Resideo Technologies, Inc. (REZI) Earnings Call Transcript & Summary

All right. Great. Good morning, everyone. Thanks for joining us at 7:30 a.m. Mike and Chris from Resideo, thank you for coming.

Thank you.

So we'll start off high level. Just for those in the room, those on the phone newer to the story, mike, could you give us a quick overview of Resideo and how the company has evolved since your Honeywell spin in 2018?

Sure. Today, Resideo is an over $7 billion revenue company. We have gross profit of over -- close to 20%, EBITDA of close to -- a little bit over $700 million. And really, we operate in 2 business segments. We have our ADI distribution segment really focused on professional integrators in the commercial space. About 75% of that business is in commercial, security being the primary focus of those commercial integrators. Over $4 billion of revenue. We're running gross margins in the high teens, EBITDA margins in the high single digits, really focused on those products and solutions that serve those commercial integrators with about 190 locations globally, about 100 in the Americas -- a little bit over 100 in the Americas, 90 around the rest of the world and a very robust e-commerce omnichannel platform. And last year, we announced that we bought Snap One, I want to say Snap AV, that's where everything started. Snap One, which was about $1 billion revenue, about $100 million EBITDA business, more focused on the residential audio/video side of the business. So bringing those 2 businesses together really allowed ADI to have a broader breadth of product solutions and broaden the customer base to serve more residential integrators in commercial. And on the P&S side, we're really focused on developing and manufacturing a suite of products related to control and sensing, mostly focused on the residential market. Those products provide safety solutions, security solutions, energy solutions. Again, about a little bit over $2 billion -- $2.5 billion business, very strong gross margins over 40%, strong EBITDA margins in the mid-20s. And again, that relationship with professionals who rely on those products and solutions is really the core of how we think about the value add of that business.

So you joined last year as CFO with the acquisition of Snap One. What have your early observations been at Resideo? And maybe what surprised you the most?

Yes. I think first what surprised me, I think we really talked about the Snap One and ADI integration. But if you think about the Snap product category and what Resideo is doing on the P&S side, I think those products really aligned really well in addition to just that ADI distribution piece. So the ADI piece was really about bringing those customers in. But the product piece, those control products really make a lot of sense. And I think what Resideo has been doing and continues to do very innovative on the product and solution piece of the business that really is going to continue to add value going forward. I think the market does not really understand who we are or what we are. You have these 2 business segments that are clearly vertically integrated. But at the same time, they are different. One is a distribution business, one is a product development manufacturing business. We'll talk more about that. And I think that given that, given the spin from Honeywell 6 years ago, given the environmental liability, given the focus the company has had on the last 4 or 5 years after it's been a focus of really fixing the fundamentals of the business and gross margin expansion, which we've done a really good job with, I still think there's just a lack of understanding, a bit of disinterest, and I think the market just really doesn't value the opportunities that the company has and really doesn't understand it. I don't think people because of those things take the time to really dig in and understand what's there, which I think creates opportunities.

So I want to hit on 2 more topical themes then dive more into the business segments. So first, let's start with macro. I think certainly top of mind right now. The question is what macro indicators matter most for Resideo? And what are you seeing right now?

I think -- again, I think what's good is because we have these businesses that operate a bit in 2 different macro. One is much more commercial at ADI, one is more residential at P&S. But clearly, those market drivers are similar. On the residential side, it's by far housing, not necessarily new build housing, but the whole housing resale, remodel side of the business, probably resale being the single biggest macro driver that we look at because if you think about it, people don't wake up on their birthday or Christmas and ask for a thermostat or a security panel or a new valve for their hot water heater. These are things that are infrastructure related. They're installed at the point in time when people are doing work on their homes. Similarly on the commercial side, these are things that are tied to either a new commercial project or a renovation project. And so we look at those things very closely. Housing seems to be bouncing back a bit, and we'll see what happens from a macro standpoint. Inflation is -- I think it's a little bit down as of last week, but who knows what's going to happen with the macro indicators. And so we were cautiously optimistic coming into this year about the interest rate environment, but resale activity still is very, very depressed, which is the single biggest thing. Even though remodel -- the overall remodel index is up a little bit, the resale portion of that is not. And the single biggest piece is how people think about investing in their homes from a resale. So we're -- we remain cautiously optimistic. I think obviously, lots of volatility out there, lots of uncertainty that can drive things. We're trying to operate within that environment. I think our guide thought about a flat to slightly up, but uncertain macro is how we thought about the environment we're operating and how we're investing against that. And as things stabilize, if they stabilize, we'll make different decisions, but that's overall. But I think, again, the resale lever in the residential North America market is the single biggest macro factor that I think really we focus on.

So tariff is the other hot topic, if you will. Just could you walk through your exposure? I know it's different for the 2 segments and then also how you're positioning yourself to mitigate potential impacts?

So the day that ends in why, the tariff conversation is going to change, right? So we're trying to think about those things and how we're going to operate. As you said, I think there are definitely different impacts on the 2 sides. I think we've said that about 50% of our manufacturing on the P&S side is performed in Mexico. So that's -- if you just take a 25% increase in tariffs, you could look at our COGS on the P&S side, you can do the math and see what an impact it would have, but it's over a couple of hundred million dollars, everything else being equal, just on the COGS piece. And then we have all the mitigation activities that we've been planning for and thinking about to offset that impact. That's an annual impact, by the way, not in the near impact. And who knows if that's actually going to happen. And so in the short term, we're doing things like positioning inventory, running the factories at a little bit different rate to maybe produce a little bit more inventory and position it. We've talked to all of our customers on both P&S and ADI about the potential impacts of tariffs. I think, obviously, price is a huge short-term lever when we all went through this, both during the first administration of President Trump as well as during COVID when the supply chain got all disrupted. I think there was a lot of price activity, and I think the markets generally accepted that. So I think there's price, there's inventory positioning, but we're not making long-term investments right now because ultimately, if the tariffs come into place and remain in place and you think that's long term, you can make different decisions on how you optimize your manufacturing footprint. So we've got plans around that. We have lots of novels on what we could do and might do, but we're not going to make those investments until we understand what's happening because we want to make sure we understand the ROI. We want to make sure the investment to payback times. So all that's out there. So we think we could substantially mitigate the impact of tariffs in the short to midterm, just from our price activity and some of those other short-term things we're doing. But long term, there would be some investments required to really optimize the footprint, but that all be dependent upon what ultimately happens. And if anybody has any advice of what they think might happen, I've got a pool that we're running, and we'll see. But I think everybody is aware of the uncertainty that it causes and trying to operate in that environment.

And what about on the ADI side?

On the ADI side, there's a little bit of small exposure to China. We've moved a lot of our production out of China on the Snap side. If you go back, Snap 8, 9 years ago had almost 50% of their supply base in China. That is down into the teens. I believe it is. I think there is we're not disadvantaged. The things that we -- that come out of China are the things that is almost 100%. So a lot of the video and cameras come out of China that's -- and so we think we could pass that price along. It's a relatively small amount. And then the third-party product side, we're the same as everybody else, have third-party products, which is over 75% of what we distribute -- over 80% of what we distribute at ADI's third-party products. We're all going to be treated the same. I think as a distributor, you sort of pass that on because no one's disadvantaged. Everybody just sort of sees that go up and down. But I do think then the macro impact of this, just mentioned a lot of price, what's the macro impact going to be, if not just us, but lots of other companies out there passing through price increases as we think about all this. That's, I think, the biggest risk around this. I think we feel pretty good about the mitigation we can perform directly. I think it's macro impacts that really give us pause to think about as this happens, what the future holds.

Makes sense. So let's dig into the Products & Solutions business first. You have 4 segments: air, safety, security, energy and water. Maybe to start, could you just distill down the business into the key product offerings in the primary end markets for these segments?

Yes. We call them lines of business. If you call them segments, the accounting gets a little twitchy. So yes, I think let's start with air. So in the air business, we are the market leader in thermostats. We market them under the Honeywell Home brand under a license from Honeywell from the spin, but we have the exclusive rights to that brand on the residential side in North America. So those Honeywell [ Home ] thermostats is the market leader in thermostats. It's been a relatively old product line. We've had lots of platforms as we talk about NPI, and we sure we'll get into that. A lot of our NPIs in that area to consolidate on to single platforms, bring some new products to market. We also participate in lead in a couple of other areas, such as filtration, indoor air quality, zoning that all provide other areas there. And so air is a very big strength for us. Security, we've always played in the intrusion side of the business. As we think about the future growth there, security is going from detection of brake to detection from a video standpoint and surveillance is the new security in a lot of ways. And so we're making investments there, both in hardware and software to continue to drive that business forward. It is very -- that is probably the business that's most tied to the resale. If you think about when do people put a new security system in place, it's when they buy a house. Somebody comes and knocks on the door, there's a whole industry built around that. So that one has been impacted a lot by the macro. And then we sort of look at energy and water together. A lot of that is valves and controls around boilers and heaters and things like that. It's partly an OEM business, partly a distribution business, but it is things that also go into the control and sensing the home. I think on all those products, what we think about is, except for some of that OEM stuff, it's the professional is the customer. And so we're reaching that professional through various channels. We could sell through Lowe's or Home Depot or retail because that's where the pros are buying some of those products. We can sell through electrical distribution. We have a lot of, obviously, relationship between ADI and P&S on how we distribute those products. But ultimately, it's a relationship with the professional that provides the moat for P&S because that professional really wants to rely on professional grade products that can be installed, supported easily, professionally allow them to make a profit on. We've always been a great partner to them. We probably haven't invested as much in new products historically as we were focused on improving the margin of the business. But I think with the recent reinvigoration of the NPI, I think those professionals are really excited about the things we're bringing to market.

So next 2 questions are on margins and NPI. So starting with margins. It's certainly been a big priority for you or for the company over the past couple of years. Where are you on the journey? And how much more runway is there still ahead?

We are well on the journey, but there's definitely runway. And the runway is, I think historically, when Honeywell spun the business off, ADI was a nice little self-contained business. The P&S business was a bunch of product lines and lines of business that didn't necessarily operate as one coherent business. And so a lot of this time was taken about optimizing the manufacturing footprint, putting processes in place to really do that. And I think you can see the results over the last few years with that gross margin improvement. A lot of that margin improvement has been structural improvement based upon improvements in the operations of the business. That's where a lot of investment has gone, a lot of time has gone to think about those things. That's not done, but I think we're well on the way for doing that. Again, that's how we ended up with about 50% of our manufacturing in [ Mexico ] as we thought about optimizing that. I think there's still a couple of hundred basis points of improvement that we're going to see from that ongoing structural improvement over the next 3 to 5 years. And this is on the P&S side. The second piece of that is obviously NPI. We start now investing, shifting our focus from a maniacal focus on improving the gross margin to a balanced focus of both continuing to improve margin, but also investing in growth in NPI. We think those new products we're launching will allow us to demand additional gross margin. We'll deserve it because of those products. And we do think there's additional accretion that will come from that NPI of another couple of hundred basis points over time. And so we think over a 5-year period, if we're thinking 300 to 400 basis points improvement in margin on P&S is a reasonable sort of high level model. We don't have a specific model out there. We're working with Chris, who's our new Head of IR, sitting in the back of the room. And I have been talking about the long-term model, and we'll get that out there in the next year or so. But I think at a high level, that's how we would think about it. And then at ADI, just real quickly, I think there's 2 things that drive margin at ADI. Obviously, adding the Snap business, the exclusive brands part of ADI, which our proprietary products has become a more important part of the business. Clearly, those products have additional margin. Our relationship with our third-party product distributor is always going to be primary. We're not going to be over 50% proprietary products. But if we can get a couple more points of proprietary products in there through growth, through adding some new product lines that maybe we don't have, that will help grow the margin given that increased margin profile there. And then our focus on e-commerce, our e-commerce business does have a better margin profile for a number of reasons. And we think, again, where we lead in that area, we think that will continue to drive some margin accretion as well.

So new product innovation, you've talked about a couple of times, a big priority. Kind of where do you see the most opportunity? Where are you focused? And just what can you share about the road map?

Yes. So I think we launched a number of products in Q4. I think in the short term, what we're focused on from NPI -- and again, I think it's interesting. We have products that are decades old. That work, that work, but they're not the -- we're not going to be cutting edge, but we need to at least be aligned. And some of that's just aesthetics, some of that's platforming. Again, some of it drives the manufacturing efficiency if we can replatform things. But I think our main focus is around our air business, our security business, taking our existing product categories and our existing customers and making those investments in products to get them up to speed, up to par, replatform them. That's the short term. That's this year. That's next year. There's a lot of focus on those areas. And those products are being very well received. Our Focus Pro thermostats, our VISTA Security panels and a number of things that are going on that I think are exciting. Longer term, I think, again, taking some of those products and tweaking them to broaden the market application, and then very long term, thinking about new product categories that we can enter within those categories, I think -- but in air, there's pieces that were strong. There's pieces where we can use some NPI to expand our product breadth around that. So those are the things that we're looking at and considering as we go forward. If you look at our guide for this year, one of the things that's there is you might see that the EBITDA margin is not growing as much as you might expect given the gross margin, it's because we plan for tens of millions of dollars of investment in the NPI line. Obviously, as we think about the uncertain macro, that's levers we can pull. If things are great, we can lean in a little bit more heavily. If things slow down, we can lean out of those things. And we'll continue to look at that and make decisions as we go. But there is a significant investment in NPI and some marketing around those products as well that's baked into the guide.

Okay. So moving to ADI. Distribution business for you really seemed to gain momentum through the year. It grew 9% organically in 4Q. What drove that improvement in growth? And what are the trends that you've seen so far in 2025?

Yes. I think, look, we were thrilled with the 9% growth at ADI. I wouldn't necessarily think about this as a high single-digit grower as a perpetual number. I think a couple of points below that is where we're targeting. But Q4 was great. A lot of it driven by large commercial products are national large integrators working on large commercial products, particularly around the video and access areas is the areas that had the most growth. Those are not our highest margin areas either. So while the top line grew, the margin line didn't go quite as much, which is fine. We're going to see some of that, and that's why we have a broad product catalog. So that was a great quarter. Q1 of this year, as we think about our guide, won't be nearly as strong for a couple of reasons. One thing we have to really get people focused on is our average daily sales. I think it's a metric we haven't talked about much. I'm not sure we'll talk about it in Q1, but we're talking about internally a lot because there's 2 less ADI sales days given the calendar in Q1 this year versus Q1 last year. So in and of itself, that's about a 3-point drag on year-on-year performance. Then as everybody does know, there's a lot of weather impacts this year. Rob Aarnes, who runs our ADI business told me this is the worst weather year he's seen since 2015. Most times, weather impact doesn't permanently hit us. We defer some things. The projects don't go away, but it does then take a few months to call it back. And I think we've had hundreds of sales days at the store level because of the weather impacts. So that's a couple of points as well. And the macro remains a little bit uncertain. So all that's out there, but we do think ADI should be growing at least mid-teens, slightly above the market cycle. We think we have competitive advantage between the omnichannel business, between our e-commerce business that will allow us to continue to outperform. And again, we think we have lots of opportunity with that Snap ADI integration to continue to bring more products to more customers.

So you're obviously very familiar with Snap One. Could you just talk about the strategic rationale behind that acquisition and where you're at with the integration process?

Yes. Listen, I think it's a funny story in ways. I mean we met John Heyman, who is the old CEO of Snap One, and I originally met Rob, who runs ADI back in 2017 before ADI was even spun out of Honeywell. Snap was going through a spin or a recapitalization from PE firms. Rob came in, and we both walked out at office, our team and his team and said, this deal should happen. I don't know when it's going to happen, but this deal should happen. The complementary aspects, how we think about future growth, what Snap was trying to do with our products, we had the significant majority of the custom integrator residential folks. We thought commercial was an entry for us. ADI had all the commercial integrators, they were looking at residential. They're on the security side, Snap's on the AV side. All those things just fit really, really well together. And so we talk to each other every year or 2, do the dance and talk about what the opportunities were. So -- but the strategic rationale bringing together, again, that those e-commerce-oriented business, bringing together the residential and commercial aspects, bringing together AV and security aspects, all make this a really, really good fit for what we're looking to do. So we're thrilled that happened. I think from an integration standpoint, it's going great, ahead of schedule. I think the cultures around both business are very similar. The customer-first aspects, the focus on serving the professional, making their life easy, allowing them to be more profitable is all very, very common between both platforms. And we're ahead of our plans on synergy, which is obviously important. But I think ultimately, this deal is -- while there's tens of millions, if not $100 million, I think we've said $75 million is our target. We're ahead of that target. We were ahead in year 1. But I think the real focus is on the customer. How do we make the customer experience better by bringing these things together. We will get the cost synergy just from the hard work that everybody is doing. But the real win in this is if we make the integrators, professionals life better, make them more profitable, have them view -- continue to view us as the supplier of choice and coming to us time and time again. That's the upside of the whole deal that's not baked into anything right now.

Okay. Just one question we get a lot is around the competitive environment for ADI. How would you characterize that today? And really, where do you feel like ADI is the most differentiated from the competition?

Look, I think the environment is not -- certainly not less competitive. I think it is more competitive in a number of areas. I think ADI's differentiation is really in 2 spots. One, I think that the e-commerce investments that they've made historically and continue -- we continue to make really differentiate us. We are, I think, the leader from a commercial integrator e-commerce-led platform, which is interesting if you think about the world. We've all been buying on Amazon for at least a decade, if not longer. But a lot of these integration firms, a lot of these professionals have continued with historical ways of purchasing. And I think we really have seen a paradigm shift in the last few years, and I think ADI has really been in front of that paradigm shift of servicing the integrators, how they want to be serviced, serving those firms either through e-commerce, through the local store footprint, making sure those things are there. I think we do it better than anybody else, really that omnichannel experience of bringing it there. And then I think our product catalog, obviously, is really beneficial. I think in our exclusive brands, where we're able to deliver products that allow the integrator to make more money, make higher margin on products that are really, really good, also provides that competitive advantage to the market.

So maybe we'll tie the 2 segments together, a few questions on financials and happy to open it up to audience questions as well. But just -- I was hoping you could talk about the tie-ins between ADI and P&S, the synergies you have. And do you feel like there's more that you could do between those 2 businesses in the future?

Yes. I think there's -- if you think about the way the business runs, they are different business models, right? P&S is definitely a product development manufacturing business. We have double-digit manufacturing footprints around the world right now on that side of the business. We have huge engineering team developing products. And it's thinking about that -- and then we take those products and we distribute them and get them into professionals' hands through a variety of ways through retail, through distribution. And ADI is a distribution business, completely different dynamics around those things. But the vertical integration is clearly there. ADI's biggest supplier is the P&S side of Resideo. The biggest customer on the P&S side is ADI. So that relationship, that vertical integration allowing us to capture all of that margin under the 4 walls, allowing those communications to happen in a different way because we're on the same house is really a great benefit of having it here. The businesses operate somewhat separately. We do have a bunch of shared services, things around cyber and accounting, the typical things. But the operations of the business are definitely distinct. I think as we go forward, I think that synergy continues to be there. I think whenever there's product development going on, what ADI has is they've got a great relationship with those integrators. They're talking to them, they know what they need. They can take that communication channel, bring it back to P&S, allow it to inform the NPI aspect, allow it to inform the product development. I think it's always the hardest thing in a product company is really making sure you're hearing voice of customer, what are the real solutions the customer needs, how do we meet those needs. And I think the ADI, P&S relationship really brings that customer voice in a way that many companies don't have because of that close relationship. But again, they're not the same business. So we always think about that. Rob Aarnes, Tom Surran, who runs P&S, great relationship. We have an executive team meeting every week. We all sit in it, but the [indiscernible] running their business sort of independently within those 2 things with that close vertical integration from the things we do together.

Makes sense. So a couple on financials, and then we'll close. 2025 outlook you gave last quarter, it assumes revenue and gross margin growth across both segments this year. What's giving you the confidence in that just given the current macro environment? And could you talk to some of the assumptions you're making behind it?

Yes. So our guide didn't assume anything around tariffs because I don't know how you assume anything on tariffs right now. And obviously, those things come in, we'll think about adjusting as we go forward. But outside of tariffs, we think the macro is sort of benign. It's not great. It's not bad. And so as we think about a benign, conservative bit uncertainty, we think about the things we've done over the last couple of years, the great foundation related in 2024, the pivot in the business from really just being focused on margin to really thinking about growth in the business and the NPI aspects and some investments we're making there. As we think about the significant investment that we're making this year in NPI, we really do think that drives that top line. The new products that we launched have had great reception from the market from the integrators. We launched some of them last year. Obviously, we've been doing research around those products. We've heard what the customer wants. And so as long as the market doesn't contract significantly, we feel really good about some top line growth, continued margin expansion from the things that we've been doing. Again, we continue to optimize that manufacturing footprint. We can continue to optimize the supply chain. We think the exclusive brand side of ADI gives us additional levers as well. So it's that -- those foundational things that we've done over the last few years on the margin side, the things we've done last year to start invigorating some growth that really give us a high degree of comfort on the guide we put out there.

It sounds like you're working on this. So you may not have a direct answer today, but I'll ask just a lot of moving parts this year with macro tariffs, but how do you think about the longer-term growth opportunity and margin framework in perhaps a more normalized environment?

Yes. Listen, I think that given the investments we're making, given the competitive position we have, particularly, again, our relationship with those professional integrators and how they view us as the provider of choice in many areas, we think that we should be growing a couple of points above the macro. We're going to be a cyclical business, right? We're tied to housing. We're tied to resale activity. We're tied to new build. We're tied to the commercial market, real estate market. So all those things are going to drive our business, right? We're not a big consumer discretionary spend. We're not going to come up with some sexy new iPhone product that everybody is going to run out and buy for Christmas. But I think within those things, we think we are well positioned to help grow the market. We think we're well positioned to capture share. We should be growing a couple of points above the cycle based upon the investments we're making. And we should be doing that continuing for the next 3 to 5 years in a way that allows us to continue to enhance gross margin. I think the stair step we're making in SG&A and R&D this year, it is a stair step. I don't think it comes back out. Some of it is onetime in nature. But I -- we can argue that some of it will come down, that is one time to catch up. But my view is we're sort of establishing a new baseline for R&D investment based upon the things we're doing this year. I don't expect it to stairstep up again, but I do expect it to sort of maintain at the levels we're putting out there which, again, I think, allows us to sort of generate some of that incremental growth as we go forward.

And then capital allocation, could you just talk to some of your key priorities there?

Yes. I think very aligned the with legacy team, Tony, who is the prior CFO. He and I spoke many times as I've been onboarding, very aligned that the primary goal of the company is deleveraging. We think having our leverage -- our net leverage below 2x is the right spot for us to be. If we're not there, we want to have visibility to get there and get there quickly. And until we're there, we think that's the primary goal. Now I say that we went and deployed obviously, a lot of capital last year for the Snap acquisition. And I think within that capital allocation, if there's great M&A opportunities, we'll look at them. But again, the primary goal is deleverage. Once we get that leverage down below 2x, we'll think about other things we can do, returning capital to shareholders, other M&A opportunities that are out there. But primarily right now, deleveraging by building cash on the balance sheet more than any of other way.

So with the Honeywell spin in 2018, you were gifted with the Honeywell liability. Could you just explain what that is and how you treat that internally?

Yes. I always tell people there's a 30-second version of this, a 30-minute version of it, a 3-minute version, a 3-hour version. So I'll start with the 30-second version. It's probably more than 30 seconds. But Honeywell, when they spun it, basically said, we're going to put an indemnification on the spun company to indemnify Honeywell for any environmental liabilities Honeywell has. It has nothing to do with us, nothing to do with our real estate, nothing do with our footprint. If Honeywell has an environmental liability at one of their facilities anywhere, we indemnify them for 90% of that. It's a contractual relationship. It is what it is. It's put in place of the spin. It's good financial engineering by them, and that's -- it is what it is. It is basically capped at $35 million a quarter, and it runs for another 17 years. It was really 25 years, there's 17 years left. And so the accounting is very complicated because it's tied to Honeywell's environmental accounting and how we indemnify them for that, which is the right GAAP accounting. But in reality, I always view it as ignore everything on the balance sheet, even ignore how we treat it on the P&L, and it's $35 million a quarter for the next 17 years. We actually deduct $140 million a year in our adjusted EBITDA, that $140 million runs through our adjusted EBITDA. We can talk about it as an adjusted EBITDA, we can talk it as a balance sheet item. Everybody asked what's the right way to do it. There's no right way. It's however you want to choose to model it. Just think about it as $35 million a quarter for the next 17 years of cash outflow. That's the cap. It could be less than that. It could be less than that, but that's just sort of modeling at the max payout. It's likely to be the case in my mind. So we just think about it that way.

I have a closing question, but any questions from the audience before we go to it? Maybe I should have done this earlier.

The products business that you said, I think 50% is manufactured in Mexico. How are your competitors set up? Is it a similar dynamic for them?

It depends on the product line. So there's some where we're a little bit advantaged for the ways that our competitors are. There are some product lines of business where we're disadvantaged. So it really is a mishmash of what's there. And as we think about what we're doing from mitigating activities, obviously, we're considering the competitive environment that's out there. But it's -- with 4 lines of business and a lot of different categories, it's not going to be the same for each one.

Okay. And can you also -- I don't know if CD&R did like some transaction in December. Can you just explain a little bit their role in the company? And...

Yes. So when we did the Snap acquisition, CD&R put a $500 million pipe into the business to help fund that transaction. And that gave them about an 11%, 12% stake on an as-converted basis on that -- on their investment. What they did in December is they basically entered into a forward purchase agreement with -- I think it was UBS that allows them to continue to buy up to about 19.9% of the business on the open market. They did it that way, so they wouldn't have to disclose every single purchase, I think. And I think it was really just them showing, hey, we believe in this business. We -- and not just showing, I think really -- I don't know if they're buying like you know as much as I do, but I think they really do believe, obviously made that investment. Obviously, like I said upfront, I think they believe that there's opportunity here for value creation. And I think they're looking to make decisions to buy out there in the open market. That was a mechanism to allow them to do it.

Yes. Just a quick one. You had clarity on the tariffs were going to stay and they were going to stay at a certain amount. What would be the process to bring manufacturing actually back what you do in Mexico back to the U.S.? And could you get the labor? Can you -- like how long would that take?

I don't know we'll come back to the U.S. Some of it might.

But it wouldn't necessarily...

But it wouldn't necessarily. I mean, there's lots of places to go. You have to think about that, the overall economic impact, what's the labor rates, what's the supply chain, where does the raw materials coming from, where is the right labor, what's the transportation cost. And so I think there are, again, different product lines, different categories are going to have different outputs. We have a big facility right now that we were also gifted by Honeywell in the spin-off in Minneapolis, Golden Valley. It's over 1 million square feet that is not being fully utilized. Again, will we use this very old location? Maybe not. But there's lots of opportunities there. We have manufacturing in Europe. We've got a location still in the Far East. We're talking to contract manufacturers and JBMs about things we would do. And so I think the solutions that everyone is going to have is going to be a mismatch of things, but it's not just about the Mexico tariffs, the reciplocal tariffs are out there. And so it really is understanding the overall impact, what's the ROI of the investments back to the question that was asked, where are we disadvantaged, where are we not, and where is the market going to absorb a price increase long term, where do we think -- short term, we're not worried about it. But long term, do we think we need to really position that? And it's a very nuance. We've got a great supply chain team, a integrated ISC team that's really leading on this and putting great thought into it. But you just can't do anything until you get some clarity at least.

Right. But the answer isn't necessarily bring manufacturing back to the U.S.?

Not bring manufacturing. Again, I think there could be some, absolutely. And there's already things we're doing like there's some software that we currently flash in Mexico. We can do that in the U.S. right now, which would bring some back. There's things you can do, but I think the long term is really uncertain.

Awesome. Well, we have 1 minute, so I'll wrap up with this. So you've been here for about a year now?

7 months.

What are you most excited about over the next 3 to 5 years for the business? And what do you think is the most underappreciated part of the story?

Listen, as an investor, like everybody else, I just really think the story is not understood by the market. And I think the maniacal focus of the company over the last 4 years on the margin accretion has really changed the structural margin profile of the business, has changed the profitability of the business. And I think the investments we can now make in growth, even I would tell when I started 7 months ago, growth was -- not that it wasn't mentioned, but it was way down the list of things that the company is worried about from a value creation standpoint because the low-hanging fruit was improved those operations. I do think, as Tom came in about a year ago on the P&S side, a little bit over a year, talking about NPI, talking about growth as a part of the business, I think, is important. And I think between the market confusion over the Honeywell spin, we're getting further away from that, stabilizing. People will start understanding the story. We'll start generating some growth. If we get a little bit of help from the macro as housing, particularly resale gets returning to a normal level, I think there's lots of things we're doing that can drive a lot of value creation.

Great. We'll leave it there. Thank you.

Thank you, everybody.