Resideo Technologies, Inc.

Good afternoon. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Resideo First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's 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. If you would like to withdraw your question, again, press star 1 on your telephone keypad. Thank you. Mr. Jason Willey, Vice President of Investor Relations, you may begin your conference.

Good afternoon, everyone. Thank you for joining us for Residio's first quarter 2023 earnings call. On today's call will be Jake Altmacher, Residio We would like to remind you 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 of future performance or results and involve 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 Residuous Filings with the Securities Exchange The company assumes no obligation to update any such forward-looking statements. We identify the 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.

Thank you, Jason, and good afternoon, everyone. I'm pleased to say in the first quarter, we delivered results at the upper end of the outlook we outlined back in February. Over the past several months, we have seen improvements in a number of areas related to supply chain and logistics. Our teams are focused on taking advantage of these improvements to drive gross margin and cash flow improvements as 2023 progresses. While macro signals in our end markets remain mixed, we see opportunities for improved volume trajectory as the year progresses as customer inventory trends normalize, And we leverage the opportunities we've created over the past 18 months by being a reliable partner to our customers. For first quarter 2023, products and solutions delivered revenue of $658 million, up 6% year over year, as the addition of first alert and continued price realization helped offset lower volumes, particularly in our security and energy products. While our Q1 air product revenue was relatively stable year over year, we continue to see our HVAC distribution channel manage its inventory levels in the quarter. We expect this channel to continue to manage inventory down as 2023 progresses. In our OEM channel, we believe customer inventory levels have largely normalized and order activity is generally tracking end demand. which has returned to historical trend levels following stronger activity in late 2021 and early 2022. Building on recent momentum, we introduced a number of exciting new products during the quarter that we expect will grow our position in the market. This includes our L1 Wi-Fi water leak and freeze detector and L5 Wi-Fi water shutoff valve. These first alert branded connected devices provide real-time water leak notifications and automatic water shutoff capabilities. The DT4 digital thermostat for EMEA markets, which we introduced in Frankfurt at ISH, the world's leading trade fair for HVAC and water, features a slimmer, modern design and extensive application support, including heat pumps, hybrids, zoning, and integrates with our underfloor heating solution. We introduced the HPCR, an indoor control unit for heat pumps. This is part of our component portfolio supporting the growing EMEA heat pump market. We also launched the VX1 video doorbell at the ISC West Security Conference. This product will be available in May and offers AI-based intelligent event detection with video verification. It will also carry the First Alert brand. The first quarter was a productive period of trade show activity, kicking off in January at CES, where we participated in a number of activities focused on home energy management and industry standards, including the Home Connectivity Alliance and MATTER. At ISH in Frankfurt in March, we showcased several of the new products I have previously highlighted. And at the ISC West Security Show in Las Vegas, we connected with a large cross-section of our security dealer customers as we launched the VX1 video doorbell. In the first quarter, we saw improvements in our supply chain and the overall logistics environment relative to recent periods. Availability of key electronics and semiconductor components have improved from what we experienced over much of the past 18 months. This enabled us to limit our broker-buy activity during Q1 and we currently expect limited broker activity over the remainder of 2023. While we are still carrying higher than usual delinquent backlog, levels have shrunk meaningfully from a year ago. With the supply chain beginning to normalize, resources can be shifted from short-term tactical initiatives that have consumed disproportionate engineering time over the past 18 months. This allows our operations and engineering teams to return more of their focus to structural value creation initiatives around new products and value engineering. As discussed on our Q4 earnings call, we have begun our facility optimization work with announcement of the plan to close our San Diego Castings facility, which is expected to be completed in early 2024. This is our first significant manufacturing facility optimization action, and ties to a portion of the restructuring charges we took in Q4 2022 and Q1 2023. We expect this activity to begin to positively impact financial performance in Q4 2023. And once completed, the San Diego project is expected to deliver $12 billion of annual savings. We have also made significant progress and are ahead of schedule on our El Paso, Texas distribution center consolidation. Most importantly, we have accomplished with no meaningful customer disruption. This project involves exiting a legacy facility and folding those operations into the El Paso location that came across in the first alert acquisition. We expect annualized savings of over $2 million per year from this project once fully completed. Overall integration of First Alert is progressing well. We moved the business to our ERP platform in the first quarter and are well on our way to achieving at least our $30 million annualized synergy target. We are expanding the First Alert brand into non-smoke MCO products. We view the First Alert brand with strong market awareness and reputation as a key asset that we intend to utilize more broadly moving forward. ADI's first quarter reported revenue was essentially flat compared with Q1 2022 with daily average sales of 2%. ADI continues to execute on expanding its e-commerce and digital capabilities, enhancing its exclusive brands offerings, and investing in tools to drive Salesforce efficiency. ADI reached total touchless sales of 39% for the first quarter of 2023, and e-commerce revenue was 20% of total sales and grew 17%. ADI saw continued softness in the first quarter in residential AV and security categories, and slower growth in several commercial categories. We saw signs of customers managing inventory levels as supply chains normalized across categories, particularly in commercial fire and video surveillance. Over the past several months, the ADI team has actively engaged with suppliers and integrators on the state of the current and expected demand environments. These direct conversations and our integrator survey continue to point to growth in commercial categories in 2023 and healthy project backlogs. With that, I will turn the call over to Tony to discuss first quarter performance and 2023 outlook in more detail. Thank you, Jay.