Resideo Technologies, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual filing, not a standalone fourth-quarter report. Resideo manufactures home comfort, energy-management, safety and security products and distributes low-voltage products through its ADI Global Distribution business.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | $6.370 billion | $5.846 billion |
| Gross profit / margin | $1.766 billion / 27.7% | $1.584 billion / 27.1% |
| Operating income / margin | $611 million / 9.6% | $559 million / 9.6% |
| Net income | $283 million | $242 million |
| Diluted EPS | $1.90 | $1.63 |
| Operating cash flow | $152 million | $315 million |
| Cash and cash equivalents at year-end | $326 million | $775 million |
| Gross debt at year-end | $1.431 billion | $1.243 billion |
- Revenue rose 9.0%, with $427 million from acquisitions and $368 million from higher selling prices; lower volume ($110 million) and unfavorable currency ($161 million) partly offset growth.
- Gross margin improved 60 basis points. Price and mix contributed 200 basis points, partly offset by inflation-related costs (80 basis points) and lower volume leverage (60 basis points).
- Operating cash flow fell $163 million, primarily reflecting working-capital investment. Investing cash outflow was $764 million, including $665 million for acquisitions; financing cash flow was $170 million.
- Year-end current assets were $2.502 billion and current liabilities $1.546 billion. The company reported a $500 million revolving credit facility with no borrowings or letters of credit outstanding at year-end.
- Variable-rate Term B debt had a 6.78% weighted-average rate at year-end, versus 2.75% in 2021. Management estimated that a 100-basis-point rate increase would add about $6 million to annual interest expense.
Segments and material changes
- Products and Solutions: Revenue increased 13% to $2.783 billion, mainly reflecting First Alert and pricing. Operating income declined 3% to $527 million, as lower volume, restructuring costs and currency effects offset pricing net of inflation.
- ADI Global Distribution: Revenue increased 6.2% to $3.587 billion; operating income increased 16.8% to $313 million, helped by price and mix net of inflation.
- 2022 acquisitions included First Alert, Arrow Wire and Cable, Electronic Custom Distributors and Teknique. First Alert contributed $341 million of revenue after its March 31 acquisition. BTX Technologies was acquired in January 2023, after year-end.
- Cash declined by $449 million on the balance sheet year over year. Inventory rose to $975 million from $740 million, while accounts receivable increased to $1.002 billion from $876 million.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management described limited visibility amid macroeconomic uncertainty, supply constraints, inflation, inventory destocking, foreign-exchange headwinds and housing-market sensitivity. It cited price increases, supplier actions and cost/productivity measures in response.
- Backlog at December 31, 2022 was approximately $240 million for Products and Solutions and $185 million for ADI; the company expected to fill all of it during 2023.
- Fourth-quarter restructuring and impairment expenses were $35 million; management expected to execute the programs over 12–24 months. Total FY2022 restructuring and impairment expense was also $35 million.
- The Honeywell Reimbursement Agreement is a significant cash-flow and estimation risk. Resideo recorded a $614 million liability for probable and reasonably estimable reimbursement obligations, paid Honeywell $140 million in 2022, and recorded $157 million of related expense. Payments are capped at $140 million per year for covered liabilities, but obligations may continue until 2043 or an earlier contractual endpoint; ultimate amounts and timing remain uncertain. Tax Matters Agreement liabilities were $106 million at year-end.
- Other stated risks include supplier and semiconductor availability, inflation, competition, cybersecurity, regulatory and environmental exposure, and international, currency and interest-rate risks. The company reported $22 million of liabilities for environmental matters at its own sites. A putative consumer class action concerning alarm-system standards was at an early stage, with potential liability not estimable; a derivative-litigation settlement remained subject to court approval and included up to $1.6 million in plaintiffs’ legal fees.
- The company had no outstanding foreign-currency hedges at year-end. It paid no cash dividends and said it did not currently intend to do so.
Important facts for investors to verify
- Track whether working capital converts into cash and whether the lower operating cash flow is sustained or reverses.
- Assess acquisition integration and segment profitability, particularly Products and Solutions operating-income performance.
- Monitor variable-rate debt costs, covenant headroom and availability of the revolving facility.
- Review Honeywell reimbursement estimates, annual cash payments, related restrictions and any changes to the recorded liability.
- Check restructuring execution and costs, backlog conversion, and demand trends amid inflation and housing-market uncertainty.
- Note that First Alert was excluded from management’s 2022 internal-control assessment while being integrated; the independent auditor nevertheless issued unqualified opinions on the financial statements and internal control over financial reporting.