Austin, TX, Nov. 13, 2018 – Resideo Technologies, Inc. (NYSE: REZI), the recent spinoff from Honeywell that is simplifying the smart home experience, reported financial results for the third quarter of 2018. The results are as of and for the quarter ended Sept. 30, 2018, and derived from the consolidated financial statements and accounting records of its prior parent, Honeywell International Inc. (NYSE: HON). Resideo became a standalone, publicly traded company on Oct. 29, 2018.
“Resideo had a solid third quarter as part of Honeywell, preceding a successfully executed spinoff,” said Mike Nefkens, president and CEO of Resideo. “While our performance has already been released to the market through Honeywell’s recent earnings as part of their broader segment disclosure, we’re eager to take this next step as a public company by providing more detail through the earnings process. After listening to feedback from our investors, we’ve chosen to release our results the evening before our first earnings call to give investors time to review the numbers. We’re looking forward to providing additional context around the quarter on our call tomorrow.”
“Our performance as part of Honeywell over the past three years demonstrates a well-run business that is on-track to deliver continued growth in 2018 and beyond,” continued Nefkens. “Our first priority is to deliver results for our stakeholders, and we’re inspired by the support and optimism of our customers and suppliers, 150 of whom we celebrated with as we rang the bell recently at the NYSE. As we see the demand for smarter homes on the rise, our long-standing and proven relationships with professional contractors – the ‘do it for me channel’ where the largest portion of our products are sold – make it much easier for consumers to upgrade to a home that is more efficient, safer, and easier to control. We have 130-years of expertise in homes through our Honeywell heritage, and a clear vision to deliver our next generation growth plan for Resideo. We’re excited about our future and focused on creating value for our shareholders.”
Net sales for the third quarter were up 4.2 percent on a reported basis and up 4.9 percent organically. The difference between reported and organic sales primarily relates to the impact of foreign currency translation. Third-quarter reported net income was $311 million and Adjusted EBITDA was $117 million.
Additional third-quarter and year-to-date financial results can be found in Table 1.
Products sales increased by 1 percent on a reported basis, and 2 percent on an organic basis, the difference being driven by the unfavorable impact of currency translation. Products segment performance was impacted by temporary supply chain issues as a result of the spin-off, which Resideo is actively resolving. Products segment profit increased by 2 percent on a reported basis primarily due to a changing product mix, partially offset by inflation, net of productivity.
Distribution sales increased by 6 percent on a reported basis, and 7 percent organically, primarily due to volume growth across key geographic markets, partially offset by the unfavorable impact of foreign currency translation. Distribution segment profit increased by 3 percent, partially offset by an increase in cost of goods sold.
Additional third-quarter and year-to-date segment financial results can be found in Table 2.
“Resideo begins as a standalone company with an attractive mix of healthy financials and an enviable market position,” said Joe Ragan, Resideo’s executive vice president and chief financial officer. “We’re reiterating our guidance for full-year 2018 at the high end of the range. Our commitment to excellence continues to earn the trust of millions of homeowners and tens of thousands of contractors through our Honeywell Home® and ADI Global Distribution brands. As we bring more recurring revenue opportunities to market, we expect to create even greater value for shareholders and the strong base of professional contractors that rely on our solutions around the globe.”
Table 1: Summary of Financial Results – Total
|3Q 2017||3Q 2018||% Change||YTD 2017||YTD 2018||% Change|
|Adjusted Net Income||62||88||42%||147||265||80%|
(including environmental indemnification payments)
(excluding environmental indemnification payments)
|Adjusted EBITDA less Capex||105||77||(27%)||266||298||12%|
Table 2: Summary of Financial Results – Segment
|3Q 2017||3Q 2018||>% Change||YTD 2017||YTD 2018||% Change|
For the quarter ended Sept. 30, 2018, the company generated $117 million of cash flow from operations, and $77 million in adjusted cash flow defined as adjusted EBITDA less Capex. Uses of cash were primarily driven by new product development and working capital needs as a result of the spinoff.
The company did not have indebtedness as of the end of the third quarter as part of Honeywell. Subsequent to the end of the third quarter, the company incurred debt totaling $1,360 million, which includes long-term debt of $1,225 million consisting of $825 million of secured debt and $400 million of senior unsecured notes, and short-term debt of $135 million in the form of a draw on the company’s secured revolving credit facility.
Resideo also celebrated a number of key customer wins and made progress on several business development initiatives. The company reached agreements with leading security dealers to carry its next generation professional residential security platform. In addition, Resideo continues to expand its partnerships through additional agreements with Scottish Power, Innogy, Crius Energy and Chamberlain. Resideo is providing connected thermostats and software services to Scottish Power, a major utility in Scotland and subsidiary of Iberdrola, that deliver comfort and energy efficiency to their customers. The company is also partnering with Innogy, a Slovakian utility, to offer dual branded security products to customers through a lease program. Homeowners are saving money and energy through Honeywell Home connected thermostats offered through Crius Energy’s demand response program and Chamberlain announced software integration of its Chamberlain and Liftmaster garage doors with Total Connect 2.0. On the distribution side, ADI was named the 2018 distributor of the year from Axis Communications, which is one of the world’s largest security products manufacturers.
The company today reaffirmed its guidance for full-year 2018 at the high end of the previously stated range. Resideo expects to realize net sales between $4.77 billion and $4.83 billion, pro forma adjusted EBITDA between $605 million and $615 million, and pro forma adjusted EBITDA including environmental indemnity between $465 million and $475 million.
The company also reiterated its expectations for full-year 2019, including 4 percent organic revenue growth, adjusted EBITDA margin of 13 percent, or 10 percent after the indemnity payment to Honeywell, and research and development investment of approximately $125 million. Resideo also plans to declare modest dividends in 2019, subject to Board approval.
Resideo will hold a conference call with investors on Wednesday, Nov. 14, 2018 at 8:30 a.m. EST. To participate in the conference call, please dial (866) 548-4713 (domestic) or +1 (323) 794-2093 (international) approximately ten minutes before it starts. Please mention to the operator that you are dialing in for Resideo’s third quarter 2018 earnings call or provide the conference code 2572362. A replay of the conference call will be available from 12:30 p.m. EST, Nov. 14, until 12:30 p.m. EST, Nov. 21, 2018 by dialing (888) 203-1112 (domestic) or +1 (719) 457-0820 (international). The access code is 2572362. A real-time audio webcast of the presentation can be accessed at https://investor.resideo.com, where related materials will be posted prior to the presentation, and a replay of the webcast will be available for 30 days following the presentation
Resideo is the recent spinoff from Honeywell that is simplifying the smart home experience. 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. The company has a 40-year, license to use the Honeywell Home trademark for products and will continue to serve more than 100,000 contractors through its ADI Global Distribution business, which exports to more than 100 countries from more than 200 stocking locations around the world. Resideo is a $4.8 billion company with approximately 14,500 global employees. For more information about Resideo, please visit corporate.resideo.com.
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, 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 in the Information Statement on Form 10, as amended, on file with the Securities and Exchange Commission under the headings “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” and in the Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2018. You are cautioned not to place undue reliance on these forward-looking statements, 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.
This release includes EBITDA, Adjusted EBITDA, Adjusted EBITDA including environmental indemnification payments, Adjusted EBITDA less CapEx, Pro Forma Adjusted EBITDA, Adjusted Net Income, Adjusted EBITDA Margin, Segment Profit, organic sales growth, and other financial measures not compliant with generally accepted accounting principles in the United States (GAAP). The non-GAAP financial measures provided herein are adjusted for certain items as presented in the tables 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. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure. Refer to the tables above in this release for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures. We believe EBITDA, Adjusted EBITDA, Adjusted EBITDA including environmental indemnification payments, Adjusted EBITDA less Cap Ex, Pro Forma Adjusted EBITDA, Adjusted Net Income, Adjusted EBITDA Margin, Segment Profit, and organic sales growth are important indicators of operating performance which more closely measure our operating profit.
A reconciliation of adjusted EBITDA, adjusted EBITDA including environmental indemnification payments, Adjusted EBITDA margin and Pro Forma Adjusted EBITDA to the closest GAAP financial measures is not available without unreasonable efforts on a forward-looking basis due to the impact and timing on future operating results arising from items excluded from these measures, particularly standalone costs, environmental indemnification reimbursement expense, non-operating (income) expense, stock compensation expense and repositioning charges.
(1)Unaudited Pro Forma Combined Statements of Operations
As previously disclosed, on October 29, 2018, Resideo Technologies Inc. (the “Company”) was spun off (the “Spin-Off”) from Honeywell International Inc. (“Honeywell”). The Company’s Combined Interim Financial Statements included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (the “Form 10-Q”), filed with the Securities and Exchange Commission (“SEC”) on November 13, 2018 are carve-out financial statements, as the Company was still part of Honeywell during the third quarter of 2018. The Company is providing, unaudited pro forma combined statements of operations information for the nine months ended September 30, 2018 and 2017, which reflect the Company’s results and financial position as if the Spin-Off and related transactions had occurred as of January 1, 2017.
The unaudited pro forma combined statement of operations information presented in the tables above does not in any way restate or revise the historical Combined Financial Statements of the Company included in the Company’s Registration Statement on Form 10, as amended and filed with the SEC on October 2, 2018, and the Form 10-Q. The unaudited pro forma financial information is provided as supplemental financial information that the Company believes may be of interest to the Company’s stockholders.
The unaudited pro forma combined statement of operations gives effect to the following:
The unaudited pro forma combined statements of operations are subject to the assumptions and adjustments described in the notes included in the tables above that reflect the expected impacts of events directly attributable to the Spin-Off and that are factually supportable and, for purposes of statements of operations, are expected to have a continuing impact on us. The unaudited pro forma combined statements of operations are provided for illustrative and informational purposes only and are not necessarily indicative of our future results of operations as an independent, publicly traded company.
The operating expenses reported in our historical combined statements of operations include allocations of certain Honeywell costs. These costs include the allocation of all Honeywell corporate costs, shared services and other related costs that benefit us.
As a stand-alone public company, we have incurred and expect to continue to incur additional recurring costs. The significant assumptions involved in determining our estimates of recurring costs of being a stand-alone public company include:
No pro forma adjustments have been made to our unaudited pro forma combined statements of operations to reflect the additional costs and expenses described above because they are projected amounts based on estimates and would not be factually supportable.
The preliminary estimates at this time for the costs on a stand-alone basis would be approximately $265 million on an annual basis, which differs from the historical allocations on a carve-out basis of presentation. The pro forma impact of such costs has not been reflected herein as many of the costs expected to comprise these amounts are estimates. Actual expenses could vary from this range estimate and such variations could be material.
We currently estimate that we will incur substantial non-recurring costs associated with becoming a stand-alone public company within 24 months of the Spin-Off. The unaudited pro forma combined statements of operations tables are not adjusted for these estimated expenses as they are also projected amounts based on estimates and would not be factually supportable. These expenses primarily relate to the following:
Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and the timing of incurrence could change.
The pro forma combined statements of operations tables are also not adjusted for any potential dividends Resideo may pay in the future should the Board determine to declare any such dividends.