Resideo Technologies, Inc. ($REZI)

Okay. Good afternoon, everyone. Thank you very much for joining us at the TMC conference, Resideo Technologies today. My name is Tomo Sano, smid-cap industrials analyst at JPMorgan, and I will be your moderator for these sessions. So we are honored to welcome Mike Carlet, CFO; and then Chris Lee, Global Head of Strategic Finance from Resideo for a fireside chat about the company's business strategies and future outlook. So Mike, Chris, thank you for joining us.

Thanks for having us.

Thank you. Appreciate you.

So to start, I imagine there may be some in the audience who are not yet familiar with Resideo. So Mike, Chris, could you briefly share the history of Resideo, your core business lines and defining elements of your company culture, please?

Sure. Happy to. Resideo was a company that was originally spun out of Honeywell about 8 or 9 years ago in 2018. And today, we operate a 2-segment business. We call 1 segment, our P&S, Products & Solutions business. And that business is focused on developing and manufacturing products that are involved in the residential control and sensing. So if the home is a system of systems of 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. The 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 establishment. 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 spread the business through a tax-free spin, separated into 2 stand-alone companies. When Honeywell spun this off, there were some reasons that it made sense to do so under common ownership. But really for a number of years, we said, it makes more sense for these businesses to operate on a stand-alone basis. They have different go to market. They have different business models, 1 is distribution, 1 is product manufacturing. They have different capital allocation strategies, capital needs of the business. And we've always said it makes sense to separate them. We had a bit of overhang from a related party transaction from Honeywell as a result of the spin that we couldn't separate them until that was settled. We settled that last summer, and we've now been working for the last 9 months or so and getting the businesses separated, and 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 thing, time frame around it, it's either going to be the middle of Q3 or the middle of Q4. It's hard to do those things, end of August, timing of financial statements -- those are the 2 windows that are out there. Everything is 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 or complete in them. So 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 stand-alone Investor Day, we will talk about the businesses on a standalone basis at that point.

Thank you, Mike. And then you're becoming CFO for ADI side, right?

I originally joined Resideo when the ADI side of the business bought my previous company, Snap One. So it made a lot of sense as we went through the separation as we talked about how 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 stand-alone public company. Chris Lee, who runs Investor Relations for us is actually going to stay on the P&S side. And so we'll have good continuity on both sides would 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. You could do both sides, we can both sides, but we figure we'll start that process now. And 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 CFO for the P&S business as well.

Right. Thank you very much. So let's start into the business starting from Products & Solutions, P&S segments. So in the recent earnings call last week, you mentioned the demand in the retail and OEM channels was strong. And how do you view the current state and outlook for the housing and remodeling the markets for the P&S business, please?

Yes. Thanks, Tomo. I think when we look at the macro environment, with the Q1 print, it's 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 press. It's probably clicking along at a very low single-digit rate. And 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 evidence of homebuilding or the resale of existing homes. So today, 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, certainly, the Products & Solutions side or the RemainCo Resideo prefers a remodel market. It provides an opportunity for greater sale, a 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 we make best-of-breed products that are critical, as Mike said, to the operation of your home. And it goes back to the mission statement that Mike talked about, which is again, to reiterate, we make your lives more comfortable, more safe and secure and more cost effective. And so 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 because you know it works. So I think as we look forward and given some of the things we've talked about the last 6 to 8 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.

And I think it's last week, you also talked about the market share gains in safety products and strong adaptation of new offerings. What do you see as the Resideo's key competitive advantage in the PS segment versus major peers?

Yes. I think just to dovetail on something I mentioned before. We believe in manufacturing and selling best-of-breed product that leverages our long over century of heritage and domain expertise and continuously selling to our moat, which are the professionals. We think that as a virtuous flywheel that we can continue to perpetuate and build upon because 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. And I think we want to continue to 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, 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 on our very large operating footprint.

And then if you could touch on the megatrends or tailwinds, the portions that you mentioned about for the P&S segment for the medium and long term, please.

Yes. I think when we look at the landscape, the residential landscape specifically, we believe there is an under housing that's been 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 we would be exposed to. I think -- if you were to ask us where our greatest exposure is, it's more so to the R&R or the repair 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. But 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. Many of our products have a stated lifetime, a smoke in carbon monoxide alarm, I think, has an 8-year life on average. And that's probably something that you really don't want to go too far on from 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 multifamily units by and large. And there's a lot of use cases for us in those types of large dense dwellings.

And then shifting gear to margins and pricing and costs. European segment has delivered 12 consecutive quarters of gross margin expansion. So if you could talk about the -- how much of that is due to pricing power versus mix? And if you could talk about the sustainability for the next couple of quarters, please?

Yes. No, that's a great question. And I think we have a really exciting part of the story here. I think with what I painted before, we've been able to execute in a low to mid-single-digit revenue growth profile with an improving margin expansion which has been born fundamentally on structural operating efficiencies that we've been gaining. When we -- when Mike gave the overview of when we spun out of Resideo, I think it's underappreciated that the Products & Solutions segment were product lines in disparate parts of Honeywell's businesses when it was contributed. So when it was contributed, we had a lot of manufacturing and supply chain sprawl that we had to work through and that some of the benefits you're seeing historically in the 12 consecutive quarters of expansion. But I think going forward, there's still more room to be had. We think we're in the middle innings of that ballgame, where we can continue to extract operating efficiencies from, for example, looking at underutilized factories or looking at ways we can optimize the supply chain further. And then with the new product introduction that I mentioned earlier, we think there is some pricing power because as I mentioned, we believe our products are best of breed. We think they're differentiated relative to the competition. And we should be able to earn some price for that. But then also think about the volume that we're manufacturing, which is large. And when you're manufacturing that amount of throughput across a healthier manufacturing and supply chain footprint, that's actually beneficial. So we're really excited about all that because, and I think we have a lot of things planned from a new product introduction standpoint.

So you just talked about the supply chains and manufacturing. So if you could talk about the strength and risks of your Mexico-centric manufacturing footprint? And how are you investing in automations or diversification.

Yes. I think 1 thing to call out, Tomo, you rightfully did is our philosophy from a manufacturing standpoint is near shoring. So 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 vast majority of our revenues are generated from North America puts a lot of focus on our Mexican operations. And currently, we were a beneficiary of the exemptions under USMCA, and looks like right now and continue -- we continue to be a beneficiary who knows what tomorrow will bring, right? But 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 move some of the manufacturing or look at other alternative ways we can manufacture the product that maybe ex Mexico should that environment change. And -- but we're not banking on that. We're continuing to make investments down in Mexico in terms of labor, in terms of automation of of the manufacturing facility to increase that output. And we're very excited about what we're doing there. We'll talk more about it at our Investor Day.

And shifting gears 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 revenues play out?

Yes. I think it will have a role in the future, which we'll likely lean into more so in the future. But 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 -- or the back-end monitoring service we offer on a monthly basis to our customers. That's called AlarmNet. That's basically if the signal gets tripped on 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. But 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 interact not only with each other in our ecosystem, but with also with third-party product that is in the ecosystem enabled by our communication protocol and supported by a software layer. So 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. So I would pause here if anyone have questions on P&S. We're good. All right. Thank you, Chris. And moving to ADI. Thank you for standing by Mike.

I enjoy this, Chris. That was good.

I'm glad you can save your vocal chords. Do you want to sip a water before you go?

No. I'm good.

And then, Mike, if you could talk about the ADIs, the market environment. And I think as you talk about the sequential growth in security product categories. And then some rebound in video surveillance. How do you view the current state and outlook of the commercial securities and AV markets?

Yes. ADI really serves in 2 primary markets with growth in some adjacent markets. So again, that commercial security market is the legacy ADI business where we've grown tremendously over the last decade. And then with the [ SNAP ] acquisition, that was much in the residential AV. I think those are 2 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, 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, and we will continue to be playing in that and our integrators and install those products and continue to play in it. So that is a strong market, continues to be a strong market that we think will continue to grow at very healthy levels. Video is certainly a big part of that. The whole surveillance, the whole security businesses changes surveillance in detection around that rather than break entry and lots of other things. So incredibly important part of the business. The residential AV business that we've bought from Snap is 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 nondiscretionary 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 is going to be on it. And most people choose to have a security 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. And while we can all talk about the wealthy folks in this world and the resilience and the ability to continue to make discretionary purchases. I think when it comes down to the piece where when you tie it back to housing starts and the resale activity, people aren't waking up 1 day and saying, hey, I want to go put speakers my ceiling in the kitchen. Like that's usually tied to an event. And those events are happening less and less. So that market has 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. And I think the more recency, we probably underperformed the market a little bit, given some of the challenges we've talked about our ERP implementation, but we feel really good about the activities we have in place to offset that. And then 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 businesses that are in the 9 figure, but they're so 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 of those areas are ones that we'll look to continue drive incremental growth.

Thank you, Mike. And then if you could talk about competitive environment for ADI. You've emphasized the ADI's operational stabilities and top-tier customer service recognitions. What is the structural advantage of the ADIs, 200-plus locations, omnichannel model? And how does the Snap One integration strength your moat?

Yes, 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 sub store, and you really don't need both. You got to make sure we're in the right spot, but our markets are not big enough we're not McDonald's, you do want on every corner. We're not Starbucks. And so we do think we have the opportunity to rationalize that footprint over the coming months and over the next 12 to 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. So -- but with that, 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 grow. But even we talk about e-commerce, it's not e-commerce on a stand-alone basis. It really is the ability for these 100,000 integrators and shop with us how they want to get the product where they want to. So shop online, pick up in store, a given week, I don't remember the exact number, so Rob will yell me because I'll probably get this wrong, but it's north of 80%. It might be north of 90% of customers are interacting with us online. They're coming there and they're researching their learning. They might be shopping. They might be buying or they might just learn they then come into the store, they buy online, pick up in store, all those things are going on. So we really view that ecosystem of omnichannel experience as really the differentiated moat that ADI has from a go-to-market standpoint. And then we execute better than anybody else in the industry. When I joined the ADI when they bought my company couple years ago when I watch what they did. We always do this from afar, but 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. It's just impressive. And so 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 outperformed the very single client that comes down to execution.

And you just talked about the e-commerce. So the revenue was up low teens year-over-year. and exclusive brands growing over the next 3 to 5 years, which product categories do you see as the biggest share of wallet gainers within your integrated customer base?

As we continue to grow, we love the e-commerce business. We think it's easier for our customers 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 Amazon has been around a little while. But I think in this industry, that purchasing behavior of shifting from either walking into the store, sending a PO in, it really has shifted more in the last 3 to 5 years than historically before that. And we do think that's a really important piece of the business that will continue to drive that growth. Now again, we don't think about just as e-commerce is really 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 comp I would put it in a releasement -- and I think once we brought ADI and Snap together and we saw the opportunity of some of the thing Snap was doing on the residential side, on the more value-enhancing side of the business where you can add 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 and bring it over to that commercial security side of the business. We want to 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 products, our third-party products. Today, sub 20% of our business is our exclusive brands business. In the future, we see that growing to low 20%. 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 Watbox product that we have -- that we built for the residential market has a lot of relevance into the commercial market. It's IP-enabled power that allows you to remotely access -- the integrator remotely access their job, manage the power situation, reset things remotely. There's a lot of things you can do there. And the lift to get that product commercial ready is not huge. Now you have to do things like you don't need multifactor authentication in a residential home, but you probably do once you put that in a commercial environment. So there are tweaks of the products we need to make, but we think that's a really good one and easy one to continue that make that move. And there's other ones as well that to look at. But again, it's being done in a way that we don't want to start competing with our great suppliers. We want to find ways that we can fill in the gaps where they're maybe not meeting the needs that are out there.

Thank you. And 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, excluding brand mix contribute to future profitability side?

Yes. If you go back and look at Snap and ADI prior to the acquisition, I think pro forma, if you added Snap and ADI together, we were running somewhere around the 7% EBITDA margin. We've actually stepped back from that a little bit over 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. And so we've grown our SG&A piece of the business at a rate that's faster than what the revenue growth has been. As we're sitting here today, 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. So I think the very first thing that we need to do and are doing and we'll do this year is just go right size 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 the tens of million in year. And again, on a full year basis, that will be even that going to identifying 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. Again, we talked about the geographic rationalizing that. That's all in there. So we feel really good that the first thing we're going to do to drive EBITDA expansion is to get back to where we were in 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 of years. That's one. Two, we think we're in a really good position to continue to grow that revenue. Last half of last year was tough for ADI. We put this once in a generation ERP system in place. It went well, right? I think from a technology standpoint, it was a b plus, like the technology all works like, but changing things that people have worked on for decades, it's tough. I started in public accounting and I remember Ernst & Whinney where I started was a lotus shop and Arthur Young was Mac, excel shop and E&Y merged right when I started and all the e-people got forced into the Y side and we became an excel shop, and they took the backslash away. Again, that was painful. And that's what's been going on in our stores, right? Is that sort of transition from 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 90% of their wallet share and they down the road a couple of times. And now we still have that customer. We've lost no customers. lost a couple. But 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, and we've got a lot of actions in place to go back and reclaim that loss share. And we're doing those right now, again, Rob and his team, very, very focused on executing against that in the back half of this year, we feel really good about those things. On top of that, the impact of that depression on revenue last year, we're lapping some pretty easy comps in this year. So all that is you get revenue back to where it should be, helps the margin profile as well. So 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, but at least parts of it are baked. Over the longer-term model, once we get that fixed, it really is about those couple of things that really drive the sale leverage. So one, exclusive brands have margins that are 2 to 2.5x greater exclusive or 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 as 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. And we're going to continue to look for other opportunities from the cost standpoint to identify things to do.

And then one other thing to add, which might be relevant and interesting to the audience is in the current environment there's a lot of questions for everybody around inflationary cost pressures. And I think let's just address this now because it really covers both ADI and P&S, which is we've told the public and our customers that were raising prices in this quarter. And when we look at the impact in the second half of the year, we believe those price increases will cover more than cover the inflationary cost pressure. I think, however, in the second quarter, because we are implementing those increases now, there's going to be a gap in when they attach and as a result, 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? So I think it's important for people to make sure they understand that because there's a lot of questions in general about fuel, about commodity costs, and we've been very thoughtful and proactive not only how we cover it this year, but we're also thinking about next year already.

Right. Thank you, Chris. And the last question is from Mike ADI. Do you plan to pursue like a [indiscernible] like Snap One. What does the ideal target profile like look like, if any?

Yes. The Snap-on acquisitions once maybe not 1 those sort of transformational things. You've got to have such a high level of confidence and underwritability we're seen that much synergy in the transaction. We talked about putting ADI and Snap together for years. We met Rob, on the same. We met Rob, I think it was 2017 before that. And so if we should put these 2 businesses together. And it took 7 to 8 years to get that done, but made a ton of sense. I think those kind of things. They come along very infrequently. That is -- we -- we're not planning for those they're looking and 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 -- in the commercial security space, we have all the customers. And the high end residential AV space, we have all the customers. We're all the customers that we're going to 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 have. So if we can find bolt-on acquisitions, things that make sense that bring a customer that we don't have that we can 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 would have if you think of the direct customer and the distributor, the big box ever in is we're selling through. What we're thinking about there is we're the adjacent 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 in there. Now again, we're not trying to manufacture the whole big unit in system. But what are the things that we can identify that might be bolt-on acquisitions that could augment our existing platform that we could go to our existing distribution network, bring those products in, layer our manufacturing expertise and the other things we're doing on top of it and bring those. So I think on both sides, we think bolt-on M&A is part of the story. When we have the right leverage level, we start with 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. But the markets don't like as much as management like sometimes. So we think we need to get leverage down to the right market levels to be very, very focused on in both companies post spin. And then we'll think about other capital allocation opportunities, whether it's bolt-on M&A, returning capital to shareholders out there. But I don't think transformational M&A is not in anybody's plan that it's never going to happen, but that's not the plan for either business. This bolt-on M&A certainly is.

Please, last question.

There's always been this interesting aspect about home automation, which is it seems very isolated in pockets, the camera system around the house, alarm systems aspects of the kitchen seem like you're now starting to [indiscernible] automated vacuum systems [indiscernible]. Is there something magic moment that things that you guys are partnering with...

Yes. Yes. Listen, I just moved into a new house 2 weeks ago, okay? We spent 6 months remodeling it before we moved in. And I have nothing but literally almost nothing. Well, I'm not going to mention the name, but except Resideo and Snap-on product or ADI product in the house because -- but I was very conscious about that, and it all -- I mean the product is great. So 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. And then my [ Control4 ] system through AI, my speakers, my halt, my media over IP that controls all -- like it's all there. It all works. Now I could have probably done 75% of that with just the disparate systems, disparate apps. It doesn't have to all be controlled. How many apps do you want your phone? How do you want? But 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. But is that a little bit of incremental? That's the there's people like, I want Sonos or I want -- and we sell Sonos. We love Sonos, right? But it's not native to some of these things. As matter comes out, we'll continue to participate as a distributor and 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 stand-alone, it's all going to work. It works well together. It just works better if you do it together. It doesn't have to, though. I think that's a differentiation.

But to Mike's point, and I've been to his house, I've seen firsthand how well it works. I think...

We did have 20 people over week after we moved in. And my wife is not yet over it. So just...

[indiscernible]

No, no, let's not go there. But I think, look, Mike's house an example is emblematic of the ecosystem that I mentioned earlier. And I think [Audio Gap]