Financial Data and Key Metrics Changes - Adjusted EBITDA reached a record high, approximately at the midpoint of the outlook range [4] - Net revenue was $1.86 billion, up 2% year over year, including a 1% favorable impact from currency [19] - Gross margin increased to 29.8%, up 110 basis points year over year, driven by margin-accretive activities at ADI and operational efficiencies at P&S [19] - Adjusted earnings per share was $0.89, above the high end of the outlook range, up from $0.59 in the prior period [19] Business Line Data and Key Metrics Changes - Products and Solutions (P&S) net revenue grew 2% year over year, with a 1% favorable impact from currency [8] - ADI reported 2% net revenue growth and average daily sales growth of 3%, both year over year, also including a 1% favorable impact from currency [14] - P&S achieved its 10th consecutive quarter of gross margin expansion, with gross margin at 43%, up 80 basis points year over year [12] - ADI's gross margin was 22.6%, up 130 basis points year over year, marking the sixth consecutive quarter of gross margin expansion [17] Market Data and Key Metrics Changes - The HVAC channel revenue was down by a low double-digit percentage year over year due to a softer residential HVAC market [10] - The retail channel experienced strong point-of-sales volumes, driven by demand for new products like the First Alert SC5 Connected Smoke and CO Detector [8] - OEM channel posted low double-digit percentage revenue growth year over year, driven by higher-priced units in both the Americas and EMEA [9] Company Strategy and Development Direction - The company is focused on introducing differentiated new products across its connected home product portfolio to capitalize on profitable growth opportunities [12] - Ongoing separation activities are on track to be completed in the second half of 2026, with Rob and Tom set to lead separate companies as CEOs post-spin [6][7] - The company aims to maintain its world-class execution and capitalize on revenue and cost benefits from its modern platform [18] Management's Comments on Operating Environment and Future Outlook - Management believes the macroeconomic headwinds are transitory and expects to see improvements in the HVAC market by mid-2026 [27][28] - The company anticipates a rebound in cash provided from operations in the fourth quarter following the completion of the ERP implementation [21] - The outlook for 2026 is positive, with expectations for year-over-year growth in organic revenue and adjusted EBITDA above current analyst estimates [23] Other Important Information - The company experienced a one-time tax benefit from terminating the Honeywell indemnification agreement, contributing to higher net income [20] - Total reported cash used by operating activities was $1.571 billion, primarily due to the termination payment made to Honeywell [20] Q&A Session Summary Question: Can you quantify the impact of the HVAC regulatory change? - Management indicated that both HVAC and ERP headwinds had similar impacts on the business, which they believe are transitory [25][26] Question: Will these headwinds continue into 2026? - Management expects the ERP issues to be resolved by the end of the year, while HVAC market impacts may slightly bleed into next year but are still considered transitory [27][28] Question: What growth would P&S have seen without HVAC headwinds? - Management refrained from providing specific growth figures but expressed excitement about their positioning in the HVAC market and the success of new product introductions [29][30] Question: How are operating margins expected to evolve? - Management targets double-digit operating margins for ADI over the next three to five years and anticipates 300-500 basis points of operating margin expansion for P&S in the same timeframe [46][48] Question: What factors should be considered for 2026 guidance? - Management highlighted the $70 million step up in EBITDA from the Honeywell-related indemnity and other initiatives driving performance as key factors for 2026 [61][63]