Resideo Technologies, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; it does not provide a clear standalone fourth-quarter income statement. Unless stated otherwise, financial amounts are in millions of dollars.
Business context
Resideo manufactures comfort, residential thermal and security products and operates ADI Global Distribution, a wholesale distributor of low-voltage security and related products. FY2021 revenue was split 42.2% Products & Solutions and 57.8% ADI Global Distribution. The company cited improved customer demand and transformation initiatives, alongside continuing supply-chain constraints and inflation.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $5,846 | $5,071 |
| Gross profit / margin | $1,561 / 27% | $1,313 / 26% |
| Operating profit | $559 | $311 |
| Net income | $242 | $37 |
| Diluted earnings per share | $1.63 | $0.29 |
| Operating cash flow | $315 | $244 |
| Investing cash flow | $(65) | $(103) |
| Cash and cash equivalents at year-end | $779 | $517 |
Year-end debt was $1,230 net of deferred financing costs; scheduled principal was $1,243, including $10 due within 12 months. The $500 revolving facility had no borrowings or letters of credit outstanding. The company reported $876 in accounts receivable, $740 in inventory and $883 in accounts payable. It paid $140 to Honeywell under the Reimbursement Agreement in 2021.
Products & Solutions external revenue rose 16% to $2,468 and operating profit rose 33% to $541 (22% margin). ADI Global Distribution revenue rose 15% to $3,378 and operating profit rose 38% to $268 (8% margin). The effective tax rate was 31%, versus 64% in 2020.
Material changes versus FY2020
- Revenue increased 15%, principally from higher volume and sales-price increases. Gross margin improved one percentage point: price and mix and higher volume benefits more than offset higher freight and material costs.
- Operating profit increased to $559 from $311 and net income to $242 from $37. The comparison reflects higher sales and cost savings, as well as prior-year pandemic effects; FY2021 also included $41 of debt-extinguishment costs.
- Operating cash flow increased $71, but higher receivables and inventory and lower accounts payable partly offset stronger earnings.
- In 2021, Resideo refinanced its credit facilities, redeemed the $400 of 6.125% notes due 2026 and issued $300 of 4% notes due 2029. It recorded $41 of debt-extinguishment costs.
Outlook, risks and unusual items
- Management said visibility remained limited amid COVID-19 uncertainty and expected challenging conditions, including shortages of key components, labor shortages, material-price inflation and higher freight costs. Its stated responses included expense control, adjusting production to demand and pursuing productivity improvements. No quantified FY2022 earnings or revenue guidance is provided in the supplied filing text.
- Liquidity: management said existing cash and credit availability were sufficient for projected needs through at least the next 12 months and longer term. On February 6, 2022, Resideo agreed to acquire First Alert for $593, subject to customary conditions and regulatory approvals, with expected funding from cash and incremental term-loan borrowings.
- The Honeywell Reimbursement Agreement liability was $597 at year-end and includes a $140 annual payment cap; management says payments could continue until 2043 or until the agreement’s specified early-termination condition is met. The company’s obligation is based on certain environmental liabilities managed by Honeywell, and ultimate amounts and timing remain uncertain.
- A securities class-action settlement of $55, with approximately $39 of expected insurance recoveries, had been placed in escrow pending court approval. The court had taken the approval motion under advisement as of the filing.
- Other notable risks include supplier and component concentration, competition and changing distribution channels, cybersecurity and privacy, international and foreign-exchange exposure, environmental and legal contingencies, and restrictions under debt and Honeywell agreements. The company reported $22 of estimated environmental liabilities for its own sites. Its financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Key facts for investors to verify
- Whether price increases and transformation savings can continue to offset materials, freight and labor inflation without weakening demand or margins.
- First Alert’s closing, financing, integration and contribution to results following the announced $593 acquisition.
- The status and final terms of court approval for the securities settlement, including the net cash cost after insurance.
- Changes in the $597 Honeywell Reimbursement Agreement liability, annual payments, and any related cash-flow or covenant constraints.
- Debt balances, variable-rate exposure and refinancing or interest costs; $943 of debt was variable-rate before interest-rate swaps, and the filing estimates a 100-basis-point rate increase would add about $4 to annual interest expense.
- Working-capital trends, particularly inventory and receivables, and their effect on operating cash conversion.