ADI Global Distribution Inc. Common Stock (NYSE:ADIG) reported record second-quarter revenue as commercial demand remained resilient, helping offset continued weakness in residential audiovisual markets. The company also initiated its full-year 2026 outlook following its August spin-off from Resideo.
Chief Executive Officer Rob Aarnes said the quarter marked ADI’s first earnings call as a standalone public company. The distributor, which serves professional installers and integrators across security, fire and life safety, residential AV, Pro AV and Datacom, began trading on the New York Stock Exchange on Aug. 4.
Commercial Categories Offset Residential AV Weakness
Aarnes said approximately 70% of ADI’s 2025 revenue came from commercial end markets, where demand is supported by retrofit, replacement and technology upgrade activity in addition to new construction. He said commercial demand remained resilient during the quarter.
- Datacom revenue rose in the low teens.
- Commercial security increased in the mid-single digits.
- Pro AV grew in the low single digits.
- Residential audiovisual remained weak amid a soft U.S. housing environment.
“We have yet to see signs of meaningful recovery” in residential AV, Aarnes said. However, he said ADI is continuing to invest in its portfolio and new products to position the business for an eventual housing-market recovery.
During the question-and-answer session, Aarnes said commercial security had returned to mid-single-digit growth and that the company had recovered most of the share it believes it lost during last year’s enterprise resource planning, or ERP, system disruption. He cited demand trends in video surveillance, access control, fire and life safety, as well as the company’s backlog and daily sales trends, as supporting confidence in the second half.
Margins Affected by Costs, Mix and Tariff Items
Gross profit increased $9 million from the prior-year period to $292 million, while gross margin expanded 50 basis points to 22.7%. Chief Financial Officer Mike Carlet said the quarter included about $20 million in tariff-related refunds from the U.S. government recorded in cost of goods, benefiting gross margin by approximately 160 basis points.
Excluding the refund effect, Carlet said gross margin faced pressure from a difficult comparison with prior-year tariff-related pricing actions, higher freight, fuel and tariff-related product costs, and business mix. Exclusive brands revenue, which is concentrated in the challenged residential market, declined nearly 3% year over year.
Adjusted EBITDA was $86 million, or 6.7% of revenue, compared with $95 million, or 7.4% of revenue, a year earlier. Selling, general and administrative expense rose $16 million to $206 million, largely reflecting merit and inflation-related employee costs, temporary rent costs from overlapping facilities, and higher allocated Resideo corporate expenses.
ADI reported net income of $6 million, compared with a net loss of $283 million in the second quarter of 2025. The prior-year period included $331 million of expense associated with the Honeywell indemnification agreement that was allocated to ADI.
Cost Program and Exclusive Brands Strategy
Management said its One ADI initiative is intended to simplify operations and improve the customer experience through the company’s fully implemented ERP platform and enterprise data capabilities. The initiative includes consolidating systems and websites, standardizing processes, optimizing pricing, and modernizing distribution and store operations.
ADI expects approximately $30 million of gross savings in 2026 from organizational alignment, Snap One integration synergies, and optimization of its store, distribution and technology footprint. Most of the benefit is expected in the second half, according to Carlet. Actions taken to date are expected to generate about $60 million of annualized gross savings, and the company continues to target at least $80 million in annualized gross savings by the end of 2027.
Aarnes said exclusive brands represented roughly 18% of 2025 revenue and carry a meaningfully higher margin profile. While a majority of the approximately $800 million exclusive-brands business is tied to residential AV, ADI plans to increase attachment of those products across its legacy customer base and expand selected offerings into commercial applications.
Management also discussed a transition away from a significant supplier that it said no longer meets market needs. Carlet said the change is expected to create about $6 million of second-half gross-margin headwinds, split roughly evenly between one-time inventory-transition costs and lower margins on alternative products. He said ADI has already completed most of the transition and does not expect a material revenue impact.
Outlook, Cash Flow and Leverage
ADI expects second-half revenue growth in the mid-single digits, with average daily sales growth about two percentage points higher because of four fewer selling days. The outlook assumes continued commercial-category strength and does not assume a recovery in residential AV.
The company said it expects second-half gross-margin rates to be consistent with first-half levels excluding the second-quarter tariff rebates. At the midpoint of guidance, standalone adjusted EBITDA is expected to rise modestly year over year in the second half, supported by stronger revenue growth and slightly lower operating expenses, partially offset by gross-margin pressure.
For full-year 2026, ADI projected:
- Revenue of $4.95 billion to $5.0 billion.
- Pro forma standalone adjusted EBITDA of $275 million to $295 million.
Net cash used in operating activities was $76 million during the first half, compared with $32 million of cash provided a year earlier. Carlet attributed the change primarily to working-capital use, including supplier-payment timing and higher inventory levels, along with annual cash payments concentrated in the first half. He said operating cash flow is expected to improve in the second half.
Following the spin-off, ADI had approximately $1 billion of long-term debt and about $150 million of cash, resulting in net debt of roughly $850 million and net leverage of approximately 3.0 times adjusted EBITDA. Including its undrawn $500 million revolving credit facility, the company said it began as an independent company with $650 million of liquidity.
ADI’s near-term capital allocation priority is reducing leverage toward its long-term target of about 2.0 times total net leverage, while retaining flexibility for organic investments and potential tuck-in acquisitions.
About ADI Global Distribution Inc. Common Stock (NYSE:ADIG)
ADI Global Distribution, Inc is a wholesale distributor serving the security, low-voltage, and smart-building technology markets. The company supplies products from multiple manufacturers to professional installers, systems integrators, contractors, and other channel partners rather than selling primarily to consumers.
Its product categories include video surveillance equipment, access-control systems, intrusion and fire-alarm products, networking and data-communications equipment, audio-visual solutions, smart-home technologies, and related wire, cable, and installation accessories.
