Resideo Technologies, Inc. Q1 FY2026 earnings call

Overall Company Performance

• Total net revenue grew 8% year-over-year to $1.9 billion, exceeding the high end of the company's prior outlook range. Total adjusted EBITDA grew 20% year-over-year to $215 million, and adjusted earnings per share grew 3% year-over-year to 65 cents, also beating the top of the outlook range.
• The company completed key milestones for the planned separation of ADI into a standalone business, including the public filing of ADI's Form 10. The spinoff is expected to close between mid-Q3 2026 and mid-Q4 2026, with separate Investor Days for both Resideo (Products and Solutions) and ADI scheduled for mid-July 2026 in New York to introduce leadership teams and go-forward strategies.

Products and Solutions Operational Highlights

• Achieved 12 consecutive quarters of year-over-year gross margin expansion, driven by improved factory utilization that offset higher fuel cost headwinds. Increased R&D investments to accelerate new product launches and speed to market.
• Gained market share in safety products, driven by growing adoption of connected First Alert smoke and carbon monoxide detectors. Demand for the Honeywell Home Elite Pro premium smart thermostat remains strong, and residential HVAC channel inventory has materially reduced after three quarters of correction, with market conditions stabilizing at the end of Q1.
• A new integrated security platform is on track for general market release in H2 2026, and early market signals are positive.

ADI Global Distribution Operational Highlights

• Delivered sequential growth in security categories, including an expected rebound in video surveillance, and saw stronger large account contributions than in the prior two quarters. International operations delivered positive returns after 2025 operational restructuring.
• Achieved top-tier industry recognition for service, training, and technical support from CE Pro. Added 60 new SKUs in Q1, including new security cameras, premium audio products, and networking equipment.
• Met the SNAP-1 synergy target and completed implementation of new core operational systems, allowing the business to now focus on transformation initiatives including real estate footprint rationalization and global operating expense optimization, expected to drive EBITDA margin expansion in H2 2026.

Macroeconomic Update

• The company has largely absorbed Q1 2026 freight and fuel cost inflation, and plans to implement broad price increases in Q2 2026 to offset ongoing cost pressures. Management notes customers have broadly understood the need for these price adjustments, consistent with past collaborative relationships.

1. Products and Solutions Segment: Net revenue grew 9% year-over-year, with a 200 basis point favorable currency impact and 300 basis point benefit from four extra days in the quarter. Gross margin expanded 40 basis points year-over-year to 41.8%, marking the 12th consecutive quarter of year-over-year gross margin growth. Adjusted EBITDA grew 12% year-over-year. This segment contributed approximately 49% of total company net revenue. By channel: retail grew driven by volume, OEM grew driven by equal price and volume gains, electrical distribution grew driven by volume, security grew driven by price, and HVAC was down only 1% year-over-year (volume declines offset by higher new product prices).
2. ADI Global Distribution Segment: Net revenue grew 8% year-over-year, with a 1% favorable currency impact; average daily sales grew 1% after adjusting for four extra days. Gross margin was 21.2%, down 40 basis points year-over-year. Adjusted EBITDA declined $6 million year-over-year, with operating income flat year-over-year. This segment contributed approximately 51% of total company net revenue. Growth was driven by security, professional audiovisual, and data communications demand, partially offset by ongoing declines in the residential AV category due to a soft U.S. high-end residential market. E-commerce revenue grew 12% year-over-year, and exclusive brands revenue grew 7% year-over-year with 13% higher gross margin dollars versus the prior year period.

• Management reaffirms its full-year 2026 financial outlook, with annual growth now expected to be more heavily weighted to the second half of the year, primarily due to a fiscal quarter shift for ADI.
• The company continues to expect year-over-year net revenue growth for both segments in 2026, with growth rates now forecast to be approximately equal across both businesses. Total company full-year gross margin expansion is now expected to be flat year-over-year, with Products and Solutions still expected to deliver greater gross margin expansion than ADI.
• Q2 2026 guidance is: total net revenue between $1.916 billion and $1.940 billion; adjusted EBITDA between $216 million and $230 million; fully diluted adjusted earnings per share between 71 cents and 75 cents. There is one less selling day in Q2 2026 compared to the prior year period.
• The full-year 2026 operating cash flow outlook (excluding separation-related payments) remains unchanged from the prior quarter. Both separated companies will target a 3x gross leverage ratio post-spinoff, which management expects to be achieved rapidly given the businesses' strong cash flow generation.

• Ongoing macroeconomic uncertainty, including impacts from geopolitical conflicts, continued inflation, and reduced consumer confidence and affordability, has softened demand in high-end residential end markets, particularly for ADI's residential AV business.
• Ongoing higher freight and fuel costs create near-term headwinds; while planned Q2 price increases are expected to fully offset these costs over time, a timing lag will create a modest gross margin headwind for both segments in Q2 2026.
• Global memory chip supply constraints and pricing increases could create cost pressures beyond 2026, extending into 2027 per industry expectations.
• Actual results may differ materially from forward-looking statements due to unforeseen changes in macro conditions, cost trajectories, and market demand, as outlined in the company's SEC filings.

Q: Why is management confident that planned price increases will offset current macro cost pressures enough to hit full-year targets, and what are the key priorities for ADI's business transformation and core growth initiatives?

A: Management confirms customers have been communicated about upcoming price increases, and there has been no meaningful pushback, consistent with past collaborative relationships. While price implementation lags cost increases as contracts roll over, management is highly confident pricing actions will offset expected cost increases and will adjust further if needed. ADI's transformation is focused on two core areas: rationalizing overlapping real estate footprints inherited from the Snap One acquisition, and cutting redundant operating costs after a recent leadership reorganization. The company is also prioritizing returning core commercial categories to year-over-year growth, with several categories already returning to growth in Q1, and management expects core growth to rebound soon.

Q: What factors are driving Products and Solutions' consistent outperformance relative to end markets, and how is the segment mitigating current memory chip cost increases?

A: Sustained outperformance is attributed to strong execution across the entire business: a streamlined sales and marketing team driving new and existing product adoption, a highly effective supply chain organization, and product management and engineering teams shortening development cycles to deliver differentiated new products. For memory cost pressures, the supply chain team began securing allocation commitments starting in 2025. Most P&S products use only small amounts of older-generation memory (not the high-capacity, cutting-edge memory facing the most severe shortages), so overall cost impact is expected to be non-material. Any incremental cost increases will be passed through to customers via the upcoming Q2 price increases.

Q: What gives management confidence in the second half 2026 implied growth outlook, given ongoing softness in some end markets?

A: Confidence is based on current underlying business trends, easier year-over-year comparisons (ADI lapped a weak H2 2025, and P&S lapped 2025 HVAC market disruptions), and confirmed cost savings initiatives at ADI that are being pulled forward into 2026. Pricing actions to offset cost inflation are also fully factored into the outlook, and management notes the guidance is prudent based on current visible market trends, with flexibility to adjust if conditions change.

Q: Beyond 2026, how is Resideo preparing for extended memory supply constraints that are expected to last into 2027?

A: Management confirms it is already working to secure memory allocations for 2027 with suppliers, in line with the early proactive planning used for 2026 allocations. While the memory shortage is expected to continue into 2027, Resideo's product portfolio relies primarily on older, lower-capacity memory chips that face far less demand pressure than the cutting-edge high-capacity chips driving the current shortage, so the impact is expected to remain manageable.