Resideo Technologies Q3 2026 Earnings Call Transcript

Resideo Technologies (NYSE:REZI) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/376181326

Summary

Resideo Technologies reported Q3 2026 revenue of $727 million, a 3% year-over-year growth driven by volume and pricing despite a challenging housing market.

Gross margin for the quarter was 40.4%, benefiting from price increases and operational efficiencies despite a $13 million headwind from inflationary input costs.

Standalone adjusted EBITDA grew 5% year over year to $154 million, with the company maintaining cost discipline.

The company completed the spinoff of ADI, treating it as a discontinued operation in its financial statements.

Resideo Technologies’ core sales channels, excluding OEM Security, showed strong performance, with retail and OEM combustion channels growing 15% and 9%, respectively.

The company’s strategy focuses on a cycle of innovation, operational efficiency and margin expansion, reinforced by new product launches such as the Elite Pro thermostats.

Resideo Technologies plans to exit three underutilized manufacturing facilities, including one in Scotland, to improve operational efficiency.

The company expects Q4 2026 revenue to be between $710 million and $730 million, with standalone adjusted EBITDA of $145 million to $155 million.

For full-year 2026, expected revenue is in the range of $2.927 billion to $2.947 billion, with standalone adjusted EBITDA of $614 million to $624 million.

Management remains optimistic about long-term growth and margin expansion despite macroeconomic challenges.

Full Transcript

Chris (Investor Relations)

Joining us for Resideo Technologies’ third quarter 2026 earnings call. Joining me on today’s call is Tom Surran, Resideo Technologies’ Chief Executive Officer, and Shane Harrison, Resideo Technologies’ Chief Financial Officer. This afternoon’s call contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Resideo Technologies’ filings with the Securities and Exchange Commission.

The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. In addition, we will discuss non-GAAP and standalone supplemental financial measures on today’s call. These financial measures, which can sometimes be identified by the use of adjusted or standalone in the description of the measure, should be considered in addition to, not as a substitute for, or in isolation from, our GAAP results. Standalone measures are supplemental financial measures intended to provide historical results before the ADI spinoff on a more comparable basis to the company following the spinoff.

Reconciliations of GAAP to non-GAAP and standalone financial measures are included in our earnings release as well as our Financial Data Workbook, which are accessible on the Investor Relations page of our website at investor.resideo.com. Unless stated otherwise, all numbers and results discussed on today’s call, other than revenue and gross margin, are on a non-GAAP or standalone basis. We completed the spinoff of ADI on August 3rd, and the financial statements presented in our third quarter 2026 earnings release, earnings call, and Form 10-Q filing reflect the continuing operations of Resideo Technologies and the treatment of ADI as a discontinued operation for all periods presented. Recast income statements reconciling historical Resideo results to Resideo GAAP results from continuing operations for each quarter of 2025 and 2026 have been provided in our earnings release and our Financial Data Workbook.

With that, I will turn the call over to Tom.

Thomas A Surran (President and CEO)

Thank you, Chris, and thanks to everyone for joining us today. In our first quarter following the spinoff of ADI, Resideo Technologies delivered both top- and bottom-line third quarter results that were near the high end of our outlook. This is a testament to the team’s continued resilience, strong execution and commitment to delivering what we promised at our recent Investor Day. Total revenue was driven by both volume growth and pricing across most of our sales channels.

Our gross margin was 40.4% as customers continue to see the value of our differentiated, non-discretionary products. We accomplished this in a challenging housing environment. Standalone adjusted EBITDA was $154 million, growing 5% year over year as our teams demonstrated cost discipline that helped drive operating leverage in the business. Professional installers are adopting the differentiated products we design and manufacture, resulting in Resideo Technologies winning business. Leveraging our scale and experience enables us to navigate through the inflationary cost environment while also creating opportunities to invest in our future growth. Our execution is rooted in a mindset of continuous improvement in all that we do, and we believe that mindset will be the driving force for Resideo Technologies’ continued success.

Let’s walk through the dynamics for revenue growth in the quarter. In the third quarter, we reported total revenue of $727 million, growing 3% year over year, which includes an unfavorable impact of approximately 50 basis points from foreign currency exchange. Let me unpack the growth rate further. We achieved 6%, or $41 million, of growth across all sales channels excluding OEM Security. We consider these non-OEM Security sales channels to be our core because they are the foundation that underlie our future growth and earnings potential.

Let’s walk through the key drivers for each of our core sales channels. Performance in the retail channel was exceptional, with revenue growth of 15% year over year driven by both volume and pricing. Power volumes were robust for our First Alert and Honeywell Home branded air and safety products, as evidenced by point-of-sale data across many of our key accounts. Demand for our newer products was enthusiastic, including our new, highly rated combo smoke and carbon monoxide detector, purpose-built for easy installation while touting differentiated features and meeting the latest safety certification standards.

Retail pricing strength reflected more efficient promotional spending, price increases, and demand driven toward higher-margin products. Performance in the OEM combustion channel was also strong, reporting 9% revenue growth year over year against very strong results last year. Growth continues to be driven primarily by steady demand for higher-priced products. From a geographic view, EMEA performance was a notable callout for the OEM combustion channel due to a seasonal build in advance of the upcoming heating season.

Our distribution channel revenue was up 3% year over year, comprised of our three primary professional distribution channels: electrical, HVAC, and security. Let me start with the electrical channel. The electrical distribution channel achieved record volume growth resulting in double-digit percentage revenue growth year over year. We believe our position in the electrical channel has improved with several competitive conversions. Demand for new and existing BRK and Honeywell Home branded air and safety products was robust.

Despite the current soft housing market, we saw demand across all our electrical subsegments, including single-family and multifamily homes, manufactured housing, and MRO. Our content per new residential built home continues to be nearly $400. The HVAC distribution channel grew revenue by a mid-single-digit percentage year over year, driven by both volume and price. The HVAC channel also achieved sequential revenue growth. Product demand was healthy from both our Americas and EMEA HVAC customers, especially for our newer, higher-value products such as dehumidifiers and connected thermostats. Our HVAC channel inventory balance remains stable over the last several months, consistent with the broader residential HVAC environment.

Complementing the product demand in our HVAC channel was a solid uptick in our Pro IQ service subscriptions. These services, which are not yet material to our financial results, include software tools that professionals are using to improve the speed and quality of their installations, build homeowner loyalty, and generate new business. Today’s announcement of the addition of our AI-powered intelligence layer within Pro IQ Services is designed to proactively predict HVAC problems, demonstrating the continued value we are providing to professionals through our differentiated hardware and software intelligence.

Revenue from the general security distribution channel was flat year over year, in line with a continued soft market for security installations, which are typically highly correlated with the resale of existing homes. In the fourth quarter, we will announce the launch of a series of new security products that are integrated with our next-generation Fortic software platform. We look forward to building momentum with our professional community at our upcoming Connect 2026 user conference, which is oversubscribed due to record demand.

Moving to OEM Security, this channel reported $33 million of third quarter revenue, down $17 million year over year, performing in line with the reduced volume expectations we shared last quarter. As previously discussed, we consider OEM Security to be non-core to Resideo Technologies. We have shifted our strategic focus in security products, including investments in operating expenses, away from OEM Security towards our branded products for two key reasons.

First, when we act as an outside design manufacturer for OEM Security customers, the products we design and make for them are used to compete against ourselves in the general market. Second, OEM Security sales generate less margin than our branded products. We believe selling a branded product in the general security marketplace, where we can provide innovation and drive value, is healthier for Resideo Technologies over the long term. I would like to reinforce how we are executing our strategy as a standalone company and highlight a few tangible examples of the progress we are making. Our strategy is built around a powerful, self-reinforcing cycle: investing in innovation to drive revenue growth, expanding margins through differentiated product design, continuously improving operational efficiency, and reinvesting the benefits back into our innovation engine. And importantly, we are already seeing this strategy come to life.

On innovation, our Elite Pro thermostats are a great example of how differentiated new products can drive growth, with annualized revenue growth of approximately 50% since their introduction to the market. On margin expansion, our new combo smoke and carbon monoxide detector, which I spoke of earlier, is built on a redesigned common platform that improves product margins while delivering innovative features to our customers. And on operational excellence, we are taking deliberate actions to simplify our business and improve efficiency, including SKU rationalization and the planned exit of three underutilized manufacturing facilities, including the announcement in the third quarter of the closure of our manufacturing operations in Scotland. These actions are designed to reduce our cost structure and improve utilization across our manufacturing footprint.

Each of these initiatives reinforces the others. Innovation drives demand and creates opportunities for higher margins. Operational improvements further expand profitability and generate resources to reinvest in our next generation of products. This is the flywheel we are building at Resideo Technologies: innovation driving growth, growth and operational excellence expanding profitability, and those profits fueling the next wave of innovation. We believe this self-reinforcing cycle will be a powerful driver of sustainable growth, margin expansion, and long-term shareholder value.

With that, let me turn the call over to Shane.

Shane Harrison (Chief Financial Officer)

Thanks, Tom. I’d like to start by saying how thrilled I am to have joined the Resideo Technologies team. Over my first two months I’ve had the opportunity to visit many of our sites, meet with our teams around the world and really dig into our products, operations and strategies, and what I’ve seen has only reinforced my excitement about the opportunity ahead. Resideo Technologies has iconic brands, accelerating product innovation and leading positions in many of the categories and geographies where we sell.

The strong pipeline of product innovation is just beginning to deliver and the company is filled with incredibly talented and passionate people who are energized by the opportunity to operate as a standalone, product‑focused company. It’s a powerful combination and one that I believe positions Resideo Technologies well for long‑term growth, gross and EBITDA margin expansion and continued value creation. I’m excited to be part of this next chapter and to help the team realize the full potential of this business.

Now onto the Q3 financial details. Third quarter gross margins were 40.4%, slightly higher than the third quarter of 2025. Drivers of gross margin expansion were price increases, operational efficiencies and $6 million of tariff refunds, which were partially offset by unfavorable product sales mix and inflationary input costs. On inflationary input costs, we experienced an approximate $13 million year‑over‑year headwind to product input costs in the third quarter, which were partially offset by $3 million of benefits from the price increases we implemented this past June.

Given notice periods for many of our customers, most price increases were not realized until the latter half of the third quarter. Standalone adjusted EBITDA was $154 million, representing growth of approximately 5% year over year, driven primarily by higher gross profit dollars and controlled operating expense growth. R&D continues to represent approximately 5% of total revenue as we invest behind new product launches and speed to market. Standalone adjusted net income was $80 million and standalone adjusted earnings per share was $0.52, which excludes $30 million of non‑recurring business separation expenses recognized during the third quarter of 2026.

Moving on to cash from operations. Total reported cash provided by continuing operations in the third quarter was $33 million versus the approximate $1.6 billion used for the termination of the indemnification agreement with Honeywell that occurred in the same period last year. Operating cash flow in the third quarter was negatively impacted by approximately $30 million of spin‑related payments. Turning to the balance sheet, our near‑term priority after completion of the spin is deleveraging.

After receiving a one‑time $900 million dividend from the spin‑off of ADI, we repaid $1.1 billion of gross debt in the third quarter. We also made a $20 million payment at the end of the third quarter to ADI as part of the post‑separation adjustment mechanism to true up ADI’s cash. We anticipate further deleveraging and reinvestment in the business as Resideo Technologies continues to turn the flywheel and increase EBITDA and cash from operations.

Before I provide our financial outlook for the fourth quarter and the full year 2026, I’d like to make some framing comments. First, we are flowing through our third quarter outperformance to our 2026 outlook while revising our outlook upward. Second, after excluding OEM security, we currently expect fourth quarter revenue to be between flat and low single‑digit growth year over year due to four fewer sales days in the fourth quarter, expected foreign currency exchange pressure and SKU rationalization.

Third, included in our fourth quarter outlook is an approximate $30 million year‑over‑year reduction in OEM security revenue resulting in revenue of approximately $25 million in the quarter, consistent with our previously communicated expectations. And fourth, on pricing and input cost inflation, we expect to realize the full benefit of the price increases implemented this past June. During this fourth quarter, however, continued inflationary pressures are expected to offset these benefits and result in a low single‑digit million‑dollar cost headwind, which is reflected in our fourth quarter outlook and is consistent with our commentary in September. While we anticipate year‑over‑year gross margin growth in the fourth quarter, which we expect to be driven by the cost structure actions that Tom mentioned, as well as continued volume growth from our core sales channels, we are also expecting a modest gross profit dollar reduction as a result of this inflationary environment and the expected lack of tariff refunds.

With that, for the fourth quarter of 2026, we expect net revenue to be in the range of $710 to $730 million, standalone adjusted EBITDA to be in the range of $145 to $155 million, which is up slightly year over year at the midpoint, standalone adjusted earnings per share to be in the range of $0.42 to $0.48 and cash from operations to be at least $54 million. For full year 2026, we expect net revenue to be in the range of $2.927 to $2.947 billion, standalone adjusted EBITDA to be in the range of $614 to $624 million, which represents 21% of revenue, standalone adjusted earnings per share to be in the range of $1.92 to $1.98 and cash from operations to be at least $165 million for the full year.

In closing, we remain focused on executing our strategy with discipline and consistency. While the macroeconomic environment remains dynamic, we believe our focus on these factors within our control positions Resideo Technologies to navigate these challenges. The strong performance in our core channels in the third quarter, combined with our expected introduction of exciting new products in the fourth quarter, underscores our confidence in the momentum that we are building as we enter 2027 as a standalone company.

Resideo Technologies is now more focused on product innovation, growth acceleration and growing profitability, making it an exciting time for us and for our investors. We remain firmly committed to delivering on the long‑term financial targets we outlined at our Investor Day. Now open the call up for questions.

OPERATOR

We will now begin the question and answer session. Please limit yourself to one question and one follow‑up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Eric Woodring of Morgan Stanley.

Your line is open. Please go ahead.

Eric Woodring (Analyst)

Super, guys, thank you very much for taking my questions tonight. So Tom, I just want to start with you. Obviously revenue excluding that OEM security business grew 6% year over year despite kind of mixed housing market data points. Can you maybe just give us a little bit more color on growth by volumes versus pricing, and just higher level, just what you’re seeing in real time when it comes to, you know, repair and remodeling, new construction demand, just some of those key macro drivers?

Just if you could contextualize those for us, that would be super helpful. And then a quick follow‑up please.

Thomas A Surran (President and CEO)

Sure. Thanks for joining us tonight, Eric. It’s a great question. So you’re saying the core business, 6% year over year growth. You want a little more color commentary on what’s going on in some of the business. It was a really solid quarter throughout the business. If you go through each of the segments, the distribution, the product areas, everything that is in our core business performed very well. And so you say what about volume versus price?

If we extract out the OEM security and just look at our core business, our volume and price both increased, slightly more price because we had some of the inflationary costs, but we had very nice volume improvement which is indicative of how we are performing in what you’ve described as a fairly tough market related to the housing. Now one of the reasons for that is what we provide in many cases is a non‑discretionary product. Right. So this is the heating and cooling systems, this is the safety systems, this is the security systems. These products are, again, non‑discretionary. And what we’re seeing in the marketplace is us, what we perceive is gaining share in those markets. Does that help?

Eric Woodring (Analyst)

That’s awesome. Thank you. Thank you, Tom. Maybe just a follow‑up to that is, obviously there was news last month that Apple plans to get further into, or I guess let’s say get into the smart home market maybe rather than fighting against it. I guess from my perspective from the cheap seats, it looks like what they’re trying to do is a little bit more DIY versus you’re obviously focused on the professional. But just any thoughts on what this could mean for Resideo Technologies and some of the products that you sell that, you know, might or might not be competition in that market?

Just high level, any thought that you have please. Thanks so much.

Thomas A Surran (President and CEO)

Yeah, I would define it as creating an opportunity for—it’s more than a competitive situation. And I don’t know if you caught the press release we announced where we were going to be updating our software for some of the features that they brought to market, but you’re right, they play in a different place in the home. So they’re about the engagement and the interaction and some of the automations on audio‑video. That is not where we play. Where we focus is on the infrastructure systems of the house and making sure that the house is comfort and protected.

So what we want to make sure, though, is that we’re compatible with those systems, the smart home ecosystems of Apple, Amazon, Google, and so that’s why we announced what we did. The fact is that if Apple’s successful with this, they’ve brought some new features. Having customers understand and engage more with their critical systems—that will be great for us.

OPERATOR

The next question is from the line of Alexander Virgo of Evercore ISI. Your line is now open. Please go ahead.

Alexander Virgo (Analyst)

Thanks very much. Afternoon everyone. Thanks for taking the question. I wondered if you could just unpick some of the differences in growth. The retail +15, distribution +3 stands out to me as quite significantly different, and I wondered if you could layer into that perhaps some of the new product investment benefits that you’re getting either now or when we might expect to see that really kick through into the growth. And then I’ve got a quick sort of follow‑up if I could.

Thomas A Surran (President and CEO)

Okay, so believe it or not. Alex, can you hear me okay? Yeah. So they’re pretty tied, your two questions that you just asked. It’s a good question. So, when I talked about retail up 15% and we had our distribution grew 3%, but that includes the security distribution. If you carve that out, electrical distribution up 15%, HVAC distribution up 5%. So we had, and then, you know, OEM combustion up 10%. So most of our channels excluding security and certainly OEM security were doing, performed very well during important.

Now we’ve talked a little bit about, you know, security, it’s part of the home and it’s very correlated with existing home sales. So that to be explained what’s happening there. Although I will say you asked about MPI, so why did retail do 15%? One of the things that’s happened there is our new UL 10th Edition product was shipping in the third quarter and primarily was featured pretty heavily in the fourth quarter by some of our channel partners and our customers, and October was Fire Safety Month.

I don’t know if you knew that one, but our product performed very well. The customers, our customers, were very excited about what it brought to the customers, and I think that was a big part of what drove some retail, the retail numbers that you’re seeing in terms of MPI. Well, that was an MPI product, and we talked about Denali was an MPI product. And one of the things that we’re bringing forward now is the Fortic platform. That’s really important because now all of our products, including security, air safety, all of them, are sitting on top of the Fortic platform. That not only has the benefit of the information and the common data across everything and the awareness, but it also helps us accelerate the development of new products.

And by the way, I made a little Freudian slip there. I said Denali, which you know is a leap crowd, that was a project that was the elite pro. But overall we’ve been seeing the products that we’ve brought to market. All of the products that we’ve done have done very well for us and performed very well in the market. So I think we’re already seeing it.

Alexander Virgo (Analyst)

That’s very helpful. Thank you. I wondered, as a follow up, if you could just give us a sense of how much the tariff refund helped the margin, gross and EBITDA. I appreciate you gave us the 6 million. It feels like that’s sort of a 50, 60 basis points number, but maybe I’m getting the calculation wrong.

Thomas A Surran (President and CEO)

Yeah, I think you got to look at the net, but I’m going to let Shane answer that one.

Shane Harrison (Chief Financial Officer)

Sorry. So, in the quarter there was $6 million of a tariff refund, but we also paid tariffs, and so the net tariff benefit in the quarter was $4 million. Does that help, Alex?

Alexander Virgo (Analyst)

Yep, that’s great. Thank you very much.

OPERATOR

The next question is from the line of Aaron Kimson of Citizens. Your line is open. Please go ahead.

Aaron Kimson (Analyst)

Great, thanks for having me on the call. Following up on Eric’s question, in light of the Apple Home View announcement in mid October, I was wondering if you can talk about the importance of the Matter standard and if Matter becomes more important for both your hardware footprint and eventually Fortic going forward.

Thomas A Surran (President and CEO)

Thanks, Aaron, and thanks for joining us. I think this is your first call.

Aaron Kimson (Analyst)

It is, yeah.

Thomas A Surran (President and CEO)

Congratulations. It’s great having you. So Apple, we’ve talked a little bit about that. We’ve talked about our compatibility where they focus as. Yes, it’s distinct from what we do, but Apple’s been a big advocate of Matter and Matter is fantastic. Most of our, in fact all of our new smart home products support Matter. And that’s great because we want that compatibility with those smart home ecosystems and they all pretty much do support Matter. Where Matter is different, though, for us is it’s great for that interchange. It’s just not very deep for really controlling infrastructures. Just the amount of information related to how a HVAC system works or how your safety systems need to have life safety protocols, that’s just not something that’s in a Matter protocol. So it’s fantastic for interacting with the ecosystems and communicating information to the end user, but it’s not something that we use deeply through our own system.

Aaron Kimson (Analyst)

Got it. That’s really helpful. And then I know you mentioned Pro IQ monetization is non-material today, but can you help us think about the trajectory of monetization for the Pro IQ Predict service? Will monetization be a recurring stream paid for by the buyer of the hardware? And is there a way to monetize it on the channel side by suggesting a pro to reach out to when something is looking like it’s going to break?

Thomas A Surran (President and CEO)

Yeah, that’s exactly—so Aaron, let me just give a little background on Pro IQ services. So we did announce Pro IQ Predict today, but Pro IQ Services is actually a suite of services, and now we have four capabilities in that. The first one is Install, and that basically gives the pro the ability to do templates and configuration in the field to be able to have a more efficient installation experience. The second one is Engage, and this is about branding and contacts and booking for the pro so they can have their brand not only on the product face but also in the app that the customer uses.

Third is Analyze, and this gives the pro the ability to have alerts and look at trends and history of the product. And then what we announce now is Predict, and this gives them the ability to diagnose potential problems, take preventative maintenance, but also, should something happen, they can understand what failed so they can make sure they bring the correct product part to make the repair to the customer, to make it a better experience for everyone, more efficient for them and certainly for the customer a much simpler process.

But all of this, it’s really about creating stickiness with our customer and giving our customers value. So that value and stickiness is our primary thought process as we think about Pro IQ services. Right now, it’s not material monetization, but it’s delivering really nicely on that idea of the stickiness and how pros feel about the product we’re bringing and the fact that we’re bringing just a bit extra that they don’t receive from other products.

Aaron Kimson (Analyst)

That makes sense. Thank you.

OPERATOR

The next question is from the line of Ian Zaffino of Oppenheimer. Your line is open. Please go ahead.

Ian Zaffino (Analyst)

I agree. Thank you very much. I just wanted to follow up on the tariff refunds. Did those come as a surprise and is there any other tariff refunds factored in forward guidance, I mean, or were you expecting, I guess, this kind of net 4 million in the third quarter? Thanks. So. So, hey, nice to, to meet you.

Shane Harrison (Chief Financial Officer)

To answer your question, in short, we file for these refunds pretty far ahead of time. But the visibility of when you get the money and if you’re going to get the money sometimes can be a little all over the place. So in this quarter, we did end up getting that 6 million and we ended up paying the couple out the door. So it was a net 4. So that’s the answer there. But going forward for Q4, we have filed for more tariff refunds, but the visibility of seeing and getting those in is very, very murky.

So, in the guide that we just gave, we’re assuming no tariff refunds or very little tariff refunds, and probably a little bit coming out the door, but not anywhere like it used to be in the past.

Ian Zaffino (Analyst)

Okay, thank you. And then when we think about MPI, is there a way you can maybe help us understand how well they’re doing right now in the market? I know you had some introduced a while ago, maybe how those are performing and, you know, how do we think about their contribution either maybe this quarter or next quarter, you know, versus the guide and versus kind of the other products that are not new. Thanks.

Thomas A Surran (President and CEO)

Okay, Ian, so how do we feel about MPI and how can you be aware of how they’re performing? Hopefully we’ll keep you posted and we will do a good job of letting you know when significant product, new product releases have occurred. One of the things, you know, I just talked about fording, having that platform out there is really important and that a lot of things were kind of bottled up a little bit behind it because we had to have the new platform in the market and now we could start issuing out more and more products on top of that.

There are products. You know, the reality is, I’m telling you about how certain ones did. But, but of the products we’ve released and the new products, we’ve been extremely pleased with how they’ve performed in the market. And sometimes, you know, we introduce products clearly for increasing revenue, but we also introduce products—we’ve got to think about how they improve our margins. So that’s a big driver of what they do. There’s also reasons to, you know, sometimes shore up a strategic position on, you know, making sure that we don’t have a competitive weakness and also making sure that our products have the depth that really is unmatched by our competition. Because when you look at our products, it’s not only the headline product, it’s everything it attaches to. So the pro can get the job done when they’re at the house and doing it.

So we want to make sure, you know, some of these smaller products we introduce, you say, well, why they do that, it’s not going to move. It’s that solution for the professional. And that’s why he has trust in us, is because we give that. So we’re clearly going to introduce NPI to drive revenue growth. We’re going to introduce products that improve our cost profile. We’re going to introduce products that have strategic importance and basically make sure the pro has a complete solution.

Ian Zaffino (Analyst)

Okay, thank you very much.

OPERATOR

The next question is from the line of Tomo Sano of JP Morgan. Your line is open. Please go ahead.

Tomo Sano (Analyst)

Hello, everyone.

Thomas A Surran (President and CEO)

Hello, Tomo. How are you doing?

Tomo Sano (Analyst)

Thank you for—yep. Thank you for taking my questions. So you noted that unfavorable mix and input cost inflation partially offset margin gains. How do you expect those headwinds to change in the fourth quarter and beyond, please?

Shane Harrison (Chief Financial Officer)

Yeah. Hey, it’s Shane. I’ll take that one. So in Q3, you heard us say it was about a $13 million headwind on inflation costs in the quarter, and then we offset that with about $3 million of realized price increases. Well, that’s, you know, so net 10, let’s call it, as a headwind. As we move into Q4, in the guidance we just gave, there is an assumption there that the inflation costs are still going to continue, probably even a little bit higher. But we have a lot more price realization, the price increase realization from our June increases.

So the net increase is going to be lower than what we saw in Q3. So, less of a headwind, let’s call it, for Q4.

Tomo Sano (Analyst)

Thank you, Shane. And follow up to Tom. And have you seen any changes in competitors’ pricing or promotional activities? How is Resideo’s differentiation helping you sustain pricing and protect market share?

Thomas A Surran (President and CEO)

Sure. So right now, obviously it’s a season where some customers or some competitors are doing promotional pricing, but our pricing—we typically don’t do heavy promotional pricing because our pricing is typically related and driven by the needs of the professional. And they’re basically executing in accordance with the needs for jobs. They have assignments that go into the house, they’re doing work. And promotional just seems to be not something that’s appropriate at that place.

In terms of our pricing, we believe we still deliver the best value out there in the marketplace. When you look at our products and the value that they provide and the pricing that we’re asking, we think we stand at the top of the charts on basically bang for the buck.

Tomo Sano (Analyst)

Thank you very much.

OPERATOR

The next question is from the line of Jay Goldberg of Seaport. Your line is open. Please go ahead.

Jay Goldberg (Analyst)

Hi, good afternoon. Thanks for taking my questions. Tom, I guess first question for you. You’ve talked a lot About new products coming out next year, and I’m wondering—I know you’re going to talk about this more at your event next week, super interesting—but I was wondering to what degree have you sort of shown this to some group of pro customers, and what’s the response you’re getting from the new directions, the new products you’re getting from the pros? And I have a follow-up.

Thomas A Surran (President and CEO)

So, Jay, you’re right, and again, thank you for joining us. I will say that yes, we do get a little bit of a sneak preview of how the customers are going to respond because we have beta programs in many cases, and some of the products that will be discussed at the upcoming Connect 2026 conference have been through beta. And we know the feedback from the several hundred of the pros that have tried some of these products, and it’s been very positive.

So we have a pretty good idea how they’ll be received—at least some of the things that have actually gone through beta. I think in general, if you’re going to be at Connect 2026, it’ll be great to be able to get the feedback from the pros about how they feel the NPI that we’ve brought to market and how it’s executing for them.

Jay Goldberg (Analyst)

Okay. And then my follow will be for Shane. I guess I was just hoping—like this quarter your revenue came in pretty close to where I was expecting it, but your profit, you were much more profitable. And I’m just wondering, as we’re thinking, building out our models for next year, how should we think about operating leverage? It seems to be moving in your favor. Is that safe to say?

Shane Harrison (Chief Financial Officer)

Yeah, that’s the right way to think about it. We laid out a model at Investor Day back in—whenever that was—July, I believe. The model there is—I’m going to remind you of the model, because it’s something I love to talk about. So at the top line, we’re expecting mid, mid-single-digit growth annually over the five-year period through 2030. Now that’s not going to be linear, but this year, according to our guide, we’re going to be right at that. If you take out that OEM security headwind, you move down the stack from there, you look at gross margin. We’re also expecting around a point of gross margin improvement every year throughout to 2030. But for every point that we do gain on gross margin, we’re going to throw another, probably 50 points of that into R&D—kind of back to the flywheel concept that we talked about and Tom talked about in the prepared remarks.

But then to build that operating leverage below that, it’s controlled overhead and SG&A spending that will drive another point—call it similar to what we’re seeing at gross margin—but at the EBITDA level. And if you do that math over that five-year period, you’re going to see what I love, which is a mid-single-digit up into the mid- to high-single-digit and then high-single-digit EBITDA growth. And that’s what we want to see, and that’s what we’re going to plan now for 2027.

We’re right in the middle of budget season, so I don’t even know what the numbers look like right now, but I can tell you that’s what we’re striving for. And that flywheel that Tom brought up is real, and we do believe that that is going to be a very giant enabler of getting this operating leverage that I just talked about.

Jay Goldberg (Analyst)

Very helpful, thank you. And then just one last little nit: if I understand it right, your revenue guidance for next year is basically in line with what you laid out at the analyst day a month ago, but you’re hitting that even though you no longer have the security OEM business. So on a like-for-like basis, you’re effectively raising guidance a little bit.

Shane Harrison (Chief Financial Officer)

Oh, you’re talking about for ’26—the ’26 guide.

Jay Goldberg (Analyst)

Sorry, for ’26. Yeah.

Shane Harrison (Chief Financial Officer)

Yeah. So, what we did is we outperformed in Q3. We’re going to pass that through—we’re going to flow that right through—and we’re keeping the implied Q4 guide and actually raising it slightly at the midpoint. So, yes, you’re seeing a full-year ’26 guide increase. And frankly, what we’re seeing with our forecasting in Q4 is very similar to what we were seeing three months ago, which is why we’re kind of keeping that implied guide for Q4 where it’s at and then, yeah, flowing through that Q3.

Jay Goldberg (Analyst)

Okay, perfect. Thank you.

OPERATOR

We have reached the end of the Q and A session. This concludes today’s call. Thank you for attending. You may now disconnect.

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