Resideo Technologies, Inc. (REZI) is a leading global manufacturer, developer, and distributor of technology-driven sensing and controls products and solutions for residential and commercial end-markets. With a rich history dating back over a century, the company has established itself as a trusted brand trusted by homeowners and businesses alike.
Business Segments
Resideo's business is organized into two primary segments: Products & Solutions and ADI Global Distribution. The Products & Solutions segment focuses on the manufacture and development of critical comfort, energy, safety, and security products, while the ADI Global Distribution segment operates as a leading wholesale distributor of low-voltage security and smart-living products.
Company History
Resideo Technologies, Inc. was formed in 2018 when it was spun off from Honeywell International Inc. as an independent publicly traded company. Prior to the spin-off, Resideo's business had been part of Honeywell's Homes and Global Products business unit. In the early years following the spin-off, Resideo faced some challenges as it worked to establish itself as an independent public company. The company had to build out its own corporate functions and infrastructure that had previously been provided by Honeywell. Resideo also had to navigate the transition of taking on the Reimbursement Agreement and Tax Matters Agreement with Honeywell, which required making regular payments to Honeywell.
Business Development
Despite these early challenges, Resideo made progress in strengthening its business. The company focused on improving its operations, reducing costs, and investing in new product development. In 2021, Resideo acquired Soundhound, a provider of voice assistant and conversational AI technology, to enhance its smart home capabilities. In 2024, Resideo took a major step in expanding its distribution business through the acquisition of Snap One, a leading wholesale distributor of low-voltage security and smart home products. This acquisition aligned with Resideo's strategic objective to enhance its competitive positioning in the smart home and audio-visual sectors. The integration of Snap One into Resideo's ADI Global Distribution segment has been progressing well, with the realization of cost synergies exceeding initial expectations.
Products & Solutions Segment
The company's Products & Solutions segment has a strong track record of innovation, with a steady cadence of new product introductions to address evolving consumer needs. In 2024, Resideo launched the Focus Pro thermostat and VISTA security products, which have been well-received by customers. The segment has also experienced consistent year-over-year gross margin expansion, driven by structural improvements that have increased operational efficiency.
In the three months ended September 28, 2024, the Products and Solutions segment generated $645 million in net revenue, a decrease of 1% compared to the same period in 2023. However, income from operations for this segment increased 36% to $128 million, driven by lower material, freight and other manufacturing costs, lower restructuring costs, and favorable pricing impacts. For the nine months ended September 28, 2024, the Products and Solutions segment reported a 4.7% decrease in net revenue to $1.90 billion, but an 18% increase in income from operations to $370 million. The decline in revenue was primarily due to the divestiture of the Genesis business in the fourth quarter of 2023, lower sales volume, and unfavorable foreign currency fluctuations, which were partially offset by price increases.
ADI Global Distribution Segment
Meanwhile, the ADI Global Distribution segment has demonstrated resilience in the face of a mixed macroeconomic environment. In 2024, ADI achieved 2% organic net revenue growth, overcoming soft market conditions during the first half of the year. The segment's e-commerce and exclusive brand initiatives have been particularly successful, with e-commerce net revenue growing 22% year-over-year and exclusive brand net revenue increasing 34%.
In the third quarter of 2024, the ADI Global Distribution segment's net revenue increased 31.4% to $1.18 billion, driven by $251 million in revenue from the Snap One acquisition and higher sales volumes, partially offset by unfavorable price impacts. However, income from operations for this segment decreased 31% to $36 million, primarily due to unfavorable sales mix, incremental operating losses from the Snap One acquisition, higher restructuring costs, and increased operational and integration costs. For the nine months ended September 28, 2024, ADI Global Distribution reported a 10.8% increase in net revenue to $3.01 billion, but a 21% decrease in income from operations to $147 million due to similar factors affecting the quarterly results.
Financials
Resideo's financial performance in 2024 was strong, with the company exceeding the high end of its annual guidance on multiple metrics. Total net revenue reached approximately $6.8 billion, an 8% year-over-year increase, while adjusted EBITDA grew 17% to around $700 million. Notably, the company generated a record $444 million in cash from operations, well above its initial outlook of at least $375 million.
For the full fiscal year 2024, Resideo reported revenue of $6.76 billion, net income of $110 million, operating cash flow of $444 million, and free cash flow of $362 million. In the most recent quarter (Q4 2024), revenue was $1.86 billion, up 21% year-over-year. Net income for the quarter was $21 million, with operating cash flow of $147 million and free cash flow of $135 million. The increase in revenue was driven by 39% growth in the ADI Global Distribution segment, including $251 million from the acquisition of Snap One. The Products and Solutions segment saw a 1% organic revenue decline, offset by the Snap One acquisition.
2025 Outlook
Looking ahead to 2025, Resideo expects both of its business segments to achieve year-over-year net revenue growth. The company forecasts total net revenue to be in the range of $7.285 billion to $7.485 billion, with 100 to 150 basis points of total company gross margin expansion. Resideo also anticipates generating $345 million to $405 million in cash from operations, demonstrating the durability of its cash flow generation.
For 2025, Resideo provided the following detailed financial outlook: - Total company adjusted EBITDA in the range of $725 million to $805 million - Total company fully diluted earnings per share in the range of $2.23 to $2.47
For Q1 2025, Resideo provided the following financial outlook: - Total company net revenue in the range of $1.72 billion to $1.77 billion - Total company adjusted EBITDA in the range of $150 million to $170 million - Total company fully diluted earnings per share in the range of $0.27 to $0.33
The company expects ADI's growth rate to be higher than that of Products & Solutions in 2025. Additionally, Resideo anticipates higher gross margins for each business segment in 2025 compared to 2024 and plans to invest in strategic growth initiatives for both business segments.
Liquidity
Resideo has demonstrated strong cash flow generation, as evidenced by its record $444 million in cash from operations in 2024. The company's outlook for 2025 includes continued robust cash flow, with expectations of $345 million to $405 million in cash from operations. This strong liquidity position provides Resideo with financial flexibility to invest in growth initiatives and navigate potential economic challenges.
As of the most recent reporting period, Resideo's liquidity position includes: - Debt/Equity ratio: 0.60 - Cash and cash equivalents: $531 million - Available credit line: $500 million revolving credit facility - Current ratio: 1.77 - Quick ratio: 1.08
Risk Factors
One potential risk factor for Resideo is the uncertain macroeconomic environment, including the potential impact of tariffs. However, the company has developed a comprehensive contingency plan to mitigate these risks, including commercial actions, price increases, and operational and supply chain adjustments.
The acquisition of Snap One in June 2024 expanded Resideo's distribution capabilities and product portfolio in the smart home and audio-visual sectors. However, the integration of Snap One has presented some challenges, including reliance on independent integrators to sell and install its solutions, exposure to supply chain disruptions from its manufacturing facilities in Asia, and additional operational costs. Resideo will need to effectively manage these integration and operational risks to fully realize the strategic benefits of the Snap One acquisition within its ADI Global Distribution segment.
Conclusion
Overall, Resideo's diversified business model, focus on innovation, and track record of strong financial performance make it a compelling investment opportunity in the home comfort and security space. The company's guidance for continued revenue growth, margin expansion, and robust cash flow generation suggest a bright future ahead. With its strong market position in both the Products & Solutions and ADI Global Distribution segments, Resideo is well-positioned to capitalize on the growing demand for smart home technologies and security solutions. The successful integration of Snap One and the realization of synergies from this acquisition will be key factors to watch in the coming years as Resideo continues to expand its presence in the smart home and audio-visual markets.