Earnings call transcript Q1 2023

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Operator

Good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Resideo First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator

Vice Investor Willey, begin you your conference. President Jason Relations, of may Mr.

Jason Willey

and for thank Resideo's everyone, afternoon, Good you XXXX call. first joining earnings quarter for us

Officer; Jay On will Financial Geldmacher, and Tony Resideo's Officer. today's Trunzo, be Chief call Chief our Executive

of related materials A on our are website our release page Relations Investor of earnings at available and copy presentation the investors.resideo.com.

statements you historical and contains forward-looking may other than facts We future during results presentation constitute not performance would and statements. and number are afternoon's forward-looking like guarantees of involve that this to of call made remind uncertainties. this or Statements risks a

Resideo's assumes differ Actual filings. no that and with Exchange risks and of may as including to report on the and a in of obligation materially results the in such the factors, Form forward-looking time in statements annual update filings uncertainties from identify We those from forward-looking our The those XX-K Commission. Securities SEC number company a described statements. result time principal affect performance our any other to

will I to Jay. call over that, turn the With

Jay Geldmacher

and good Jason, everyone. you, Thank afternoon,

back pleased February. in the first outlined the upper quarter, I'm end of to outlook we delivered results the we say, at in

improvements in to the several we've number months, Over chain of areas past related and a seen supply logistics.

taking Our to drive teams flow these of XXXX on are progresses. gross improvements focused improvements advantage margin as and cash

partner end customers. we the the being in remain we for to reliable leverage mixed, our over we've signals markets as trends opportunities created months progresses, past year as While customer our by normalize, volume the macro trajectory a see opportunities XX inventory improved and

$XXX continued in as addition XXXX, helped lower price Products of and & First particularly of million, X% up year-over-year, and quarter the security products. volumes, For realization offset energy Alert our Solutions delivered first revenue

manage revenue stable relatively in inventory HVAC see to our product we distribution QX quarter. our year-over-year, continue its air channel levels While was the

as inventory channel progresses. continue XXXX to this to manage expect down We

historical following inventory late customer and generally believe activity channel, levels trend which order OEM levels In to our and early activity is demand, in have stronger end returned tracking normalized we largely XXXX. XXXX has

exciting in LX Building introduced that position real-time Detector notifications This on recent products the includes number our we connected we Water during Water Alert-branded water capabilities. quarter shutoff market. and will provide expect Leak grow and leak devices Shutoff our new a These the WiFi WiFi LX Valve. water and automatic Freeze First momentum, of

markets, design, features world's heat fair which The ISH, solutions. with DTX and in underfloor modern the heating zoning, trade we Frankfurt and EMEA application a leading slimmer, support, extensive digital our water, integrates and HVAC thermostat at hybrids, including for introduced for pumps,

HPC-r, pumps. component We our control This heat portfolio unit a pump part EMEA market. an indoor introduced supporting is of for growing the the heat

the product doorbell event carry video detection the also VXX We security be First offers Alert in May and conference. will at with the video brand. verification. will This also launched available West ISC AI-based intelligent It

Vegas, home in in the have at security dealer I Alliance VXX with Home products energy where large And of industry the was quarter customers of Frankfurt, showcased including we highlighted. security in At ISC at in a on of the as our activities we we video March, ISH, kicking previously show launched doorbell. trade and first number several participated of West a Las management January new cross-section off connected the activity, we a The period Matter. CES, Connectivity focused show productive and standards,

broker and over what past the buy limit overall chain QX, supply of activity semiconductor saw broker and In relative the components much remainder recent of Availability first our improvements enabled currently months. from we our activity to have us limited in expect the periods. environment to This and the we of XXXX. key during over logistics XX quarter, experienced electronics improved we

While from meaningfully a we ago. year have higher-than-usual carrying shrunk levels are backlog, still delinquent

shifted months. initiatives their teams can return supply operations resources to engineering. allows from short-term focus normalize, and products the value tactical and past initiatives XX This With of that to beginning engineering our value to more have chain engineering creation around the be structural time consumed over new disproportionate

XXXX. significant QX QX our optimization earnings As in portion which of to XXXX and announcement and castings have the discussed be ties action completed the expected in our to took on optimization charges our of QX facility, early begun This call, our is plan is facility we work to with manufacturing Diego first facility a restructuring we close XXXX. San

We XXXX. impact the San expected in expect savings. million to annual of Diego is project completed, positively to $XX begin this financial QX performance to activity And once deliver

location significant First Alert our made disruption. in Texas that progress accomplished schedule facility exiting El acquisition. on distribution with we Most are customer the Paso also a ahead consolidation. the center of across those operations Paso, meaningful El This into folding involves legacy came and importantly, have We've project and no

We million expect $X per this once from completed. of project fully savings year annualized over

ERP our to Overall at first integration to of platform the way We well. First Alert quarter achieving is least $XX our and target. the our annualized in are moved synergy million progressing business well on

the more asset Alert We strong utilize market intend as are reputation forward. that and moving expanding and broadly key CO] we First to a into (ph) Alert the brand First products. [non-smoke awareness view brand We with

execute first was sales and offerings essentially XX%. quarter tools its sales and and to total ecommerce grew was for revenue capabilities, XXXX average first ADI sales of digital X%. force XX% its flat enhancing investing reached brands to exclusive sales touchless drive in ecommerce continues total the XX% revenue efficiency. and of quarter up compared reported with QX XXXX on daily expanding ADI ADI's with

in softness across and residential AV as in in We supply managing first chains growth customers and inventory ADI quarter commercial saw particularly video of normalize in categories slower signs continued saw security and commercial the categories, categories. several levels surveillance. fire

These suppliers our and engaged continue integrators categories commercial and healthy and has in integrators expected current on Over state the actively demand the conversations with ADI survey several to the the growth to project of months, XXXX past backlog. direct environments. point in team and

first call turn to Tony and over the more I'll outlook With in quarter XXXX to discuss that, detail. performance

Tony Trunzo

Thank and you, everyone. afternoon, good Jay,

quarter compared $X.XX to of was year. X% QX last First revenue up billion

million exchange foreign down from impact, revenue approximately acquisitions $XXX to negative Excluding of X% currency QX was million performance. and compared approximately $XX strong XXXX

income compared million year. $XXX to Operating $XXX in was QX million last

Fully $X.XX the diluted per were period. in share with year-earlier earnings compared $X.XX

to of in Honeywell includes which agreement, million was million $XXX EBITDA, XXXX. impact $XXX QX compared Adjusted the the reimbursement

revenue Products $XXX X%. up first million & Solutions' quarter was of

Excluding unfavorable compared impact, approximately X% revenue $XX Alert exchange declined of approximately million $XX million last foreign QX. from First and to

$XX strong in remained to was this by demand realization added volumes, slower driven last revenue end a decline Offsetting with XX% year-over-year. million compared approximately Price year. unit and residential

Europe and XG, migrations lower revenue US. sunset Security LTE, radio softness continued due was in lower in the to

Our US market security general also quarter. experienced sales during declines the first

in XXXX. fixed & in reduced impacts XX% the quarter of compared Products continued XX.X% absorption, cost decline inclusion to the gross results. inputs, of labor first Alert was lower-margin QX the volumes year-over-year material reflects inflation on The of and on margin Solutions and certain First

costs, QX. had year-over-year these improvements We dynamics in have on begun to some materials but impact a limited and see freight

benefits of up operating the year-over-year Total First initial of were to million offset restructuring for Solutions by $XX Products Alert activities. inclusion expenses costs, partially & due

million, of sales Solutions & sales, last was XX.X% or with $XXX or profit XX.X% year. of operating million Products compared $XXX

flat surveillance, categories, fire the of the ADI to rates in prior-year period. video slower and revenue residential up at recent year-over-year, quarter. $XXX essentially E-commercial including compared categories delivered periods. million, security in and were to AV Sales QX but contracted

margin with XX.X% XX.X% margin compared brands. and in was the first with benefit offset around to exclusive able last of initiatives quarter inflationary the pricing gross waning ongoing ADI were We year. optimization expected

million decline digital increased has in and down slower compared spending. initiated systems initiatives. areas activities, targeted and around reductions, XX% strategic ADI prior facilities operating profit year. of investment $XX The restructuring including investment was rationalization, headcount reflects with ADI

million $X $X savings report related of cost our to charge We actions. to million have a to-date results expect and QX in these identified

ADI. to are cost plans at additional We evaluate continuing reduction for

quarter. Corporate prior-year from $XX down were in $XX million, costs the million QX in first

flat costs Excluding $XX First year-over-year. transaction million corporate of costs Alert in XXXX, were QX one-time

was the compared a quarter of first first flow $X use Operating cash of use a in for the of quarter $XX million with million XXXX.

and payments conversion typically bonuses quarter, flow lowest quarter. makes QX our in made cash rebates, As accrued we a the which reminder, first on customer

inflationary terms. supplier working of being inventory, in are unfavorable some levels Current by incremental impacted impacts safety capital to stock, changes and

progresses, business. year we particularly metrics, improvement expect the to in As Solutions working capital & see the Products in

to Turning outlook year. our for the full

outlook million implying million, the expected range provided from in revenue flat to range to Consolidated of of expect continue profit billion, We our is at $X.X operating be and the billion to XX.X% revenue midpoint. the gross range $XXX all unchanged $XXX to expected in in to XX.X%, is February. the be to $X.XX margin to in of be

per of which earnings increase $XX be liability year. total reimbursement in We in of an reflects to to or the agreement expect the $X.XX, GAAP for per range $X.XX our a to share, estimated Honeywell million share $XXX of $X.XX million,

payments Our pursuant capped cash at per to agreement year. $XXX the million annual remain

reimbursement the includes the Adjusted expense. of million be estimated EBITDA of is agreement in year expected the range to $XXX million million $XXX EBITDA of full Adjusted to $XXX for impact the XXXX. full

between revenue the GAAP expect profit quarter, $X.XX and $X.XX. $X.XX GAAP the million per For billion; gross of of XX.X%; in consolidated share be billion $XXX and $XXX range XX.X% $X.XX operating second to the of to the in earnings in we range of range to million; margin

expect chain cash soft which conversion. as metrics we and on underlying & anticipate as to progresses, dynamics positive a our remain margin, gross the supply impact We through move We residential have Solutions demand our working year improving XXXX. capital should Products

cash the our priority a XXXX. remainder Improving overall top cash of and cycle is for generation

our the relative the targeting to XXXX a XX in We the of days QX. of by are cash at end cycle improvement end XX-day

As Products targeted a price mid-single and actions. offset impacts assumes Solutions, volume reminder in partially & outlook year XXXX digit by declines carryover revenue new price our full

in in XXXX single-digit offset For intrusion. growth, as partially residential commercial-focused modest categories growth by revenue incorporates activity is including ADI, our and slower AV outlook categories, low

few take before questions. to I Jay will the we call now turn concluding remarks for a back

Jay Geldmacher

Thanks, Tony.

and We key cost generation, opportunities. financial incremental to momentum into work continue move focused to growing QX, from see partnership on on remain on accelerating delivering saving We we benefits and and to our expanding initiatives. product restructuring we improving the expect activities targets, cash our margins

constrained. an market We remains to margins positioned where are profitability environment in end our demand well even and improve overall

on thank ensuring to the for team positioned for and our long-term their success. Resideo the business focus continued is for want delivering I customers

are Operator, This concludes our now prepared questions. ready we for remarks.

Operator

of Your [Operator line question Erik comes first Woodring the Instructions] Morgan Stanley. from from

is Your line open.

Erik Woodring

XX% that then, you about contributing should just happening right? Hey, the the just last call about just to good have you plan. First I'll so, million help total quarter, Alert end at quarter if press revenue you understand guided Maybe maybe know the contributed below business? on Anything one, you in for $XXX and my afternoon, us Alert $XXX that the to can guys. your believe give March the out? can perform first taking is range. And it two. in you release that Thank And able what's of First -- question. guidance million you -- the about I with still I I believe part just revenue second is were of that, of both, high we shows you

to so, you improve -- performance see where offset And better-than-expected that? did Thanks. perhaps better-than-expected

Tony Trunzo

the Tony. it's Erik, So Thanks question. for

of a It couple First is bit Alert So, seasonal. things there's business. about a the little

you that security other place through got our So, -- better magnitude softness which a a softness. I that just bit it put saw in was particularly but early And some have quarter, bit as of quarter. we the It in $XX and QX lowest the did rolled Things flagged the that we was comments. was in typically in soft retail, million. but wasn't the wouldn't we little we flagged at it see soft. the of And little did we quarter. scale, business, the is

outlook periods was little it a Pretty things and of stabilized is pretty of to OEM distribution relative flowed much for it held find of ebbed The inventory again, everywhere in QX. where pretty the our up which channel, had during where of sort with respect the strong. had ebbed during terms back today else channel ourselves We some what We HVAC channel of periods it were our quarter. some and sort the to well. we kind expectations, in bit quarter

bit much We haven't pretty of seen expected But we business all expected. yet. we there little clear the as a rest the a performed changed than directional or better

Erik Woodring

Okay. maybe a the Perfect. That's question on clarification payment. helpful just Honeywell color. And then

So up obviously, like it this ticked a bit looks year. that little

you us through? help it can Just you year? And me. so of more why expect Honeywell to the do much. come when you timing you owe maybe that this think payment Thank And for that's to about then, incremental

Tony Trunzo

Erik. Thanks,

stopped On Honeywell detail. and that follow-up happy is quarter the below then the this income. operating the quarter impact we with always and historically explaining any we $XX at variability up in guided to accounting operating we're first in the attempt cash. of the stable, the call, given obviously very data quarter income do is to versus other -- in And variability there's million a some in provide Honeywell to showed been predictable income. But liability very that And I'll people always we've reason

And line. So GAAP start earnings it it. EBIT share, those EBITDA, managing operating was impact per have about When we're we're things we're -- income talking talking below the an to again. non-GAAP about

This quarter, accrual we $XX the was took million.

in it high. times the really a their represents estimate had $XX we've cost I true-up a from of of it in And of five-year It's maintenance the think environmental it's and couple Honeywell remediation. that of the past. million-s been historically, --

of have a So, changes maintenance of in things all the And will through those costs, have an site, impact can you a regular they'll basis. quarterly given those on go on update. you they'll that all all of of kinds can properties, the basis and a inflation, have things overall

XX.X remain. What XX I has the where agreement, still that no cash impact in dynamic a short the which either really for a for clear it's quarter, of about is want be million is or term life $XX on to the which years, the of it

long to aggregate money in more having pay the term in either point ultimately it So, short Honeywell in to to term. us or doesn't

Jay Geldmacher

that's I think that, is what when about we point talking in And -- it predictable. that was -- that's made and know that's remarks, and is he Tony that our capped that

Erik Woodring

Fair enough. Thank you so much guys.

Tony Trunzo

Erik. Thanks,

Jay Geldmacher

Erik. Thanks,

Operator

from Funds. Your of the question Kearney line Brett from next comes Gabelli

is line open. Your

Brett Kearney

for Thanks evening. question. Good guys. my Hi, taking

Tony Trunzo

Hey, Brett.

Jay Geldmacher

Hey, Brett.

Brett Kearney

in available? the commercial, with. like talk about potential for in interact this front? good opportunities sheet on integrators it end environment? I further kind Can balance what's and for maybe in positivity guess, good more in of contractors, And still doing that they the you bolt-on shape still still pretty ADI some acquisition With -- there's sounds some of from the appetite your Are you

Tony Trunzo

still available. are they So,

time, handful of around really a will As guys We've team a couple we've in those around potential dialogue continue to a targets. timing. a frankly And those regular deals. come has kinds ADI disciplined any pipeline. around before, talked about a They're -- have -- to at of and given job as being done with, opportunities do price of we good up,

reality the But valuations a in is have come of capital having view bit. the with probably our is cost gone little up,

trying reality seen And kinds make make in to I an us dynamics to consolidate do have that you of upfront get extent in good ADI. sometimes a sense play, standpoint. almost things standpoint. to valuation happen and they that always those These a when I new terms little But to really a bit you're when to sense of from of adjust we've into we terms maybe of good sellers the consolidation to think And cost financial look timing. being them able at mean, continue them to from a

Jay Geldmacher

sense that I They've -- that a of if it But their of of of with think market -- the an that there we been is their opportunity dynamics on, because just terms job really and scrutinize spot more valuations, out reality a sense in little selecting it versus I were would a bottom comment they ADI of nice and period a the the line, bit been Tony's us to of some and has they so on time before now pleased determine in I add gives it and of bolt-ons. progress. done do if if -- it. holding make for think team

Brett Kearney

very guys. much helpful. so Great, Thanks

Tony Trunzo

Thanks, Brett.

Operator

Instructions] the Paul [Operator from of comes question Your line from next Morgan. Chung J.P.

Your open. is line

Paul Chung

Hi. Thanks questions. for taking my

rebounding over 'XX to And we then, leaner? you the heavy years after to exit levels growth, in should continues channel cash goal cash the that kind drive levels you range And investments and inventory there. two how as as think cycle XX taking of steps I about also what it? So get follow-up. of free back may just 'XX on think can days flow, inventory flow find a the cash suggest the cycle around on about past which mentioned to we free in Is way right to expand you're days, to days And lower? cash have

Tony Trunzo

answer laid question. order terms to the from disciplined come of if the of majority, cycle in, suppliers. how we inventory. the guess for to that We're bringing us pay about is I short get in in significant just not, that that for to has all out thanks target cash that Paul, we

is AP So the that not lever pull. one we

days They've couple but of Our stable. DSO they're relatively relatively are up a ticked stable. here,

the So of end get the is inventory between that level. bringing dollars on the focus year in to down to now and

And I that levels. be. us were you're of lower highlight 'XX probably were kind get -- were than XXXX early we And to the the our them that We It I'd We way want us gets lower had low. to those of were of artificially doesn't coming fill those guess that down COVID. kind that. late to out rates 'XX, all than levels right,

was challenge at and heavily out we was delinquent Our supply backlog we wanted it the the it higher sort point. very beginning leaned be. just of that than to of And chain

we're we're think of to on. to focused intermediate XX now as -- So between those expect back and end I'm said, out we But the term, to levels. and least year the days not of I exceptionally cycle able to is shorter the take sure could get at doable I the be

Jay Geldmacher

the not very better, up supply indicated don't we've a chain better. doubt we not We're There's add to I'm and have as organization that significantly does. able to would inventory And no all gone, with have about focus because differently, on up. to becoming cleared more there's just run a about the it's to it, we talked much, heavy I our little operations much hung but pleased say -- that, than predictably And situation but we that. too, today, in February whole Yes. with that have

important a have here And so, if I'm it didn't about wouldn't reasons. that feel is opportunity about excited for know out we we this. strongly pretty of and target how And the put whole variety we

is hear and the focused it. you'll more So, highly on about it, team

Paul Chung

put cash place. follow-up And on How then, a we your see And margin kind mentioned the throughout would lower be that the that in great Yes, costs, the front? would just the coming quarters? Can in terms meaningful about you year realizing do separately... of a in you more That component fantastic. on were the then, think minimal of quarter. improvement

Jay Geldmacher

No, that's Paul. all -- go ahead,

Sorry.

Paul Chung

In had? Yeah. And on power some that's line? of environment, do pricing you. Thank then, a separately you you've tough opportunities me. still you the to prices raise for And can have the those product for expand it certain

Jay Geldmacher

we're terms supply see the in I closer to years. to a two the Thanks, our of and We on price mean lot to price paying Paul. attain things were do that to was. probably Yes, for able opportunities higher way chain going been we of haven't be continue because input cost able to

year there's to as grasp -- goes improve in So that and that's definitely the think further will I our on. continue

because two last less freight took is than dynamics it the all years. significantly the of also place for about was talked We've that

and we much important. We I the that continue year. companies to indicated, lot had spend a on buys that's many broker of And as money, throughout less So year. as much, trend had last did,

this, there say not the I just there. very you is variety So team there's I'm about opportunities my a but chain whole about opportunities supply can -- excited tell pleased I'll of it, that

Tony Trunzo

on a maybe. inflationary what both get offset of realization and couple a input labor, QX, you price Paul, saw. those our margin of that in realization. The perspective, costs QX to fair frankly an compared both significant term but -- that's terms costs able was in And to costs, Yes, chunk and price in we things didn't last of were from material

year of headwinds the the as bit outlook for engineering, of by of Our the maybe we improved and more those help margins get what -- some opportunity lapping profitability, improved it's the that to in costs those terms bring a supplier and the second those points and value the of to in half should -- of down in of of driven sort of terms management, see half from second of to us things year. some little kinds of some that

Jay Geldmacher

thing I'll is oops. The only -- add

The reduced. supplier also going I was thing times was significantly lead have to other been that add

helps terms inventory. our of of in So, it our management

we important internal, own our investment think [indiscernible] about that. and have and I Our an really excited it's and in improving, we're forecast

two with last years. of in really us heard we've you've years And our are talk, our and customers in important not but building the few recent the relationship and just upfront that us the done how months, for last

closer we're we've continuing So, much I improve. to ever think our to just channels it's and been than

the that to with why customers that's is finger So there the going them. of pulse much discussion, to that feedback getting and good on our out we're from important on this because what's closer

Paul Chung

you. Great. Very Thank helpful.

Jay Geldmacher

Paul. Thanks,

Operator

Your next Ruttenbur line from from question Imperial of Capital. the Brian comes

open. Your is line

Brian Ruttenbur

you very thank much. Yes,

Just a clean-up couple of questions.

I on that could a we confident think very out maybe that? see should didn't comment I out channel still at quarter on and the channel give stated second know And inventory in that and you that that first quarter you're should you then little Maybe quarter. leveled in recovery. more stability, last level if in You third the color quarter, us least has can that

Tony Trunzo

a few points. So, make I'll

of and some kind again. the where impact the four mentioned answer -- We precise, periods impacts orders out it's months, have flowed. channel, of slowed case. that quarter some some to of of question, negative That headwinds strong us on terms we've we've the We've First to had making ebbed we point the had to I that's kind another in had shakeout channel the think the I QX. last all, in in was last of distribution periods be trough and as in financial were likely like and said, of inventory, HVAC still was

hard And seen haven't so that It expect to in yet of -- arrow we and consistent it's kind our more it feels of I where said are inventory how almost little that the to desired channel of outlook up we people maybe in HVAC there. that, their than feeling about of dynamic of remainder relative the significant a gets distribution sort that of it terms and sort wouldn't demand market. in a terms been. the bit has we've say customer-by-customer level they're growth consistent would an inventory don't be terms of an Having impact year. for QX, for And

does The customers and to want also our channel to them get other out is the and the that point expected excess That OEM we which reached leaned I inventory. to had levels have make to. appear

channel. a more clean we in little a see that dynamics without book sort embedded customer dynamic of flow So, of any end order do the from our to

Jay Geldmacher

I mention level think we it's also would through to down it, be I significantly. add, down. delinquent to where is but may I continue want backlog it we'll think It's not coming quite coming I QX. And of also, out And yet, but our

helps at that's picture the And out taking look a so there. that in

things, hopefully, those little said, you all along so helps with I understand Tony what And a think, further.

Brian Ruttenbur

commercial about change is you Roughly little other notes, up to is that I'm driving going residential of roughly. question in commercial customer? very fast be -- customers recently mix Have picking at two-thirds of third a direction. And then on just that kind of everything end still, and follow-up briefly. least opposite about residential bit talk about seems about the Thank my Can you -- the is where of your kind and one you. your a in seen Yes. end

Tony Trunzo

Yes.

that And we mix business. parts relates more residential The residential-focused the the to residentially-focused relates held seen, the And in -- than AV than security. distribution and business. better that the parts our slower had QX. in are ADI up of business, have did So they they while the to been has grow but commercial were commercial was it meaningfully in did what QX. It business residential QX, down grow

is as the & just Products reminder But residential. to entirely almost a Solutions everybody, business

the and think -- you're pointed XX% we've is that business, construction the XX% So the repair code, new in I that there's that to mix rate. remodel being maybe somewhere in more thinking in zip -- about

Jay Geldmacher

right. That's

Tony Trunzo

But it's heavily residential.

Jay Geldmacher

right. That's

Brian Ruttenbur

right. All Thank you.

Jay Geldmacher

Thanks, Brian.

Operator

the further call questions you. at back over There Mr. Jason turn no time. to this I are Willey,

Jason Willey

participation for today. as you everyone have have reach of a Thank follow day. questions free always, if or you. out. ups, please good additional you any rest feel And Thank your Everyone, to your

Operator

This concludes call. today's conference

You may now disconnect.

Resideo (REZI) 3 May 232023 Q1 Earnings call transcript