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Resideo Technologies Inc (REZI) Q1 2021 Earnings Call Transcript

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Resideo Technologies Inc (NYSE: REZI)
Q1 2021 Earnings Call
May 6, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, at this time, I'd like to welcome you to the for Resideo Technologies First Quarter 2021 Earnings Conference Call. [Operator Instructions]

Now it's my pleasure to introduce, Vice President of Investor Relations, Mr. Jason Willey. Sir, I hand it to you.

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Jason Willey -- Vice President of Investor Relations

Good afternoon, everyone, and thank you for joining us for Resideo's first quarter 2021 earnings call. On today's call will be, Jay Geldmacher, Resideo's Chief Executive Officer and Tony Trunzo, our Chief Financial Officer. A copy of our earnings release and related presentation materials are available on the Investor Relations page of our website at investor.resideo.com.

We would like to remind you that this afternoon's presentation contains forward-looking statement. 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's filings with the Securities and Exchange Commission.

The company assumes no obligation to update any such forward-looking statements. We identified the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings.

With that, I will now turn the call over to Jay.

Jay Geldmacher -- President and Chief Executive Officer

Thank you, Jason, and good afternoon everyone. Q1 was a strong quarter across the business. We grew revenue 20% year-over-year as both Products & Solutions and ADI continue to benefit from a strong residential demand environment. With ADI seen improved activity in commercial markets, we are building on these market tailwinds with improved execution across the business for manufacturing and supply chain through the engineering innovation and sales organizations.

With positive demand driving better-than-expected revenue, we delivered meaningful profitability expansion both businesses, leverage the higher revenue into improved operating margin. Operating profit grew by $96 million year-over-year and cash from operating activities expanded by $79 million year-over-year. As discussed previously, we are taking advantage of the strong market conditions and business performance to accelerate investment in high return activities. Focus areas within Products & Solutions include key new product initiatives, such as accelerating Pro series releases, enhancing customer experience staffing and tools, and a number of activities aimed at optimizing the sales organization and processes.

At ADI, we continue to invest in our digital platforms and initiatives. Sales force effectiveness tools and expansion in adjacent categories organically and through M&A. Products & Solutions saw strong demand across the markets and channels during Q1. This is a continuation of trends that developed last summer as people focused attention on their homes and security. We also believe we benefited in a number of markets by having the ability to step up and meet our increased customer demand. The underlying market trends and spending on both repair and renovation and new home sales remain positive in the first quarter.

Trends we see continuing throughout 2020, while repair and renovation work are the largest drivers of Products & Solutions sales. We are encouraged by early signs of success in our stepped up residential new construction or RNC efforts. An example is our recent engagement agreement -- excuse me -- our recent agreement with Meritage Home to integrate a range of our products into their homes and provides a platform to support their connected home offering. This win demonstrates Resideo's unique opportunity in the RNC market created by our broad product portfolio. We believe this product breadth will take on increasing competitive importance, as builders look to integrate more in front of and behind the wall connected and smart home content into their portfolio.

In the face of meaningful logistics and supply chain headwinds, the team did an excellent job delivering for our customers. While our backlog is elevated relative to where it is -- it has historically trended. We believe that in aggregate, we are managing through these challenges better than the overall market. Presenting us with opportunity in certain categories and geographies.

During the quarter, we completed a comprehensive strategic review and planning process within Products & Solutions. The development of eight strategic pillars outlined on Slide 4 of our earnings slide -- slides was a key outcome of the process. This work form the foundation for the strategy we outlined back in early March at our Virtual Investor Event. These pillars were developed to balance long-term decisions with key immediate actions. As part of this process Products & Solutions will prioritize a shift from discrete traditional products to cross category solutions. With an emphasis on enabling the Pro through data analytics.

We are focused on thinking about the home holistically with clarity on where to play and where not to play. The team is now executing to the strategy, taking the concepts and turning them into actionable items with clearly defined owners. At ADI Q1 performance reinforces our continued leadership position in the security distribution market. The business is benefiting from increased interest and security products across residential and commercial markets and industry leading execution.

On the commercial side of which typically makes up over two-thirds of their business, we saw an acceleration of activity. Residential focus categories remained strong in the quarter. In line with our strategy to increase investment in ADI, we continue to enhance our e-commerce capabilities and the roll out of our salesforce effectiveness tools. E-commerce continues to grow as a portion of ADI sales. We also saw positive expansion in our private label business, which remains a relatively small part of ADI's mix, but an attractive long-term opportunity.

During the quarter ADI completed the acquisition of Norfolk Wire & Electronics, a US regional distributor of data communication products with 11 physical locations in the Mid-Atlantic. And earlier today, we announced another acquisition in the distribution space with Shoreview, a US distributor of ProAV products. Shoreview serves the entire US through distribution locations on both coasts and brings a strong brand portfolio that builds on our existing Herman ProAV business. Both acquisitions are an example of our strategy to utilize M&A to accelerate expansion in attractive adjacent categories. I want to welcome both the Norfolk and Shoreview employees to the Resideo team.

With that I will turn the call over to Tony to discuss our first quarter performance and 2021 outlook in more detail.

Anthony L. Trunzo -- Chief Financial Officer

Thank you, Jay, and good afternoon everyone. Both ADI and Products & Solutions exceeded our expectations in Q1 and delivered substantial year-over-year improvement across key financial metrics. Consolidated Q1 revenue was $1.4 billion, an increase of 20%, compared to Q1 last year.

Gross margin of 25% was up 180 basis points from the first quarter of 2020. Selling, general and administrative expenses totaled $238 million, down 5% from Q1 last year and representing 17% of total revenue, compared with 21% of total revenue in the first quarter of last year.

Operating profit for the first quarter was $130 million or 9.2% of sales, compared to $34 million or 2.9% of sales last year. Products & Solutions first quarter revenue of $606 million was up 28% due improved demand and strong underlying market conditions across all of our major product categories and channels. Products & Solutions, gross profit margin in Q1 was 38%, up from 33.9% in Q1 2020.

P&S operating profit was $130 million or 21.5% of sales, compared with $58 million or 12.2% of sales last year. This improved operating performance is due to fixed cost leverage on higher volume, as well as over $10 million in engineering, materials productivity improvements. These benefits were partially offset by $12 million in higher freight and logistics cost and increased investment of approximately $5 million targeted at new product development, marketing and sales force effectiveness.

ADI first quarter revenue of $813 million was up 15% year-over-year. ADI had three more selling days this Q1, compared to 2020, that's the daily sales average for the first quarter was up by 10%. Demand was strong in residential and commercial categories led by intrusion and video surveillance. ADIs investment in e-commerce and digital selling tools has continued to yield results with e-commerce sales, up 60% year-over-year and now accounting for 15% of total ADI sales.

ADI gross profit margin in Q1 was 17.2% versus 17.9% in Q1 2020. The lower gross margin was a result of lower supplier rebates year-over-year and unfavorable sales mix in the EMEA region. However, we did see a 40 basis point increase in underlying product line gross margin. ADI operating profit was $59 million or 7.2% of sales, up 23% from $48 million or 6.8% of sales in Q1 last year. ADI operating profit benefited from higher revenue and continued focus on cost management, partially offset by increased investment activity of approximately $3.5 million largely around digital and sales force effectiveness initiatives.

Corporate costs for the quarter were $59 million or 4.2% of sales, compared with $72 million or 6.1% of sales in the first quarter of 2020. This reflects a reduction in spend and transformation related costs of approximately $20 million, partially offset by the build out of our internal innovation, transformation and strategy [Indecipherable], as well as higher compensation and bonus expense.

Consolidated cash from operations for the first quarter was $5 million, an improvement of $79 million, compared with the use of cash of $74 million in the prior period. The first quarter is typically our lowest cash generation quarter through the payment of annual bonuses and customer rebates accrued in prior quarters. We ended Q1 with cash and cash equivalents of $508 million and total outstanding debt of $1.2 billion. Our net debt stood at $688 million, compared to $1.2 billion at the end of the year-ago period.

As a result of our robust Q1 results and the expectation of continued strong demand for the remainder of 2021, we are raising our outlook for the full-year and now expect 2021 revenue to be in the range of $5.5 billion to $5.7 billion, an increase of $300 million across the range and implying year-over-year growth between 8% and 12%.

Consolidated gross margin is expected to be in the range of 26% to 29%. GAAP operating profit is expected to be in the range of $500 million to $550 million, an increase of $50 million from prior guidance. Our 2021 outlook anticipates corporate expenses of approximately $235 million, compared with $290 million in 2020. Additional outlook details can be found on Page 10 of our earnings slides.

As a reminder ADI will have two fewer selling days in 2021, compared to 2020, reflecting three more days in the just finished first quarter and five fewer days in the fourth quarter. Revenue of approximately $40 million arising from the acquisitions, but not Shoreview are included in our revised outlook, but we expect these acquisitions to have minimal impact on 2021 operating profit, due to acquisition and integration costs. Post integration, we expect both the acquisitions to contribute operating profit levels above ADIs current markets.

For the second quarter of 2021, we expect revenue in the range of $1.4 billion to $1.45 billion. Consolidated gross margin is expected to be in the range of 25.5% to 27.5% and GAAP operating profit is expected to be in the range $115 million to $125 million. Our outlook, both for the year and for the second quarter takes into account supply chain constraints, higher freight and material expediting charges and market shortages of certain components such as microprocessors, all of which we now expect to persist through the remainder of 2021.

Also included in our revised outlook for 2021, our incremental investments, compared to 2020 totaling approximately $50 million. At ADI these investments are targeting of driving scalable growth including systems to accelerate our e-commerce offering, sales effectiveness and improved customer service. Within Products and Solutions we're investing in incremental engineering and innovation capabilities, customer experience, salesforce tools, manufacturing optimization and processes and systems enhancements. And at the corporate level, we're focused on numerous back office transformation projects, as well as ongoing innovation, strategy and transformation activities.

That concludes my comments. I'll now turn the call back to Jay for concluding remarks before we take questions. Jay?

Jay Geldmacher -- President and Chief Executive Officer

Thanks, Tony. As we look to the remainder of 2021, we see the strong market trends in the residential and overall security markets continuing. We also expect increased opportunity for ADI within its core commercial categories as more geographies and markets open up and work begins or is restarted on projects. And we remain focused on execution on our transformation efforts targeted at both cost optimization and growth initiatives.

We see this work driving significant long-term value creation with progress expected to be increasingly visible in our financial results as we move through 2021 and into 2022. We went in the market because of the quality and reliability we deliver, which combined with our customer service and breadth of products provides a compelling offering for the professional, whether through Products & Solutions or ADI. We are putting in place a strategy to further leverage these strengths and enhance our innovation, which we believe will position us to drive sustainable long-term outperformance in the markets we serve.

This concludes our prepared remarks. And operator, we are now ready for questions.

Questions and Answers:

Operator

All right. [Operator Instructions] And our first question is going to come from the line of Amit Daryanani with Evercore ISI.

Michael -- Evercore ISI -- Analyst

Hey guys, this is Michael [Phonetic] on for Amit. Just so -- to start with just wondering, if we look at the Q2 guidance, you take the midpoint of the revenue and the operating profit implied, margins are stepping down around 70 basis points sequentially. I was just wondering, if there's anything to call out there?

Anthony L. Trunzo -- Chief Financial Officer

Yes. Hi, Michael, it's Tony. Yes, a couple of things, I mean, first of all the -- we're going to shift mix a little bit in Q2 to ADI over P&S. And we're also going to have -- we gave you the investment number for the full-year, we're going to have more investment in the business and the second quarter that we're doing first. From a mix standpoint P&S has a little bit less attractive, make up in their sales plan for 2020 for the second quarter, which will also have an effect on the margin. Overall, though there is no structural change in any of the margin outlooks for any of our core markets.

Michael -- Evercore ISI -- Analyst

Okay. And then -- the more strategic one, I'm just curious, so the M&A strategy with the ADI business seems very logical given how fragmented that market is. So, the only real risk we see here is, kind of, around execution. So Jay and Tony as well, I was just kind of wondering if maybe you could give us some insight into how you approach acquisitions? And maybe some past experience you've had with the sort of strategy?

Jay Geldmacher -- President and Chief Executive Officer

So I'll comment, this is Jay and then I'll let Tony jump in. I mean, the people we've brought into the organization over the last year are very, very experienced in terms of operators are doing integrations in our past lives, as well as Rob and the ADI side has a team in place that also have done a nice job of developing an integration playbook, and this is an example, the Herman acquisition that they did right before COVID hit, they did a really nice job of integrating in the business through COVID and as they -- their own learning experiences from that they're going to apply to these additional tuck-ins that they're executing on now.

So I'm very confident between what the ADI team in terms of their own playbook and then from a P&L standpoint fill the transformation team and the other folks we brought in have done a lot of this in their careers. And as you know, integration is one of the big keys to success of great M&A. And some companies do it poorly and some do a great job and I'm really confident that as we do -- as we carry out M&A that will actually do an exceptional job in that area.

Tony, do you have [Speech Overlap] add a comments to that?

Anthony L. Trunzo -- Chief Financial Officer

Yes, I just add that -- to Jay's point, well M&A is relatively new to ADI as a component of the strategy. There they have a very structured execution or oriented -- process oriented culture and lends itself really well to M&A. And as Jay said they've prepared for this for a long time. We have beefed up our M&A capabilities, not just at the executive levels, but also little further in the organization. We're seeing folks who have pretty deep experience in M&A. And I guess the last, well, two more points these deals individually are pretty small, right? I mean, we've got two deals here that -- over the next nine months we're going to generate $40 million of revenue. So we've definitely started it cautiously in terms of scale. We're going to walk before we run, we're going to make sure that we don't over burden them with too many deals at one time and we'll monitor the progress as we go forward.

Michael -- Evercore ISI -- Analyst

Okay. Yes, great thanks for that color. I just wanted to just double check one number -- you said $40 million from the two deals you've done so far?

Anthony L. Trunzo -- Chief Financial Officer

Correct.

Michael -- Evercore ISI -- Analyst

Okay, great, thanks.

Anthony L. Trunzo -- Chief Financial Officer

Yes.

Operator

And our next question will come from the line of John Lovallo with Bank of America.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Hey, guys, thank you for taking my questions. The first one is the 26% to 29% full-year gross margin range, it's fairly wide. First quarter gross margin, I think, was 25.9%, second quarter you guys are taking 25.5% to 27.5%. So this would seem to imply the second half gross margins, we need to be well in excess of 30% to hit the high-end of that range. So can you just help us think through some of the potential drivers of the high and low-end of this gross margin range?

Anthony L. Trunzo -- Chief Financial Officer

Sure. Yes, so hey, John, it's Tony. I guess the first thing I'd say is we've expanded the range by a point is -- as I'm sure you've noticed, we were 26% to 28%, we moved it to 26% to 29%, because, you know -- and you're right, I think that's a broad range at this point in the year. But it's somewhat of an unprecedented year. We have concerns around the cost of rate, we have concerns around expedited delivery, we actually had some supply chain concerns about making sure that we can get everything we need for some of our product lines. And that's part of the reason why the range is relatively wide. Your calculations are -- you're right in the sense that second half gross margins are going to be higher than first half gross margins that was the case last year as well.

And to be honest with you I would that Jay and myself and the leadership team as we continue to [Indecipherable] things and we've come to understand over the last couple of quarters that -- that's probably a structural aspect of the mix of sales and -- in the P&S business. It's just the -- you have a heating season and you have a cooling season and this is a gross over simplification, but the products will get sold in one season or they had somewhat more profitable profile of the ones that get sold in other parts of the season. And then there is all kinds of puts and takes, I mean, in one part of our business, we have a -- we basically -- we have a wire business, where we pass through the cost of copper and it's basically a pure pass through. So those dollars go through as revenue, but with kind of empty calories, because they don't have any margin, fair bit of that in the first half of the year and relative to the -- relative to revenue in the second half of the year that type of activity is likely to be less.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Got it. Okay, that's...

Jay Geldmacher -- President and Chief Executive Officer

I'd also -- just one other thing I'd add is the transformation team you've heard us talk about as that team has really picked up momentum and had done a lot of things that is our actions that are very critical for the future of the business as part of our DNA going forward, but there are also lot of things that they action to help offset some of the things that we're facing that world is facing with logistics and supply chain that Tony talked about. So again, I think that does add, sort of, the fact that we want -- we're being careful in terms of exactly what we're communicating to all of you. But it Tony's comments about what we've learned about the business or I would agree with also.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Got it, OK. And then you may going back to the question that Michael asked and just looking at the second quarter guide. The outlook of 14% to 14.5% on the top line is pretty similar to what you printed in the first quarter. Let's assume the midpoint of the gross margin range of 26.5%. I mean that would seem to imply a pretty decent step up quarter-over-quarter in SG&A, we call it $15 million to $20 million. Just wanted to take that operating profit range that you're talking about. And how much of that $15 million to $20 million is the incremental investment? And what else is potentially driving that higher?

Jay Geldmacher -- President and Chief Executive Officer

Significant majority of that is -- is the incremental investment. There are some smaller stuff in there, John, there is -- our merit [Phonetic] increases kick in on April 1st, things like that, but the large majority evidenced incremental investment from -- compared with where we were in Q1.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Okay, thank you guys.

Jay Geldmacher -- President and Chief Executive Officer

Thank you.

Operator

And our next question will come from the line of Ian Zaffino with Oppenheimer.

Ian Zaffino -- Oppenheimer -- Analyst

Hi, great. I actually just wanted to ask that mix question again. I think you said 2021 mix is going to be different? Or is that not what you meant and we're really talking more about a seasonable -- seasonal mix, because I understand the heating, cooling seasons, but just kind of wanted to clarify if that mix is an actual [Indecipherable] on one thing versus 2020? Or is it seasonal? And if so, what would be driving that mix, if it's year-over-year?

Jay Geldmacher -- President and Chief Executive Officer

Sorry, broadly -- what I was driving at, Ian was that it's seasonal. We have a more profitable mix, particularly in Q3 and Q4, then we do particularly in Q3, we have a more profitable mix than we do in Q1 and Q2. And it's not to be broadly speaking the mix of products within P&S and the mix of sales between P&S and ADI are not -- there is not massive shifts in mix, compared to last year. It's really just seasonal flux that we're talking about. I mean, and Ian doesn't really have a cooling season, so it tends to be -- they as we ramp a cooling season in North America there tend to be a little less of that in the [Indecipherable] and then like I said, the heating season is -- heating season just tends to be -- those projects tend to be a little bit more profitable.

Ian Zaffino -- Oppenheimer -- Analyst

Okay. I got you. And on the microprocessor shortage, where does that hit you that would mainly be in security or there other areas where it's going to hit you? Any color there would be helpful.

Anthony L. Trunzo -- Chief Financial Officer

You know, it depends in terms of which were the chips are going, but it isn't just security. So it's -- it isn't only Microchip's either, I mean, from resins to many other things that they we're grinding out as other companies are doing. So I would just say that it's a variety of different areas. Securities one of the larger ones, I would say. But not the only area.

Jay Geldmacher -- President and Chief Executive Officer

Yes, I mean, we've got... It also -- go ahead, Tony. No, I was just going to say comfort also in particular comfort and security. If I had two categories -- the thermal solutions group a little bit, I mean, because I just the supply chain issues, just it's a matter of degree, which ones are more -- a bigger problem [Indecipherable] and others. But in general, I'd say, security and comfort.

Ian Zaffino -- Oppenheimer -- Analyst

Okay, great, thank you very much.

Operator

And our next question will come from the line of Erik Woodring with Morgan Stanley.

Erik Woodring -- Morgan Stanley -- Analyst

Hey guys, thanks for taking my call and congrats on the quarter. I guess, I'll throw two for you guys here. Just starting in terms of your performance in the first quarter, maybe you could just provide a little more commentary on just how P&S did, you know, across comfort versus security versus residential thermal, anything that you'd call out there? And then same for ADI on the geographic side and anything of note that you'd call out and then I have a follow-up. Thanks.

Anthony L. Trunzo -- Chief Financial Officer

On -- Eric, thanks for the questions. On the P&S side all three of the, what I'll call it the traditional business lines grew pretty robustly during the quarter. Security was clearly the strongest. ADT is terrific and significant customer of that business, they did really well. We introduced our Pro series line, which did well in the market in Q1. So security saw the most robust growth of the three segments. But all three of them showed meaningful growth.

In terms of ADI I'm trying to remember there's not a lot, EMEA did a little bit better, but there is not anything particularly dramatic in terms of their mix or anything that I call out one geography or another.

Erik Woodring -- Morgan Stanley -- Analyst

Okay. That's super helpful. And then maybe Tony or Jay, either one can take this, but big picture your leverage has dramatically improved over the last 12-months, meaning no longer have any significant maturities before 2026 you saw some ratings upgrade. So just curious how you're thinking about your target capital structure and leverage going forward? And then how you'd prioritize cash uses, given this dynamic? Thanks.

Anthony L. Trunzo -- Chief Financial Officer

Great, great question. We'll have more to say about that over the next couple of quarters. I mean, we did a rollout in an Investor Day of some of our long-term targets. We're thinking more deeply now and working through -- with a little more clarity on exactly where we want to be in terms of return metrics and those kinds of things and that really does -- that feeds into the -- kind of, the long-term capital structure. I made the comments early in my tenure at Resideo, that I would like to see us having investment grade credit profile. Our leverage and, you know, the business performance was there and but the track record in the consistency probably isn't and frankly we've got the -- a significant component of exposure in the Honeywell IRA. So, anytime, we're thinking about our leverage.

When we think about the reimbursement agreement obligation to Honeywell had something that is the amount to a fixed obligation. As we grow the business that shrinks as a proportion of the whole, but it's something we have to take into account, when thinking about the capital structure. So long way of saying we are -- I would say right now, we're in a period where we probably are carrying less leverage than we feel like we could carry a little over the long-term. If there were sensible or reasonable things from a cash deployment standpoint that would take our leverage up a little bit, we'd be comfortable doing that as long as it's within the constraints I've just described.

Jay Geldmacher -- President and Chief Executive Officer

I would just jump in with Tony. Sorry, Tony to interrupt that last thing you just said, I want to just reinforce, I think, that's a great way of framing it, is that we're being more cautious, but in the same time we've -- I think we've done a really good job of putting ourselves in the right position. We'll take advantage of opportunities as they come up.

Anthony L. Trunzo -- Chief Financial Officer

And in terms of how we deploy that capital, the prioritization is inorganic growth. The deals that you see us doing in ADI -- at ADI they are funding the cash flow, that's not a problem. They're not really of a meaningful scale, but now we have a foundation of perspective on the go-forward strategy in P&S. I mentioned earlier, we brought in as our treasurer a few months ago, somebody who has very -- he is also had a [Indecipherable] very deep M&A experience, we're building out that strategy. We're building out the roadmap to how we want to play in that market and the whole point of doing with that refinance and the capital raise last year was to put ourselves in a position, I think we used the phrase to be strategically proactive. And that's where we are -- and that's...

Jay Geldmacher -- President and Chief Executive Officer

Yes and I'd add, I think Tony said that really well and in our presentation deck there we have a one to page, slide called P&S strategic overview with the strategic pillars that I mentioned and those are the areas that, of course, that the P&S business is focused on and we just want to make sure that we have that as we move forward in each of those pillars that we have the flexibility to be able to act as we need to be it organically or M&A, but being smart about it.

Anthony L. Trunzo -- Chief Financial Officer

[Indecipherable] long answer to your question, but the only other thing I want to mention is the transformation of how are capital structure and the deleveraging of the business over the last 12 months has had a profound impact on the strategic and operational decision-making in the business. We've really been able to point people to making the best decisions for the business over the -- of reasonable time horizon over the time horizon, but we're a multi-year time horizon, as opposed to thinking about what's the cash implication or what's the EBITDA implication of something. And that was really one of the reasons why with second high priority for us early bringing the game as the new leadership team. If we wanted to take concerns about important strategic and operational decision-making, we wanted to take some of the financial concerns surrounding those decisions off the table for people. And we -- it seems like we've done that.

Erik Woodring -- Morgan Stanley -- Analyst

That was great color. Thank you very much guys.

Operator

[Operator Instructions] And our next question is going to come from the line of Paul Dirck with William Blair.

Paul Dirck -- William Blair -- Analyst

Hi, good afternoon and congrats on a good quarter.

Jay Geldmacher -- President and Chief Executive Officer

Thanks, Paul.

Anthony L. Trunzo -- Chief Financial Officer

Thank you, Paul.

Paul Dirck -- William Blair -- Analyst

So two from me, first in P&S given the robust nature of the residential market now and the very tight labor market that we're seeing nationally and then the trades. Is the value proposition that Resideo is offering to Pro strengthening? In other words are there things that you guys can do in this kind of market environment to differentiate and to grow closer to some of your contractors or some perhaps even recruit new contractors to your brands into your products?

Jay Geldmacher -- President and Chief Executive Officer

I'll jump bit first, because I get excited when you asked me that question, I'll let Tony. But, yes, I mentioned in my comments, Paul, as you know about RNC there was [Indecipherable] financial new construction and the total portfolio of products that we can offer as part of our growth together and deepening the relationship further with this great asset of Pro installs that we have out there. So that's just one of -- one big example that we've got a lot of focus and effort on. Also Phil Theodore, who is President of Products and Solutions and his team are working a lot in terms of training out there into the trades and you'll hear more about this as we move forward and that's an important part.

And one of many things to be able to as young, new people come on board in this market and in those area with the trades that they learn about us as part of [Indecipherable] were there to help support that. So your questions are really good question. But one that we're very focused on both short-term and long-term.

Tony, you got anything to add to that?

Anthony L. Trunzo -- Chief Financial Officer

Yes, hi, Paul. It's a pressing question really, because it's an area that we focused on inside of P&S is really you're right to ask the question and context of the pandemic and labor shortages, but there is a longer term challenge for our Pros, which is there their nuts and bolts, labor force and their skilled technicians [Indecipherable]. And they're not -- we're not producing those tax of the rate that is necessary in the future and we have significant engagement with a number of our customers to work with them for in areas of scholarships and supporting young folks coming into these trades, because for a whole bunch of reasons; one it's a right think to do; two it supports our customers today, but, you know, we make a fan for life, if you help you somebody with their education, right? So there is a tremendous amount of goodness associated with that.

The other thing I wanted to mention though, and Jay may will have more color on this too. When we do product design, one of the things that we're focused on is making the Pro successful. And what that really means is we make sure of in somebody's house, the product has to be, you know, we got to be trained on it, it has to be easy to install, it has to be robust and those types of -- that type of process, that type of work really improves the labor efficiency of the professionals as they're going out to the homes. So the real question really goes back all the way into our product design cycles.

Jay Geldmacher -- President and Chief Executive Officer

Yes, good feedback.

Paul Dirck -- William Blair -- Analyst

Got it. That's very helpful color, I appreciate that. I'm sure, there'll be more to come on this topic. Second question from me switching to ADI in particular on e-commerce side. The e-commerce growth in the quarter, up 60% year-over-year, very robust. I believe last year somewhere in the '20s maybe mid-upper '20s. I guess what's working there and specifically are there any changes in the marketplace or with your execution that you can point to, that has increased your effectiveness. And are now committing more investment dollars from you?

Anthony L. Trunzo -- Chief Financial Officer

It's definitely commanding more investment dollars, so there is no question about it. We have improved our e-commerce experience, I think meaningfully. But we also have a long way to go and we have product information, systems that are coming online here as part of this investment that we've been talking about that are going to improve that web experience in that e-commerce experience even more for our customers.

The other part is training and driving our customers to that portal. So what I'm going to call the -- the everyday buys. Our objective in this is one, we think it will increase sales overall and make for a better experience for our customers of ADI. But our real objective is also to free up our sales associates to be able to be consultative with our customers, and really take the -- order taking, I'd say clerical, with sort of the process pieces of the job out of their hands, move it to the web, move it to an e-commerce experience that is valuable and productive for our customers, such that our sales associates today we get tremendous performance out of can be more concentrated with the customers when they're in the branches.

Jay Geldmacher -- President and Chief Executive Officer

Yes, I think, that's -- Tony hit the nail right and the head with that and I would just add that in as you stated, Paul, I mean, we've had a nice growth since last year. So I think it gave us some opportunity through COVID and it's forced -- it helped accelerate that through COVID, because of that, there is no doubt about it. But now after we saw that -- and the markets even coming out of COVID, people are seeing, oh, how I can do this a lot easier by using a digital experience. And so as Tony said, we're investing further, it's one of our investment areas to further accelerate that. So I know Rob and his team of people at [Indecipherable] super excited about, they see the results every month.

Paul Dirck -- William Blair -- Analyst

Understood. I appreciate the thoughtful answers. Thank you.

Anthony L. Trunzo -- Chief Financial Officer

Thanks, Paul.

Operator

And at this time, it appears we have no further questions. I will turn the call over to you for any closing comments.

Jason Willey -- Vice President of Investor Relations

Yes. Just appreciate everyone's participation today on the call, please reach out, if you have any follow-ups. And we look forward to speaking with you over the coming weeks and months. Take care everyone, thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Jason Willey -- Vice President of Investor Relations

Jay Geldmacher -- President and Chief Executive Officer

Anthony L. Trunzo -- Chief Financial Officer

Michael -- Evercore ISI -- Analyst

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Ian Zaffino -- Oppenheimer -- Analyst

Erik Woodring -- Morgan Stanley -- Analyst

Paul Dirck -- William Blair -- Analyst

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