Q3 2023 Resideo Technologies Inc Earnings Call
[music].
Speaker 1: Hello, ladies and gentlemen. Thank you for standing by. At this time, I'd like to welcome everyone to the Resideo Technologies third quarter 2023 Earnings Conference call. Today's call is being recorded. I'll prompt you to sign up for the Resideo Technologies
Hello, Ladies and gentlemen, thank you for standing by at this time I'd like to welcome everyone to the residual technologies third quarter 2023 earnings Conference call today's call is being recorded all problems.
Yeah.
[music].
Speaker 1: Hello, ladies and gentlemen. My apologies for the technical delay. At this time, I'd like to welcome everyone to the Residio Technology Third Call 2023 earnings conference call. Today's call is being recorded. All participants will be in a listen only mode until the formal question and answer portion at the call. If you have a question during that time.
Hello, Ladies and gentlemen, my apologies for the technical delay at this time I'd like to welcome everyone to the residual technologies third quarter 'twenty twenty-three earnings conference call. Today's call is being recorded all participants will be in a listen only mode until the formal question and answer portion of the call. If you have a question Joe.
At that time.
Please press star one.
Yeah.
Yeah.
Speaker 2: Good afternoon, everyone, and thank you for joining us for Resideo's third quarter, twenty, twenty three earnings call on today's call will be Jake Elmacher, Residio's chief executive officer and Tony Trunzo, our chief financial officer. A copy of our earnings release and related presentation materials are available on the investor relations page of our website at investors.residio.com. We would like to remind you
Good afternoon, everyone and thank you for joining us for <unk> third quarter 2023 earnings call on today's call will be Jacob <unk>, Chief Executive Officer and Tony.
<unk> financial officer, a copy of our earnings release and related presentation materials are available on <unk> Investor Relations page of our website at investors that residual Dynamo studies, we would like to remind you.
Yeah.
[music].
Speaker 2: that this afternoon's presentation contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees a future performance or results and evolve 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 and residuals violence with the securities in exchange.
This afternoon's presentation contains forward looking statements statements other than historical facts made during this call 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.
As a result of a number of factors, including those described from time to time in <unk> filings with the Securities and Exchange Commission.
Speaker 2: The company assumes no obligation to update any such forward looking statements. We identify principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. With that, I will turn the call over to Jay.
Company assumes no obligation to update any such forward looking statements, we identified principal risks and uncertainties that affect our performance in our annual report on Form 10-K, and other SEC filings with that I will turn the call over to Jack.
Speaker 3: Thank you, Jason, and thanks everyone for joining us today. During the third quarter, we continue to take actions to improve the business, both structurally and through cost actions, while delivering adjusted results above the midpoint of our guidance range, improving operating cash flow, and re-purchasing 1.8 million shares.
Thank you, Jason and thanks, everyone for joining us today during the third quarter, we continue to take actions to improve the business, both structurally and through cost actions, while delivering adjusted results above the midpoint of our guidance range.
<unk> operating cash flow and repurchasing one 8 million shares.
Speaker 3: I'm excited by the significant progress over the past several months on key strategic operational and cost initiatives highlighted by new product and partnership momentum within products and solutions and digital experience improvements at ADI, which I will discuss further during the business review.
I am excited by the significant progress over the past several months on key strategic operational and cost initiatives highlighted by new product and partnership momentum within products and solutions and digital experience improvements at Adi, which I will discuss further during the business reviews.
Speaker 3: As part of our portfolio optimization work, we completed the sale of our non-strategic genesis cable business for $87.5 million. We also acquired safety, a small Norwegian provider of life safety monitoring technology for the multi-family market.
As part of our portfolio optimization work, we completed the sale of our non strategic Genesis cable business for $87 5 million.
We also acquired safety, a small Norwegian provider of life safety monitoring technology for the multifamily market.
Speaker 3: Take you to bolster our European Life Safety Services offering with attractive redecarring revenue capability.
Safety will bolster our European life safety services offering with attractive reoccurring revenue capabilities.
Speaker 3: These transactions demonstrate our commitment to execute value creation opportunities across the organization.
These transactions demonstrate our commitment to execute value creation opportunities across the organization.
Speaker 3: We will continue to actively review the products and solutions portfolio and ADI operations against our long-term strategic and financial goals and expect to execute further ask that realignment actions in the coming quarters. Very Q3, which have further steps to reduce both near term and long-term structural costs across the Zidio.
We will continue to actively review the products and solutions portfolio and Adi operations against our long term strategic and financial goals and expect to execute further asset realignment actions in the coming quarters. During Q3, we took further steps to reduce both near term and long term structural cost across the us.
Speaker 3: These actions resulted in a $38 million charge in the third quarter. This brings restructuring costs over the past four quarters to over $60 million with an expected annual gross cost savings of at least $125 million.
Video <unk>.
These actions resulted in a $38 million charge in the third quarter.
This brings restructuring costs over the past four quarters to over $60 million with an expected annual gross cost savings of at least $125 million.
Speaker 3: We've taken these actions against a residential market backdrop that remains challenging.
We have taken these actions against a residential market backdrop that remains challenging.
Speaker 3: Existing home sales, an important driver for repair and remodel activity, and new security installations remain significantly below recent and historical levels.
Existing home sales, an important driver for repair and remodel activity and new security installations remained significantly below recent and historical levels.
Speaker 3: While our efforts within the new construction channel continue to gain momentum, the number of new units built in 2023 is expected to be down from 2022.
While our efforts within the new construction channel continued to gain momentum the number of new units built in 2023 is expected to be down from 2022.
Speaker 3: Despite these cyclical headwinds, there's no change to our view that the outlook for both the creation of new housing stock and increased investment in the home remain very favorable over time and are supportive of growth in our business.
Despite these cyclical headwinds there's no change to our view that the outlook for both the creation of new housing stock and increased investment in our home remain very favorable over time and are supportive of growth in our businesses.
Speaker 3: During this period of near-term macro uncertainty, we continue to be laser-focused on what we can control through execution and driving efficiency.
During this period of near term macro uncertainty, we continue to be laser focused on what we can control through execution and driving efficiencies.
Speaker 3: Turning to the businesses, products and solutions delivered solid performance in our retail and new construction channels led by first alert life safety products.
Turning to the businesses products and solutions delivered solid performance in our retail and new construction channels led by first alert life safety products.
Speaker 3: Our new construction sales are outperforming the pace of new housing units as we grow content for home and further expand our smoke and CO products within the builder community.
Our new construction sales are outperforming the pace of new housing units as we grow content per home and further expand our smoke and Seo products within the builder community.
Speaker 3: We believe our content per new home has increased by 20% over the past 12 months.
We believe our content per new home has increased by 20% over the past 12 months.
Speaker 3: position as well for outside growth when new home trends turn positive.
<unk> is well for outside growth with new home trends turned positive the <unk>.
Speaker 3: The environment remained unsettled in the HVAC distribution channel, where demand drivers were less favorable relative to 2022 and inventory remains elevated.
Environment remains unsettled in the HVAC distribution channel.
Where demand drivers were less favorable relative to 2022 and inventory remains elevated.
Speaker 3: Our energy products continue to be impacted by declining furnace unit volumes in the US and near-term uncertainty created by regulatory shifts around gas products across Europe .
Our energy products continued to be impacted by declining furnished unit volumes in the U S and near term uncertainty created by regulatory shifts around gas products across Europe.
Speaker 3: While market conditions continue to negatively impact products and solutions revenue, we are driving actions to improve the performance of the business.
While market conditions continue to negatively impact products and solutions revenue, we are driving actions to improve the performance of the business.
Speaker 3: In Q3, we expanded products and solution gross margin by 250 basis points, reducing operating expense by 11 million and grew operating profit by 8 million versus last year excluding restructuring.
In Q3, we expanded products and solution gross margin by 250 basis points, reducing operating expense by $11 million and grew operating profit by $8 million versus last year, excluding restructuring.
Speaker 3: We are also driving momentum within our new product introduction.
We are also driving momentum within our new product introductions in the fourth quarter, we will be introducing our new outdoor security camera and launching first alert smoke and fire alarm products compliant with the upcoming UL eighth edition release.
Speaker 3: In the fourth quarter, we'll be introducing our new outdoor security camera and launching first alert smoke and fire alarm products compliant with the upcoming UL 8th edition release.
Speaker 3: We are also seeing increased customer engagement in a me up around our recently introduced pro series security product.
We are also seeing increased customer engagement and EMEA up around our recently introduced pro series security products.
Speaker 3: On the partner front, we are excited to have expanded our relationship with two leading insurance providers, USAA and Nationwide, to help enhance homeowner comfort and safety and reduce insurance claims.
On the partner front, we are excited to have expanded our relationship with two leading insurance providers USAA and nationwide to help enhance homeowner comfort and safety and reduced insurance claims we.
Speaker 3: We see significant opportunity in working with insurance providers who value the breadth of our product portfolio and channel presence, particularly in key life safety and water leak categories that address major customer claim areas.
We see significant opportunity in working with insurance providers, who value the breadth of our product portfolio and channel presence, particularly in key life safety and water leak categories that address major customer claim areas.
Speaker 3: Lastly, we're honored to have been recognized by Lowe's as the vendor of the year for the electrical category, competing against a number of large well-known brands.
Lastly, we are honored to have been recognized by lowes as their vendor of the year for the electrical category.
<unk> against a number of large well known brands.
Speaker 3: This recognition is a result of significant work from across the Resideo team, including sales, customer experience, product management, and supply chain, and underscores the value proposition of our products and brands.
This recognition is a result of significant work from across the residual team, including sales customer experience product management and supply chain and underscores the value proposition of our products and brands.
Jason Willey: Hello, ladies and gentlemen. Thank you for standing by. At this time, I'd like to welcome everyone to the Residio Technology's third quarter 2023 earnings conference call. Today's call is being recorded. All props. Hello, ladies and gentlemen. My apologies for the technical delay. At this time, I'd like to welcome everyone to the Residio Technology's third quarter of 2023 earnings conference call. Today's call is being recorded. All participants will be in a listen only mode until the formal question and answer portion of the call.
Speaker 3: We see significant additional opportunity within the retail channel, particularly as we grow personal offerings across connected life safety and water products and build partnerships and programs with insurance companies and utilities.
See significant additional opportunity within the retail channel, particularly as we grow first alert offerings across connected life safety and water products and build partnerships and programs with insurance companies and utilities.
Speaker 3: ADI is continuing to drive investment in digital initiatives aimed at enhancing customer experience.
Adi is continuing to drive investment in digital initiatives aimed at enhancing customer experience.
Speaker 3: Much of this focus is on improving the speed of our online experience and reducing friction for cuss.
Much of this focus is on improving the speed of our online experience and reducing friction for customers.
Speaker 3: ADI is focused on providing the information and support customers need to manage their project.
<unk> is focused on providing the information and support customers need to manage their projects, whereas the purchase ultimately takes place online or at the branch.
Speaker 3: where the purchase ultimately takes place online or at the brand.
Speaker 3: E-commerce grew 5% in the third quarter versus Q3 last year, representing 19% of total ADI revenue, and overall, touchless sales were 38% of ADI sales in the quarter.
E Commerce grew 5% in the third quarter versus Q3 last year, representing 19% of total Adi revenue and overall touchless sales were 38% of Adi sales in the quarter.
Speaker 3: ADI's large and diverse commercial exposure have helped to insulate from many of the negative market trends discussed earlier.
Adi is large and diverse commercial exposure have helped to insulate from many of the negative market trends discussed earlier.
Speaker 3: ADI does however continue to see headwinds in the residential intrusion market, which has historically accounted for around 20% of ADI sales.
Adi does however continue to see headwinds in the residential intrusion market, which has historically accounted for around 20% of Adi sales.
Speaker 3: In September , ADI announced the opening of its new Supercenter Distribution Center in Dallas. The site has over 400,000 square feet of distribution space and the capacity to house more than two million units of inventory.
In September Adi announced the opening of its new Supercenter distribution center in Dallas and the site is over 400000 square feet of distribution space and the capacity to house more than 2 million units of inventory.
Speaker 3: The site is equipped with advanced warehouse automation technologies and provides real-time and advanced inventory management. This investment will optimize supply chain operations for ADI, enhance customer service, and provide capacity for long-term growth.
This site is equipped with advanced warehouse automation technologies and provides real time in advanced inventory management.
This investment will optimize supply chain operations for Adi enhanced customer service and provide capacity for long term growth.
Speaker 3: Before turning the call over to Tony to discuss third quarter performance and outlook, I wanted to highlight our second annual ESG report, which was published in late August .
Before turning the call over to Tony to discuss third quarter performance and outlook I wanted to highlight our second annual ESG report, which was published in late August. The report showcases the progress with video is made in the areas of increased transparency.
Speaker 3: The report showcases the progress Residio has made in the areas of increased transparency, product sustainability, strong company culture, and development of the next generation of leaders. More information about Residio's sustainability journey can be found at Residio.com slash sustainability. With that, I will turn the call over to Tony.
Alex sustainability strong company culture and development of the next generation of leaders more information about resilience sustainability journey can be found at residual dot com slash sustainability.
With that I will turn the call over to Tony.
Thank you Jay and good afternoon, everyone.
Speaker 2: Third quarter operating results were above the midpoint of our expectations when adjusting for restructuring costs, driven by our products and solutions business, which posted a 250 basis point year-over-year gross margin improvement and an $11 million reduction in operating expenses, excluding restructuring.
Third quarter operating results were above the midpoint of our expectations when adjusting for restructuring costs, driven by our products and solutions business, which posted a 250 basis point year over year gross margin improvement and an $11 million reduction in operating expenses excluding restructuring.
Speaker 2: Presidio consolidated third quarter revenue of $1.55 billion, declined 4% versus Q3 last year.
<unk> consolidated third quarter revenue of $1 $55 billion declined 4% versus Q3 last year.
Speaker 2: Operating income for the quarter was $109 million, including $38 million of restructuring compared to $155 million.
Operating income for the quarter was $109 million, including $38 million of restructuring.
<unk> to $155 million last year.
Speaker 2: adjusted EBITDA was $138 million compared to $160 million in Q3 of 2022.
Adjusted EBITDA was $138 million.
Compared to $160 million in Q3 of 2022.
Speaker 2: Fully diluted earnings per share were $0.14 and $0.41 on a non-GAAP basis, compared with $0.42 and $0.48, respectively, last year.
Fully diluted earnings per share were <unk> 14.
And 41 on a non-GAAP basis, compared with 42 and.
48 cents, respectively last year.
Speaker 2: Products and Solutions third quarter revenue of $654 million was down 7% compared with the third quarter of 2022.
<unk> solutions third quarter revenue of $654 million was.
It was down 7% compared with the third quarter of 2022.
Speaker 2: Price realization added approximately $25 million to revenue, but was more than offset by low double-digit unit volume decline.
Price realization added approximately $25 million to revenue.
Was more than offset by low double digit unit volume declines.
Speaker 2: Our first alert product revenue was flat compared to Q3 last year, as was our traditional security business revenue.
Our first alert product revenue was flat compared to Q3 last year as was our traditional security business revenue.
Speaker 2: Year-over-year volume declines were mostly attributable to air and energy product categories, reflecting slower end demand for HVAC products and continued inventory management in the HVAC distribution.
Year over year volume declines were mostly attributable to Erin energy product categories, reflecting slower end demand for HVAC products and continued inventory management and the HVAC distribution channel.
Speaker 2: The end market demand and volume trends experienced in the quarter were broadly in line with our expectations entering the period.
The end market demand and volume trends experienced in the quarter were broadly in line with our expectations entering the period.
Jason Willey: If you have a question during that time, please press star one. Good afternoon, everyone. And thank you for joining us for Residio's third quarter 2023 earnings call. On today's call, will be Jay Geldmacher, Residio's chief executive officer, and Tony Trunzo, our chief financial officer. A copy of our earnings release and related presentation materials are available in our investor relations page of our website at investors.residio.com. We would like to remind you that this afternoon's presentation contains forward looking statements other than historical facts made during this call may constitute forward looking statements and are not guarantees a future performance or results and evolve a number of risks and uncertainties.
Speaker 2: orders were down approximately 2% compared to the prior third quarter, but were up sequentially, and orders picked up in September and October compared to the prior several months.
Orders were down approximately 2% compared to the prior third quarter, but were up sequentially and orders picked up in September and October compared to the prior several months.
Speaker 2: While orders remain below peak 2022 levels, we are encouraged by the signs of stabilization we are seeing in key channels.
While orders remain below peak 2022 levels. We are encouraged by the signs of stabilization we are seeing in key channels.
Speaker 2: Products and solutions gross margin in Q3 was 38.7 percent, up 250 basis points.
Products and solutions gross margin in Q3 was 38, 7% up 250 basis points compared to last year.
Speaker 2: The increase reflects progress on managing raw material, component, labor, and freight costs all partially offset by the impacts of reduced volumes and less favorable mix.
The increase reflects progress on managing raw material component labor and freight costs, all partially offset by the impacts of reduced volumes and less favorable mix.
Speaker 2: We realized over $15 million of year-over-year freight cost reductions in the quarter and saw limited broker-buy activity.
We realized over $15 million of year over year freight cost reductions in the quarter as our limited broker by activity.
Jason Willey: 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 and Residio's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward looking statements.
Speaker 2: Our labor efficiency continues to improve, with direct labor headcount in North America down over 20 percent since the middle of 2022.
Our labor efficiency continues to improve with direct labor head count in North America down over 20% since the middle of 2022.
Speaker 2: This allowed us to reduce fixed labor expenses in Q3 as a percent of sales despite ongoing wage inflation.
This allowed us to reduce fixed labor expenses in Q3 as a percentage of sales despite ongoing wage inflation.
Speaker 2: Total operating expenses for products and solutions live down $11 million a year over year, excluding $25 million every structure.
Total operating expenses for products and solutions was down $11 million year over year, excluding $25 million of restructuring costs.
Speaker 2: Cost reduction efforts were partially offset by labor and services inflation and investments in software development.
Cost reduction efforts were partially offset by labor and services inflation and investments in software development.
Speaker 2: excluding restructuring costs, operating profit was $132 million for 20.2% of sales and up 8% compared to Q3 2022.
Excluding restructuring costs operating profit was $132 million or.
Jason Willey: We identify principal risks and uncertainties that affect our performance in our annual report on form 10K and other SEC filings, but that I will turn the call over to Jay.
Or 22% of sales.
Up 8% compared to Q3 2022.
Jay Geldmacher: Thank you, Jason, and thanks everyone for joining us today.
Speaker 2: Turning to ADI, Q3 revenue was $900 million, down 1% to the prior year period.
Turning to Adi Q3 revenue was $900 million.
Jay Geldmacher: During the third quarter, we continue to take actions to improve the business, both structurally and through cost actions while delivering adjusted results above the midpoint of our guidance range, improving operating cash flow, and repurchasing 1.8 million shares. I'm excited by the significant progress over the past several months on key strategic operational and cost initiatives, highlight by new product and partnership momentum within products and solutions and digital experience improvements at ADI, which I will discuss further during the business reviews.
Around 1% to the prior year period.
Speaker 2: 2% decline in North America was partially offset by 8% growth in a mass.
At 2% decline in North America was partially offset by 8% growth in EMEA.
Speaker 2: Category trends were consistent with recent quarters with strength in access control, double-digit declines in residential intrusion, and relatively flat performance in other key categories such as commercial fire, video surveillance, and wire.
Category trends were consistent with recent quarters with strength in access control double digit declines in residential intrusion and relatively flat performance in other key categories such as commercial fire.
Leo surveillance and wire.
Speaker 2: ADI gross margin in the third quarter was 18.3% compared with 19.3% in Q3 last year.
Adi gross margin in the third quarter was 18, 3% compared with 19, 3% in Q3 last year.
Jay Geldmacher: As part of our portfolio optimization work, we completed the sale of our non-strategic Genesis cable business for 87.5 million. We also acquired safety, a small Norwegian provider of life safety monitoring technology for the multi-family market. Takeable bolster our European life safety services offering with attractive reoccurring revenue capabilities. These transactions demonstrate our commitment to execute value creation opportunities across the organization. We will continue to actively review the products and solutions portfolio and ADI operations against our long term strategic and financial goals and expect to execute further assets at realignment actions in the coming quarters.
Speaker 2: margins were negatively impacted by transitory inflationary pricing benefits experienced in 2022 reduced vendor rebate activity due to lower volumes and more competitive pricing in certain categories.
Margins were negatively impacted by transitory inflationary pricing benefits experienced in 2020 to.
Reduced vendor rebate activity due to lower volumes and more competitive pricing in certain categories.
Speaker 2: KDI operating profit of $60 million was down 23% compared with Q3 last year and includes $10 million of restructuring.
Adi operating profit of $60 million was down 23% compared with Q3 last year and includes $10 million of restructuring costs.
Speaker 2: During the third quarter, ABI accelerated restructuring activities, including headcount reductions and consolidating its physical and geographic foot.
During the third quarter, Adi accelerated restructuring activities, including head count reductions and consolidating its physical and geographic footprint.
Speaker 2: Corporate costs were $58 million, up $11 million compared with the prior year third quarter.
Corporate costs were $58 million up $11 million compared with the prior year third quarter the.
Speaker 2: The increase reflects $3 million in restructuring, timing of certain costs, and an $8 million non-recurring benefit in the prior year period.
The increase reflects $3 million in restructuring timing of certain costs, and an $8 million nonrecurring benefit in the prior year period.
Jay Geldmacher: During Q3, we took further steps to reduce both near-term and long-term structural costs across Rosidio. These actions resulted in a $38 million charge in the third quarter. This brings restructuring costs over the past four quarters to over $60 million with an expected annual gross cost savings of at least $125 million. We have taken these actions against a residential market backdrop that remains challenging. Existing home sales, an important driver for repair and remodel activity, and new security installations remain significantly below recent and historical levels.
Speaker 2: Q3 cash from operations was $60 million compared with $37 million in Q3 last.
Q3 cash from operations was $60 million compared with $37 million in Q3 last year.
Speaker 2: During the quarter, we repurchased 1.8 million shares of our stock for a total cost of $30 million.
During the quarter, we repurchased one 8 million shares of our stock for a total cost of $30 million.
Speaker 2: We expect to remain active in executing against the repurchase authorization as we see a significant disconnect between our share price and the underlying value of the business.
We expect to remain active in executing against the repurchase authorization as we see a significant disconnect between our share price and the <unk>.
Underlying value of the business.
Speaker 2: including the restructuring activity undertaken in Q4 of 2022. We have taken over $60 million of restructuring charges over the past four quarters.
Including the restructuring activity undertaken in Q4 of 2022, we have taken over $60 million of restructuring charges over the past four quarters.
Jay Geldmacher: While our efforts within the new construction channel continue to gain momentum, the number of new units built in 2023 is expected to be down from 2022. Despite the cyclical headwinds, there's no change to our view that the outlook for both the creation of new housing stock and increased investment in the home remain very favorable over time and are supportive of growth in our businesses. During this period of near-term macro uncertainty, we continue to be laser focused on what we can control through execution and driving efficiencies.
Speaker 2: we expect these actions to generate at least $125 million of gross savings in 2024. Approximately 60% of these savings are in operating expense with the remainder expected to benefit COGS.
We expect these actions to generate at least $125 million of gross savings in 2024.
Approximately 60% of these savings are in operating expense with the remainder expected to benefit Cogs.
Moving to our outlook.
Speaker 2: Note that the completion of the sale of Genesis in mid-October reduces our previously communicated 2023 outlook by approximately $25 million of revenue and $4 million of operating
Note that the completion of the sale of Genesis in mid October reduces our previously communicated 2023 outlook by approximately $25 million of revenue and $4 million of operating income.
Speaker 2: Genesis historically generated sub-20% gross margins and sub-10% EBITDA margins.
Genesis historically generated sub 20% gross margins and sub 10% EBITDA margins.
Jay Geldmacher: Turning to the businesses, products and solutions delivered solid performance in our retail and new construction channels led by first alert life safety products. Our new construction sales are outperforming the pace of new housing units as we grow content for home and further expand our smoke and CO products within the builder community. We believe our content per new home has increased by 20 percent over the past 12 months, positioning as well for outside growth when new home trends turn positive.
Speaker 2: We expect to record a gain of approximately $24 million in other income in the fourth quarter related to this fail.
We expect to record a gain of approximately $24 million in other income in the fourth quarter related to the sale.
Speaker 2: For the fourth quarter, we expect revenue to be in the range of $1.495 billion to $1.545 billion, consolidated gross margin to be in the range of 26% to 27%, and GAAP operating profit to be in the range of $135 million to $155 million.
For the fourth quarter, we expect revenue to be in the range of $1 $4 95 billion to $1 $5 $45 billion.
Consolidated gross margin to be in the range of 26% to 27%.
GAAP operating profit to be in the range of $135 million to $155 million.
Speaker 2: For the full year, we now expect revenue to be in the range of $6.2 billion to $6.25 billion.
For the full year, we now expect revenue to be in the range of $6 2 billion.
Jay Geldmacher: The environment remained unsettled in the HVAC distribution channel, where demand drivers were less favorable relative to 2022 and inventory remains elevated. Our energy products continued to be impacted by declining furnace unit volumes in the U.S, and near-term uncertainty created by regulatory shifts around gas products across Europe. While market conditions continued to negatively impact products and solutions revenue, we are driving actions to improve the performance of the business. In Q3, we expanded products and solution growth margin by 250 basis points, reducing operating expense by 11 million and grew operating profit by 8 million versus last year excluding restructuring.
To $6 25 billion.
Speaker 2: Consolidated gross margin is expected to be in the range of 26.6% to 27.2%.
Consolidated gross margin is expected to be in the range of 26, 6% to 27, 2% in.
Speaker 2: And operating profit is expected to be in the range of $535 million to $555 million.
And the operating profit is expected to be in the range of $535 million to $555 million.
Speaker 2: In conclusion, we deliver Q3 results that met or exceeded our expectations adjusting for restructuring.
In conclusion, we delivered Q3 results that met or exceeded our expectations adjusting for restructuring.
Speaker 2: Driving this was better-than-expected performance at products and solutions, where gross margins expanded by 250 basis points year-over-year.
Driving this was better than expected performance at products and solutions for gross margins expanded by 250 basis points year over year.
Speaker 2: We are encouraged by the pickup in products and solutions order activity experienced in September and October .
We are encouraged by the pickup in products <unk> solutions order activity experienced in September and October.
Speaker 2: As we look to cyclical improvements in our end markets, we expect our cost and efficiency initiatives to be helpful to products and solutions profitability moving forward.
As we look to cyclical improvements in our end markets, we expect our cost and efficiency initiatives to be helpful to products and solutions profitability moving forward.
Jay Geldmacher: We are also driving momentum within our new product introductions. In the fourth quarter, we will be introducing our new outdoor security camera and launching first alert smoke and fire alarm products compliant with the upcoming UL8 edition release. We are also seeing increased customer engagement in a me up around our recently introduced pro-series security products. On the partner front, we are excited to have expanded our relationship with two leading insurance providers, USAAA and nationwide, to help enhance homeowner comfort and safety and reduce insurance claims. We see significant opportunity in working with insurance providers who value the breadth of our product portfolio and channel presence, particularly in key life safety and water leak categories that address major customer claim areas.
Speaker 2: I will now turn the call back to Jay for a few concluding remarks before we take questions.
I will now turn the call back to Jay for a few concluding remarks before we take questions.
Speaker 3: Thanks, Tony. In the navigate short-term cyclical market headwinds, we are taking important steps to position the business for long-term sustainable growth and structurally higher profitability.
Thanks, Tony.
While we navigate short term cyclical market headwinds, we are taking important steps to position the business for long term sustainable growth and structurally higher profitability.
Speaker 3: We remain focused on driving positive change in the areas we can control across the business.
We remain focused on driving positive change in the areas. We can control across the businesses. We have made progress reducing input costs within products and solutions and are driving gross margin improvement despite challenging volume conditions.
Speaker 3: We have made progress reducing input costs within products and solutions and are driving gross margin improvement despite challenging volume conditions.
Speaker 3: We are right-sizing our portfolio and operations to fit our long-term strategic and financial goals and managing operating costs to protect near-term profitability while also ensuring critical long-term, value-driven investment continues.
We are right sizing our portfolio and operations to fit our long term strategic and financial goals and managing operating costs to protect near term profitability. While also ensuring critical long term value driven investment continues.
Jay Geldmacher: Lastly, we are honored to have been recognized by Lowe's as the divender of the year for the electrical category, competing against a number of large well-known brands. This recognition is the result of significant work from across the Residio team, including sales, customer experience, product management, and supply chain, and underscores the value proposition of our products and brands. We see significant additional opportunity within the retail channel, particularly as we grow personal offerings across connected life safety and water products and build partnerships and programs with insurance companies and utilities.
Speaker 3: Later this week in Scottsdale, we will host our annual connect event. Showcase in our product innovation and capabilities and offering networking opportunities for over 700 professional contractors and partners.
Later this week in Scottsdale, we will host our annual connect event.
<unk> seen our product innovation and capabilities and offering networking opportunities for over 700 professional contractors and partners. This event highlights the thought leadership position, we have in the industry with dealers integrators and installers across the HVAC security water and smart home landscape our positioning.
Speaker 3: This event highlights the thought leadership position we have in the industry with dealers, integrators, and installers across the HVAC, security, water, and smart home landscape. Our positioning with the professional contractor remains a unique asset. And much of the work the business has and continues to undertake is centered on positioning us to better leverage these relationships.
With the professional contractor remains a unique asset and much of the work. The business has and continues to undertake is centered on positioning us to better leverage these relationships.
Speaker 3: I want to again thank the entire residual employee base for their work during the quarter and a continued focus on delivering for our customers. Operator, we are not ready for questions.
I want to again, thank the entire residual employee base for their work during the quarter and our continued focus on delivering for our customers operator were now ready for questions.
Jay Geldmacher: ADI is continuing to drive investment and digital initiatives aimed at enhancing customer experience. Much of this focus is on improving the speed of our online experience and reducing friction for customers. ADI is focused on providing the information and support customers need to manage their projects, whether the purchase ultimately takes place online or at the branch. The commerce grew 5% in the third quarter versus Q3 last year, representing 19% of total ADI revenue and overall, much less sales or 38% of ADI sales in the quarter.
Thank you.
Speaker 1: Ladies and gentlemen, if you have a question, please press star one.
Ladies and gentlemen, if you have a question. Please dial please press star one.
Speaker 1: Your first question comes from the line of Eric Woodring with Morgan Stanley . Your line is open.
Your first question comes from the line of Erik Woodring with Morgan Stanley. Your line is open.
Speaker 4: Hey guys, good afternoon and thank you for taking my question.
Hey, guys. Good afternoon, and thank you for taking my questions.
Speaker 4: You know, maybe if we just start at the top, both Tony and Jay, you guys, you both in your prepared remarks alluded to.
Maybe if we just start at the top.
Both both Tony and Joe you guys you both in your prepared remarks alluded to headwinds from whether it's residential home sales less home turnover new home construction Theyre all related by a common thread here. So just based on your conversations with customers and integrators.
Speaker 4: headwinds from, you know, whether it's residential home sales, less home turnover, new home construction, you know, they're all related by a common thread here.
Jay Geldmacher: ADI's large and diverse commercial exposure have helped to insulate from many of the negative market trends discussed earlier. ADI does, however, continue to see headwinds in the residential intrusion market, which has historically accounted for around 20% of ADI sales.
Speaker 4: You know, just based on your conversations with customers and integrators, how should we think about kind of the inning of the residential downturn that we are in? How do we think about the longevity of that headwind? Just trying to better understand how these trends could, can evolve over the next, again, two months, but really into early next year. And then I have a follow-up. Thank you.
Should we think about kind of the ending of the residential downturn that we are and how do we think about the longevity of that headwind just trying to better understand how these trends could.
Jay Geldmacher: In September, ADI announced the opening of its new Supercenter Distribution Center in Dallas. The site has over 400,000 square feet of distribution space and the capacity to house more than 2 million units of inventory. The site is equipped with advanced warehouse automation technologies and provides real-time and advanced inventory management. This investment will optimize supply chain operations for ADI, enhance customer service and provide capacity for long-term growth.
Ken evolve over the next two months, but really into early next year and then I have a follow up thank you.
Speaker 2: Hey, Eric, it's Tony. Thanks for the question. You know, we track, as I know you all do as well, we track new home starts, we track, and we track existing home sales, and both are off pretty significantly. Existing home sales are off more significantly, than starts, and that's obviously a bigger driver for a big chunk of our business.
Hey, Eric it's Tony Thanks for the thanks for the question.
We track as I know you all do as well we track.
New home starts we track and we track existing home sales and both are off pretty significantly existing home sales are off more significant significantly than.
Jay Geldmacher: Before turning the call over to Tony to discuss 3rd quarter performance and outlook, I wanted to highlight our second annual ESG report, which was published in late August. The report showcases the progress Residio has made in the areas of increased transparency, product sustainability, strong company culture and development of the next generation of leaders.
That starts and Thats, obviously, a bigger driver for.
For a big chunk of our business.
Speaker 2: As we said in our comments, the market is, you know, it seems to have, order rates seem to have stabilized. Um, does that mean that we're at the bottom? We're not in a position to call that, but certainly things seem like they have gotten, um, you know, somewhat better in those, in those marketplaces. Um, it's, it's just really difficult for us to call, uh, you know, a clear bottom given that, you know, given where we are in the value chain, and as we said, also, Eric.
As we said in our comments the market is it seems to have order rates seem to have stabilized.
So does that mean, the we're at the bottom we're not in a position to call that but certainly things seem like they have gotten.
Jay Geldmacher: More information about Residio's sustainability journey can be found at Residio.com slash sustainability.
Somewhat better in those in those marketplaces.
Tony Trunzo: With that, I will turn the call over to Tony.
It's just really difficult for us to call out.
Tony Trunzo: Thank you, Jay.
Tony Trunzo: Good afternoon, everyone. 3rd quarter operating results were above the midpoint of our expectations when adjusting for restructuring costs, driven by our products and solutions business, which posted a 250 basis point year-over-year gross margin improvement and an $11 million reduction in operating expenses excluding restructuring. Residio consolidated 3rd quarter revenue of $1.55 billion declined 4% versus Q3 last year. Operating income for the quarter was $109 million including $38 million of restructuring compared to $155 million last year.
Clear bottom given that given where we are in the value chain.
And as we said also Eric.
Speaker 3: encouraging signs that we've seen in terms of orders the last month or so.
Encouraging signs that we've seen in terms of orders the last month or so and so I think it's a mix and so Tony is right. It's I think it's pretty difficult to call the bottom.
Speaker 3: So, you know, I think it's a mix and so Tony's right. It's, it's, I think it's pretty difficult to call the bottom.
Speaker 3: I guess that's my good. No, I was just gonna say, I guess one thing that we pointed out that I'd underscore Eric is we are making really solid strides in the new construction market, particularly with some of the first alert brands. So our content in that market is growing even though the market itself is still trending down. I would agree with that. That's a really important piece and something that we've talked about in the past of expanding our footprint.
Yes.
Go ahead, no I was just going to say I guess, one thing that we pointed out that I'd underscore Eric as we are making really solid strides in the new construction market, particularly with.
So the first alert brands.
So our content in that and that market is is growing even though the market itself is still is still trending down.
Tony Trunzo: Adjusted EBITDA was $138 million compared to $160 million in Q3 of 2022. Fully diluted earnings per share were $0.14 and $0.41 on a non-gap basis compared with $0.42 and $0.48 respectively last year. Products and solutions 3rd quarter revenue of $654 million was down 7% compared with the 3rd quarter of 2022. Price Realization added approximately $25 million to revenue but was more than offset by low double-digit unit volume declines. Our first alert product revenue was flat compared to Q3 last year as was our traditional security business revenue.
With that as a really important piece and something that we've talked about in the past of expanding our footprint and overall contribution into India every new home that we do with that we're able to sell into as well as the teams have done a nice job of gaining new wins with new with new builders.
Speaker 3: an overall contribution into every new home that we were able to sell into, as well as the teams have done a nice job of gaining new wins with new builders.
Speaker 4: OK, that is really helpful. Thank you for all that color. And Tony, maybe I kind of want to give you the dance floor here, because you made a comment in your prepared remarks about a disconnect between, you know, the current stock price and the value of the business. And that's kind of driving some of the buyback activity. But what do you think that the market is under appreciating today or doesn't understand about the residual business today? And what efforts are you taking to kind of change that understanding that the market has of the underlying value and residual?
Okay. That's really helpful. Thank you for all that color.
And Tony maybe I kind of want to give you the Dan fully here because you made a comment in your prepared remarks about a disconnect between the current stock price and the value of the business and that's kind of driving some of the buyback activity, but what do you think that the market is.
Under appreciating today or it doesn't understand about the residual business today and what efforts are you taking to kind of change that understanding that the market has the underlying value and presidio.
Tony Trunzo: Year over year volume declines were mostly attributable to air and energy product categories, reflecting slower end-demand for HVAC products and continued inventory management in the HVAC distribution channel. The end-market demand and volume trends experienced in the quarter will broadly in line with our expectations entering the period. Orders were down approximately 2% compared to the prior third quarter for us sequentially in orders picked up in September and October compared to the prior several months.
Speaker 2: So thanks for the question. A number of things. Well, I mean, obviously, as we said, we've been active in the market buying back the shares, which does indicate that we think the valuation is lower than it should be.
So.
Okay. Thanks for thanks for the question.
A number of things look I mean, obviously as we said we've been active in the market buying back shares which.
Does indicate that we think the.
The valuation is lower than it should be.
Speaker 2: Look, it's been, you know, we've had a number of quarters where things have been soft and the results have been down. I think as always, our focus is on execution. And to the extent that we continue to execute, we're gonna see that valuation gap close, at least in my perspective.
Look it's been.
A number of quarters, where things have been soft and the results have been down I think as always.
Our focus is on execution and to the extent that we continue to execute.
Tony Trunzo: While orders remain below peak 2022 levels we are encouraged by the signs of stabilization we are seeing in key channels. Products and solutions gross margin in Q3 was 38.7 percent of 250 basis points compared to last year. The increase reflects progress on managing raw material, component, labor, and freight costs all partially offset by the impacts of reduced volumes and less favorable mix. We realized over $15 million of year over year freight cost reductions in the quarter and saw a limited broker by activity.
We're going to see that valuation gap close at least in Chile.
From my perspective.
Speaker 2: A lot of the things that we talked about today are really demonstrating some underlying progress operationally and functionally within the business.
A lot of the things that we talked about today.
Are really demonstrating some underlying progress operationally and functionally within the business. We're realigning the portfolio, we're focused on cash generation. The the PFS results of this quarter.
Speaker 2: We're realigning the portfolio, we're focused on cash generation, the PNS results of this quarter, they show a significant margin expansion.
They show a significant margin expansion.
Speaker 2: lower operating expenses and after taking out the restructuring charges, higher profitability than Q3 of last year on lower revenue and significantly lower volume. So I think that really boathes well for the opportunity for this business to perform better in an up swing. And I think that's going to be as we see that happen whenever it does.
Lower operating expenses and after taking out the restructuring charges higher profitability than Q3 of last year on lower revenue and significantly lower volume. So I think that really bodes well for the opportunity for this business to perform better in an upswing.
Tony Trunzo: Our labor efficiency continues to improve with direct labor headcount in North America down over 20 percent since the middle of 2022. This allowed us to reduce fixed labor expenses in Q3 as a percent of sales despite ongoing wage inflation. Total operating expenses for products and solutions was down $11 million year over year excluding $25 million of restructuring costs. Cost reduction efforts were partially offset by labor and services inflation and investments in software development. Excluding restructuring costs operating profit was $132 million for 20.2 percent of sales and of 8 percent compared to Q3 2022.
And I think that's going to be as we see that happen when whenever it does sooner rather than later.
Speaker 5: sooner rather than later. I think we're much better positioned now than we were a year ago to see operating leverage in that kind of a growth environment. Yeah, and I did. And we stick, we indicate that in our interim march that the details behind a lot of the actions we've taken from a cost structure stamp.
I think we're much better positioned now than we were a year ago to see operating leverage.
And that kind of a growth environment.
And we as we indicated in our remarks that.
The details behind a lot of the actions we've taken from a cost structure standpoint.
Speaker 5: And as you go through a cycle like this, doing that is really important because then when you come out of the cycle, that you're in a really good position of moving up.
As you go through a cycle like this doing that is really important because then when you come out of this cycle that you're going to really good position moving up and I think.
Speaker 5: And I think, you know, I think I'm sure you know better than anybody than the rest of the folks on the line that, you know, as you watch the cycle but it's important for everybody to try to figure out or what's who's got the best crystal ball on the, when the cycle does bottom out and things come back. But in the meantime, things that we have control of are the things that Tony and I just talked about there. So, you know, getting the cost position right, the execution.
I'm sure you know better than anybody in the rest of the folks on the line that as you watch the cycle, but it's important for everybody to try to figure out what's who's got the best Crystal ball on when the cycle does bottom out as things come back but in the meantime, the things we have control of are the things that Tony and I just talked about there. So again the cost position right execution.
Tony Trunzo: Turning to ADI, Q3 revenue was $900 million down 1 percent to the prior year period. A 2 percent decline in North America was partially offset by 8 percent growth in a man. Category trends were consistent with recent quarters with strength and access control, double digit declines and residential intrusion and relatively flat performance in other key categories such as commercial fire, video surveillance, and wire. ADI gross margin in the third quarter was 18.3 percent compared with 19.3 percent in Q3 last year, margins were negatively impacted by transitory inflationary pricing benefits experienced in 2022 reduced vendor rebate activity due to lower volumes and more competitive pricing in certain categories.
Speaker 5: You know, we've continued to highlight our new MPI and that importance of new MPI and velocity of MPI is super important for us. And I think all those things together help us, you know, as we come through the cycle, I think we'll, you know, significantly have opportunities. Thank you.
The.
We've continued to highlight our new MPI.
Important of new MPI and velocity of MPI is super important for us and I think all of those things together help us.
As we as we go through the cycle I think will significantly.
Significantly.
We have opportunities on valuation.
Speaker 4: Now that's perfect, thank you. And then just one question on clarification, maybe for Utonius, the midpoint of your full year operating income guide was reduced by, I think, $10 million, but you raise your EPS guide by about $0.15. If we take into account three Q results, I think that means four Q earnings relative to prior to earnings comes up about $0.15. Just correct me if that math is wrong, but my question really is, I think 12 cents of that comes from roughly 12 cents comes from the sale of Genesis. Where should we think about the remaining three cents of kind of EPS upside coming from? Is that another below the line item that we're maybe not just considering just a point of clarification? And that's it for me, thanks.
No that's perfect. Thank you and then just one question on clarification, maybe for you Tony as you know.
The midpoint of your full year operating.
<unk> guide was reduced by $10 million, but you raised your EPS guide by about 15 cents.
Tony Trunzo: ADI operating profit of $60 million was down 23 percent compared with Q3 last year and includes $10 million of restructuring costs. During the third quarter, ADI accelerated restructuring activities including headcount reductions and consolidating its physical and geographic foot. Corporate costs were $58 million, up $11 million, compared with the prior year third quarter. The increase reflects $3 million in restructuring, timing of certain costs, and an $8 million non-recurring benefit in the prior year period.
If we take into account <unk> results I think that means for Q earnings relative to prior to earnings comes up about 15 cents. Just correct me if that math is wrong, but my question really is I think 12 cents of that comes from roughly 12 tons comes from the sale of Genesis.
Where should we think about the remaining three sense of kind of EPS upside coming from is that.
Is that another below the line item that were maybe not just considering just just a point of clarification and thats. It from me. Thanks.
Speaker 2: Yeah, Eric, I'll try to address that.
Yes, Eric I'll I'll try to address that.
Speaker 2: net net. I mean obviously there's there's a lot of moving pieces right with the fail of genesis and some of those things but net net.
Tony Trunzo: Q3 cash from operations was $60 million, compared with $37 million in Q3 last year. During the quarter, we repurchased $1.8 million shares of our stock for a total cost of $30 million. We expect to remain active and executing against the repurchase authorization as we see a significant disconnect between our share price and the underlying value of the business. Including the restructuring activity undertaken in Q4 of 2022, we have taken over $60 million of restructuring charges over the past four quarters. We expect these actions to generate at least $125 million of gross savings in 2024. Approximately 60% of these savings are in operating expense with the remainder expected to benefit COGS.
Net net I mean, obviously, there's a lot of moving pieces right with the sale of Genesis and some of those things, but net net.
Speaker 2: Our outlook for the business in Q4 is a few million dollars better than what our original, what our prior outlook would have indicated. We, you know, we ended up above our midpoint for Q3 and the guidance that we have now from an operational standpoint points to a few million dollars better at the midpoint as well. And I think that's the increment. I'd have to do the math on the EPS, but I suspect that's probably the increment on the EPS. Okay, that works. That's perfect. Thank you very much, guys.
Our outlook for the business in Q4 is a few million dollars better than what our original what our prior outlook would've would've indicated.
We ended up above our midpoint for Q3 and the guidance that we have now from an operational standpoint points to a few million dollars better at the midpoint as well and I think thats. The increments I'd have to do the math on the EPS, but I suspect that's probably the increment on the EPS. Okay. That's perfect. Thank you very much guys. Good luck.
Thanks, Eric.
Speaker 6: Your next question comes from the line of Ryan Merkel with William Blair. Your line is open. Hey, good afternoon. Thanks for taking the question.
Your next question comes from the line of Ryan Merkel with William Blair. Your line is open.
Hey, good afternoon, thanks for taking the questions.
Tony Trunzo: Moving to our outlook, note that the completion of the sale of genesis in mid-October reduces our previously communicated 2023 outlook by approximately $25 million of revenue and $4 million of operating income. Genesis historically generated sub-20% gross margins and sub-10% epitom margins. We expect to record a gain of approximately $24 million in other income in the fourth quarter related to the sale. For the fourth quarter, we expect revenue to be in the range of $1.495 billion to $1.545 billion.
Hey, Ryan.
Speaker 6: My first question is back to this outlook for repair and model and the turnover. Are your products tied more to housing turnover or there is this seam out there that people can't move because of high mortgage rates and home prices are high so people are investing in their current residents? I'm just wondering if that's something that you could benefit from.
Hey, Mike.
My first question just back to this outlook for repair remodel and the turnover.
Your products tied more to housing turnover or there is this team out there that people cant move because of high mortgage rates and home prices are high. So people are investing in their current residents I'm just wondering if that's something that you could benefit from.
Speaker 2: So Ryan, you've highlighted two countervailing types of dynamics. And it's hard for us to tease out one compared to the other. But if you look at just the unit volumes of existing home sales, they're down by more than a third from peak to trough. There's a lot of repair and remodel activity that happens.
So so Ryan you've highlighted two countervailing types of types of dynamics, there's and it's hard for us to tease out when compared to the other but if you look at just the unit volume.
Tony Trunzo: Consolidated gross margin to be in the range of 26% to 27% and gap operating profit to be in the range of $135 million to $155 million. For the full year, we now expect revenue to be in the range of $6.2 billion to $6.25 billion. Consolidated gross margin is expected to be in the range of 26.6% to 27.2% and operating profit is expected to be in the range of $535 million to $555 million.
Unit volumes of existing home sales are down by more than a third from from peak to trough.
There's a lot of repair and remodel activity that happens by people right before they sell their homes or right when they purchased their homes.
Speaker 2: by people right before they sell their homes or right when they purchase their homes. And that significant decline, I think it's from, you know, 6 million to 4 million units annually, plus or minus. We think that's clearly been a headwind for us.
And that that significant decline I think it's from $6 million 4 million units annually plus or minus.
We think that's clearly been a headwind for us whether or not the <unk>.
Speaker 2: whether or not the, you know, not moving trend has maybe helped a little bit in terms of people deciding to do projects on their existing house. I think potentially it has, but I think it's probably significantly outweighed by the dynamic of just the drop in existing home sale.
Not moving trend is just may be helped a little bit in terms of people deciding to do projects in their existing health.
Tony Trunzo: In conclusion, we delivered Q3 results that met or exceeded our expectations adjusting for restructuring. Driving this was better than expected performance at products and solutions for gross margins expanded by 250 basis points year-over-year. We are encouraged by the pickup in products and solutions order activity experienced in September and October. As we look to cyclical improvements in our end markets, we expect our cost and efficiency initiatives to be helpful to products and solutions profitability moving forward.
Potentially it has but I think it's probably significantly outweighed by the by the dynamic of just the just the drop in existing home sales.
Speaker 2: Got it. Okay. Thanks for that. I mean, if you look at, I guess if I think about it, if you just to follow up on my own answer, you know, our, our unit volumes are down, you know, low double digits and we're seeing, you know, and this is kind of a very broad brush view, but they're down low double digits. And as I said, we're seeing a reduction in
Got it okay. Thanks for that and that's helpful. I mean, if you look at I guess.
About it if you just to follow up on my own answer.
Our unit volumes are down low double digits, and we're seeing and this is kind of a very broad brush view, but they're down low double digits and as I said, we're seeing a reduction in.
Jay Geldmacher: I will now turn the call back to Jay for a few concluding remarks before we take questions. Thanks, Tony.
Speaker 2: existing home sales of 30 plus percent and new housing starts are down as well, which is also a driver for us. So I think clearly some of that were outperforming those metrics. So probably there is some lift that we're seeing from people's investment in their existing homes.
Existing home sales of 30 plus percent.
Jay Geldmacher: While we navigate short-term cyclical market headwinds, we are taking important steps to position the business for long-term sustainable growth and structurally higher profitability. We're being focused on driving positive change in the areas we can control across the businesses. We have made progress reducing input costs within products and solutions and are driving gross margin improvement despite challenging volume conditions. We are right sizing our portfolio and operations to fit our long-term strategic and financial goals and managing operating costs to protect near-term profitability while also ensuring critical long-term value-driven investment continues.
New housing starts are down as well, which is which is also a driver for us.
So I think clearly some of that or or outperforming.
Outperforming those metrics. So probably there is some lift that we're seeing from the from People's investment in their existing homes.
Speaker 6: Yep. Okay. Question number two is portfolio optimization. It sounds like there's more to do there. Can you maybe talk about what inning you're in for that and what more should we expect?
Yep Okay.
Question number two is.
Portfolio optimization it sounded like there's more to do there can you maybe talk about what inning, you're in for that and what more should we expect.
Speaker 2: It's early innings for sure. I, you know, the two big things that we've done this year is we outsource the, we closed our facility in San Diego and we moved our castings activities offshore. That was a pretty important thing for us to do. The sale of Genesis is incrementally a pretty important thing for us to do as well.
It's early innings for sure.
The two big things that we've done this year is we outsource the.
Jay Geldmacher: Later this week in Scottsdale, we will host our annual connect event, showcasing our product innovation and capabilities and offering networking opportunities for over 700 professional contractors and partners. This event highlights the thought leadership position we have in the industry with dealers, integrators, and installers across the HVAC, security, water, and smart home landscape. Our positioning with the professional contractor remains a unique asset and much of the work the business has and continues to undertake is centered on positioning us to better leverage these relationships.
We closed our facility in San Diego, and we moved our castings activities.
Offshore that was a pretty important thing for us to do the sale of Genesis is incrementally a pretty important thing for us to do as well, but there are still assets inside the business and factories and those kinds of things that we're going to be evaluating over the over the coming quarters and look it would be yes. It will.
Speaker 2: But there are still assets inside the business and factories and those kinds of things that we're going to be evaluating over the coming quarters. And like it would be, you know, it would be awesome if we could just do it kind of all in one sense and say, look.
Be awesome, if we could just do it all at once and say look here's the here's the new residual here's what it looks like from the standpoint of.
Speaker 2: Here's the new Residio, here's what it looks like from the standpoint of, vertical integration and manufacturing, here's what it looks like from the standpoint of, the businesses that we're investing in and the businesses that maybe we're gonna move out of.
Jay Geldmacher: I want to again thank the entire residual employee base for their work during the quarter and a continued focus on delivering for our customers.
Vertical integration and manufacturing here's what it looks like from the standpoint of.
The businesses that we're investing in the businesses that maybe we're going to we're going to move out of it is just going to take some time.
Jason Willey: Operator, we are not ready for questions. Thank you.
Speaker 5: It is just going to take some time, but I you know, it's it's early innings. Yeah, I think if you remember our last earnings call, you know, we.
Unknown Executive: Ladies and gentlemen, if you have a question, please press star one.
It's it's early innings and I think if you remember our last earnings call.
Speaker 5: At that point in time, we could talk about, really as a follow-up on what we did in San Diego. And at that time, we couldn't tell you about Genesis for obvious reasons, but now we were able to do that. And I think I said in my remarks, both in Q3, and I said it again today, that we have a number of really good opportunities there. And it's a matter of how you time some of these, because some of these are larger than others, but it's a focal point of the team.
At that point in time, we could talk about it really as a follow up on what we did in San Diego and we at that time, we couldn't tell you about Genesis.
Erik Woodring: Your first question comes from the line of Erik Woodring with Morgan Stanley. Your line is open. Hey guys, good afternoon and thank you for taking my questions. You know maybe if we just start at the top, both Tony and Jay, you both in your prepared remarks alluded to headwinds from whether it's residential home sales, less home turnover, new home construction. They're all related by a common thread here. So just based on your conversations with customers and integrators, how should we think about the inning of the residential downturn that we are in?
The reasons, but now we're able to do that and I think I said in my remarks, both acute in Q3 and I said again today that we have a number of really good opportunities there.
Erik Woodring: How do we think about the longevity of that headwind? Just trying to better understand how these trends could evolve over the next two months, but really into early next year. And then I have a follow-up. Thank you. Hey, Erik, it's Tony. Thanks for the question. You know, we track, as I know you all do as well, we track new home starts, we track, and we track existing home sales and both are off pretty significantly.
It's a matter of.
Time some of these is because some of these are larger than others, but it's a it's a focal point of the team in terms of optimization as we've talked about and so we have more opportunities coming in and just to be clear the objectives. The underlying objectives of all of this is.
Speaker 2: in terms of optimization as we've talked about. So we have more opportunities coming. And then just to be clear, the underline objectives of all of this is to improve our margins and to incrementally improve the growth rate, the underlying growth rate of the business.
Is to improve our margins and to incrementally improve.
Growth rate the underlying growth rate of the business.
Yes.
Speaker 6: Well, if I could fit one more in just high level, I think the guidance you gave in early 21 for 2024, EBIT was 900 million, correct me if I'm wrong. Now, you're gonna obviously miss that. I know when the macro has probably been different than you thought, but what if you graded yourself on cost-cutting and portfolio optimization and other things, how did you perform relative to the goals that you would set out?
If I could fit one more and just high level I think the guidance you gave in early 'twenty. One for 2020 for EBIT was $900 million correct me if I'm wrong.
Youre going to obviously missed that I know.
The macro is probably been different than you thought.
What if you graded yourself on cost cutting and portfolio optimization and other things how did how did you perform relative to the goals that you had set out.
Erik Woodring: Existing home sales are off more significantly than starts, and that's obviously a bigger driver for a big chunk of our business. As we said in our comments, the market is, it seems to have, order rates seem to have stabilized. Does that mean the word at the bottom, we're not in a position to call that, but certainly things seem like they have gotten somewhat better in those marketplaces. It's just really difficult for us to call a clear bottom given where we are in the value chain.
Speaker 5: Yeah, I mean, you know, if you think about it and we've talked about this before.
Yes.
If you think about and we've talked about this before we.
Speaker 5: You know, we had two years there of the worst supply chain situation, you know, that anybody's ever experienced and, you know, at least a micro-rear, I know. And we also, you know, so we had all the challenges associated with that as well as you still had limitations on what you could do because a COVID for a period of time during that period. So a lot of it, and that's why we've highlighted before, especially the Latin black today and the last earnings call that the opportunities that we knew were there, you know, or some of them we had kind of hold back on.
We had two years, they're the worst supply chain situation than anybody has ever experienced in my career I know and we also as we had it all.
Other challenges associated with that as well is you still add limitations on what you can do because of Covid for a period of time during that period. So a lot of it and that's why we've highlighted before especially the <unk>.
Today in the last earnings call.
The opportunities there that we knew were there there were some of them we have kind of hold back up we're.
Speaker 5: Hopefully you'll be getting it, you're seeing that some more momentum there because of what we talked about with San Diego, what we talked about with Genesis.
Erik Woodring: And as we said also, Erik, there's some encouraging signs that we've seen in terms of orders the last month or so. And so I think it's a mix. And so Tony's right, I think it's pretty difficult to call the bottom. I guess that's my good. No, I was just going to say, I guess one thing that we pointed out that I'd underscore, Erik is we are making really solid strides in the new construction market, particularly with some of the first alert brands.
Hopefully youll begin youre seeing some more momentum there because of what we know what we talked about with San Diego, what we've talked about with Genesis and so if anything we had a lot of these things that we've reviewed and maybe kind of on the shelf and now we're able to.
Speaker 5: And so if anything, you know, we had a lot of these things, you know, that we've reviewed and made kind of on the shelf and now we're able to begin to move the ball forward in a more, in a higher level of velocity, you know, and speed. And that's why I think the team's excited about being able to take those opportunities. And then of course, we're going to share them with you as each one of those comes along. Yep. Okay.
Begin to move the ball forward in a more at a higher level of velocity and speed and that's why I think the team is excited about being able to take those opportunities and then of course, we're going to share them with you as is each one of those comes along.
Erik Woodring: So our content in that market is growing even though the market itself is still trending down. I would agree with that. That's a really important piece and something that we've talked about in the past of expanding our footprint and overall contribution into every new home that we do that we're able to sell into, as well as the teams have done a nice job of getting new wins with new builders. Okay, that is really helpful.
Yep, Okay. Thanks pass it on.
Thanks, Brian.
Speaker 1: Your next question comes from the line of a mid-dery nanny with Evercore ISI. Your line is open.
Your next question comes from the line of Amit <unk> with Evercore ISI. Your line is open.
Speaker 7: Hey guys, I'm Michael Fisher on for Amit. So I'm curious, just quick on the gross margin outside of the P&S business. Is this primarily driven by the portfolio optimization stuff you guys talked about on the last couple of questions or is there any other dynamics in play there?
Hey, guys, Michael Fisher on for Amit.
So I was curious just just quick on the gross margin upside in the PSS business is it primarily driven by the portfolio optimization stuff you guys talked about on the last couple of questions. There is there any other dynamics at play there.
Erik Woodring: Thank you for all that color. And, Tony, maybe I kind of want to give you the dance floor here because you made a comment in your prepared remarks about a disconnect between, you know, the current stock price and the value of the business and this kind of driving some of the buyback activity. But what do you think that the market is under appreciating today or doesn't understand about the Resideo business today?
Speaker 2: It's driven much more so by the progress that we've made in terms of, first of all, you know, we hit, we, I guess if you look at the trajectory of the last several quarters.
It's it's driven much more so by the progress that we've made in terms of.
First of all we I guess, if you look at the trajectory over the last several quarters.
Speaker 2: We made meaningful progress on price, but we were also facing significant inflationary.
We made meaningful progress on on price, but we are also facing significant inflationary impacts and components. We had significant broker buys freight rates were very high all those kinds of things and we've been able to work through all of them and those costs have normalized we've also made significant.
Speaker 2: Impacts and components we had significant broker buys free rates were
Erik Woodring: And what efforts are you taking to kind of change that? Understanding that the market has of the underlying value in Resideo. So, thanks for the question. A number of things. Look, I mean, obviously, as we said, we've been active in the, in the market buying back the shares, which, you know, does indicate that we think the, the valuation is lower than it should be. Look, it's been, you know, we've had a number of quarters where things have been soft and the results have been down.
Speaker 2: very high all those kinds of things. And we've been able to work through all of them and those costs have normalized.
Speaker 2: We've also made significant progress in terms of labor efficiency.
Progress in terms of labor efficiency.
Speaker 2: In these things, we talked about it when the thaw unfolded. These kinds of things.
And these things we talked about it when.
When this all unfolded. These these kinds of things, we really felt like our progress was being masked for some number of quarters.
Speaker 2: We really felt like our progress was being masked for some number of quarters.
Erik Woodring: I think, as always, our focus is on execution. And to the extent that we continue to execute, we're going to see that valuation gap close at least in my, from my perspective. A lot of the things that we talked about today are really demonstrating some underlying progress operationally and functionally within the business. We're realigning the portfolio, we're focused on cash generation, the, the PNS results of this quarter, you know, they show significant margin expansion, lower operating expenses.
Speaker 2: I think what you're seeing is that the progress that we had made is being revealed a little bit in terms of better margin. I have to say, I can't...
I think what Youre seeing is that the progress that we've made is being revealed a little bit in terms of in terms of better margin.
I have to say I can't.
Speaker 2: you know, I can't overemphasize from my perspective, the
I can't overemphasize from my perspective.
<unk>.
Speaker 2: the impressive performance of the business on a gross margin line, this quarter given the volumes that they're facing. I mean, two and a half percentage points delta in gross margin with lower volume. It says a lot about the progress that we had made. Like I said, that hadn't really been clear to investors that now I think you're starting to see. I would agree.
The impressive performance of the business on a gross margin line this quarter given the volumes that they're that they are facing I mean, two five percentage points Delta.
And gross margin with lower volume.
It says a lot about the progress that we have made like I said that hadn't really been been clear to investors that now I think youre starting to see yes, I would agree.
Erik Woodring: And after taking out the restructuring charges, higher profitability than Q3 of last year on lower revenue and significantly lower volume. So, I think that really bodes well for the opportunity for this business to perform better in an upswing. And I think that's going to be as, as we see that happen, whenever it does sooner rather than later, I think we're much better position now than we were a year ago to see operating leverage in that kind of a growth environment.
That makes sense and then I think you have product and success with higher content for the new home market and just I think overall in the homebuilder channel.
Speaker 7: I think you guys caught up to success with higher content for the new home market and just definitely go overall in the home builder channel. Things are going a little bit better for you guys. There's one evening dig into that a little bit and maybe talk about how big the home builder channel is versus kind of the rest.
Things are going a little bit.
But if you guys I was wondering if you can dig into that a little bit and maybe talk about how big the homebuilder channel is first and to the rest of the business.
Speaker 2: Well, the home builder channel for us is, you know, a fifth to a quarter of the business overall, we're much more heavily indexed to the repair remodel and existing home sales dynamics.
Well the the the homebuilder channel for US is a fifth to a quarter of the of the business overall, we're much more heavily indexed to the to the repair remodel an existing home sales dynamics, but the progress on in RMC is it really comes from two things one is <unk>.
Erik Woodring: Yeah, and I'd add, and we stick, you know, we indicate it in our paper remarks that, you know, the, you know, details behind a lot of the actions we've taken from a cost structure standpoint. And that's, you know, as you go through a cycle like this, doing that is really important because then when you come out of the cycle that you're in a really good position of moving up. And I think, you know, I think I'm sure you know better than anybody and the rest of the folks on the line that, you know, as you watch the cycle, but it's important for everybody to try to fit your out.
Speaker 2: But the progress on, in RNC is, it really comes from two things. Uh, one is our ability to add more relationships. I mean, the, the work that our BD team has done in building out relationships with, with more and more builders and, and getting, uh, getting into their homes has been, has been a significant driver and then the other, and we referenced it, it's really been, um.
Our ability to add more relationships I mean, the the work that our BD team has done in building out relationships with them with more and more builders and getting.
Getting into their homes has been has been a significant driver and then the other and we referenced that it's really been.
Erik Woodring: Or what's, we've got the best crystal ball on the, when the cycle does bottom out and things come back, but in the meantime, things that we have control of are the things that Tony and I just talked about there. So again, the cost position, right, the execution, the, you know, we've continued to highlight our new MPI and that importance of new MPI and velocity of MPI is super important for us. And I think all those things together help us, you know, as we, as we come go through the cycle, I think we'll, you know, significantly have opportunities on valuation.
Speaker 2: BRK, which is a brand we got from First Alert in the Smoke and CEO area, that we've really worked hard to build out more.
B R K, which is which is a brand we got for first solar and the smoke and Seo area that we've really worked hard to build out more.
Speaker 5: more access to that builder channel and we've seen it. Well, and that comes back to the increased content that we're continuing to drive. And we have a lot more opportunity on a further content in there. And then back to what Tony said in the first piece, which I mentioned earlier, and that is the expansion of new builders into the RNC. And that's, from my chair, as we expand that number of customers for RNC as the markets come back with the increased content, we're going to really be able to, but we will benefit by this.
More access to that builder channel and we've seen it when that comes back to the increased content that we're.
Continuing to drive and we have a lot more opportunity on it further content in there and then back to what Tony said on the first piece, which I mentioned earlier and that is the expansion of new builders into the RMC and Thats. It from my chair.
Erik Woodring: No, that's perfect. Thank you. And then just just one question on clarification, maybe for you, Tony, is, you know, the midpoint of your full year operating income guide was reduced by, I think, $10 million, but you raised your EPS guide by about 15 cents. You know, if we take into account three key results, I think that means four Q earnings relative to prior to earnings comes up about 15 cents. Just correct me if that math is wrong, but my question really is, I think 12 cents of that comes from roughly 12 cents comes from the sale of Genesis.
As we expand that number of customers for RMC as the markets come back and with the increased content, we're going to work.
To really be able to but we will benefit by that.
Yeah.
Speaker 7: Yeah, great. That makes sense. Thanks for taking my questions.
Great that makes sense, thanks for taking my questions.
Thanks, Mike Thank you.
Speaker 1: Once again, ladies and gentlemen, if you have a question, it is star one. Your next question comes from the line of Ian Zaffino with Oppenheimer. Your line is open.
Once again, ladies and gentlemen, if you have a question it is star one.
Your next question comes from the line of Ian Zaffino with Oppenheimer. Your line is open.
Erik Woodring: Where, where, where should we think about the remaining three cents of kind of EPS upside coming from, is that, is that another below the line item that we're maybe not just considering just, just a point of clarification and that's it for me. Thanks. Yeah, Eric, I'll try to address that. NetNet. I mean, obviously there's a lot of moving pieces, right, with the fail of Genesis and some of those things. But NetNet, our outlook for the business in Q4, is a few million dollars better than what our original, what our prior outlook would have indicated.
Speaker 8: Hey, good afternoon guys, this is Isaac Salazar and I'm for Ian. Appreciate you guys taking the question. Just to follow up on the previous one on products and solutions, could you maybe talk through the pricing dynamics you saw in the quarter? It sounds like the business still costs a nice benefit for price, despite the volume decline.
Hey, Good afternoon, guys. This is <unk> on for Ian I. Appreciate you guys, taking the question just.
Just a follow up on the previous one on products and solutions.
Could you maybe talk through the pricing dynamics you saw in the quarter.
Sounds like the business still thoughts a nice benefit.
For price despite the volume declines.
Speaker 8: and then a second part to that, what should be our expectations for pricing and volumes going into next year, maybe in the context as you lapse some of the price increases from 2023 or this year?
And then a second part to that.
What should be our expectations for pricing and volumes going into next year.
Maybe in the context as you lap some of the price increases from from 23 of this year. Thanks.
Erik Woodring: We, you know, we ended up above our midpoint for Q3 and the guidance that we have now from an operational standpoint points to a few million dollars better at the midpoint as well. And I think that's the increment. I'd have to do the math on the EPS, but I suspect that's probably the increment on the EPS. Okay, that works. That's perfect. Thank you very much guys. Good luck. Thanks, Eric.
Speaker 2: Yeah, thanks Isaac. I think a couple of things. First of all, the price realization, this quarter, 25 million, I think the large majority of that was flow through of prior price increases. We did make some changes here and there, but I think it's largely been flow through.
Yes, Thanks Isaac.
A couple of things first of all the.
The price realization this quarter $25 million I think the large majority of that was flow through of prior price increases. We did we did make some changes here and there, but I think it's largely been flow through.
The.
Speaker 2: We're not in a position to give anything really specific about 2024, but I would just say logically, as we've seen our input cost-separate, we've been able to maintain price. I wouldn't anticipate that there's going to be dramatic moves in price.
Ryan Merkel: Your next question comes from the line of Ryan Merkel with William Blair. Your line is open. Hey, good afternoon. Thanks for taking the questions. Hey, my first question just back to this outlook for repair and model and the turnover. Are your products tied more to housing turnover or there is this seam out there that people can't move because of high mortgage rates and home prices are high. So people are investing in their current residents.
We're not in a position to give any anything really specific about 2024, but I would just say logically as we've seen our input costs abate, we've been able to maintain price.
Wouldn't anticipate that there's going to be.
Dramatic moves in price.
Speaker 2: you know, moving forward. I think we'll still get our normal price increases and that sort of thing, but
Moving forward I think we'll still get our normal price increases and that sort of thing but.
Speaker 2: You know, our our objective was to if you go back, you know, three plus years to when Jay and I first showed up.
Our objective was to if you go back three plus years to win Jane I first showed up.
Speaker 2: You know, part of our perspective was that we needed a price for the value that we were bringing to the marketplace and
Our perspective was that we needed a price for the for the value that we're bringing to the marketplace and we has as we saw inflation and as we we started driving price before the inflation started and then as we saw the inflation we were basically chasing our tail trying basically to stay caught up with the with <unk>.
Ryan Merkel: I'm just wondering if that's something that, you know, you could benefit from. So Ryan, you've highlighted two countervailing types of types of dynamics. There's, and it's hard for us to piece out one compared to the other. But if you look at just the unit volumes, unit volumes of existing home sales, they're down by, you know, more than a third from from peak to trough. There's a lot of repair and remodel activity that happens by people right before they sell their homes or right when they purchase their homes.
Speaker 2: We, as, as we saw inflation, and as we, we, we started driving price before the inflation started, and then as we saw the inflation, we were basically chasing our tail, um, trying basically to stay caught up with the, with the input costs. Now that those input costs have abated our ability to hold price, um, has, you know, has helped with margin and we think that that's going to continue moving forward in an environment where.
The input costs now that those input costs have abated, our ability to hold price.
Has has helped with margin and we think that that's going to continue moving forward in an environment where neither.
Speaker 2: You know, where inflation isn't going to be driving either the pricing or the inputs environment. Yeah.
Where inflation isn't going to be driving either the pricing or the inputs environment.
Ryan Merkel: And that that significant decline, I think it's from, you know, 6 million to 4 million units annually plus or minus. We think that's clearly been a headwind for us, whether or not the, you know, not moving trend has maybe helped a little bit in terms of people deciding to do projects and their existing house. I think potentially it has, but I think it's probably significantly outweighed by the, by the dynamic of just the, just the drop in existing home sales.
I would agree with that.
Okay. That's helpful very helpful.
Speaker 8: Yes, it was, thank you. And then just a quick follow up on ADI, what categories in the commercial space are you maybe most positive on given the headwinds and the residential side of the business that you've discussed?
Yes. It was thank you and then just a quick follow up on Adi.
What categories in the commercial space are you most positive on.
Given the headwinds in the residential side of the business that you've discussed.
Sorry did you say the most positive about it.
Yes.
Speaker 7: Yeah, so, you know, access control for whatever reason has done really well. Fire and intrusion and, or sort of fire and video has held in there. A lot of the residential security were still, you know, the unit volumes and the dollars are still off. Yeah.
Yes so.
Access control for whatever reason has done really well.
Fire and intrusion.
Ryan Merkel: Got it. Okay. Thanks for that. I mean, if you look at, I guess if I think about it, if you just to follow up on my own answer, you know, our, our unit volumes are, are down, you know, low double digits. And we're seeing, you know, and this is kind of a very broad brush view, but they're down low double digits. And as I said, we're seeing a reduction in existing home sales of 30 plus percent and new housing starts are down as well, which is, which is also a driver for us.
Or sort of fire.
Video has held in there a lot of the.
The residential security we're still.
The unit volumes in the.
Dollars are still are still off.
Yeah, I would agree with that.
Okay, great. Thank you very much.
Thank you.
Speaker 1: There are no further questions at this time. I will turn the call back to Mr. Jason Willis.
There are no further questions at this time I will turn the call back to Mr. Jason Willey.
Ryan Merkel: So I think, you know, clearly some of that were, were, were performing those metrics. So probably there is some lift that we're seeing from the, you know, from people's investment in their existing home. Yep. Okay. Question number two is portfolio optimization. It sounds like there's more to do there. Can you maybe talk about what any near in for that and what more should we expect? It's early innings for sure. I, you know, the two big things that we've done this year is we outsource the, we, we closed our facility in San Diego and we moved our castings activities.
Speaker 9: Thank you everyone for participating today and we look forward to speaking with you over the coming weeks and months everyone have a good rest of your day. Thank you
Thank you everyone for participating today, and we look forward to speaking with you over the coming weeks and months everyone have a good rest of your day. Thank you.
Speaker 1: That concludes today's conference call. Thank you for joining. You may now just connect your life.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.
[music].
Ryan Merkel: Offshore, that was a pretty important thing for us to do. The sale of Genesis is incrementally a pretty important thing for us to do as well. But there are still assets inside the business and factories and those kinds of things that we're going to be evaluating over the coming quarters. And look, it would be, you know, it would be awesome if we could just do it kind of all and once and say, look, here's the, here's the new residue.
Ryan Merkel: Here's what it looks like from the standpoint of, you know, vertical integration and manufacturing. Here's what it looks like from the standpoint of, you know, the businesses that were investing in and the businesses that maybe we're going to, we're going to move out of. It is just going to take some time, but I, you know, it's, it's early innings. Yeah, and I think if you remember our last series call, you know, we, at that point in time, we could talk about really as a follow-up on what we didn't say in Diego.
Yes.
Yes.
Ryan Merkel: And we, at that time, we couldn't tell you about Genesis for obvious reasons, but now we were able to do that. And I think I said in my remarks, both Q3 and I said again today that we, you know, we have a number of really good opportunities there and it's, it's a matter of how you time some of these because some of these are larger than others. But it's a, it's a focal point of the team in terms of optimization as we've talked about.
[music].
Ryan Merkel: And so we, you know, we have more opportunities coming. And then just to be clear, the objectives, you know, the underlying objectives of all of this is, you know, is to improve our margins and to incrementally improve the growth rate, the underlying growth rate of the business. Yes. Well, if I could fit one more in just high level, you know, I think the guidance you gave in early 21 for 2024, EBIT was 900 million, correct me if I'm wrong.
Ryan Merkel: Now, you're going to obviously miss that. I know when the macro has probably been different than you thought, but what if you graded yourself on cost-cutting and portfolio optimization and other things? How did you perform relative to the goal that you would set out? Yeah, I mean, you know, if you think about it and we've talked about this before, you know, we had two years there, there were supply chain situation, you know, that anybody's ever experienced and, you know, at least in my career, I know.
Ryan Merkel: And we also, you know, so we had all the challenges associated with that as well as you still add limitations on what you could do because of COVID for a period of time during that period. So a lot of, and that's why we've highlighted before, especially the Latin Blatt today and in the[inaudible] I think that makes sense. I think you guys caught up to success with higher content for the new home market and just finally go overall on the home builder channel.
Ryan Merkel: You know, things are going a little bit better for you guys. There's one thing you can dig into that a little bit and maybe talk about how big the home builder channel is versus kind of the rest of the business. Well, the the home builder channel for us is, you know, a fifth to a quarter of the business overall. We're much more heavily indexed to the for the repair remodel and and existing home sales dynamics.
Ryan Merkel: But the progress on in RNC is it really comes from two things. One is our ability to add more relationships. I mean the the work that RBD team has done in building out relationships with more and more builders and getting getting into their homes has been has been a significant driver. And then the other we referenced it. It's really been BRK, which is, which is a brand we got from first alert in the smoke and CEO area that we've really worked hard to build out more, you know, more access to that builder channel and we've seen it.
Ryan Merkel: Well, that comes back to the increased content that we're continuing to drive and we have a lot more opportunity on a further content in there. And then back to what Tony said in the first piece, which I mentioned earlier. And that is the expansion of new builders into the RNC. And that's, you know, from my chair, you know, as we expand that number of customers for RNC as the markets come back and the with the increased content.
Ryan Merkel: We're going to we're going to really be able to but we will benefit by that. Yeah, great. That makes sense. Thanks for taking my questions. Thanks, Mike. Thank you. Once again, ladies and gentlemen, if you have a question, it is star one.
Isaac Sellhausen: Your next question comes from the line of Ian Dacino with Oppenheimer. Your line is open. Hey, good afternoon, guys. This is Isaac Salison on for Ian. Appreciate you. I take the question.
Isaac Sellhausen: Just to follow up on the previous one on products and solutions, could you maybe talk through the pricing dynamics you saw in the quarter. Sounds like the business still costs a nice benefit for price, despite, you know, the volume declines. And then the second part to that, you know, what should be our expectations for pricing and volumes going into next year. You know, maybe in the context as you lapse some of the price increases from from 2023 or this year.
Isaac Sellhausen: Thanks. Yeah. Thanks, Isaac. I think a couple of things. First of all, the price realization, this quarter 25 million. And I think the large majority of that was flow through of prior price increases. You know, we did we did make some changes here and there, but I think it's largely been flow through.
Isaac Sellhausen: The we're not in a position to to give any, you know, anything really specific about 2024. But I would just say logically as we've seen our input cost to pay, we've been able to maintain price. I wouldn't anticipate that there's going to be, you know, dramatic moves in price, you know, moving forward. I think we'll still get our normal price increases and that sort of thing. But, you know, our objective was to, if you go back, you know, three plus years to when Jan, I first showed up, you know, part of our perspective was that we, you know, needed a price for the value that we were bringing to the marketplace.
Isaac Sellhausen: And we as, as we saw inflation and as we, we started driving price before the inflation started and then as we saw the inflation, we were basically chasing our tail, trying basically to stay caught up with the, with the input costs. Now that those input costs have invaded, our ability to hold price has, you know, has helped with margin. And we think that that's going to continue moving forward in an environment where neither. You know, where inflation isn't going to be driving either the pricing or the inputs empire. Yeah, I agree with it. Okay, that's helpful. Yes, it was. Thank you.
Isaac Sellhausen: And then just a quick follow up on ADI. You know, what categories in the commercial space? Are you maybe most positive on, you know, given the headwind and the residential side of the business that you've discussed? Sorry, did you say the most positive on? Yes. So, you know, access control for whatever reason has done really well. Fire and intrusion and sort of fire and video has held in there. A lot of the residential security were still, you know, the unit volumes and the dollars are still are still off. Yeah, I would agree that. Okay, great.
Isaac Sellhausen: Thank you very much. Thank you.
Jason Willey: There are no further questions at this time. I will turn the call back to Mr Jason Willey. Say thank you everyone for participating today and we look forward to speaking with you over the coming weeks and months. Everyone have a good rest of your day. Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect your lines. Thank you.