Resideo Technologies, Inc. — Q1 2024 Form 10-Q
Reporting period: Unaudited quarter ended March 30, 2024; comparison is the three months ended April 1, 2023. Amounts are in millions of dollars except per-share data.
Business context and financial performance
Resideo manufactures home comfort, energy, safety and security products and operates ADI Global Distribution, a wholesaler of low-voltage products. It reports two segments: Products and Solutions and ADI Global Distribution.
| Metric | Q1 2024 | Prior comparable quarter | Change |
|---|---|---|---|
| Revenue | $1,486 | $1,549 | Down $63 (4.1%) |
| Gross profit / margin | $400 / 26.9% | $418 / 27.0% | Down $18; margin down 10 bps |
| Operating income / margin | $128 / 8.6% | $138 / 8.9% | Down $10 |
| Net income | $43 | $57 | Down $14 (24.6%) |
| Diluted EPS | $0.29 | $0.38 | Down $0.09 |
| Operating cash flow | $2 | Use of $4 | Improved $6 |
Revenue declined primarily from lower sales volume ($38) and the Genesis Cable divestiture ($35), partly offset by higher pricing ($6) and favorable foreign exchange ($4). Gross margin was pressured by an unfavorable product mix, partly offset by lower material, freight and manufacturing costs and pricing. SG&A fell $13, attributed mainly to cost-saving actions; restructuring expense rose to $7 from $2.
Segments: Products and Solutions revenue was $620, down 6%; operating income increased to $112 from $105. ADI Global Distribution revenue was $866, down 2.8%; operating income fell to $49 from $64. ADI cited weaker volume and unfavorable mix, including softness in residential security, access control and video, partly offset by growth in fire and data communications.
Cash, debt and liquidity
Cash and cash equivalents were $603 at quarter-end, down from $636 at December 31, 2023; 35% was held by foreign subsidiaries. Operating cash flow was $2, capital expenditures were $21, investing cash outflow was $22, and financing cash outflow was $8. Cash, cash equivalents and restricted cash decreased $33 to $604.
Balance-sheet debt was $1,406, comprising $12 current and $1,394 long-term; gross principal debt was $1,417. The debt included $300 of 4.00% notes due 2029 and a $1,117 variable-rate term loan. The company had no revolver borrowings or letters of credit under its $500 revolving facility and reported covenant compliance. The term-loan rate, excluding swaps, was 7.69%. Interest-rate swaps covered $560 of notional debt; management estimated a 100-basis-point rate increase would add approximately $6 to annual interest expense. Management believes cash and available credit are sufficient for requirements through at least the next 12 months.
Outlook, material events and risks
Management expects 2024 revenue to be flat to down low-single-digits year over year. Its market assumptions include residential repair and remodeling flat to down low-single-digits, residential new-construction starts up low- to mid-single-digits, and low-single-digit growth in ADI’s key commercial markets, with continued residential-security headwinds. The outlook excludes the proposed Snap One acquisition. Management noted moderating demand and customer inventory rebalancing, alongside uncertainty around inflation, interest rates, consumer spending, labor costs, foreign exchange and geopolitical disruption.
On April 15, 2024, after quarter-end, Resideo announced an agreement to acquire Snap One for $10.75 per share in cash, with transaction value of approximately $1.4 billion including net debt. Closing is expected in the second half of 2024, subject to customary conditions and regulatory approvals. Planned funding includes committed debt financing, cash on hand and a $500 preferred-equity investment from CD&R; the preferred carries a 7% coupon, payable in cash or payment-in-kind at Resideo’s option, and a $26.92 conversion price. CD&R would have rights to designate two directors upon closing.
Significant contingencies include Honeywell indemnification obligations. The recorded liability under the Reimbursement Agreement and Tax Matters Agreement totaled $757, including $660 under the Reimbursement Agreement; Resideo paid Honeywell $35 in the quarter. Management cannot reasonably estimate the ultimate amount or timing of future indemnification payments, which could materially affect results or operating cash flows. The filing also describes environmental liabilities, including $22 deemed probable and estimable, and a California employee class-action matter for which management estimated potential liability as immaterial. The filing reported no material changes to previously disclosed risk factors. A $38 asset held for sale was under contract and sold in Q2.
Investor facts to verify
- Whether demand, inventory normalization and segment mix develop in line with the full-year revenue outlook, and how the Genesis divestiture affects comparisons.
- Snap One transaction approvals, closing timing, financing terms, preferred-equity dilution and resulting leverage; these were proposed transaction terms, not completed-quarter results.
- The timing and ultimate cash cost of Honeywell reimbursement and tax indemnification obligations, including potential environmental claims.
- Whether restructuring actions deliver anticipated savings and margins, given that additional restructuring costs may arise and total program costs were not estimable.
- Cash conversion and working-capital trends, and exposure to variable interest rates, foreign currency, macroeconomic conditions and customer demand.