Resideo Announces Fourth-Quarter And Full-Year 2019 Results

AUSTIN, Texas, Feb. 26, 2020 /PRNewswire/ -- Resideo Technologies, Inc. (NYSE: REZI), a leading global provider of home comfort and security solutions, today reported fourth-quarter and full-year 2019 financial results for the period ended Dec. 31, 2019.

"While our full-year 2019 results were impacted by a number of challenges in our Products & Solutions business, we are taking proactive steps to drive improved performance," said Mike Nefkens, president and CEO of Resideo. "Our fourth quarter results were driven by ongoing strong execution in our ADI Global Distribution business, where robust global revenue trends and disciplined cost management are driving adjusted EBITDA growth and profit margin expansion. We also experienced better than anticipated business mix and cost performance in our Products & Solutions business during the fourth quarter."

Andy Teich, lead independent director of Resideo, continued, "We understand the issues that impacted our Products & Solutions business in the second half of 2019, and we are actively working to improve performance. In particular, under the leadership of Sach Sankpal, who became the president of the Products & Solutions business in Jan. 2020, we are in the process of redesigning our new product introduction process, focusing on our value engineering initiatives to lower product costs for our existing platforms and enhancing our product management capabilities. We are confident that these initiatives, taken together with the opportunities identified to date in our comprehensive financial and operational review, will help us drive long-term and sustainable shareholder value."

Financial and Operational Review Update

"During the fourth quarter of 2019, Resideo's board of directors formed a strategic and operational committee tasked with spearheading a comprehensive financial and operational review of the entire business," said Teich, the chairman of the committee. "We are today announcing a comprehensive, multi-year, multi-phase program with three areas of focus to drive value in the long-term:

• Revenue and Gross Margin Growth;
• Selling, General & Administrative (SG&A) Optimization; and,
• Structural Efficiency and Working Capital Management.

We have identified specific opportunities and developed a detailed implementation plan for the first phase, which largely includes SG&A cost savings and direct and indirect spend reductions." Teich continued, "We believe that the initiatives announced today will lay a foundation to deliver improved performance as the company renews its focus on its core competencies and implements the first phase of these executable and impactful initiatives. We are poised to further develop and begin executing the second phase of our multi-year plan, which we believe will position Resideo for sustainable success."

The company expects this program to deliver $30 - $40 million of incremental adjusted EBITDA for 2020 and $80 - $120 million of incremental adjusted EBITDA in 2021. Overall, the total program is expected to drive greater than $200 million of incremental adjusted EBITDA in 2022 and beyond.

Teich concluded, "Moving forward, we have an industry-leading global distribution business and an attractive Products & Solutions portfolio with strong relationships and brand equity among professional installers. While the execution of our financial and operational review is in the early stages, there are clearly significant opportunities for improvement, particularly in the Products & Solutions business. We are building momentum and expect the opportunities we have identified and actions we are taking will provide meaningful financial benefits, expand over time, strengthen our long-term growth profile and best position Resideo to deliver increased returns to our shareholders."

Fourth-Quarter Performance

Consolidated revenue increased 3% on a GAAP basis and 4% on a constant currency basis year-over-year. GAAP performance was driven by robust 10% growth in ADI partially offset by a 4% reduction in Products & Solutions. Adjusted EBITDA declined $34 million, or 25% year-over-year, driven by a 28% reduction in Products & Solutions partially offset by an 18% increase in ADI.

ADI Global Distribution revenue increased by 10% on both a GAAP and constant currency basis year-over-year. Segment performance was driven by solid growth across multiple key product lines and a stronger product mix driven by security and video surveillance product lines. Segment adjusted EBITDA increased year-over-year by 18% as SG&A costs grew at a lower rate than revenue.

Products & Solutions revenue decreased by 4% on a GAAP basis and 3% on a constant currency basis year-over-year, driven by declines in the Comfort and Residential Thermal Solutions (RTS) businesses. Segment adjusted EBITDA for the fourth quarter decreased year-over-year by 28% mainly due to negative product and channel mix, inventory write-offs, revenue declines and higher-than-expected production costs.

Full-Year 2019 Performance

Full-year consolidated revenue increased 3% on a GAAP basis and 5% on a constant currency basis. GAAP performance was driven by ADI revenue growth of 6% and flat revenues for Products & Solutions. Adjusted EBITDA declined $137 million, or 27%, driven by a 32% reduction in Products & Solutions partially offset by a 15% increase in ADI.

ADI delivered consistently strong performance during 2019. The Products & Solutions business experienced a number of challenges during the year, particularly in the third and fourth quarters, that negatively impacted performance across its product lines.

ADI Global Distribution full-year revenue increased by 6% on a GAAP basis and 7% on a constant currency basis. Segment revenue performance in 2019 was driven by continued growth in security, fire and life safety and professional audio-visual systems product lines. Segment adjusted EBITDA increased by 15%. Performance for the full year was largely driven by increased volume and productivity, net of inflation.

Products & Solutions full-year revenue was flat on a GAAP basis and increased by 2% on a constant currency basis, driven by increases in the Security business and the first-quarter launch of a new residential security platform, offset by declines in the Comfort and RTS businesses. Segment adjusted EBITDA for the full year decreased 32% due to unfavorable product mix, inventory write-offs, production cost increases, product rebates and the license fee paid to Honeywell associated with the Trademark License Agreement, which was only reflected in the 2018 results for the post-spin-off period.

Full-Year Guidance

For full-year 2020, Resideo currently expects to generate revenue growth of 2% - 4%, driven by mid-single-digit percentage growth in ADI and flat to low-single-digit percentage growth in Products & Solutions.

Full-year 2020 adjusted EBITDA is currently expected to be in the range of $420 - $450 million. This adjusted EBITDA guidance reflects improved performance in Resideo's base business and $30 - $40 million of benefits as outlined above from the actions taken during the first phase of the financial and operational review.

Conference Call

Resideo will hold a conference call with investors on Feb. 27, 2020, at 8:30 a.m. EST. To join the conference call, please dial 888-599-8688 (domestic) or +1 323-994-2135 (international) approximately 10 minutes before it starts. Please mention to the operator that you are dialing in for Resideo's fourth-quarter 2019 earnings call or provide the conference code 841154. A replay of the conference call will be available from 12:30 p.m. ESTFeb. 27, 2020, until 12:30 p.m. ESTMarch 5, 2020, by dialing 888-203-1112 (domestic) or +1-719-457-0820 (international). The access code is 8157361.

A real-time audio webcast of the presentation will be accessible at https://investor.resideo.com, where related materials will be posted before the webcast, and a replay of the webcast will be available for 30 days following the presentation.

About Resideo

Resideo is a leading global provider of critical comfort, residential thermal solutions and security solutions primarily in residential environments. Building on a 130-year heritage, Resideo has a presence in more than 150 million homes, with 15 million systems installed in homes each year. We continue to serve more than 110,000 contractors through leading distributors, including our ADI Global Distribution business, which exports to more than 100 countries from more than 200 stocking locations around the world. 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 that the forward-looking statements contained in this press release are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, those described under the headings "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" in our Annual Reports on Form 10-K for the years ended December 31, 2018 and December 31, 2019 and other periodic filings we make from time to time with the Securities and Exchange Commission (SEC). You are cautioned not to place undue reliance on these forward-looking statements, such as (i) guidance regarding 2020, (ii) the progress and results of, and our ability to implement the opportunities identified in, the comprehensive operational and financial review (F&O Review), including whether the implementation of the F&O Review will provide meaningful financial benefits in 2020, 2021, 2022 and beyond, which will be impacted by our ability to execute on the revenue and gross margin opportunities identified in the F&O Review, to reduce our selling, general and administrative expenses, and to realize further cost savings by driving structural efficiencies and working capital management, (iii) our ability to address issues that impacted our performance in 2019, including our ability to redesign our product introduction process, enhance our value engineering and cost reduction initiatives for existing product platforms, and enhance our product management capabilities, (iv) whether we can expeditiously conclude our ongoing chief executive officer and chief financial officer searches and retain talented individuals for these roles, (v) our ability to timely and adequately execute on anticipated new product launches, including GRIP and non-connected product launches, (vi) the impact of the purported class action litigation commenced against Resideo and certain of its current and former executive officers, and (vii) our ability to address any disputes that we may have with Honeywell from time to time, including the dispute regarding the Indemnification and Reimbursement Agreement, each of which speak only as of the date of this release. 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 presentation, and we caution investors not to place undue reliance on any such forward-looking statements.

Non-GAAP Financial Measures

This release includes Adjusted EBITDA, Adjusted EBITDA excluding Honeywell reimbursement agreement payments, Adjusted Net Income, Adjusted Net Income excluding Honeywell reimbursement agreement payments, adjusted basic and diluted earnings per share, constant currency (decline) growth, and other financial measures not compliant with generally accepted accounting principles in the United States (GAAP). The non-GAAP financial measures are adjusted for certain items above and may not be directly comparable to similar measures used by other companies in our industry, as other companies may define such measures differently. Management believes that, when considered together with reported amounts, these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends and provide useful additional information relating to our operations and financial condition. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure. We believe Adjusted EBITDA excluding Honeywell reimbursement agreement payments, Adjusted Net Income, Adjusted Net Income excluding Honeywell reimbursement agreement payments, adjusted basic and diluted earnings per share, and constant currency (decline) growth are important indicators of operating performance. For reconciliations of these measures to the most directly comparable GAAP financial measures to the extent that they are available without unreasonable effort, please refer to the tables above. They should be read in connection with our financial statements presented in accordance with GAAP.

A reconciliation of Adjusted EBITDA to the corresponding GAAP measure is not available on a forward-looking basis without unreasonable efforts due to the impact and timing on future operating results arising from items excluded from these measures, particularly environmental expense, Honeywell reimbursement agreement expense, stock compensation expense, restructuring expense and other non-operating expense (income).

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SOURCE Resideo Technologies, Inc.