Q1 2025 Resideo Technologies Inc Earnings Call
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Thanks for watching!
Eric: Good afternoon, my name is Erik and I will be your conference operator today. At this time I would like to welcome everyone to the Residio 2025 first quarter earnings call. All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
Eric: If you would like to withdraw your question, press star one again. Thank you.
Eric: I would like to hand the conference over to your host today, Chris Lee, Global Head of Strategic Finance, you may begin your conference.
Speaker Change: Thank you, Erik. Good afternoon, everyone, and thank you for joining us for Residios' first quarter 2025 earnings call. On today's call will be Jay Geldmacher, Residios' Chief Executive Officer, Michael Carlet, our Chief Financial Officer, Rob Aarnes, President of Residios' ADI Global, ADI Global Distribution Business, and Tom Surran, President of Residios' Products and Solutions Business. Thank you very much. Thank you.
Speaker Change: We would like to remind you that this afternoon's call contains four looking statements, statements other than historical facts made during this call may constitute four looking statements and are not guarantees a future performance or results.
and involve a number of risks and uncertainties.
Speaker Change: 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 in the residio's filings with the Securities and Exchange Commission.
Speaker Change: The company assumes no obligation to update any such forward-looking statements.
Speaker Change: We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings.
Speaker Change: In addition, we will discuss non-GAAP financial measures on today's call.
Speaker Change: These non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, our GAAP results.
Speaker Change: Unless stated otherwise, all numbers and results discussed on today's call, other than revenue, are on a non-GAAP basis. With that, I will turn the call over to Jay.
Jay Geldmacher: Thank you, Chris, and thanks to everyone for joining us today.
Jay Geldmacher: On today's call, I will briefly cover Resideo's quarterly performance and then share our perspectives on tariffs and how Resideo is executing through this unpredictable macroeconomic environment before handling off the call to Tom, Rob, and Mike.
Jay Geldmacher: As a result of our team's continued execution, Resideo was at, or above, the high end of the range for all the metrics we provided for our quarterly financial outlook.
Jay Geldmacher: Total net revenue of approximately $1.8 billion, which includes the impact of the SNAP-1 acquisition, grew 19% year-over-year.
Jay Geldmacher: Total gross margin was 28.9%, up 200 basis points year over year.
Total adjusted EBITDA grew 23% year-over-year to $168 million.
Total adjusted earnings per share grew 34% year-over-year to $0.63.
Jay Geldmacher: I am pleased with our strong first quarter results that were supported by healthy operating fundamentals.
Jay Geldmacher: We achieve 6% organic revenue growth year-over-year at our products and solutions business segment.
Jay Geldmacher: At our ADI business segment, we achieve 4% organic revenue growth year-over-year, despite two less selling days in the quarter, versus the same period last year.
and 7% organic average daily sales.
Jay Geldmacher: Gross margin expansion and EBITDA generation were underpinned by growing operating income dollars year over year.
Jay Geldmacher: Demand for our new Honeywell Home Focus Pro thermostats and First Alert Vista H series security products continues to be strong and the velocity around new product introduction is accelerating for both products and solutions and ADI.
Jay Geldmacher: Moving on to tariffs, we have all seen the shifts in policy to date.
Jay Geldmacher: In this fluid environment, Resideo remains agile and we are well prepared to react to any new development.
Jay Geldmacher: Based on what we know today about tariff policy, we have taken actions in the first and second quarters that have two goals.
Jay Geldmacher: First, to essentially mitigate the cost impact of any tariffs across both products and solutions and ADI.
Jay Geldmacher: and second, to be well-positioned relative to our competition at the current time.
Jay Geldmacher: Let me walk through each business segment, the potential exposure, and the key mitigation actions.
Jay Geldmacher: In the products and solutions business segment, we benefit from having a global manufacturing footprint where regional demands are generally sourced in region.
Jay Geldmacher: As shown on page 9 of our earnings presentation, for goods sold in the United States, about 90% are produced in our Mexico facilities or sourced from Mexican suppliers.
Jay Geldmacher: Of the good source for Mexico, about 98% are USMCA compliant and not currently subject to tariffs.
Jay Geldmacher: For those goods that are not manufactured or sourced from USMCA-compliant sources, we are evaluating bringing production into our Mexico facilities or sourcing from other Mexico manufacturers.
Jay Geldmacher: It is worth noting that we have a variety of manufacturing facilities globally and are constantly evaluating new sites, both of which gives us optionality as we continue this assessment.
Jay Geldmacher: We have also communicated a phased price increase to our customers, intended to offset the cost impact of the tariffs.
Jay Geldmacher: In the ADI business segment, determining the tariff impact is more nuanced than products and solutions.
Jay Geldmacher: As shown on page 10 of our earnings presentation, ADI is exposed to more significant China tariff given its purchasing profile, and we cannot predict supplier actions around price.
Jay Geldmacher: As such, we have taken a conservative approach and estimate a maximum potential impact before any mitigations.
Jay Geldmacher: to be between 20% and 25% of ADI's total cost of goods sold. However, this will be offset by mitigation actions that include the following.
Jay Geldmacher: ADI has communicated a phased price increase to our customers to offset the tariff cost impact.
Jay Geldmacher: We have also made strategic inventory purchases and taken commercial actions with our suppliers.
Jay Geldmacher: In addition to the evolving tariff landscape, we're closely monitoring data points around customer behavior.
Jay Geldmacher: Customer demand in the first quarter was healthy across both businesses and we saw minimal signs of customer hesitancy or order cancellation.
Jay Geldmacher: We saw limited indications of customers buying ahead of anticipated tariff-related price increases.
Jay Geldmacher: These data points, to date, are positive indicators on our current customer demand.
Jay Geldmacher: As a result of our strong first quarter and the tariff mitigation actions we are taking, Residio is maintaining its 2025 outlook.
Jay Geldmacher: We believe our strong execution and proactive approach enables Resideo to manage through the uncertainties associated with this highly dynamic environment for the rest of the year.
Michael speak more to this in his comments.
Let me now hand the call over to Tom.
Tom Surran: Thanks Jay. The Products and Solutions team delivered another quarter of strong operational execution resulting in year-over-year organic growth and the eighth consecutive quarter of year-over-year gross margin expansion.
Speaker Change: Products and Solutions reported revenue growth of 5% year-over-year and 6% organic growth, which excludes a 1% unfavorable impact from currency.
Speaker Change: Revenue grew across substantially all our sales channels due to both volume and mix driven by customer demand for our new products and from price realization.
Now let me walk through each of our primary channels.
Speaker Change: The HVAC channel achieved volume, mix, and price growth in the quarter, driven primarily by continued demand for our recently introduced connected and non-connected Honeywell Home Focus Pro thermostats.
Speaker Change: A greater proportion of overall Focus Pro sales were from connected thermostats that were sold to a broader set of customers during the quarter.
Speaker Change: The electrical distribution channel was again strong in the first quarter.
Speaker Change: Revenues associated with our BRK branded safety products, which are sold to professionals, reached a record high, driven primarily by strong volumes and mix.
Speaker Change: We continue to see an increase in content per new home, and we see rising adoption with a broader set of customers beyond home builders, such as property managers.
Speaker Change: The retail channel continued to perform well in the first quarter, driven primarily by strong point-of-sales volumes.
Speaker Change: Revenue from the first alert safety products grew in the high single digits year-over-year. The Focus Pro thermostat was launched to retail during the quarter and sales related to the Focus Pro are expected to be a bigger contributor to the retail channel in the future.
Speaker Change: The OEM channel posted a second consecutive quarter of year-over-year revenue growth, driven primarily by the sale of higher priced and more profitable units amidst an improving energy equipment market in both the Americas and EMEA.
Speaker Change: Revenue in the security channel was down year-over-year, however the rate of year-over-year decline is abating, as evidenced by security sales with one of our largest customers that were modestly up year-over-year.
Speaker Change: Early sales of the new Vista series that were sold in the quarter are trending positively.
Speaker Change: Gross margin for the quarter was 41.4%, up 190 basis points year-over-year.
Speaker Change: This is the eighth consecutive quarter of year-over-year gross margin expansion, driven by continued efficient utilization of our factories, supported by a supply chain that we look to continuously improve, and from contributions from the sale of new products.
Speaker Change: We did absorb an immaterial amount of tariff-related expense for products prior to the implementation of the USMCA Tariff Preference Treatment.
Speaker Change: As Jay stated, approximately 98% of product and solutions goods sourced from Mexico and sold in the U.S. are USMCA compliant, which are currently exempt from tariffs.
Speaker Change: We are excited to continue the cadence of new product introductions.
Speaker Change: In the quarter, we introduced the first alert smart smoke and carbon monoxide alarm in partnership with Google Nest.
Speaker Change: Our new Connected Alarm is compatible with Google Home app and was designed to seamlessly replace Google's expiring Nest Protect alarms.
Speaker Change: Google Desk passed the baton to Resideo to lead the future of smart home safety through continued innovation.
Speaker Change: With feedback from our professional customers, we previewed our most advanced cameras and video analytics ever.
Speaker Change: The Firth Alert CX-4 camera series features ultra-high definition cameras offering 4k sharpness and intelligent viewing capabilities.
Speaker Change: These cameras will target both the high-end residential as well as the small and medium-sized business video surveillance markets.
Speaker Change: We have a number of market relevant products in the air and comfort, security, and water categories scheduled for launch later in 2025.
Speaker Change: We are excited for our customers to realize the benefits and value of our forthcoming products while building upon the demand momentum seen for our new product releases in the last six months.
Speaker Change: I am pleased with the go-forward direction of products and solutions.
Speaker Change: an accelerating cadence of new products alongside organic revenue growth, and another consecutive quarter of year-over-year gross margin expansion.
With that, let's turn the call over to Rob.
Rob Aarnes: Thanks Tom. The ADI team achieved 29% year-over-year growth in reported net revenue in the first quarter and after excluding the impact of the SNAP-1 acquisition and an immaterial impact from currency
Speaker Change: Organic net revenue growth was four percent year-over-year despite two less selling days this quarter versus the same period last quarter.
Organic average daily sales grew 7% year-over-year.
Speaker Change: Organic net revenue growth was driven by strength across commercial product categories, continuing contributions from large accounts, and the digital channel. These results were achieved despite an increased number of store closures due to weather in January and February.
Speaker Change: Strong customer demand in the latter half of the quarter offset both the lower number of selling days and increased closure days.
Speaker Change: From a product category perspective, we saw solid growth year over year in multiple categories.
Speaker Change: with notable contributions from the commercial security, professional audio video, and networking product categories.
Speaker Change: partially offset by a low single-digit percentage decline in the residential audio-video category due primarily to a soft US residential market.
Speaker Change: Organic e-commerce net revenue grew 15% year-over-year, achieving another quarter of strong revenue performance and a new record in run rate daily sales average.
Speaker Change: E-commerce continues to be structurally accretive to the total ADI gross margin and was a bigger contributor to first quarter's total gross profit dollars than last quarter.
Speaker Change: We continue to invest in providing a leading omni-channel experience that makes the buying experience easier and more streamlined for our customers.
Speaker Change: Exclusive brands continues to be a strategic priority for the business.
Speaker Change: Exclusive brands' organic net revenue increased 26% year-over-year, while also generating a healthy amount of gross margin dollars in the quarter.
Speaker Change: The strategic benefit of the SNAP1 acquisition is evident, as the combined team launched almost 100 new products in the quarter.
Speaker Change: The team also continues to earn industry recognition for our Exclusive Brands product portfolio.
Speaker Change: At the Integrated Systems Europe trade show, the team took home nine festive show awards with product winners in exclusive brands, including Episode and Triad speakers, Luma cameras, and Arachna switches.
Speaker Change: The team is also working on some exciting new product launches for the second quarter.
Speaker Change: including the award-winning Lux by Control4, our fourth-generation lighting control solution, and the new Control4 X4 interface for smart home systems.
Speaker Change: The integration of SNAP1 continues to progress nicely and we are ahead of our one year, we are ahead of our year two synergy goals.
Speaker Change: Store and distribution center consolidations, which can be complex, are tracking well against plan and we are gaining cross-sales momentum.
Speaker Change: ADI reported 21.6% gross margin in the first quarter up 360 basis points year over year. The execution demonstrated by the entire team directly contributed to the significant year-over-year gross margin expansion.
Speaker Change: We see additional opportunities to expand gross margins further, with margin and creative category mixed shifts both domestically and internationally.
Speaker Change: I've said in the past that our customer-first ethos is integral to how we execute operationally. This is especially true in the current macroeconomic environment where delivering an optimized customer experience breeds loyalty and profitable customer behavior.
Speaker Change: As Jay mentioned, we have strong momentum to date. We intend to build upon this momentum generated by our focused execution to continue driving organic revenue growth and margin expansion through 2025 and beyond.
Speaker Change: Let's now turn the call over to Mike to discuss our first quarter's financial results and 2025 outlook.
Mike Carlet: Thanks Rob, and good afternoon everyone. Let's get straight into the quarterly results, starting with revenue.
Mike Carlet: First quarter total company net revenue was $1.77 billion, up 19% year-over-year, and up 5% on an organic basis, excluding the impact of the SNAP-1 acquisition and a 1% unfavorable impact from currency.
Mike Carlet: Reported total company net revenue was at the high end of our outlook range.
Speaker Change: Both Tom and Rob spoke earlier about the drivers of organic net revenue growth and their respective businesses.
Mike Carlet: Total company gross margin in the quarter was 28.9 percent, up 200 basis points year-over-year.
The increase was primarily driven by three items.
Mike Carlet: the structural operating efficiencies that we continue to realize in products and solutions, the contributions from new product sales at Products and Solutions, and the contributions from the more margin-accretive activities at ADI.
Mike Carlet: First quarter total company adjusted earnings per share was $0.63, up from $0.47 from the same period in the prior year.
Mike Carlet: In the quarter, we recorded a larger-than-normal, non-cash charge related to the timing of Honeywell submissions under the reimbursement agreement, which impacted reported gap net income and earnings per share, but not our annual cash payments to Honeywell.
Mike Carlet: Total company adjusted EBITDA was $168 million in the quarter, up 23% year-over-year, and toward the high end of our outlook range.
Mike Carlet: The primary driver of the increase was the positive contribution from SNAP1, partially offset by investments being made in both business sectors.
Mike Carlet: Cash used by operating activities was $65 million, in line with normal seasonality.
Mike Carlet: Use of cash was primarily related to an increase in accounts receivable, due to higher sales, and cash outflows for accounts payable, including some early payments to receive supplier discounts.
Mike Carlet: We continue to track toward our outlook of $375 million of cash provided by operating activities in 2025.
Mike Carlet: Now, before I provide our financial outlook for the second quarter of 2020-25 and the full year, let me walk you through some of our market perspectives and assumptions that are incremental to those shared with you last quarter when we first set our 2025 outlook.
starting with our market perspectives.
Mike Carlet: We continue to have a relatively cautious market outlook, and we have not substantially changed our view on the macroeconomic environment shared with you on the February 2025 call, despite the increased unpredictability in the market.
Mike Carlet: As Jay noted, we assume the USMCA tariff exemption for products manufactured in Mexico will continue.
Mike Carlet: We have included all tariffs currently in force as of today in our Outlook.
Mike Carlet: This includes tariffs on products and solutions and ADI-exclusive brand products primarily imported from China.
Mike Carlet: For ADI third-party products we distribute, we have only included impacts where our suppliers have notified us of a price increase.
Mike Carlet: We have not made any assumptions for changes to customer behavior nor associated product volumes resulting from higher prices that likely will be more prominent in the market.
And, we make no assumptions for foreign currency fluctuations.
Mike Carlet: Our 2025 financial outlook was based on December 31st, 2024 currency rates.
Now, on our Outlook.
Mike Carlet: We are reaffirming our 2025 full-year outlook. We are not tightening our outlook ranges because of the uncertain and highly dynamic environment we are currently operating in.
Mike Carlet: We are planning to take a phased approach to price increases with ADI progressively raising prices on tariff impacting exclusive brands products starting in the second quarter.
Mike Carlet: Products and Solutions plans to increase prices on non-USMCA covered products starting in the second half of 2025.
Mike Carlet: As a result of these price increases at both ADI and Products and Solutions, we could see upside to the top line.
Mike Carlet: Our goal with the price increases and other tariff mitigation actions is to essentially offset the tariff costs and maintain gross profit dollars.
Mike Carlet: We are initiating an outlook for the second quarter of 2025 as follows.
Mike Carlet: Total company net revenue to be in the range of $1.805 to $1.855 billion.
Mike Carlet: Polo Company adjusted EBITDA to be in the range of $175 to $195 million.
Mike Carlet: and Total Company fully diluted adjusted earnings per share to be in the range of 51 cents to 61 cents.
Mike Carlet: Our earnings presentation includes our outlet ranges, along with key modeling assumptions for 2025, which can be found on our investor relations website.
Let's now open the call for questions. Operator?
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad.
Mike Carlet: We'll pause for just a moment to compile the Q&A roster.
Speaker Change: In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow-up.
Thank you for watching!
Speaker Change: Your first question comes from the line of Ian Zafino with Oppenheimer. Please go ahead.
Thank you very much. Good quarter.
Speaker Change: I want to kind of zero in on pricing a little bit.
Speaker Change: What I mean by that is, is this environment kind of one of your classic inflationary environments where distributors tend to do well?
Speaker Change: And you continue to take out price, which will then help margins, help profitability. So is that the way we should think about what we're seeing as far as tariff-related increases?
Speaker Change: And then maybe Tom, I'll kind of ask you this as well on the P&S side, I know it's a different story, but as you look to get price, do you anticipate any type of demand impact?
Speaker Change: Or are you seeing kind of any sensitivity to your ability to maybe push through some of that pricing? Thanks guys.
Yes, I'll go first. Great question, Ian, that is the...
Speaker Change: Probably the question of the day. I would say similar to what we saw in high inflationary environments. I mean as you heard in the commentary or the opening remarks
Speaker Change: We've taken the price increases that we have been given today from our suppliers.
Speaker Change: And we have passed those through in a phased approach. We've also taken a number of other commercial actions with our suppliers to, first and foremost, to be able to completely mitigate all tariff-related impacts, both on our third-party business as well as our exclusive brands.
Speaker Change: So we feel that we're in good position today based on what we know.
Speaker Change: At the same time, we are being very prudent, if not thoughtful, based on the complexity of the environment, you know, multiple variables in play, and have built those, you know, built those impacts into our guidance going forward.
Speaker Change: On the PNF side, let's also just kind of go back to scale.
Speaker Change: Less than 10% of the products coming into America would be subject to tariff overall. And of those...
Speaker Change: The majority or a significant portion of them would require very small prices.
increases.
Speaker Change: We've been very proactive in reaching out to our customers and explaining what we intended to do with our pricing throughout this whole process.
Speaker Change: And the magnitude of the price increases for everything excluding China is such that they understand and I do not expect it to have a material impact. And you're talking about an almost immaterial level of quantity of products and even revenue that would be impacted by this.
Speaker Change: Now, in terms of the products from China, those will require a larger price increase, but again, that's a sub-portion of that small portion of the sub-10% that would actually be impacted there. And the largest customer that's impacted by that, we've had communication, and they do not expect at this time to have any change in their demand as a result.
Speaker Change: So, for us, we do not expect any material change in our demand.
Okay, thanks guys. And then... See you next.
Speaker Change: Okay, and then if I could tie it up to, you know, the top level, Michael, maybe comment on kind of what we should expect from a pricing mix volume perspective for the consolidated business.
Thank you.
Speaker Change: Yeah, I think as we talked about and we're not going to specifically guide what the price impacts will be, we know the phased approach as
Speaker Change: as they're impacting us. We're holding our guidance in light of the uncertainty.
Speaker Change: So we feel really good about that. As we mentioned, there could be some upside given the timing of those price increases.
Speaker Change: any impacts on demand. So, you know, as we go forward, we would expect there's certainly be some price action that's going to increase the top line. We think it's relatively small as we sit here today, as Tom was just talking at P&S, a little bit more substantial at ADI. It'll be phased throughout the rest of the year.
Okay, thanks for all the color, guys. Good quarter again.
Thank you.
Speaker Change: Your next question comes from the line of Eric Woodring with Morgan Stanley. Your line is open.
Eric Woodring: Great, thanks so much for taking my questions guys and I echo the comments, it's a really nice quarter.
Jay Geldmacher: Jay, can we just go back and maybe double-click on the comments you made about really no buying ahead, no customer hesitancy.
Speaker Change: I just want to make sure I understand, is that a March quarter comment? Is that relevant for the month of April as well? Can you maybe just double-click on things like linearity in the month of April for P&S and ADI, just so we better understand kind of how things…
Speaker Change: or how buying behavior, if at all, changed in the month of April where there was obviously a lot of volatility relative to March, where there was just less volatility. And then I have a follow-up, please. Thank you.
Speaker Change: Thanks Eric. I'm going to let both Tom and Rob respond to their individual businesses but as I stated in my comments
Speaker Change: You know, during Q1, it was minimal, as I said, and we saw not, you know, very little from the standpoint of pull ahead, and, you know, there was a little bit of it there, but the demand seemed strong still.
Speaker Change: and I'll let, as I said, I'll let Tom and Rob comment on each one of their businesses which I think will be helpful from a color standpoint.
Yeah, hi Eric, it's Tom. I'll take P&S first.
Speaker Change: I think one of the important things was throughout this whole process
Speaker Change: We've been communicating with our customers, and we've been informing them of what actions we would be taking. And so again, kind of related to Ian's question, with not having a very large portion of products that are impacted by this,
Speaker Change: The need for our customers to do some kind of buy-ahead is fairly minimal. I mean, there's nothing to buy ahead from. So for us, I would, you know, there would be some possible, but it would be very de minimis amounts.
Speaker Change: And we don't see anything in April, because again, right now, where we are, what we're taking on products, and our communication to our customers.
Speaker Change: Yeah, Eric, so we're in a little bit different spot, but let me walk through each piece. So like Tom and P&S business.
Speaker Change: The ADI business maintains, I mean, really dynamite relationships with our customers, you know, since the tariff...
The terrorist kind of, you know, noise started happening.
Speaker Change: We were very proactive in communicating to our customers exactly what the impacts were going to be and we've continued to do so as new information has become relevant to us. They've been very, very appreciative of that and what we're hearing is, you know, they're taking those same kind of actions with their customers, obviously. That's what I would say is part one.
Speaker Change: In terms of your question around buy ahead, in the first quarter, we saw minimal to almost nothing. I mean, really, really immaterial.
Speaker Change: But we saw demand pick up in a lot of our commercial categories, security, in fact almost all of our commercial categories, security, professional video or professional audio video, as well as data communications.
Speaker Change: in March, as I said in my remarks, and then we saw that continue into April and the same result with regards to forward bias.
Speaker Change: We did not, it was immaterial in the month of April and even to start off May.
Speaker Change: So, I feel, you know, cautiously optimistic, if you will, when I look at our record backlog, our record amount of project registrations, our record pipeline, it continues to grow and move up to the right. It's so far.
Speaker Change: You know in addition to mitigating any price increases, we're still seeing a nice demand trajectory in the channel
Speaker Change: Okay, that's really helpful, and thank you for all the color from all three of you, frankly.
Speaker Change: If we could maybe take one big step back and kind of forget tariffs and all of this kind of near-term stuff.
Speaker Change: Obviously, they're relevant to this question, but can you just help us maybe better understand from your perspective, and I guess this is for Tom and Rob, it's just where you think we are in each of the kind of residential and commercial kind of spending cycle?
Speaker Change: Just a lot of moving pieces, and obviously, I assume macro might have some impact on the broader cycle. So just, again, not necessarily on a quarter-to-quarter basis, but where do you think we're going if we look out through the year and into 2026, just as it relates to the spending cycle on each kind of side of the relative business? I realize that's a big-picture comment, but just looking for big-picture feedback, please.
Thank you.
You're relatively safe.
Okay, I mean, this is Tom Erick.
Speaker Change: In terms of the overall environment, spending cycle, I think the way that we think about it and look at it is to say what's going on in the housing market. That impacts many of our segments, obviously, because we're so residentially focused on P&S.
Speaker Change: and I would say right now we're still in a somewhat depressed condition because of the very low level of existing home sales which create a demand for fix and replace and remodel in preparation of a sale or post sale.
Speaker Change: So that is something that is the level of that it stays at fairly low levels currently we're saying about four million units
Speaker Change: sold of existing housing stock, a more healthy number would be about five million. So it's kind of a little bit depressed there. The overall general remodeling activity not related to home sales is
Speaker Change: Pretty good. It's healthy. And then in the new home sales, I would say that's recovered to a reasonable level. So I would say overall
We have more
Speaker Change: tailwinds behind us for that market to improve as we go forward than we do any form of headwind.
Speaker Change: I would add one thing for Tom on that too, and Tom mentioned it, Eric, in his comments. We talk about almost every quarter, just as an update to the business, but the overall content per new home for R&C has continued to increase.
Speaker Change: and that ties to new products that Tom's coming up, that Tom and P&S have come up with, as well as what's nice is we've been able to gain additional business within that segment.
Speaker Change: residential audio-video business, which is now primarily SNAP, would be the
you know, category that's affected.
with this macro environment, but I'm going to tell you...
Speaker Change: When we took over the Snap business, there was a lot of work to do, and we have approached this aggressively when it comes to integration around.
Speaker Change: upgrading sales tools, commercial programs, really some great changes in the sales team, and really getting this team laser-focused on
Speaker Change: the things they can control, specifically around take and share. And that is what's most exciting to me, is we are seeing that quarter over quarter with the snap integration and the execution there, the cross-selling capabilities.
Speaker Change: Obviously, we can mitigate a lot of the soft backroom environment in the residential space with the strength we're seeing in commercial. But I'm also very pleased with what I'm seeing from the snap business and the aggressiveness by which they're taken to go out and take share and grow the business.
Speaker Change: Awesome guys, thank you very much for the color and good luck.
Thank you.
Speaker Change: Again, if you would like to ask a question, press star followed by the 1 on your telephone keypad.
Speaker Change: Your next question comes from the line of Amit Daryanani with Evercore ISI. Your line is open.
Speaker Change: Hi, this is Hannah for OMR. Just curious, when the macro environment improves and, you know, housing turnover picks back up, how much leverage is there in the model on gross margins? And do you see these getting comfortably above 30% when the end markets do improve?
Speaker Change: Hey, I think overall that we continue to think we have structural improvement opportunities on the P&S side to continue to grow gross margins.
Speaker Change: We're not going to specifically guide gross margin for the future, but what we do think is...
Speaker Change: Regardless of the market conditions that are out there, as we continue to execute and control what we can control, we do think we see opportunities.
Speaker Change: for ongoing gross margin accretion both from our structural improvements, the launch of new products, as Rob mentioned at ADI, some of the new product investments on exclusive brands, the things we're doing at ADI to drive margins. So we are optimistic they will continue to see gross margin improvements.
Speaker Change: Certainly for the next few years as we continue to execute without setting a specific goal out there or a specific goal.
Speaker Change: And I'd like to add that I agree with everything what Mike just said. We've also, as you know, we've demonstrated the type of gross margin expansion now for multiple quarters. And I think that's a little bit of the proof of the pudding. But then what Mike said, I agree with.
Okay, thank you.
Speaker Change: There are no further questions at this time. This concludes today's conference call. Thank you all for joining. You may now disconnect.
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