Resideo Technologies Delivers Results at High End of Range for Fourth Quarter and Full-Year 2018

Cash Flow Generation and 2019 Guidance

For the quarter, the company generated $87 million of cash flow from operations and $120 million in adjusted cash flow defined as adjusted EBITDA (including the Honeywell reimbursement agreement payments) less Capex. This cash flow generation reduced net debt to $936 million at year-end.

For the full year, the company generated $462 million of cash flow from operations and $418 million in adjusted cash flow defined as adjusted EBITDA (including the Honeywell reimbursement agreement payments) less Capex. Uses of cash were primarily driven by new product development and working capital needs as a result of the spinoff.

In connection with the completion of the spin-off, the company incurred debt totaling $1,225 million consisting of $825 million of secured debt and $400 million of senior unsecured notes during the fourth quarter of 2018. The company has a five-year senior secured first-lien revolving credit facility to be used for working capital and other cash needs from time to time in an aggregate principal amount of $350 million.

“We’ve demonstrated a disciplined approach to capital allocation and we will continue to maintain that discipline going forward. We are in a financially-strong position to prioritize growth capital and maintain a healthy balance sheet,” said Joe Ragan, Resideo’s executive vice president and chief financial officer. “Our investment program will be a critically important component to our strategy, enabling us to drive to higher growth rates and margins in the long-term. In parallel, we are launching an initiative to optimize our cost base.

“We have updated our 2019 revenue guidance from 4 percent to a range of 2 to 5 percent, which reflects moderating housing metrics, shifting portfolio mix – with a higher weighting of ADI and connected products – and increased growth investment for the future. Our plans to invest for growth and cost-optimization programs drive our updated 2019 Pro Forma Adjusted EBITDA projection in the range of $410 to $430 million. We are confident in Resideo’s ability to gain market share in all of our segments and look forward to providing further detail on our value creation strategy at our inaugural investor and analyst meeting this summer,” said Ragan.

Recent Business Updates

Resideo has recently made progress on several business development initiatives. The company began customer deliveries of its next-generation security platform (Global Residential Intrusion Platform/GRIP) in December 2018.

Resideo made several key hires, including:

• Niccolo de Masi, Products and Solutions president and chief innovation officer, responsible for delivering next generation platforms in security, comfort, and adjacencies such as indoor air quality and water leak detection;
• Erik Bethke, vice president of Mobile Application Development, spearheading end user and pro channel apps and portals; and
• Pat Murray, vice president of Integrated Supply Chain, leading global supply chain modernization.

Resideo is actively targeting several opportunities for partnerships and tuck-in acquisitions with businesses that would enhance its software and data services capabilities.

Conference Call

Resideo will hold a conference call with investors on March 7, 2019, at 8:30 a.m. EST. To participate in the conference call, please dial 800-289-0438 (domestic) or +1-323-794-2423 (international) approximately 10 minutes before it starts. Please mention to the operator that you are dialing in for Resideo’s fourth quarter 2018 earnings call or provide the conference code 8852234. A replay of the conference call will be available from 12:30 p.m. EST, March 7, until 12:30 p.m. EST, March 14, by dialing 888-203-1112 (domestic) or +1 719-457-0820 (international). The access code is 8852234.

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.

About Resideo

Resideo is a leading global provider of critical comfort and security solutions primarily in residential environments and distributor of low-voltage and security products. 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. Resideo is a $4.8 billion company with approximately 13,000 global employees. For more information about Resideo, please visit corporate.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, 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” in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and in our Annual Report on Form 10-K for the year ended Dec. 31, 2018 that will be filed with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, such as guidance regarding 2019 and 2023, 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.

Non-GAAP Financial Measures

This release includes EBITDA, Adjusted EBITDA, Adjusted EBITDA excluding Honeywell reimbursement agreement payments, Adjusted EBITDA including Honeywell reimbursement agreement payments, Adjusted EBITDA less CapEx, Pro Forma Adjusted EBITDA, Adjusted Net Income, Adjusted EBITDA Margin, Segment Profit, constant currency sales 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. Refer to the tables above in this release for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures. They should be read in connection with our financial statements presented in accordance with GAAP.

A reconciliation of Adjusted EBITDA, Adjusted EBITDA excluding Honeywell reimbursement agreement payments, Adjusted EBITDA including Honeywell reimbursement agreement payments, Adjusted EBITDA margin and Pro Forma Adjusted EBITDA to the corresponding GAAP measures 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 expense, non-operating (income) expense, and stock compensation expense.

⁽¹⁾ Unaudited Pro Forma Combined Statements of Operations

As previously disclosed, on Oct. 29, 2018, Resideo Technologies Inc. (the “Company”) was spun off (the “Spin-Off”) from Honeywell International Inc. (“Honeywell”). The Company’s Combined Financial Statements will be included in its Annual Report on Form 10-K for the year ended Dec. 31, 2018 to be filed with the Securities and Exchange Commission (“SEC”). The Company’s Combined Financial Statements have been prepared on a “carve-out” basis for the periods and dates prior to the Spin-Off and include stand-alone results for the period subsequent to the date of Spin-Off. Prior to the separation, these Combined Financial Statements were derived from the consolidated financial statements and accounting records of Honeywell. The Company is providing, unaudited pro forma combined statements of operations information for the twelve months ended Dec. 31, 2018 and 2017, which reflect the Company’s results and financial position as if the Spin-Off and related transactions had occurred as of Jan. 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 Oct. 2, 2018, and the Form 10-Q for the quarter ended Sept. 30, 2018, as filed with the SEC on Nov. 13, 2018. 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 impact of certain pension liabilities related to certain of our employees that were assumed after the Spin-Off and which will be paid by us at a future date; and
• the impact of, and transactions contemplated by, the Separation and Distribution Agreement, Trademark License Agreement between us and Honeywell, dated Oct. 19, 2018 (the “Trademark License Agreement”), Employee Matters Agreement between us and Honeywell, dated Oct. 19, 2018, the Indemnification and Reimbursement Agreement between us and Honeywell, dated Oct. 14, 2018 (the “Honeywell Reimbursement Agreement”), The Tax Matters Agreement between us and Honeywell, dated Oct. 19, 2018 (the “Tax Matters Agreement”)  and other agreements related to the Spin-Off from Honeywell and the provisions contained therein.

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:

• costs to perform financial reporting, tax, regulatory compliance, corporate governance, treasury, legal, internal audit and investor relations activities;
• insurance premiums;
• changes in our overall facility costs;
• depreciation and amortization related to information technology infrastructure investments; and
• the type and level of other costs expected to be incurred.

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 differ 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:

• relocation costs;
• recruiting and relocation costs associated with hiring key senior management personnel new to our company;
• costs related to establishing our new brand in the marketplace;
• costs to separate information systems; and
• costs of retention bonuses.

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.

Printable PDF: Full Q4 2018 Press Release and Financial Tables

Printable Presentation PDF: 2018 Q4 and FY Financial Results