Resideo Technologies, Inc. (NYSE:REZI) is a leading global manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security. The company operates through two main segments: Products and Solutions, and ADI Global Distribution.
Business Overview
The Products and Solutions segment is a leading global manufacturer and developer of technology-driven products that provide critical comfort, energy, smoke and carbon monoxide detection, and home safety and security solutions to over 150 million homes globally. Its offerings include temperature and humidity control, thermal water and air solutions, as well as security panels, sensors, peripherals, communications devices, video cameras, and other home-related lifestyle convenience solutions.
The ADI Global Distribution segment is a leading wholesale distributor of low-voltage security products including access control, fire detection, security, and video products. It also participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable.
Financials
In the first quarter of 2024, Resideo reported revenue of $1.49 billion, down 4.1% year-over-year. This decline was primarily driven by lower sales volume of $38 million and $35 million from the divestiture of the Genesis Cable business during the fourth quarter of 2023. These decreases were partially offset by higher selling prices of $6 million and favorable foreign currency fluctuations of $4 million.
The company's gross profit for the quarter was $400 million, a decrease of $18 million or 4.3% compared to the same period in 2023. Gross margin was 26.9%, down 10 basis points year-over-year. The change in gross margin was driven by an unfavorable margin mix shift of 170 basis points, partially offset by 80 basis points of favorable material, freight and other manufacturing costs, 70 basis points of favorable pricing, and 10 basis points from the divestiture of the Genesis Cable business, foreign currency and other.
Income from operations for the first quarter was $128 million, or 8.6% of revenue, compared to $138 million, or 8.9% of revenue, in the first quarter of 2023. Net income for the quarter was $43 million, or $0.29 per diluted share, compared to $57 million, or $0.38 per diluted share, in the prior year period.
For the full year 2024, Resideo is guiding for revenue in the range of $6.08 billion to $6.28 billion and adjusted EBITDA of $560 million to $640 million. The company expects to generate at least $320 million of operating cash flow for the full year 2024.
Segment Performance
Turning to the segment performance, the Products and Solutions segment reported revenue of $620 million in the first quarter, a decrease of 6% year-over-year. However, adjusting for the sale of the Genesis business, revenue was essentially flat. The segment's gross margin expanded 180 basis points to 39.5%, driven by improvements in raw material costs, labor efficiency and freight costs, which more than offset the impacts of reduced volumes and labor rate inflation. Products and Solutions adjusted EBITDA was $140 million, up $12 million year-over-year, with the adjusted EBITDA margin expanding by over 300 basis points.
The ADI Global Distribution segment reported revenue of $866 million in the first quarter, down 3% versus the prior period. This decline was attributed to delays in large projects in January and February, though project business picked up in March. ADI's gross margin was 18% compared to 19.2% in the prior year quarter, impacted by transitory pricing benefits experienced in early 2023 and continued competitive pricing in a softer market. ADI's adjusted EBITDA was $58 million, down 17% compared to the first quarter of 2023.
Liquidity
Resideo's balance sheet remains strong, with $603 million in cash and cash equivalents as of March 30, 2024. The company's long-term debt stood at $1.4 billion, with a weighted average interest rate of 7.69% as of the end of the first quarter. Resideo's liquidity is further bolstered by its $500 million revolving credit facility, which was undrawn as of March 30, 2024.
Recent Developments
In April 2024, Resideo announced a definitive agreement to acquire Snap One Holdings Corp. (Nasdaq: SNPO) for $10.75 per share in cash, for a transaction value of approximately $1.4 billion, inclusive of net debt. Snap One is a leading provider of smart-living products, services, and software to professional integrators. The transaction is expected to be completed in the second half of 2024 and is expected to be accretive to Resideo's gross margin and adjusted EPS in 2025.
The acquisition of Snap One aligns with Resideo's strategy to enhance the growth rate and gross margin for its ADI Global Distribution segment and the company as a whole. Snap One's portfolio of proprietary products, Control4 platform, and customer support offerings are expected to provide significant opportunities for growth and margin expansion.
Conclusion
Overall, Resideo is navigating a challenging macroeconomic environment, with softness in residential repair and remodel activity and some headwinds in the ADI Global Distribution segment. However, the company's focus on cost optimization, new product introductions, and strategic initiatives like the Snap One acquisition position it well for long-term growth and profitability. Resideo's diversified business model, strong balance sheet, and experienced management team suggest it is well-equipped to weather the current market conditions and capitalize on future opportunities.