Good afternoon, everyone. Thank you very much for joining us at the TMC Conference, Resideo Technologies today. My name is Tomohiko Sano, Mid-Cap Industrials Analyst at JP Morgan, and I will be your moderator for these sessions. We're honored to welcome Mike Carlet, CFO, and Chris Lee, Global Head of Strategic Finance from Resideo, for a fireside chat about the company's business strategies and future outlook. Mike, Chris, thank you for joining us.
Thanks for having us.
Thank you. Appreciate you.
To start, I imagine there may be some in the audience who are not yet familiar with the Resideo. Mike, Chris, could you briefly share the history of the Resideo, your core business lines, and defining elements of your company culture, please?
Sure, happy to. Resideo is a company that was originally spun out of Honeywell about eight or nine years ago in 2018, and today we operate as a two-segment business. We call one segment our P&S, Products and Solutions business, and that business is focused on developing and manufacturing products that are involved in the residential control and sensing. If the home is a system of systems, of, you know, your water system, your electrical system, your HVAC system. We are focused on developing products that control those systems, that sense those systems, and make them more enjoyable, more affordable, more comfortable, more safe for the homeowner. It's our primary focus on the product side.
The other side of the business, our ADI distribution business, is a distribution business focused on the light commercial security, low voltage, and high-end residential AV distribution space, where we're selling to over 100,000 professional integrators that are installing those products into both people's homes and into all kinds of different commercial establishments. The business has operated in that way since it was spun off from Honeywell, but recently, last July, we announced that we're going to actually separate the business through a tax-free spin-off, separate it into two standalone companies. You know, when Honeywell spun this off, there were some reasons that it made sense to do so under common ownership. Really, for a number of years, we've said it makes more sense for these businesses to operate on a standalone basis. They have different go-to markets.
They have different business models. One's distribution, one's product manufacturing. They have different capital allocation strategies, capital needs of the business. We've always said it makes sense to separate them. We had a bit of an overhang from a related party transaction from Honeywell that was a result of the spin that we couldn't separate them until that was settled. We settled that last summer. We've now been working for the last, you know, nine months or so on getting the businesses separated. We just gave some updated information that we're going to effectuate that separation sometime between the middle of Q3 and the middle of Q4. Given the time frame around it's either going to be the middle of Q3 or the middle of Q4.
You know, it's hard to do those things, end of August, timing of financial statements. Those are the two windows that are out there. Everything's green. We feel pretty good about doing it sooner rather than later, but we need to make sure all the IT systems are set up, all the other things that allow both businesses to be successful are complete and done. We'll continue to move that forward. We have announced that our investor days will be in mid-July. Each company will have their own standalone investor day, where we'll talk about the businesses on a standalone basis at that point.
Thank you, Mike . Then you're becoming CFO for ADI side, right?
I am. You know, I originally joined Resideo when the ADI side of the business bought my previous company, Snap One. It made a lot of sense as we went through the separation, as we talked about how to set the teams up to make sure each business had the right folks on each side. Made a lot of sense for me to stay with ADI to help them be a separate standalone public company. Chris Lee, who runs Investor Relations for us, is actually gonna stay on the P&S side. We'll have good continuity on both sides. We'll be folks able to tell the story. In fact, we'll probably let Chris do most of the talking about the product side of the business today. He could do both sides.
We can both do both sides, but we figure we'll start that process now. We are, as we announced, I think, last Monday, we filed our Form 10. We filed some other information about the separation, and we said that we are in the midst of recruiting for a CFO for the P&S business as well.
Right. Thank you very much. Let's dive into the business, starting from Products and Solutions, P&S segments. In the recent earnings call, last week, you mentioned the demand in the retail and OEM channels was strong. How do you view the current state and outlook for the housing and the remodeling markets for the P&S business, please?
Yeah. Thanks, Tomo. I think when we look at the macro environment, it's, with the Q1 print, the view is pretty much the same as we had at the beginning of the year when we set the annual guide, which is, the residential market is still relatively depressed. It's probably clicking along at a very low- single digit rate. I think it's for all the known and spoken reasons in the marketplace for the last several years. It's interest rate sensitive, it's availability sensitive, and I think there's a number of structural things that could provide tailwind in the future, as rates improve the market and confidence becomes more constructive.
There's more, you know, evidence of home building or the resale of existing homes. Today, you know, we would probably characterize that we're more so in a repair market versus a repair and remodel market. I think when we look at our preference and bias, you know, certainly, the products and solutions side or the RemainCo Resideo prefers a remodel market. It, it provides an opportunity for greater sale, greater opportunity for the professional to do work. I think in the current repair market, it still demonstrates Resideo's importance to the end user because, you know, we make best-of-breed products that are critical, as Mike said, to the operation of your home.
You know, it goes back to the mission statement that Mike talked about, which is, again, to reiterate, you know, we make your lives more comfortable, more safe and secure, and more cost-effective. When you think about you're sitting in the Northeast this past winter, and it's awfully cold, and your thermostat breaks down, you go out and buy a new Honeywell Home product.
Right.
Because you know it works. I think, you know, as we look forward, you know, and, you know, given some of the things we've talked about over the last six to eight quarters about the self-help, the things we've been improving upon, we feel well-positioned to take advantage of an improving macro if and when.
Thank you. I think it's last week you also talk about the market share gains in safety products and strong adaptations of the new offerings. What do you see as the Resideo's key competitive advantages in the P&S segment, versus major peers?
I think, you know, just to dovetail on something I mentioned before, we believe in manufacturing and selling best-of-breed product that, you know, leverages our long, you know, over a century of heritage and domain expertise, and continuously selling to our moat, which are the professionals. You know, we think that is a virtuous flywheel that we can continue to perpetuate and build upon because, you know, we have an operating scale advantage. We have key brands that are very well known, like Honeywell Home and First Alert. We also have a brand that's very well known in the professional community called BRK, and all of those brands are synonymous with quality.
I think we wanna continue to, you know, live up to that heritage that we have around quality, around product excellence, and frankly, around innovation, which is core to our go-forward strategy. I think relative to the competitive landscape, I, you know, we believe we have market share leading positions in a number of the categories we play in, and I think that's buttressed by the amount of volume that we manufacture, you know, on our very large operating footprint.
Thank you. Then if you could touch on the mega trends or tailwinds, the portions that you mention about for the P&S segment for the medium long term, please?
Yeah. I think when we look, you know, at the landscape, the residential landscape specifically, you know, we believe there is an under-housing that's been, you know, pinned by the lack of new construction. We also think that when rates come down, that will help to create more velocity in the sale of existing homes, both of which, you know, we would be exposed to. I think if you were to ask us, you know, where our greatest exposure is, it's more so to the R&R or the Repair and Remodel part of the marketplace versus residential new construction. I would tell you probably over 50% of our exposure, we believe, is to R&R. When we look at where we play, certainly we have a presence not only in R&R and in residential new construction, but also think about the replacement cycle.
You know, many of our products have, you know, a stated lifetime. You know, a smoke and carbon monoxide alarm, I think, has an eight-year life on average. You know, that's probably something that you really don't wanna go too far beyond from a, a lifetime standpoint. I also think we're able to penetrate new markets with our products. For example, we called out the MRO market, the Maintenance and Repair market recently, which has a lot of appeal and efficacy to us because they serve multi-family units by and large, and there's a lot of use cases for us in those types of, you know, large, you know, dense dwellings.
Thank you. Then, shifting gear to margins and pricing and costs. Your P&S segment has delivered 12 consecutive quarters of gross margin expansions. If you could talk about the how much of that is due to pricing power versus mix, and if you could talk about the sustainabilities for the next couple of quarters, please?
Yeah, no, that's a great question. You know, I think we have a really exciting part of the story here. You know, I think with what I painted before, you know, we've been able to execute, you know, in a low- to mid-single digit, you know, revenue growth profile with an improving margin expansion, which has been borne, you know, fundamentally on structural operating efficiencies that we've been gaining. You know, when we, when Mike gave the overview of when we spun out of Resideo, I think it's underappreciated that the products and solutions segment were product lines in disparate parts of Honeywell's businesses when it was contributed. When it was contributed, we had a lot of manufacturing and supply chain sprawl that we had to work through, and that's some of the benefits you're seeing historically in the 12 consecutive quarters of expansion.
I think going forward, you know, there's still more room to, you know, to be had. We're, you know, we think we're in the middle innings of that ballgame, where we can continue to extract operating efficiencies from, you know, for example, you know, looking at underutilized factories or looking at ways we can optimize the supply chain further. With the new product introduction that I mentioned earlier, we think there is some pricing power because, you know, as I mentioned, we believe our products are best of breed. We think they're differentiated relative to the competition, you know, we should be able to earn some price for that. Also think about, you know, the volume that we're manufacturing, which is, you know, large. When you're manufacturing that amount of throughput across a healthier manufacturing and supply chain footprint, that's actually margin beneficial.
We're really excited about all that because, you know, I think we have a lot of things planned from a new product introduction standpoint.
Thank you. You just talk about the supply chains and manufacturing. If you could talk about the strengths and risks of your Mexico-centric manufacturing footprints, and how are you investing in automations or diversification?
I think one thing to call out, Tomo, as you rightfully did, is our philosophy from a manufacturing standpoint is nearshoring. For all the products that we sell in North America, we manufacture in Mexico. When we look at other parts of the world, we have a similar setup. I think because of the, you know, the vast majority of our revenues are generated from North America, puts a lot of focus on our Mexican operations. You know, currently we're a beneficiary of the exemptions under USMCA. Looks like, you know, right now we continue to be a beneficiary. Who knows what tomorrow will bring, right?
You know, I think when we look at our flexibility, and this is where our scale, our global scale from a manufacturing standpoint is to our advantage. We have a lot of things in our playbook that could, you know, you know, move some of the manufacturing or, you know, look at other alternative ways we can manufacture the product that may be if Mexico should, you know, that environment change. You know, we're not banking on that. We're continuing to make investments down in Mexico in terms of labor, in terms of automation of the manufacturing facility, you know, to increase that output. You know, I, we're very excited about what we're doing there. We'll talk more about it at our Investor Day.
Thank you. Shifting gear to innovations and new products, and with over 14 million connected customers via Honeywell Home. How do you plan to further monetize this base, and what role do software subscriptions and revenues play out?
Yeah, I think, it will have a role in the future, which, you know, we'll likely lean into more so in the future. I think today what should be appreciated is we already have an existing base of recurring monthly revenue as part of our security business, and what I'm referring to is the backend monitoring system that, or the backend monitoring service we offer on a monthly basis to our customers. That's called AlarmNet. That's basically, you know, if the signal gets tripped on the intrusion security, the signal goes to a clearing house which we control, and then we route that to the first responder. We think in our future, aligned with our new product introduction strategy, we intend to produce more and more connected product.
I think what's interesting and what we'll lean into more at our investor day is enabling an ecosystem that has more connected product that can interop not only with each other in our ecosystem, but also with third-party product that is in the ecosystem enabled by our communication protocol and supported by a software layer. Again, we'll talk more about that at the investor day, but we're pretty excited about what those opportunities can bring.
Thank you, Chris. I would pause here if anyone have questions on P&S. We're good? All right. Thank you, Chris. Moving to ADI. Thank you for starting, Mike.
I enjoyed listening to Chris for once. That was good.
All right.
Thank you.
That's one, yeah.
I'm glad you can, you know, save your vocal cords.
Yeah.
You want a sip of water before you go?
No, I'm good. Thank you. Okay. Then Mike, if you could talk about the ADI's market environment, and I think it's, you talk about the sequential growth in security product categories, and then some have rebound in video surveillance. How do you view the current state and outlook of the commercial securities and AV markets?
Yeah. ADI really serves in two primary markets with growth in some adjacent markets. Again, that commercial security market is the legacy ADI business where we've grown tremendously, over the last, you know, decade. With the Snap acquisition, that was much more the residential AV. I think those are two different markets, right? Commercial security continues to be a very strong market. There's lots of innovation there. If you think about both product innovation, the impact of AI on surveillance and security and video, putting those detection technologies, those identification technologies. You know, when somebody walks into a bank, how do you identify them? How do you make sure you're keeping track of security situations? Like, that is an emerging, continuing evolution of technology.
We will continue to be playing in that, and our integrators that install those products will continue to play in it. That is a strong market, continues to be a strong market that we think will continue to grow at very healthy levels. Video's certainly a big part of that. You know, the whole surveillance, this whole security business has changed to surveillance. And detection around that rather than break entry into lots of other things. Incredibly important part of the business. The residential AV business, you know, that we bought from Snap One is about 20% of our business. Much more challenged. I think the big difference between the P&S business that Chris was talking about that is very residential-focused and this residential AV piece at the high end is the residential P&S part of the business is mostly non-discretionary purchases. You're going to have a smoke detector.
You're going to have carbon monoxide. You're going to have a thermostat. You're going to have a hot water heater where our ignition system's gonna be on it, and most people, you know, choose to have a security system. They don't view it as a discretionary purchase. I think at the high-end residential AV, there's a lot more discretion in there, while we could all talk about the wealthy folks in this world and their resilience, and their ability to continue to make discretionary purchases, I think when it comes down to the piece we're at, when you tie it back to housing starts and the resale activity, people aren't waking up one day and saying, hey, I wanna go put speakers in my ceiling in the kitchen. That's usually tied to an event.
Those events are happening less and less. That market's been a bit more challenged, but I think overall we feel really good about the overall markets that we participate in. We believe that the housing piece that the side we serve will come back, and that will also benefit us. I think in the, you know, the more recency, we probably underperformed the market a little bit given some of the challenges we've talked about with our ERP implementation. We feel really good about the activities we have in place to offset that. From a growth market standpoint, those are the core markets. In the Pro AV side of the business and the Datacom side of the business, those are continuing to grow at healthy rates as well. Those are markets that we participate in. We've got good beachheads in.
We have, you know, businesses that are, you know, in the nine figures, but they're still a relatively small part of the business, and we think we have lots of opportunity to continue to grow in those businesses, and we think that both those areas are ones that we'll look to continue to see drive incremental growth.
Thank you, Mike. If you could talk about competitive environment for ADI. You emphasized ADI's operational stabilities and top-tier customer service recognitions. What is the structural advantage of the ADI's 200+ locations, omnichannel model, and how does the Snap One integration strengthens your moat?
Yeah, definitely. First, we have too many locations, so I'll start there and say that from the Snap One acquisition, we have about 30, 35 markets right now in the U.S. where we have both an ADI store and a Snap store, and you really don't need both. You got to make sure you're in the right spot, but our markets are not big enough where we're not McDonald's. You don't need one on every corner. We're not Starbucks. We do think we have the opportunity to rationalize that footprint over the coming months and over the next 12 months- 18 months, I think you'll see us get the store count down a bit, more closely resembling from a store count standpoint where ADI was before the Snap acquisition.
There'll be a few more incremental locations, but pretty close to that footprint. That will drive a significant amount of cost savings without impacting the customer experience. With that, you know, ADI is very much an omnichannel business. Both our it's not just our store footprint. It's the omnichannel aspect. We talk every quarter about how much our e-commerce business grew. Even when we talk about e-commerce, it's not e-commerce on a standalone basis. It really is the ability for these 100,000 integrators to come and shop with us how they want to, get the product where they want to. Shop online, pick up in store. In a given week, I don't remember the exact number, so Rob will yell at me because I'll probably get this wrong, but it's north of 80%, and might be north of 90% of our customers are interacting with us online.
They're coming there, and they're researching. They're learning. They might be shopping. They might be buying, or they might just learn there, then come into the store then. Buy online, pick up in store, all those things are going on. We really view that ecosystem of omnichannel experience as really the differentiated moat that ADI has from a go-to-market standpoint, we execute better than anybody else in the industry. When I joined the ADI, you know, when they bought my company Snap a couple years ago, when I watched what they did, we always knew this from afar. Being inside the house and just seeing how well they execute, how customer-focused they are, how much they're ensuring that the customer experience is just absolutely great is just impressive to watch. You put those things together, and we think we've got a great protective moat.
We've got competitors out there that are trying to do the same things, and some are great competitors as well, but we think we outperform them every single time it comes down to execution.
Thank you. You just talk about the e-commerce. The revenue was up low teens year-over-year. Exclusive brands growing over the next three to five years. Which product categories do you see as the biggest share of wallet gainers within your integrator customer base?
As we continue to grow, you know, we love the e-commerce business. We think it's easier for our customers, you know, when they buy online, and we've seen a shift. I think this industry has shifted. We all talk about as consumers e-commerce is, like, old, like, you know, Amazon's been around a little while. I think in this industry that purchasing behavior of shifting from either walking into the store or sending a PO in, it really has shifted more in the last three to five years than historically before that, and we do think that's a really important continued piece of the business that will continue to drive that growth. Now again, we don't think about just as e-commerce. It really is the digital experience and the overall omnichannel growth, but that will continue to be a significant part of growth as we look at it.
The overall exclusive brands look, exclusive brands are great. ADI had exclusive brands before the Snap acquisition. They were more in the basic camp I would put in, things that weren't overly complex. I think once we brought ADI and Snap together and we saw the opportunity of some of the things Snap was doing on the residential side, on the more value-enhancing side of the business where you can add a software layer to some products or add some services and support around the products, we think we can do that. What we're focused on right now is continuing to have that product innovation deliver those products within the residential AV market, but how do we leverage that expertise that we have and bring it over to that commercial security side of the business? We wanna do that in a way where we're filling industry gaps, right?
We are and will continue to be a business that is primarily focused on distributing other folks' product, our third-party products. Today, you know, sub 20% of our business is our exclusive brands business. In the future, we see that growing to low 20%. You know, we're not talking about shifting this to being 50% exclusive brands or something, but we do think there's opportunities where the market is not being served by the existing product companies, that we could incrementally grow our exclusive brands into the commercial space, continuing to identify the areas in the residential space to do it. There's a bunch of opportunities there. We'll start with one, the WattBox product that we have, that we built for the residential market, has a lot of relevance into the commercial market.
It's, you know, IP-enabled power that allows you to remotely access, allows the integrator to remotely access their job, manage the power situation, reset things remotely. There's a lot of things you can do there. The, the lift to get that product commercial ready is not huge. Now, you have to do things like have MFA. Like, you don't need Multi-Factor Authentication in a residential home, but you probably do once you put that in a commercial environment. There are tweaks to the products we need to make, but we think that's a really good one, an easy one to continue that, make that move, and there's other ones as well that we'll continue to look at. Again, it's being done in a way that we don't wanna start competing with our great suppliers.
We wanna find ways that we can fill in the gaps where they're maybe not meeting the needs that are out there.
Thank you. Then let's move on the margin side. Mike, if you could talk about the margins for ADI. What are the main delivers for margin expansion at ADI? You mentioned the business transformation actions and margin expansion targets last week, and how do you like Snap One integration, digitalizations, exclusive brands mix contributed to the future probabilities?
Yep.
Profitability, sorry.
If you go back and look at Snap and ADI prior to the acquisition, I think pro forma, you know, if you added Snap and ADI together, we were running somewhere around a 7% EBITDA margin. We've actually stepped back from that a little bit over the last couple years. We've seen a little bit of underperformance on the residential AV side of the business from where we expected, and at the same time, at the acquisition, we expected to be making some investments. We've grown our SG&A piece of the business at a rate that's faster than what the top line revenue growth has been.
As we're sitting here today, you know, the team said, okay, we haven't had quite the revenue growth we expected, therefore we have to fix the cost side of the business a little bit. I think the very first thing that we need to do, and are doing, and will do this year, is just go rightsize the cost base a little bit. Rob and his team are out there today. They've identified tens of millions of dollars of cost saving opportunities that will impact tens of millions of dollars in year. Again, on a full year basis, that will be even more than that. That is going back and identifying those areas that either we've invested a little bit at a rate that's not supported by the growth of the business, or continued synergy and integration.
You know, again, we talked about the geographic footprint, rationalizing that. That's all in there. We feel really good that the first thing we're going to do to drive EBITDA expansion is get back to where we were and a little bit above that by just getting the cost back to right size in light of where the revenue has performed over the last couple years. That's one. Two, you know, we think we're in really good position to continue to grow that revenue. Last half of last year was tough for ADI. You know, we put this once in a generation ERP system in place.
It went well, right? I think from a technology standpoint, you know, it was a B +. Like, the technology all worked. Like, changing things that people have worked on for, you know, decades, it's tough. I, you know, I started in public accounting in 1989. I remember, you know, Ernst & Whinney, where I started, was a Lotus shop, Arthur Young was a Mac Excel shop, E&Y merged right when I started, all the E people got forced into the Y side and became an Excel shop, and they took the backslash away. Again, that was painful. That's what's been going on in our stores, right, is that sort of transition from a system that people know how to use. It slowed down things at the stores.
When it slowed down things at the stores, we had a customer that we had, you know, 90% of their wallet share. They went down the road a couple times, now we still have that customer. We've lost no customers. I'm sure we lost a couple, in total, we've lost no customers. We have lost a little bit of wallet share with some customers who have now spread their spend a little bit. We've got a lot of actions in place to go back and reclaim that lost share. We're doing those right now. Again, Rob and his team very focused on executing against that in the back half of this year. We feel really good about those things.
On top of that, you know, this, the impact of that depression on revenue last year, we're lapping some pretty easy comps in the second half of this year. All that, as you get revenue back to where it should be, helps the margin profile as well. Those are all the short-term things. Just go get them done right now. If you think about our guide for the year, that's all baked. Not totally baked, at least parts of it are baked into the guide. Over the longer term model, once we get that fixed, it really is about those couple things that really drive the scale and the leverage. One, you know, exclusive brands have margins that are 2x- 2.5 x greater than our exclusive, our third party products.
Like, to the extent we are able to tweak the percentage of sales up on that area, identify areas that we can bring those products to market, drive incremental growth, in those areas, that is very much, accretive to the bottom line from a margin perspective, a margin percentage. E-commerce, as we talked about, just is a higher margin business. It's easier for our customers. It makes us a little bit more money, not because we're charging more, just because at the end of the day, it's a more efficient and effective way of doing business, so that drives a little bit of margin down to the bottom line as well. We're gonna continue to look for other opportunities from the cost standpoint to identify things to do.
Thank you.
One other thing to add, which might be relevant and interesting to the audience is, you know, in the current environment, there's a lot of questions for everybody around inflationary cost pressures.
Yes.
You know, I think, you know, let's just address this now 'cause it really covers both ADI and P&S, which is we've told, you know, the public and our customers that we're raising prices in this quarter. When we look at the impact in the second half of the year, we believe those price increases will, you know, cover or more than cover the inflationary cost pressure. I think however, in the second quarter because we are implementing those increases now, there's gonna be a gap in when they attach, and as a result there'll be a little bit of leakage that will impact our bottom line. However, that leakage, as we talked about on the earnings call last week, is immaterial to the total business.
Okay? I think it's important for people to make sure they understand that, because there's, you know, a lot of questions in general about fuel, about commodity costs, and we've been very thoughtful and proactive around not only how we cover it this year, but we're also thinking about next year already.
Right. Thank you, Chris. The last question's from Mike, ADI. Do you plan to pursue like a further M&A like Snap One? What does the ideal target profile like look like, if any?
Yeah. look, the Snap One acquisition is a once in a lifetime, maybe not once in a lifetime, but you know, those sort of transformational things you've got to have such a high level of confidence and underwritability, where you see that much synergy in a transaction. You know, we talked about putting ADI and Snap One together for years. We met Rob, I was on the Snap One side, we met Rob, I think it was 2017, might've been before that. Said, we should put these two businesses together. It took, you know, seven to eight years to get that done, but made a ton of sense. I think those kind of things, you know, they come along very infrequently. That is, we're not planning for those. We're not out there looking, saying, we have to do it.
I think the M&A that we look at on the ADI side is very much driven by as we think about those growth markets of Pro AV, of datacom, where we don't have all the customers. In the commercial security space, we have all the customers. In the high-end residential AV space, we have all the customers, or at least all the customers that we're gonna get. We can get incremental, but there's no big customer base that we haven't attacked. On those other growth areas, there's a lot of customers out there we don't have. If we can find bolt-on acquisitions, things that make sense, that bring a customer base that we don't have that we could expose to that great execution at ADI, bring them into our ecosystem where we serve the customer really, really well, those are the kind of things we would do.
I think similarly at P&S. While we're not looking for customers, because again, we're selling through distribution, we have most of the customers we'd have, if you think about the direct customer being the distributor, the big box, whoever it is we're selling through. What we're thinking about there is where are the adjacent products? Where we're in a category, we're in HVAC, we're the leader in thermostats, but we're not the leader in a lot of other things down there. Now, again, we're not trying to manufacture the whole big unit and system, but where are the things that we can identify that might be bolt-on acquisitions that could augment our existing product platform, that we could go to our existing, you know, distribution network, bring those products in, layer our manufacturing expertise and the other things we're doing on top of it, and bring those.
I think on both sides, you know, we think bolt-on M&A is part of the story, when we have the right leverage levels. Let's start with. You know, we're going out there, we've got a leverage level today that might be a little bit high. Again, from a management standpoint, very comfortable running the company with the leverage it has. The markets don't like, you know, as much leverage as management likes sometimes.
Right.
We think what we need to get leverage down to, you know, the right market levels. We have to be very focused on both companies post-spin. We'll think about other capital allocation opportunities, whether it's bolt-on M&A, returning capital to shareholders out there. I don't think, you know, transformational M&A is not in anybody's business plan. Not that it's never gonna happen, that's not the plan for either business. There's bolt-on M&A, certainly is.
Thank you. Please, last question.
You know, there's always been this interesting aspect about home automation which is it seems very isolated in pockets. The camera system around the house. You know, the alarm systems. aspects of the kitchen seem like they're now. You know, there was, you know, the automated, vacuuming systems. None, nothing's ever really been like-
Yeah.
Integrated or connected? Is there something, I mean, is there some magic moment that people are waiting for? Or things that you guys are partnering up with other people about?
Yeah . Listen, I just moved into a new house two weeks ago. Okay? We'd spent six months remodeling it before I moved in, and I have nothing but, literally almost nothing, well, there might be one, I'm not gonna mention the name. Except Resideo and Snap One product or, you know, ADI product in the house. I was very conscious about that, and it all, I mean, product is great. You know, I have my Resideo First Alert app, which has my HVAC system control. It has my security system, all my smoke and fire is all in that system. I have my Control4 system through ADI, my speakers, my whole, my media over IP that controls all the Like, it's all there, it all works. Now, I could have probably done 75% of that with just disparate systems, disparate apps.
It doesn't have to all be controlled. How many apps do you want on your phone? How do you want? Because I did it all this way, I will tell you there's probably not a house in the U.S. that works as well as my house does on an integrated basis. It's that little bit of incremental. That's what people Because people are like, I want Sonos, or, I want. We sell Sonos. We love Sonos, right It's not native to some of these things. As Matter comes out, we'll continue to participate. As a distributor in exclusive brands, we'll continue to sell products on both the commercial and residential side that customers want. P&S will continue to develop products that operate there and will either be integrated or standalone. It's all gonna work. It works well together. It just works better if you do it together.
It doesn't have to though. I think that's the differentiation.
Right. To Mike's point, I've been to his house, so I've seen firsthand how well it works. I think .
We did have 20 people over a week after we moved in. My wife is not yet over it.
You don't have the Resideo page of the house?
Nope. Nope.
Like a home environment?
No.
Nope. Nope.
No, let's not go there. I think, look, Mike's house and example's emblematic of the ecosystem.