• Adjusted EBITDA: $175 million, exceeding the high end of the outlook range.

• Products and Solutions Adjusted EBITDA Margin: 24.8%, up 460 basis points year over year.

• Gross Margin: Exceeded 41%, with Products and Solutions gross margin at 41.3%, up 300 basis points from Q2 2023.

• Free Cash Flow: $77 million for the quarter, $325 million for the last 12 months.

• Revenue: $1.59 billion, 1% lower than Q2 last year.

• Products and Solutions Revenue: $630 million, 7% lower than Q2 2023.

• ADI Revenue: $959 million, excluding $45 million from Snap One, down 1% year over year.

• First Alert Safety Products Sales: Up approximately 20% year over year.

• Operating Cash Flow: $92 million for the quarter.

• Net Leverage: Approximately 2.3 times the last 12 months adjusted EBITDA.

• Q3 2024 Revenue Outlook: $1.79 billion to $1.83 billion.

• Q3 2024 Adjusted EBITDA Outlook: $170 million to $180 million.

• Full-Year 2024 Revenue Outlook: $6.68 billion to $6.76 billion.

• Full-Year 2024 Adjusted EBITDA Outlook: $655 million to $695 million.

• Full-Year 2024 Operating Cash Flow Outlook: At least $375 million.

• Warning! GuruFocus has detected 3 Warning Sign with REZI.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Resideo Technologies Inc (NYSE:REZI) reported an adjusted EBITDA of $175 million, exceeding the high end of their outlook range.

• The company achieved a gross margin of over 41%, marking the fifth consecutive quarter of year-over-year gross margin expansion.

• The acquisition of Snap One is expected to add significant value, with targeted annual run rate synergies of $75 million by 2026.

• First Alert safety products saw a 20% year-over-year sales increase, marking the third consecutive quarter of double-digit growth.

• Resideo Technologies Inc (NYSE:REZI) reported strong free cash flow of $77 million for the quarter and $325 million over the last 12 months.

Negative Points

• Revenue for the second quarter was $1.59 billion, a 1% decrease compared to the same period last year.

• The European HVAC market faced challenges due to changes in government incentive programs and political uncertainty.

• The security market sales remained slow, impacting overall performance.

• The ADI business experienced a 3% decline in adjusted EBITDA compared to the previous year, excluding Snap One's contribution.

• The company faces ongoing challenges in the residential housing market due to high interest rates and low existing home sales.

Q & A Highlights

Q: As we look at the back half of the year and think about the way that you're guiding the Products and Solutions (P&S) business, it does imply that declines in the business improved. Can you help us understand the moving pieces for P&S as we look into the second half from a top-line perspective? A: Jay Geldmacher, Independent Director: The residential housing market remains challenging with interest rates affecting affordability and housing turnover. However, we are optimistic about potential changes in interest rates and have positioned the business well operationally. We expect future growth as we finish up '24 into '25, especially with new product introductions (NPI) starting at the end of Q4. Tom Surran, CFO, added that the NPI will be more visible in 2025, and they are seeing progress in the residential new construction market.

Q: As you work towards the integration of Snap One, what is the key priority? Is it product integration, go-to-market actions, customer account integration, or technology integration? A: Robert Aarnes, President - ADI Global Distribution: The first priority is integrating the two cultures and leadership teams. We have already made significant progress in cross-selling, with Snap One's Wattbox launched into ADI branches and e-commerce channels shortly after the acquisition. The focus is also on sales enablement and aligning the operating cadence to drive performance and meet financial objectives.

Q: On the P&S side, the gross margin performance has been impressive despite some challenged end markets. How should we think about the long-term gross margins in this business as end markets recover? A: Thomas Surran, CFO: We are focusing on product development platforms, operational efficiency, creating differentiated products, and investing in high-return products. These strategies are expected to improve margins over the long term. Additionally, supply chain cost reductions are contributing positively.

Q: Can you provide some color on your expectations for Snap One's growth for this year? A: Anthony Trunzo, CFO: We expect Snap One to contribute $65 million in adjusted EBITDA and $550 million in revenue for the year. While the markets are soft, we anticipate stabilization. The focus is on sales enablement, cross-selling, and leveraging ADI's operating system to drive value.

Q: What is the overall mix of proprietary products versus exclusive or third-party brands with Snap One's products in the portfolio? Has there been any rationalization of product overlap? A: Robert Aarnes, President - ADI Global Distribution: Approximately 20% of the combined organization is now proprietary products. Snap One's development expertise will help expand into other categories. We are evaluating rationalization opportunities to make room for Snap One's margin-accretive product line.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.