, ADI targets double-digit operating margin long-term, P&S expects operating margin expansion from product development and efficiency.

Q: Breakdown of ERP impact on 4Q and 2026 guidance?

A: Michael Carlet said SG&A impacts from ERP split roughly half in Q3 and Q4, and 2026 outlook positive with transitory impacts and initiatives considered.

Q: Qualitative factors for 2026 guidance?

A: Michael Carlet said adding Honeywell-related indemnity benefit, transitory impacts, and initiatives like new product launches and ERP benefits contribute to positive outlook.