Financial Data and Key Metrics Changes - Adjusted EBITDA reached a record high, with net revenue of $1.86 billion, up 2% year over year, including a 1% favorable impact from currency [26][28] - Gross margin increased to 29.8%, up 110 basis points year over year, driven by margin-accretive activities at ADI and operational efficiencies at Products and Solutions [27][28] - Adjusted earnings per share was $0.89, up from $0.59 in the prior period, primarily due to higher net income and a one-time tax benefit from terminating the Honeywell Indemnification Agreement [28] Business Line Data and Key Metrics Changes - Products and Solutions (P and S) net revenue grew 2% year over year, with a tenth consecutive quarter of gross margin expansion [10][16] - ADI reported 2% net revenue growth and average daily sales growth of 3% year over year, with most product categories growing low single digits [17][22] - P and S experienced strong demand for new products, particularly the First Alert SC5 connected smoke and CO detector, and the new Elite Pro smart thermostats [6][10] Market Data and Key Metrics Changes - The residential HVAC market remains soft, with a low double-digit percentage decline in HVAC channel revenue year over year due to market disruptions from regulatory changes [12][13] - The OEM channel posted low double-digit percentage revenue growth year over year, driven by higher-priced units in The Americas and EMEA [11] - E-commerce revenue grew 3% year over year, highlighting the optionality for customers with an omni-channel experience [19] Company Strategy and Development Direction - The company is focused on introducing differentiated new products across its connected home product portfolio to drive future growth [16] - Ongoing separation activities are on track to be completed by 2026, with leadership for separate companies already in place [9] - The integration of SnapOne is progressing well, with expectations to exceed $75 million in run-rate synergies [23][24] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the company's ability to navigate macroeconomic challenges, including inflation and tariff volatility, with no significant impacts from the recent U.S. government shutdown [7][8] - The company anticipates a rebound in cash provided from operations in the fourth quarter following the completion of the ERP implementation [29][30] - The outlook for 2026 is positive, with expectations for year-over-year growth in organic revenue and adjusted EBITDA above current analyst estimates [31][65] Other Important Information - Total reported cash used by operating activities was $1.57 billion, primarily due to the termination payment made to Honeywell [29] - The company is experiencing a healthy pipeline of projects, with increased customer engagement and order rates approaching pre-implementation levels [73][80] Q&A Session Summary Question: Can you quantify the impact of the HVAC regulatory change and ERP on guidance? - Management indicated that both headwinds are expected to be transitory, with the HVAC market changes impacting slightly into next year, while ERP implementation costs are mostly behind them [36][38] Question: What growth would P and S have seen without HVAC headwinds? - Management refrained from providing specific growth figures but emphasized excitement about their positioning in the HVAC market and strong performance in other areas like retail and OEM [40][42] Question: Why are HVAC headwinds considered transitory? - Management explained that every home will eventually need an HVAC system, and the current inventory issues are temporary, with expectations for normalization in the market [50][51] Question: What is the expected impact of ERP on fourth-quarter results? - Management noted that the impact of ERP costs would be roughly split between Q3 and Q4, with a significant portion of revenue impact expected in Q3 [70][74] Question: What are the long-term operating margin expectations for each business? - Management targets double-digit operating margins for ADI and anticipates 300 to 500 basis points of operating margin expansion for P and S over the next three to five years [61][62]