Resideo Technologies, Inc.

Ladies and gentlemen, at this time, I'd like to welcome everyone to the Residio Technologies fourth quarter 2022 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. It is now my pleasure to turn today's call over to Mr. Jason Willey, Vice President of Investor Relations. Mr. Willey, please go ahead, sir.

Good afternoon, everyone, and thank you for joining us for Residio's fourth quarter 2022 earnings call. On today's call will be Jake Altmarker, Residio's Chief Executive Officer, and Tony Trenza, 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 that this afternoon's presentation contains forward-looking statements. Statements other than historical facts made during the call may constitute forward-looking statements and are not guarantees of future performance or results, and of all, 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 in Residio's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. we identified the principal risks and uncertainties that affect our performance on our annual report on Form 10-K and other SEC filings. With that, I will turn the call over to Jay.

Thank you, Jason, and good afternoon, everyone. 2022 was a year of historic market, geopolitical, and macroeconomic conditions. We navigated these challenges to deliver record full-year revenue and operating income. However, business conditions around our residential end markets softened as 2022 progressed. Given this, we've taken actions to reduce costs and ensure we are both protecting near-term profitability and positioning the business for long-term success. While the macro conditions remain dynamic, we believe our OEM and distribution customers have made substantial progress in right-sizing their inventories. We expect Q1 will mark the low point in terms of destocking impacts. and we expect to build from that base as 2023 progresses. We expect that cost actions and improving customer inventory situation, coupled with growing momentum in new product activity and products and solutions, will position us for improved financial performance as 2023 progresses. Late in the year, we respond to evolving market conditions by taking action to reduce costs and initiate manufacturing optimization work. This includes actions that are expected to result in an approximate 5% decrease in Resideo's global workforce. These measures will further focus resources on advancing strategic initiatives and better positioning Resideo to scale with future growth. We are working aggressively to ensure the business is sized and focused appropriately to deliver strong profitability and cash flow. For 2022, Products and Solutions delivered record revenue, up 13% year-over-year as we added first alert and drove strong price realization across the portfolio. We grew our position in the connected thermostat market in both the distribution and retail channels, expanded content with builders in the new construction channel, and grew our presence at a number of key OEMs, all positioning the business for future growth. We saw significant returns from investments in pricing and Salesforce tools and training. This is visible in our strong price realization activities throughout 2022 and a meaningful increase in average revenue generated per salesperson. These investments are further enhanced by the increased customer engagement driven by our brand ambassador program and business development efforts. We significantly advanced the ball on our software platforming efforts, our critical building block as we look to accelerate partnerships, leverage our hardware leadership to support value-added services, and reduce development time and support costs. This work is reducing the number of internal back-end platforms our products run on top of and providing simpler ways to interface with our products. We acquired First Alert, a leading smoke and carbon monoxide sensing provider, at the end of Q1 2022, and we are pleased with the financial performance and integration of the business. We have already driven new commercial opportunities around cross-selling into our distribution channel, achieved deeper builder penetration, and improved positioning with key retailers. Over time, we will add more connectivity into the First Alert portfolio and see significant opportunity from further integrating First Alert with our traditional security business. In late December, we acquired Technique, adding a new sealant-based team of engineers with significant capabilities in sensors, optics, and AI-enabled video solutions. The team brings a track record of innovations in sensors, optics, and processors, along with deep relationships with silicon and original design manufacturer partners. These capabilities will help advance our security video strategy and help accelerate our focus on providing actionable intelligence for end users. ADI had another great year in 2022, with revenue growing over 6%, gross margin up 130 basis points, and operating income up 17%. 2022 marked the 12th consecutive year that ADI has grown its revenue year over year, a testament to the execution of the entire ADI organization and the attractiveness of the markets they serve. ADI saw continued strength in its commercial categories and has worked hard to deliver for customers in a challenging supply chain environment. At the same time, ADI continues to execute on expanding its e-commerce and digital capabilities, enhancing its exclusive brands offerings, and investing in tools to drive sales force efficiency. ADI reached total touchless sales of 37% for 2022 and crossed the 20% of total sales threshold for e-commerce revenue in the fourth quarter. We are also leveraging these digital investments to offer customers and suppliers cloud-based, AI-driven data analytic tools. These tools provide contractors and suppliers better understanding of their sales and inventory through customized reporting and access to granular data. This creates a new subscription revenue opportunity for ADI and provides differentiation as we look to drive share of wallet with customers. Exclusive brands revenue grew 25% in 2022 and remains a significant long-term revenue and margin enhancement opportunity. We launched over 250 new SKUs and three new brands during 2022. Capture Advanced, which includes NDA compliant video, Avaro for AV and Datacom equipment, and ADI Pro for wire access control and accessories. We will continue to build upon these offerings in 2023 and see meaningful revenue expansion opportunity for new SKUs and sales initiatives. ADI continues to execute on the strategy to expand into adjacent AV and Datacom markets. These categories accounted for over $500 million of revenue in 2022, up 20% year over year. Building on this momentum, in mid-January of this year, ADI added new capabilities with the acquisition of BTX Technologies. BTX is a specialist professional AV distributor with Datacom capabilities for insourcing custom fiber assemblies, filling a hole in our value proposition to customers in the Datacom and AV markets. With that, I will turn the call over to Tony to discuss fourth quarter performance and 2023 outlook in more detail.