Resideo Announces Third Quarter 2023 Financial Results

Sharpened focus on portfolio optimization with sale of Genesis Cable and purchase of Sfty, a Norwegian provider of life safety monitoring technology

Expanded partnerships with leading national insurance providers, USAA and Nationwide

Identified and executed on further cost cutting initiatives

Repurchased 1.8 million shares for $30 million as part of $150 million repurchase program

SCOTTSDALE, Ariz., Nov. 1, 2023 /PRNewswire/ -- Resideo Technologies, Inc. (NYSE: REZI), a leading global manufacturer and developer of technology-driven products that provide critical home comfort, energy management, and safety and security solutions and a leading wholesale distributor of low-voltage security, life safety, audio visual, data com, and other product categories, today announced financial results for the third quarter ended September 30, 2023.

Third Quarter Financial Highlights

• Net revenue of $1.55 billion compared to $1.62 billion in the third quarter 2022
• Income from operations of $109 million, including restructuring charges of $38 million, compared to $155 million in the third quarter 2022
• Fully diluted GAAP EPS of $0.14 and non-GAAP EPS of $0.41 compared to GAAP EPS of $0.42 and non-GAAP EPS of $0.48 in the third quarter 2022
• Cash provided by operating activities of $60 million, up from $37 million in the third quarter 2022

Management Remarks

"We experienced more stable end market conditions and order activity within Products and Solutions in the third quarter, driving revenue and profitability, excluding restructuring, above the midpoint of our outlook," commented Jay Geldmacher, Resideo's President and CEO. "While volumes remain a headwind, we again drove year-over-year improvement in Products and Solutions gross margin through a focus on input cost reductions and benefits from labor cost management."

"We executed on a number of important strategic initiatives during the quarter, including reaching an agreement to sell our non-strategic Genesis Cable business at an attractive multiple, actioning additional structural cost reductions across the organization, deepening our relationship within the insurance channel, and opening our new Dallas, TX distribution super center supporting ADI. We continue to actively work on opportunities to optimize our portfolio and operational footprint, which in conjunction with the restructuring undertaken over the past 12 months creates significant opportunity for future profitability expansion. Despite a challenging market environment, I am confident that we are taking the necessary steps to position the business for profitable growth and we remain focused on executing against our strategic priorities."

Products and Solutions Third Quarter 2023 Highlights

• Net revenue of $654 million, down 7% compared to the third quarter 2022
• Gross margin of 38.7%, up 250 basis points compared to the third quarter 2022
• Operating profit of $107 million, including $25 million of restructuring costs, compared to $124 million in the third quarter 2022
• Completed the sale of Genesis Cable business for $87.5 million with transaction closing on October 16

Products and Solutions delivered net revenue of $654 million in the third quarter 2023, down 7% compared to third quarter 2022. Volume declines in the quarter were partially offset by price realization. First Alert smoke and CO detector product sales again performed well, driven by continued expansion in the home builder channel. Inventory remains extended in the HVAC distribution channel and overall end customer demand is being negatively impacted by slower existing home turnover and reduced new home construction.

Gross margin for the quarter was 38.7%, compared to 36.2% in the third quarter 2022. Gross margin expansion reflects improving material costs, reduced freight, and lower direct labor spending, partially offset by lower volumes. Operating profit for the quarter was $107 million or 16.4% of revenue, down from 17.5% in third quarter 2022. Selling, general and administrative and research and development expenses were down $8 million and down $2 million compared to third quarter 2022 as cost savings were partially offset by inflation and targeted investment. Included in the quarter was $25 million in restructuring costs.

During the quarter the company announced an agreement for the sale of Genesis Cable for $87.5 million. The sale, which closed on October 16, 2023, is part of ongoing work to optimize the Products and Solutions product portfolio through identifying and actioning non-core assets to sharpen the focus on core long-term strategic initiatives. Also completed during the third quarter was the purchase of Sfty, a small Norwegian-based provider of life safety monitoring technology for multi-family buildings.

ADI Global Distribution Third Quarter 2023 Highlights

• Net revenue of $900 million, down 1% compared to the third quarter 2022
• Gross margin of 18.3%, down 100 basis points compared to the third quarter 2022
• Operating profit of $60 million, including $10 million of restructuring costs, compared to $78 million in the third quarter 2022
• Continued expansion of digital initiatives, including 5% growth in e-commerce sales compared to third quarter 2022

ADI third quarter 2023 net revenue of $900 million was down $11 million compared to the third quarter 2022. Sales decline in North America was partially offset by growth in the EMEA region. ADI saw strength in the access control category but continued slower demand within residential security category. ADI's e-commerce channel grew 5% in the third quarter 2023 compared to the prior year period, representing 19% of total ADI net revenue, as the business continues to invest in the expansion of digital capabilities. Overall touchless revenue was 38% of ADI's total revenue in the quarter.

Gross margin of 18.3% in the third quarter 2023 was down 100 basis points compared to third quarter 2022. The reduction was driven by reduced inflationary pricing benefits that drove higher margin in the comparable period and lower product line margin. Selling, general and administrative expenses were $93 million in third quarter 2023, down 3% compared to 2022, reflecting increased focus on cost management. Investment is continuing to support digital initiatives and system enhancements. Operating profit of $60 million for third quarter 2023 was down 23% from $78 million in third quarter 2022 and included a $10 million restructuring charge.

During the quarter, ADI opened its Dallas super center, a cutting-edge facility designed to optimize supply chain operations, enhance customer service, and provide capacity for continued growth. The new super center represents a significant investment in ADI's supply chain operations and reinforces the businesses' commitment to serving customers.

Third Quarter 2023 Financial Performance

Consolidated net revenue was $1.55 billion in third quarter 2023 compared with the prior year third quarter revenue of $1.62 billion. Gross profit margin was 26.8%, up 20 basis points compared to 26.6% in the prior year third quarter. Operating profit of $109 million in third quarter 2023 compared to the prior year quarter's operating profit of $155 million was down 30%, primarily driven by $38 million in restructuring costs. Total Corporate costs were $58 million, up $11 million from the prior year quarter, driven by $3 million of restructuring costs, timing of expected costs, and an $8 million gain in the prior year quarter. Net income for third quarter 2023 was $21 million, or $0.14 per diluted common share, compared with $63 million, or $0.42 per diluted common share, in the third quarter 2022. Non-GAAP EPS was $0.41 compared with $0.48 in the third quarter last year.

Cash Flow and Liquidity

Net cash provided by operating activities of $60 million in third quarter 2023 compared to $37 million in the third quarter 2022. The increase was driven by working capital improvements compared to the prior year period. At September 30, 2023, Resideo had cash and cash equivalents of $368 million and total outstanding debt of $1.41 billion.

Share Repurchase

As part of the $150 million share repurchase program authorized in early August 2023, Resideo repurchased 1.8 million shares during the third quarter 2023 at a total cost of $30 million.

Outlook

The following table summarizes the Company's current fourth quarter 2023 and updated full year 2023 outlook. This outlook reflects the sale of Genesis in mid-October, which reduces our previously communicated 2023 outlook by approximately $25 million of revenue and $4 million of operating income.

Conference Call and Webcast Details

Resideo will hold a conference call with investors on November 1, 2023, at 5:00 p.m. ET. An audio webcast of the call will be accessible at https://investor.resideo.com, where related materials will be posted before the call. A replay of the webcast will be available following the presentation. To join the conference call, please dial 888-660-6357 (U.S. toll-free) or 1-929-201-6127 (international), with the conference title "Resideo Third Quarter 2023 Earnings" or the conference ID: 7301399.

About Resideo 

Resideo is a leading global manufacturer and developer of technology-driven products and components that provide critical comfort, energy management, and safety and security solutions to over 150 million homes globally. Through our ADI Global Distribution business, we are also a leading wholesale distributor of low-voltage security and life safety products for commercial and residential markets and serve a variety of adjacent product categories including audio visual, data com, wire and cable, and smart home solutions. For more information about Resideo, please visit www.resideo.com.

Forward-Looking Statements
This release contains "forward-looking statements." All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks and uncertainties, which may cause the actual results or performance of the Company to differ materially from such forward-looking statements. Such risks and uncertainties include, but are not limited to, (1) our ability to achieve our outlook regarding the fourth quarter 2023 and full year 2023, (2) our ability to recognize the expected savings from, and the timing and impact of, our existing and anticipated cost reduction actions, and our ability to optimize our portfolio and operational footprint (3) the disruption to our business and global economy caused by the lingering effects of COVID-19, (4) the amount of our obligations and nature of our contractual restrictions pursuant to, and disputes that have or may hereafter arise under the agreements we entered into with Honeywell in connection with our spin-off, (5) risks related to our recently completed acquisitions including our ability to achieve the targeted amount of annual cost synergies and successfully integrate the acquired operations (including successfully driving category growth in connected offerings), (6) the Company's announced share repurchase program, the timing, purchase price and number of additional shares purchased under such program, if at all, the sources of funds under the repurchase program and the impacts of the repurchase program, and (7) the other risks described under the headings "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" in our Annual Report on Form 10-K for the year ended December 31, 2022 and other periodic filings we make from time to time with the Securities and Exchange Commission. Forward-looking statements are not guarantees of future performance, and actual results, developments, and business decisions may differ from those envisaged by our forward-looking statements. Except as required by law, we undertake no obligation to update such statements to reflect events or circumstances arising after the date of this press release and we caution investors not to place undue reliance on any such forward looking statements.

Use of Non-GAAP Measures
This press release and accompanying earnings material includes certain "non-GAAP financial measures" as defined under the Securities Exchange Act of 1934 and in accordance with Regulation G. Management believes the use of such non- GAAP financial measures assists investors in understanding the ongoing operating performance of the Company by presenting the financial results between periods on a more comparable basis. Such non-GAAP financial measures should not be construed as an alternative to reported results determined in accordance with U.S. GAAP.

The Company discloses a tabular comparison of Non-GAAP Adjusted Net Income, Non-GAAP Adjusted Net Income per diluted common share, Non-GAAP Adjusted EBITDA, and Non-GAAP Adjusted Income from Operations, each of which is a non-GAAP measure, because management believes that they are instrumental in comparing the results from period to period. Non-GAAP Adjusted Net Income, Non-GAAP Adjusted Net Income per diluted common share, Non-GAAP Adjusted EBITDA, and Non-GAAP Adjusted Income from Operations should not be considered in isolation or as a substitute for Net Income, Net Income per diluted common share or Income from operations, as applicable, as reported on the face of our consolidated statements of operations. We define Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Net Income per diluted common share as Net Income and Net income per diluted common share, respectively, as set forth on the face of our consolidated statements of operations, adjusted for the following items: pension settlement loss, restructuring and impairment expenses; acquisition/divestiture related costs, divestiture loss, litigation settlement, net of insurance proceeds, Tax Matters Agreement gain, foreign exchange transaction loss (income), and tax effect of applicable non-GAAP adjustments. We define Non-GAAP Adjusted EBITDA as Net Income as set forth on the face of our consolidated statements of operations, adjusted for the following items: provision for income taxes; depreciation and amortization; interest expense, net; stock-based compensation expense, pension settlement loss, restructuring and impairment expenses; acquisition/divestiture related costs, divestiture loss, litigation settlement, net of insurance proceeds, and Tax Matters Agreement gain, and foreign exchange transaction loss (income). We define Non-GAAP Adjusted Income from Operations as Income from operations as set forth on the face of our consolidated statements of operations, adjusted for the following items: stock-based compensation expense, restructuring and impairment charges, and acquisition/divestiture related costs. We have included reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and provided in accordance with U.S. GAAP at the end of this release.

Table 1: SUMMARY OF FINANCIAL RESULTS (UNAUDITED)

Table 2: CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Table 3: CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Table 4: CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SOURCE Resideo Technologies, Inc.