Thank you everybody for joining us. My name is Dan Stratemeier. I run a sales trading research business in the equities division. I am honored to introduce for the first time as a CEO, I believe, at a conference, Tom Surran, and his team members here, so congratulations again. Chris Lee, Global Head of Strategic Finance. What is it? What is your exact title? Is that it? That is it. All right. Thank you both and the team for being here, and again, congratulations on the Resideo transaction. This is the outline. We are going to start a little bit on an update on potentially some developments since the investor day, how that may or may not change your near-term outlook, and as we look out into 2027 a little bit. Then we will take a step back and talk a little bit more about the journey since you joined the company, Tom, and what you have done to get the company in the position it is in today. Let us talk about the OEM security business that is reducing a little bit here, a contract. I consider this non-core. I am not sure if that is your words or not, but just give a little bit of a background to what came of that relationship, why it was announced when it was. A little bit of the forward look on that, please. Sure. Let's just get this a little closer. Hopefully, that picks up. The question is about OEM security and how that's changed. OEM security, we have two OEM businesses. One is OEM security, the other is OEM combustion. They're very different, though. The OEM security business is a business where we function as an ODM for one major customer, and that means we create a product, we invest our R&D, we do all the development, we manufacture it. We basically then put their brand to compete against our products in the market. There was a trade publication that said, "Well, if you don't like that business, why do you like this other OEM?" The other OEM business we have is combustion, and that's a business where we create a component for a much higher level assembly to many of the companies that manufacture water heaters, furnaces, boilers, heat pumps. It's very different because this business is very low margin. It's margin dilutive, and it's been a business where we've exited many of the accounts, especially in the Europeans. But we had one remaining account, and at the end of 2023, beginning of 2024, we had announced that that customer was going to be exiting over the next two years. But that customer has remained with us. What happened is we were in discussions about what the second half of the year were going to be and what our revenue deliveries were going to be. There was a substantial reduction that occurred, not at the time of the investor, but subsequent to that. Right before our earnings call, the week before the earnings call, we could not get to reasonable commercial terms on what our deliveries would be and what our pricing would be. As a result, there was a reduction in the revenue to the tune of $40 million-$50 million in the second half of the year. You can think about that, about a third in Q3 and two-thirds in Q4. Now, that business, as I said, was margin dilutive. The gross margin impact on it is about $10 million total. Okay? It would be proportional, of course, to the revenue. But I think in the short term, that'll also be the EBITDA impact on those two quarters. But we scale our operating expenses, and we've talked before about being very disciplined about how we do our operating expenses, and they scale with our revenue. We will quickly and have already taken the actions to adjust our operating expenses so that there is not a long-term EBITDA margin impact on this. We have already taken the actions to restructure it. Unlike most OEM businesses, this customer consumes our operating expenses pretty aggressively. So we spend a lot of time on the R&D for them, a lot on sales, marketing, legal, everything. So it is easy for us to scale those with the reduction in the revenue. How much is left of that customer? What would be the impact in 2027? When you think about your five-year targets, I believe the contract is up in 2028. It is. In your long-term targets, although you did not know exactly when it may have left, do you assume it is all out in the long-term targets that you already gave at the investor day? Yeah, it was incorporated because we understood where the contract was going to go eventually. It probably will not go to zero-zero. There will be some residual, as always, on these contracts, support and replacement products. That is fine. But substantially, it will be gone by the time we get to the end of the time period we talked about at the investor day. If it's $50 million in revenue in 2026, $10 million of gross profits, I assume EBITDA in 2026, what is the impact to 2027? Right. There will be reductions year-over-year. We're expecting further reductions to occur in 2027. The good thing about this is we understand the relationship a little clearer. We're taking the actions that related to the reduction that we're seeing here in the back half, so that EBITDA doesn't carry forward. We'll be able to adjust our expenses for 2027, so that impact will not have a material impact going forward. Because, again, the gross profit on the account was very aligned with what our operating expense level on the revenue was. Dan, let me just jump in because you asked the part of the question earlier that wasn't answered. Just to give everyone a sense of the size related to this large OEM security customer. The forecast at the beginning of 2026 was somewhere between $170 million and $180 million. They performed in line with those expectations for the first half of 2026. As Tom mentioned, we signaled a $40 million to $50 million revenue drop in the second half of 2026, which then puts the range exiting 2026 to be, if you use $45 million at the midpoint, call it $130 million, $140 million. Tom talked about some incremental headwinds in the first half of 2027. We think it's roughly a $15 million Q1 impact year-over-year, give or take, and a $10 million impact in Q2 year-over-year. That's the extent of the visibility that we have today. Exiting Q2, that's probably somewhere, if you take the 25 off the 130, somewhere between $100 million and $120 million is the range that you guys could use for modeling. But I think the message you're sending is another $20 million of revenue down year-over-year, but minimal, if any, EBITDA impact. Yes. Is I think what you're saying. Yeah. Okay, great. That's right. Investors get a little concerned that there's that going on in this OEM business. Like I said, I consider this a little bit non-core versus the rest of your business. Is there any correlatory, if that's a word, is there any correlation between what's going on in that business and your regular way security business or any other of your businesses at all? This is a relationship that those people close to the story have been talking about for three or four years, right? This really isn't a surprise to those that are- This is- focused on it. I think it's a little bit of a surprise that it happened right after the investor day and a little bit of the agita associated with that. Yeah. Timing was problematic. No question. It wasn't great. But the reality is this is an account that's not core, it's not strategic. We are not going to be an ODM. Our brands are worth too much. We put too much into development of differentiated solutions to put someone else's brand on it. It's not a business we want to carry forward. It's not a brand that we want to do with any other customer. Okay. Let's move on from that. The investor day, I think you laid out five drivers of revenue. That adds up to, I think, something in the range of 4%-6%, or mid-single digit CAGR between now and your 2030 targets. Can you remind us what those are, and how those look going into 2027, especially in, obviously, a pretty difficult residential housing market? Sure. Some of the big ones, I'll just make sure those are covered, probably the most important ones. One of the most is the NPI that we do, and the creating of new products and basically additional value in the markets we existing serve, as well as some adjacent markets that we'll enter. We've got a roadmap that we've created that we want to execute on, and that is going to drive a good chunk of the revenue growth. That's a big piece. We also have things such as geographic expansion. That's another area. If you look at our product, we're a global company, and we have different areas where we have strengths. It's not something you can look at one market and say, "Well, they're really strong there, but why isn't it over there?" I'm talking, let's just take safety. In the U.S., the First Alert brand is extremely well-recognized, and the product does very well for us. It's executed well. You can look to our numbers and the growth we've had in our safety business. We have not competed in the European markets, though. There's very little. They typically rely very similar test standards. There's slight differences that the line voltages and some other things. The reality is that market is open to us. We needed to have the platform. We've created the platform. Now we're preparing to enter the geographic expansion. Geographic expansion is one. I could go the other way on certain comfort products for coming back to the U.S. related to water or some other things, but we need to think more as a global company. That's a big piece. We caught a lot of flack actually because we were conservative on pricing as well as market conditions. We aren't considering market conditions to be a major tailwind. We are looking at the market as it exists and saying, "Fine, that's the market we're playing. We're going to go win share. We're going to drive our growth of the business." Similarly, pricing, just as we say that, of course, we have these shocks, the inflationary costs and what have you, but generally, we were assuming only a 1% price increase driving our revenue. Those are the big ones. Is there something else you think I should cover on? I think, just to talk about the new product introduction a bit more. I think this has been part of our strategy for the last several years, and when we look forward around the opportunities that we can have from a growth and margin standpoint. I mention both purposely because our focus is around designing and manufacturing differentiated product relative to the competition. When we are in the design of those products, they are margin accretive. We are improving upon the designs of the past so that it is beneficial on a go-forward basis, so that when the adoption does take hold, it is a net benefit to the P&L. Would you mind diving in a little bit further into each one of your segments? Obviously, you are the leader in air, safety and security, energy and water. Could you give us a little more granularity on the drivers and what you are seeing on the demand side for each one of those businesses right now? Sure. There is a commonality to all of them. Since we are focused on residential, there are two pieces to the residential side. There is the repair and remodel side to it, and then there is the new residential construction. They have different dynamics to them, but we are about 80% repair remodel is our revenue base, and there is a resiliency to that, which is important to understand. We have done very well in our new residential construction and the amount of our sales per home and the growth of that and our relationships with all of the top, really 40 builders, but especially even the top 25, and how we have executed. Let us go back to repair and remodel. In all those businesses in the markets that we serve, if you deal with the comfort systems, that is water and that is air. The growth there is there is, one, there is a replacement cycle that occurs. Typically, the comfort systems in a house last somewhere between 12 and 15 years. People can push it off for a year or two, but you really cannot push it off. Once, say, the igniter starts failing or capacitor starts failing, you could patch it for a little bit, but eventually that system is going to go, so most people do a full system replace. The fact is, our solutions have had real strength in the marketplace. This is because of the domain expertise we have. We invented the thermostat. We have been doing it for 140 years. Sorry about that. We have been doing it for 140 years. What is really important is we provide a trusted solution to that pro. When he goes in there, and every house is a little different, he knows that our products are going to provide him a solution that he can count on when he drives away, that is going to deliver the value to the homeowner, and he is not going to get the call back, and it is going to be a reliable system. We go even beyond that, obviously, of how we create value for both the pro and the homeowner. I could spend this whole time slot talking about that. Our ability to grow in that is not only reasserting ourselves as the leaders, and we have product roadmaps specifically related to that, but even expansion into the adjacencies, areas that we had lightened up on in the past couple of years prior to the spinoff from Honeywell, where areas such as ventilation, filtration, humidification, dehumidification, these are all markets that really apply directly to us, that connect directly to our control and sensing, that we have domain expertise that we can reassert ourselves in. Those are easy. In safety, again, we have done extremely well in residential new construction and the relationships we have with all of the builders in installing the First Alert brand in their homes, but also the MRO business, which is new. That has been a big driver of growth. For those listening, safety is smoke alarms. Safety is smoke alarms and gas alarms. Yep. There's a few other things, but those are the primary. Then in existing homes, they typically have a 10-year cycle, and most people are going to replace. Our gain there, the biggest place is we can expand into certain capabilities that go more in supporting us to SMB. But the big one is the geographic expansion that I was talking about earlier, and that is entering the European markets, which are of similar size to the U.S. or estimated after the regulation changes, probably be a $2 billion market, where we don't participate at all. That's a huge growth. Security is one of those markets, and I'm not talking about OEM, I'm talking about our general market, our brands going into market. This is an area that we've identified a lot of opportunity. We had focused pretty much on one segment of it as part of a solution called intrusion. The reality is a fully integrated security system has much more to that. It has video integrated, access control integrated, has presence of some form. All of those things is what we want to bring to market. Probably even more important is the fact that we're building the ecosystem to connect all these products. In the FORTIQ platform, as it comes out, our common data model, the RedLINK Plus communications protocols, all of that, so all of our devices inside a home are able to have context of what the other systems are doing to optimize their own jobs. All of that delivers greater value. All of that drives growth. I'm going to come back in a few of those points later because I think they're important, but I'm going to stick on the outline I mentioned earlier. All right. Let's turn to margins a little bit. You've done a remarkable job since you've been at the company, and we're going to ask you a little bit more about that. I think it's 13 straight quarters of gross margin expansion. You say it's not going to be every single quarter, but every quarter you tend to still do it. As we look out to the next 12 months, and I want to keep this a little bit shorter term, your Investor Day, I think, had 400 basis points of margin expansion over five years. A lot of puts and takes today, right? Cost, price. You're doing other structural things with Amit over here. Walk us through how investors should think about the next year or two and the margin ramp continuing, not continuing, price, cost, all that stuff, if you can help us out a little bit on that. Yes. Thanks. This is a really important part of our story. We have a roadmap that we are executing, have executed, and will continue to execute, and it goes past the 2030 date. There are three major pieces to the gross margin, and it has been 13 quarters. We are going to continue to expand our margin. One is the factory efficiency. We have a manufacturing footprint. We are vertically integrated, but historically, we have diffused some of the advantages we have from our scale. So we make 15 million thermostats per year, 24 million smoke detectors. We are vertically integrated, but we had that over numerous platforms spread across, and you do not get scale advantage. Part of the story is we are taking all that product development we are talking about and getting those onto platforms, reducing the number of platforms we have to support to leverage our scale to create greater efficiency. We are working on the footprint of our factories in terms of how many factories we operate, what the loading is, and the efficiency of those. We are working on the efficiency of each of those factories to improve it. So that is one third. The other third is the improvement of the products. As we bring greater value to the products, higher level of integration, to higher level of values, we will be compensated for that. So there are the values related to the NPI. The third is about pricing and channel and the allocation of those margins, and that is the third piece of it. But the first two, and especially right now, the big one that we have partially executed, is the factory efficiency and the supply chain. But we see the roadmap of exactly what we want to do for the next five years on all three of these. So it is laid out. It is a matter of execution, not a determination of what to do or a speculation of, "I bet this would work." It is now just execute what we know we can do. You have done, obviously. Part of it. There is a lot more we can. Yep. Talk about more specifically here, component costs, commodity costs. Every day it does not get easier, it seems like. Talk about your ability to push price. A lot of these component costs have gone up a lot. Sure. How should investors think about that, the puts and takes, as we go into 2027? Sure. I will talk a little bit about the inflationary cost, and I will talk a little bit about our pricing power. Let us talk. We announced at our earnings call, we kind of reminded people that we are going to have a headwind in Q3 for some inflationary costs. We said, most people are aware of this, the RAM cost, memory costs have gone up substantially. Metals cost, the petroleum cost impacts our resins, PCB costs. A lot of this related to the data center drive and- Flush We said that the net impact of it, because we had taken pricing action, but there's a lag to our pricing, and it's typically on accounts 60- 90 days notification and what have you on our actions. That for Q3, the gap between the cost increase versus our pricing increase was going to be about $10 million, whereas in Q4, that would close. So it would be less than $2 million. So we had a one-quarter headwind because we have taken the pricing actions, and now as we go forward, we'll be able to also continue. So it is a $10 million headwind, and we'll be able to go through how we execute in Q3, and that's one piece of it. Going forward, though, we will be able to do the pricing because the pricing power. If you think, for two reasons. One, our leadership in the marketplace, the strength of our brand, the trust we built to the pros, the consistency of the value delivery, all very important. The other piece to consider in most cases is we're providing the control and sensing parts of complex, higher-level systems. An HVAC system's $15,000- $20,000. The thermostat's $150- $200. On the higher end. I do. We went to the high end, because that's what you should be buying. That is a small piece of the overall system. It's not going to move the system. It's not going to create customer resistance to that level of pricing. But we have to consider, of course, that we appreciate that the pro doesn't want to feel that they're being abused here, and that we're aware that we're delivering the value, and we're increasing our value, and that we're keeping them apprised of, "Hey, we're not doing this just to try to screw someone. This is cost. We're responding. We're trying to make sure we deliver value." And they're very appreciative of it. They get it. They understand it. So I don't think there's an issue there. And similar in other markets, safety, security, we're, again, a smaller player. It's not a huge issue. I think we have the pricing power to be able to adjust our prices to reflect these inflationary costs. Okay. I want to wrap up this segment here with a question that I hope you will answer. Not asking you for 2027 guidance, but the Investor Day, and you guys both know I really do not like Investor Day targets because you have to answer questions from people like me and investors. But I think what I heard from you is despite the difficult residential market, despite some of the cost headwinds you are dealing with, given all the idiosyncratic things your company has going on, whether it is NPIs or regional expansion, investors should expect the company to grow next year and margins should be higher. Essentially what I hear you saying. Yes. Great. I am sorry if that was too abbreviated, but I do not want to get into. I am not asking you to. '27 but I think that's important given some of the changes since the Investor Day to reiterate that you will grow top line and bottom line next year. All right. One of the things I find so remarkable about your company, especially with the valuation of where it is today, is you have literally best in class, or close to best in class, both gross margins and EBITDA margins. Okay? That certainly wasn't the case when you walked in the door four years ago. It's four, right? Three. Three, even more impressive. I don't really care about what got the company to the point where it was when you walked in. Yeah. Thankfully you did. You mentioned it a little bit. On a high level basis, what have you done in three years to change really the margin trajectory, the top-line trajectory of this company? And why, on a high level basis, are you able to have the margins that you have? Okay. I think three years ago, when I came in, probably there were three things that needed to be done immediately. One, the strategy for the business had to be determined and set, which was done almost immediately, and said, "Look, this is how we're going to win." We've talked a little bit about in Investor Day, there's the generic, or not generic, but the larger across the company, across the product line strategy. That is one, create differentiated solutions, make products that are special. That's really a big, huge focus. Then next is the focus on the professional. That's what we do. We focus on the pro, okay? That sounds trivial, but if we spent more time on it, I could say why that's- Well, how long you been focusing on the pro as a customer? Well, I mean, as a company there's a question, were we a DIY company? Were we focused on the end user, or were we focused on the pro? And the decision was we are 100% focused on the pro. That was a layup. You were supposed to say 140 years or something you've been focused on the pro. Well, the reality is there was a question when I got there, and we had been serving the pro for 140 years. The focus has been intensified in the past three. The next is the geographic expansion we talked a little bit about. The last is the leveraging of our scale. Okay? So those are four, but inside each of our products, we have more. So that's the strategy. I could go, each of our product lines has strategy that we're executing, we're in the process of executing. Second was the organization, getting the right people into the right roles and restructuring the business. There were silos. There were people acting. We had multiple sales organizations that were acting at conflict. We had multiple product development organizations. There wasn't a shared purpose. Once you've established the strategy, and once you've established the organization, you can now create the shared purpose. Then it becomes the execution, and you say, "Here's what we need to do, and this is what exactly we want to do over this next five-year timeframe, and even a little bit beyond." There's some fundamental stuff to it, big strategy platform pieces to it. There are specific targets of products that we want to do. But you talk about, okay, why margin? So I gave a very big picture. So I'll bring it back to your question about margin. Okay, so we talked about the products as a very important part to making that margin. The execution, the footprint of our facilities, the efficiency of our facilities, utilizations, the platforming, all of those make a huge difference, and we're only part of the way. I would say we're somewhere between the third and fourth inning of what our plan is, and so there's a lot more for us to execute. Where were margins when you walked in, and where are they now? I think they were 38. Yeah, I think- Thirty-nine Three years ago is probably mid to high 30s, 35%-37%. Gross margins. Gross margins, and then certainly as we've executed against the strategy that Tom just talked about, that's underpinned the 13 consecutive quarters of year-over-year margin expansion. Both on the gross margin, EBITDA margin line, and I would also note that's in an environment where all your competitors are giving back margin post-COVID, in a really difficult market. So that's what I think is so impressive. Where are your market shares? You're not going to give me the percentages, but, globally thermostats, globally in safety, and then security, I think it's maybe lagged a little bit. Talk about your market share positioning and where you are in those two markets, and also what you're doing to revitalize the security business. Sure. So in the comfort business, and so comfort is our air and our water businesses because those are just two different mechanisms to deliver energy in a home, right? In Europe, primarily, it's water delivery of energy. In America, we use air for the comfort. In America, we are, and I've got our lawyer back there, he's glaring at me. I don't want to go, I can't go into specifics here. Yeah. Send no specifics. We have a very strong position, and I think- I think you are number one in air. I am saying, not you, but the research we do is your- Well, if you look at 15 million thermostats, and then you look at anyone else's, what their volume is, we have said this before, probably an order of magnitude larger than the next competition. So very strong in comfort. U.S., even stronger. In the European market, you have to go to each market because there is different dynamics that occur in the delivery. We have some real strengths. There are some markets we could improve it, and so there are opportunities for us. And part of that is making sure that we make the investments in some of our water products for that. As we had underinvested in the U.S. historically, or North America historically, we had underinvested in Europe as well. In fact, the next couple of products we are going to be bringing to market revitalize our European product portfolio. In safety in the U.S., you really have two major players. It's us and Kidde. In Europe, we don't participate, but that is going to change. We'll be entering that marketplace. In security, we have historically been a very strong brand. If you go back to the ADEMCO name, the First Alert name, they were really established brands that we, because of the lack of investment, had given up to other third parties. We have a vision and a roadmap to bring ourselves back to a strength position and start capturing share again. That's what we're going to be executing. I would ask you how long, but I'm not going to. Okay. Let me ask a financial question, and you're no longer the CFO of the company, which I'm sure you're happy about. We have Shane Harrison, our new CFO. Hey, Shane. Congrats. Welcome. Free cash flow conversion of your company is pretty high. Yes. Because you took out the Honeywell indemnity, you're probably a little bit higher on leverage that you want to be. There's a two times target. Did you say at the Investor Day you'll be down to that around 18 months? Is that what you said? Or am I putting words in your mouth? At Investor Day, we said our goal is net leverage of about two turns in 24 months. Okay. Close enough. Okay. That's all I have. Does anyone have a question here in the room? Anu? Just yell it out. I can repeat it. No, I have a mic. Okay. He's got the Thank you. You're up. Thank you. Quick follow-up on the OEM security business. It sounds like $70 million between now and Q2 of 2027, and the EBITDA impact of, call it, roughly $10 million-$15 million? No, it's about $10 million. About $10 million. Impact, and that's really more of the second half of 2026 impact. Yeah. That comes out to about 13% EBITDA margin roughly for that business. If you are saying that business goes away, the $140 goes away, is the right way to think about the EBITDA impact on the $140 also the 14%? No, because we would adjust our operating expenses. Would be much lower. Yes. I think you have answered a little bit different question. You took the H2 reduction, 40- 50+, then you added the H1 reductions that were talked about to get to the 70, and the gross profitability is approximately 20% on the account. Okay? This is a very special situation where we are going to talk about margin. In the Q4 or H2 piece, that is where the margin reduction, and you can look at the 20% between the $40 million and the $50 million, and you could say, "Okay, that number is not going to have the operating expense reduction offset." We have already put in for place the actions to compensate for that. It's just the timing for it because there's a lag when you make the actions, and basically because this was done right at the earnings, because we weren't able to see it, we have visibility what's actually happening for H1. We're able to take those actions now to address our operating expense levels. When you look at this, you have to look at the operating expense. The EBITDA reduction is the net of the gross margin reduction offset by the operating expense reduction. When our operating expenses are running 20% and the gross profit is approximately 20%, those offset. The EBITDA margin going forward after Q4 is basically negligible. I guess fair to assume that theoretically the 140 that's left run rated, that the contract's up in 2028, the EBITDA impact o n that would be negligible. Negligible, because as long as we have visibility and there's not a lag offset, unless they shock us again, we're able to offset. We're very disciplined about our operating expenses. Over time, in our business model, we invest the 5% in the R&D, and we're very disciplined. Our operating expense generally would have some operating leverage, but we scale directly proportional to our revenue. Anything that is reduced, we will reduce or increase. Tom, last question. Anything you want to leave everybody with here? The floor is yours. One minute. Floor is mine. I think it's important to understand the story and what our position is and what that brands, the brands that we have, that we've built over the past 140 years, how important they are to the pro, how important our position is in the residential control and sensing market for the critical systems of the house. This is an area where we've spent and developed domain expertise. I think the focus we've had in the past three years and the execution of the team, that we're in early innings of what we want to execute to serve that market. I think the market's appreciative of what we're delivering. I would argue you're also more of a consumer products repair and remodel company than you are a building products new home sales company. We like to call ourselves building technologies because I appreciate there's a distinction between something that, a building material, housing, roofing, or windows, what have you, whereas we have a lot. I think what's different about our solution is that we're very focused on the professional who's going to install that product versus a consumer where they're going to deploy it themselves. That's why we call ourselves building technologies is because that relationship with pro and them delivering that value. Well, great. Congratulations again, Tom, and thank you guys for being here today. Thank you. Thank you.