RESIDEO TECHNOLOGIES, INC. [REZI] Filings

10-Q 1 rezi-20240629.htm 10-Q rezi-20240629

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _____

Commission File Number 001-38635

Resideo Technologies, Inc.

(Exact name of registrant as specified in its charter)


Delaware						82-5318796
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

16100 N. 71st Street, Suite 550 Scottsdale, Arizona						85254
(Address of principal executive offices)						(Zip Code)

(480) 573-5340
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol:

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

REZI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of July 26, 2024 was 146,412,366 shares.


Part I - Financial Information
Item 1.	Unaudited Consolidated Financial Statements.	3
	Unaudited Consolidated Balance Sheets as of June 29 , 2024 and December 31, 2023.	3
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 29 , 2024 and July 1, 2023.	4
	Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 29 , 2024 and July 1, 2023.	5
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 29 , 2024 and July 1, 2023.	6
	Unaudited Consolidated Statements of Stockholders’ Equity for the Three and Si x Months Ended June 29 , 2024 and July 1, 2023.	7
	Notes to Unaudited Consolidated Financial Statements.	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	35
Item 4.	Controls and Procedures.	36
Part II - Other Information
Item 1.	Legal Proceedings.	37
Item 1A.	Risk Factors.	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40
Item 5.	Other Information.	40
Item 6.	Exhibits.	41
Signatures		43

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Part I. Financial Information

Item 1. Financial Statements.

Resideo Technologies, Inc.

Consolidated Balance Sheets

(Unaudited)


(in millions, except par value)	June 29, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	413	$	636
Accounts receivable, net	1,071		973
Inventories, net	1,188		941
Other current assets	212		193

Total current assets	2,884		2,743

Property, plant and equipment, net	424		390
Goodwill	3,079		2,705
Intangible assets, net	1,218		461
Other assets	379		346

Total assets	$	7,984	$	6,645

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	980	$	905
Current portion of long-term debt	12		12
Accrued liabilities	602		608

Total current liabilities	1,594		1,525

Long-term debt	1,979		1,396
Obligations payable under Indemnification Agreements	625		609
Other liabilities	492		366

Total liabilities	4,690		3,896

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity

Preferred stock, $0.001 par value: 100 shares authorized, 0.5 shares issued and outstanding at June 29, 2024 and no shares issued and outstanding at December 31, 2023, respectively	482		—
Common stock, $0.001 par value: 700 shares authorized, 152 and 146 shares issued and outstanding at June 29, 2024, respectively, and 151 and 145 shares issued and outstanding at December 31, 2023, respectively	—		—
Additional paid-in capital	2,276		2,226
Retained earnings	881		810
Accumulated other comprehensive loss, net	(242)		(194)
Treasury stock at cost	(103)		(93)
Total stockholders’ equity	3,294		2,749
Total liabilities and stockholders’ equity	$	7,984	$	6,645

Refer to accompanying Notes to the Unaudited Consolidated Financial Statements.

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Resideo Technologies, Inc.

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended				Six Months Ended
(in millions, except per share data)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Net revenue	$	1,589	$	1,602	$	3,075	$	3,151
Cost of goods sold	1,142		1,166		2,228		2,295
Gross profit	447		436		847		856
Operating expenses:
Research and development expenses	21		29		46		56
Selling, general and administrative expenses	280		242		511		486
Intangible asset amortization	13		10		22		19
Restructuring, impairment and extinguishment costs, net	11		2		18		4
Total operating expenses	325		283		597		565
Income from operations	122		153		250		291
Other expenses, net	48		42		90		82
Interest expense, net	15		17		28		34
Income before taxes	59		94		132		175
Provision for income taxes	29		44		59		68


Net income	$	30	$	50	$	73	$	107








Earnings per common share:
Basic	$	0.19	$	0.34	$	0.49	$	0.73




Diluted	$	0.19	$	0.34	$	0.48	$	0.72

Weighted average common shares outstanding:
Basic	146		147		146		147
Diluted	149		149		148		149

Refer to accompanying Notes to the Unaudited Consolidated Financial Statements.

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Resideo Technologies, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended				Six Months Ended
(in millions)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Comprehensive income:
Net income	$	30	$	50	$	73	$	107
Other comprehensive (loss) income, net of tax:
Foreign exchange translation (loss) gain	(12)		10		(43)		26





Pension liability adjustments	—		1		—		4



Changes in fair value of effective cash flow hedges	(4)		5		(5)		(2)
Total other comprehensive (loss) income, net of tax	(16)		16		(48)		28
Comprehensive income	$	14	$	66	$	25	$	135

Refer to accompanying Notes to the Unaudited Consolidated Financial Statements.

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Resideo Technologies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended
(in millions)	June 29, 2024		July 1, 2023
Cash Flows From Operating Activities:
Net income	$	73	$	107
Adjustments to reconcile net income to net cash in operating activities:

Depreciation and amortization	52		49

Stock-based compensation expense	29		25

Other, net	17		6

Changes in assets and liabilities, net of acquired companies:
Accounts receivable, net	(57)		(35)
Inventories, net	(4)		(15)
Other current assets	9		3

Accounts payable	31		44
Accrued liabilities	(78)		(94)
Other liabilities	22		27


Net cash provided by operating activities	94		117
Cash Flows From Investing Activities:
Acquisitions, net of cash acquired	(1,334)		(6)

Capital expenditures	(36)		(49)

Other investing activities, net	6		—


Net cash used in investing activities	(1,364)		(55)
Cash Flows From Financing Activities:
Proceeds from issuance of incremental term loans under the A&R Term B Facility, net	582		—
Proceeds from issuance of preferred stock, net of issuance costs	482		—

Repayments of long-term debt	(6)		(6)

Other financing activities, net	(6)		(12)



Net cash provided by (used in) financing activities	1,052		(18)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(5)		10
Net (decrease) increase in cash, cash equivalents and restricted cash	(223)		54
Cash, cash equivalents and restricted cash at beginning of period	637		329
Cash, cash equivalents and restricted cash at end of period	$	414	$	383

Supplemental Cash Flow Information:
Interest paid, net of swaps	$	38	$	46
Taxes paid, net of refunds	$	88	$	67
Capital expenditures in accounts payable	$	16	$	20

Refer to accompanying Notes to the Unaudited Consolidated Financial Statements.

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Resideo Technologies, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Fiscal Quarters


	Preferred Stock			Common Stock							Accumulated Other Comprehensive Loss		Treasury Stock
(in millions, except shares in thousands)	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings				Shares	Amount		Total Stockholders’ Equity
Balance at March 31, 2024	—	$	—	146,013	$	—	$	2,243	$	853	$	(226)	5,946	$	(101)	$	2,769
Net income	—	—		—	—		—		30		—		—	—		30
Other comprehensive loss, net of tax	—	—		—	—		—		—		(16)		—	—		(16)
Preferred stock issuance	500	482		—	—		—		—		—		—	—		482
Common stock issuance, net of shares withheld for taxes	—	—		256	—		1		—		—		87	(2)		(1)
Stock-based compensation awards issued for acquisition of Snap One	—	—		—	—		17		—		—		—	—		17
Stock-based compensation expense	—	—		—	—		15		—		—		—	—		15
Preferred stock dividend	—	—		—	—		—		(2)		—		—	—		(2)

Balance at June 29, 2024	500	$	482	146,269	$	—	$	2,276	$	881	$	(242)	6,033	$	(103)	$	3,294

Balance at April 2, 2023	—	$	—	147,084	$	—	$	2,191	$	657	$	(200)	2,547	$	(44)	$	2,604
Net income	—	—		—	—		—		50		—		—	—		50
Other comprehensive income, net of tax	—	—		—	—		—		—		16		—	—		16
Common stock issuance, net of shares withheld for taxes	—	—		565	—		—		—		—		355	(6)		(6)
Stock-based compensation expense	—	—		—	—		13		—		—		—	—		13

Balance at July 1, 2023	—	$	—	147,649	$	—	$	2,204	$	707	$	(184)	2,902	$	(50)	$	2,677

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Fiscal Year to Date Periods


	Preferred Stock			Common Stock							Accumulated Other Comprehensive Loss		Treasury Stock
(in millions, except shares in thousands)	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings				Shares	Amount		Total Stockholders’ Equity
Balance at January 1, 2024	—	$	—	145,389	$	—	$	2,226	$	810	$	(194)	5,536	$	(93)	$	2,749
Net income	—	—		—	—		—		73		—		—	—		73
Other comprehensive loss, net of tax	—	—		—	—		—		—		(48)		—	—		(48)
Preferred stock issuance	500	482		—	—		—		—		—		—	—		482
Common stock issuance, net of shares withheld for taxes	—	—		955	—		4		—		—		422	(9)		(5)
Stock-based compensation awards issued for acquisition of Snap One							17									17
Stock-based compensation expense	—	—		—	—		29		—		—		—	—		29
Preferred stock dividend	—	—		—	—		—		(2)		—		—	—		(2)
Common stock repurchases	—	—		(75)	—		—		—		—		75	(1)		(1)
Balance at June 29, 2024	500	$	482	146,269	$	—	$	2,276	$	881	$	(242)	6,033	$	(103)	$	3,294

Balance at January 1, 2023	—	$	—	146,222	$	—	$	2,176	$	600	$	(212)	2,050	$	(35)	$	2,529
Net income	—	—		—	—		—		107		—		—	—		107
Other comprehensive income, net of tax	—	—		—	—		—		—		28		—	—		28
Common stock issuance, net of shares withheld for taxes	—	—		1,427	—		3		—		—		852	(15)		(12)
Stock-based compensation expense	—	—		—	—		25		—		—		—	—		25

Balance at July 1, 2023	—	$	—	147,649	$	—	$	2,204	$	707	$	(184)	2,902	$	(50)	$	2,677

Refer to accompanying Notes to the Unaudited Consolidated Financial Statements.

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Nature of Operations and Basis of Presentation

Nature of Operations

Resideo Technologies, Inc. (“Resideo”, the “Company”, “we”, “us”, or “our”) is a leading manufacturer and developer of technology-driven products that provide critical comfort, energy, smoke and carbon monoxide detection home safety products and security solutions to homes globally. We are also a leading wholesale distributor of low-voltage security products including access control, fire detection, fire suppression, security, and video products, and participate significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. Our global footprint serves both commercial and residential end markets.

Basis of Consolidation and Reporting

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the Unaudited Consolidated Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the Unaudited Consolidated Financial Statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present our financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2024 through June 29, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024.

For additional information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”), filed with the United States Securities and Exchange Commission (the “SEC”) on February 14, 2024 as reclassified in our Current Report on Form 8-K filed on June 4, 2024 to reflect the impacts of certain corporate functions being decentralized to align with the business strategy. Refer to Note 4. Segment Financial Data for additional information.

Reporting Period

We report financial information on a fiscal quarter basis using a modified four-four-five week calendar. Our fiscal calendar begins on January 1 and ends on December 31. We have elected the first, second and third quarters to end on a Saturday in order to not disrupt business processes. The effects of this election are generally not significant to reported results for any quarter and only exist within a reporting year.

Reclassification

For the purpose of comparability, certain prior period amounts have been reclassified to conform to current period classification. Refer to Note 4. Segment Financial Data for additional information on reclassified corporate expenses to the segments.

Note 2. Summary of Significant Accounting Policies

Our significant accounting policies are detailed in Note 2. Summary of Significant Accounting Policies of the Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes to these policies that have had a material impact on the Unaudited Consolidated Financial Statements and the accompanying disclosure notes for the six months ended June 29, 2024.

We consider the applicability and impact of all recent accounting standards updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and U.S. Securities and Exchange Commission (“SEC”) rules and disclose only those that may have a material impact.

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires entities to disclose, on an annual and interim basis, significant segment expenses that are regularly reviewed by the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. The ASU also requires disclosure of the name and title of the CODM. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We do not expect adoption of the standard to have a material impact.

Note 3. Acquisitions

On June 14, 2024, we acquired 100% of the issued and outstanding equity of Snap One for an aggregate purchase price of $1.4 billion. This acquisition aligns with our strategic objective to expand our distribution network, market presence, and product portfolio within the smart home and audio-visual sectors enhancing our competitive positioning in the industry. The business is included within the ADI Global Distribution segment.

The following table presents the preliminary purchase price allocation at estimated fair values as of the date of acquisition:


(in millions)
Assets acquired:
Cash and cash equivalents	$	47
Accounts receivable	49
Inventories	250
Other current assets	32
Property, plant and equipment	63
Goodwill (1)	393
Intangible assets	770
Other assets	69
Total assets acquired	1,673
Liabilities assumed:
Accounts payable	48
Accrued liabilities	73
Other liabilities	147
Total liabilities assumed	268
Net assets acquired	$	1,405

(1) Goodwill from this acquisition is partially deductible for tax purposes.

The Company expensed approximately $34 million of costs related to the acquisition of Snap One during the six months ended June 29, 2024. These costs are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations and consist primarily of advisory, insurance and legal fees. The Company assumed $21 million of seller success fees, which were paid upon the closing of the acquisition.

Snap One’s contribution in the period post-acquisition to net revenue and operating income was not material. On a pro forma basis assuming the acquisition occurred at the beginning of the reported period, Resideo’s net revenue for the three and six months ended June 29, 2024 would have been $1,804 million and $3,536 million, respectively. The pro forma operating income would not have been materially different than the amounts reported for both periods.

Note 4. Segment Financial Data

The Company’s segment information is evaluated by our Chief Executive Officer, who is also the CODM, and is consistent with how management reviews and assesses the performance of the business as well as makes investing and resource

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

allocation decisions. We monitor our operations through our two reportable segments: Products and Solutions and ADI Global Distribution, and report Corporate separately.

These operating segments follow the same accounting policies used for the financial statements. We evaluate a segment’s performance on a U.S. GAAP basis, primarily operating income before corporate expenses.

Products and Solutions—The Products and Solutions business is a leading global manufacturer and developer of technology-driven products and components that provide critical comfort, energy management, and safety and security solutions to over 150 million homes globally. Our offerings include temperature and humidity control, thermal water and air solutions, as well as security panels, sensors, peripherals, communications devices, video cameras, other home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software.

ADI Global Distribution—The ADI Global Distribution business is a leading wholesale distributor of low-voltage security products including security and life safety, access control and video products and participates significantly in the broader related markets of smart home, power, audio, ProAV, networking, communications, wire and cable, and data communications. The Snap One business is included in the ADI Global Distribution segment and expands our distribution into and reach with smart-living products, services, and software.

Corporate—On January 1, 2024, certain corporate functions were decentralized into the operating segments aligning with the business strategy. Functional expenses related to information technology, finance, tax, business development, and research and development are now recorded within the Products and Solutions and ADI Global Distribution segments. For the three and six months ended July 1, 2023, $13 million and $25 million of corporate expenses have been reclassified into the Products and Solutions segment while $8 million and $16 million of corporate expenses have been reclassified into the ADI Global Distribution segment, respectively, decreasing reported Income from Operations to conform to the current year presentation.

Corporate expenses include costs related to the corporate office such as the executive function, legal, accounting, tax, treasury, corporate development, human resources, and information technology. Additionally, unallocated amounts for non-operating items such as Reimbursement Agreement expense, interest income (expense), other income (expense) and provision for income taxes are reported within Corporate.

The following table represents summary financial data attributable to the segments:


	Three Months Ended				Six Months Ended
(in millions)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Net revenue
Products and Solutions	$	630	$	677	$	1,250	$	1,335
ADI Global Distribution	959		925		1,825		1,816
Total net revenue	$	1,589	$	1,602	$	3,075	$	3,151


	Three Months Ended				Six Months Ended
(in millions)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Income from operations
Products and Solutions	$	130	$	115	$	242	$	220
ADI Global Distribution	62		71		111		135
Corporate	(70)		(33)		(103)		(64)
Total income from operations	$	122	$	153	$	250	$	291

The Company’s CODM does not use segment assets information to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.

Note 5. Revenue Recognition

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

We have two operating segments, Products and Solutions and ADI Global Distribution. Disaggregated revenue information for Products and Solutions is presented by product grouping, while ADI Global Distribution is presented by region. Effective in the second quarter of 2024, the disaggregated regional revenue within ADI Global Distribution were consolidated into two regions, Americas and International. The Snap One revenues are included within the ADI Global Distribution disaggregated regions.

The following table presents revenue by business line and geographic location, as we believe this presentation best depicts how the nature, amount, timing, and uncertainty of net revenue and cash flows are affected by economic factors:


	Three Months Ended				Six Months Ended
(in millions)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Products and Solutions
Safety and Security	$	227	$	248	$	440	$	476
Air	214		218		405		429
Energy	118		132		252		268
Water	71		79		153		162
Total Products and Solutions	630		677		1,250		1,335

ADI Global Distribution
Americas (1)	840		806		1,586		1,574
International (2)	119		119		239		242

Total ADI Global Distribution	959		925		1,825		1,816

Total net revenue	$	1,589	$	1,602	$	3,075	$	3,151

(1)Americas represents North, Central, and South America.

(2)International represents all geographies that are not included in Americas.

Note 6. Restructuring

The following table represents restructuring expense attributable to the segments:


	Three Months Ended				Six Months Ended
(in millions)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Products and Solutions	$	—	$	—	$	5	$	2
ADI Global Distribution	—		2		2		2
Corporate	—		—		—		—
Restructuring expenses	$	—	$	2	$	7	$	4

We took actions to align our cost structure with the Company’s strategic objectives and our outlook of market conditions. The intent of these actions is to lower costs, increase margins, and position us for long-term growth. We expect to fully execute on our restructuring programs over the next 12 to 24 months, and we may incur future additional restructuring expenses associated with these or from new plans. We are unable at this time to make a good faith determination of cost estimates, or ranges of cost estimates, associated with future phases of the programs or the total costs we may incur in connection with these programs. Refer to Note 6. Restructuring Expenses in our 2023 Annual Report on Form 10-K for further discussion of our restructuring programs.

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the status of our restructuring expenses included within accrued liabilities on the Unaudited Consolidated Balance Sheets.


	Six Months Ended		Twelve Months Ended
(in millions)	June 29, 2024		December 31, 2023
Beginning of period	$	30	$	27
Charges	7		34
Usage (1)	(18)		(31)

End of period	$	19	$	30

(1) Usage primarily relates to cash payments associated with employee termination costs.

Note 7. Stockholders’ Equity

Preferred Stock

On June 14, 2024, in connection with our acquisition of Snap One, we issued 500,000 shares of Series A Cumulative Convertible Participating Preferred Stock (“Preferred Stock”) to Clayton, Dubilier & Rice (“CD&R”) for an aggregate purchase price of $500 million, or $0.001 per share pursuant to an investment agreement dated April 15, 2024. In connection with the issuance of the Preferred Stock, we incurred direct and incremental expenses of $18 million. These direct and incremental expenses reduced the Preferred Stock carrying value.

The Preferred Stock is convertible perpetual participating preferred stock of the Company, with an initial conversion price equal to $26.92, and accrues dividends at a rate of 7% per annum, payable in cash or in kind. The Preferred Stock votes on an as-converted basis together with common stockholders. The Preferred Stock had a liquidation preference of $500 million as of June 29, 2024. Preferred stock dividends payable totaling $2 million were included in accrued liabilities as of June 29, 2024.

The Preferred Stock can be converted into our common stock at the holder’s option at any time. We can also force conversion if at any time our common stock trading price exceeds 200% of the then-effective conversion price for at least 20 out of 30 trailing trading days. Following the third anniversary of the closing date, we have the option to redeem the Preferred Stock for an aggregate redemption price equal to two times the sum of the Accumulated Amount (as defined in the Certificate of Designations) plus any interim accrued and unpaid dividends (calculated at 1X instead of 2X) on such share of Preferred Stock in effect at the time of redemption. In the event of a change of control, we will have the option to purchase all of the outstanding shares of Preferred Stock at a price per share equal to the 150% of the sum of the Accumulated Amount plus any interim accrued and unpaid dividends (calculated at 100% instead of 150%) on such share of Preferred Stock in effect at the time of such purchase.

Note 8. Stock-Based Compensation Plans

A summary of awards granted follows:


	Six Months Ended June 29, 2024			Six Months Ended July 1, 2023
	Number of Stock Units Granted (1)	Weighted average grant date fair value per share		Number of Stock Units Granted	Weighted average grant date fair value per share
Performance Stock Units (“PSUs”) (2)	575,249	$	27.96	553,071	$	29.89
Restricted Stock Units (“RSUs”)	3,897,778	$	19.57	1,481,793	$	19.01

(1) Includes 2 million RSUs granted as part of the Snap One acquisition for a fair value of $43 million of which $17 million was included in purchase consideration.

(2) Includes PSUs at target payout. Final common shares issued may be different based upon the actual achievement versus the performance measure target.

Stock-based compensation expense, net of tax was $15 million and $29 million for the three and six months ended June 29,

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Notes to Consolidated Financial Statements

(Unaudited)

2024, respectively. For the three and six months ended July 1, 2023, stock-based compensation expense, net of tax was $12 million and $24 million, respectively.

Note 9. Inventories, net

The following table summarizes the details of our inventories, net.


(in millions)	June 29, 2024		December 31, 2023
Raw materials	$	191	$	221
Work in process	14		18
Finished products	983		702


Total inventories, net	$	1,188	$	941

Note 10. Goodwill and Intangible Assets, net

Our goodwill balance and changes in carrying value by segment are as follows:


(in millions)	Products and Solutions		ADI Global Distribution		Total
Balance at January 1, 2024	$	2,045	$	660	$	2,705
Acquisitions (1)	—		393		393



Impact of foreign currency translation	(14)		(5)		(19)
Balance at June 29, 2024	$	2,031	$	1,048	$	3,079

(1) Please refer to Note 3. Acquisitions for additional information.

The following table summarizes the net carrying amount of intangible assets:


(in millions)	June 29, 2024		December 31, 2023
Intangible assets subject to amortization	$	1,038	$	281
Indefinite-lived intangible assets	180		180
Total intangible assets	$	1,218	$	461

Intangible assets subject to amortization consisted of the following:


	June 29, 2024						December 31, 2023
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and technology	$	170	$	(30)	$	140	$	64	$	(26)	$	38
Customer relationships	905		(146)		759		319		(138)		181
Trademarks	79		(8)		71		9		(8)		1
Software	205		(137)		68		193		(132)		61
Intangible assets subject to amortization	$	1,359	$	(321)	$	1,038	$	585	$	(304)	$	281

Intangible assets amortization expense was $13 million and $22 million for the three and six months ended June 29, 2024, respectively, and $10 million and $19 million for the three and six months ended July 1, 2023.

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 11. Leases

Total operating lease costs are as follows:


	Three Months Ended				Six Months Ended
(in millions)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Operating lease costs:
Cost of goods sold	$	3	$	5	$	8	$	10
Selling, general and administrative expenses	15		15		29		29
Total operating lease costs	$	18	$	20	$	37	$	39

Total operating lease costs include variable lease costs of $4 million and $7 million for the three and six months ended June 29, 2024, respectively. For the three and six months ended July 1, 2023, total operating lease costs include variable lease costs of $6 million and $12 million, respectively.

The following table summarizes the carrying amounts of our operating lease assets and liabilities:


(in millions)	Financial Statement Line Item	June 29, 2024		December 31, 2023
Operating lease assets	Other assets	$	234	$	192
Operating lease liabilities - current	Accrued liabilities	$	52	$	39
Operating lease liabilities - non-current	Other liabilities	$	196	$	166

Supplemental cash flow information related to operating leases follows:


	Six Months Ended
(in millions)	June 29, 2024		July 1, 2023
Cash paid for operating lease liabilities	$	17	$	18
Non-cash activities: operating lease assets obtained in exchange for new operating lease liabilities	$	6	$	15

Note 12. Long-Term Debt

Long-term debt is comprised of the following:



(in millions)	June 29, 2024		December 31, 2023

4.000% Senior Notes due 2029	$	300	$	300


Variable rate A&R Term B Facility	1,714		1,119

Gross debt	2,014		1,419
Less: current portion of long-term debt	(12)		(12)
Less: unamortized deferred financing costs	(23)		(11)
Total long-term debt	$	1,979	$	1,396

A&R Senior Credit Facilities

On February 12, 2021, we entered into an Amendment and Restatement Agreement with JP Morgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”). The A&R Credit Agreement provides for an initial seven-year senior secured term B loan facility in an aggregate principal amount of $950 million. In March 2022, we amended the agreement adding $200 million in additional term loans with a maturity date of February 1, 2028. Additionally, in June 2024 we further amended the agreement adding $600 million of term loans with a maturity date May 14, 2031 to partially finance our acquisition of Snap One (the “A&R Term B Facility”). Included in the A&R Term B Facility is a five-year senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility”

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Notes to Consolidated Financial Statements

(Unaudited)

and, together with the A&R Term B Facility, the “A&R Senior Credit Facilities”). In June 2024, we also extended the term of our A&R Revolving Credit Facility for a new five-year term.

In May 2024, the A&R Term B Facility was repriced by (i) reducing the interest rate margin from 2.25% to 2.00%, (ii) eliminating the SOFR credit spread adjustment, and (iii) reducing the SOFR floor from 0.50% to 0%.

During the third quarter of 2024, we issued $600 million in aggregate principal of 6.500% Senior Notes due 2032 (the “Notes”). The issue price of the Notes was equal to 100% of the principal amount. The net proceeds from the Notes were used to repay $596 million principal amount of outstanding indebtedness under the Company’s senior secured Term B loans maturing on February 21, 2028. Refer to Note 19. Subsequent Events.

At June 29, 2024 and December 31, 2023, the weighted average interest rate for the A&R Term B Facility, excluding the effect of the interest rate swaps, was 7.34% and 7.72%, respectively. There were $5 million letters of credit issued under the A&R Revolving Credit Facility with no outstanding borrowings. As of June 29, 2024, we were in compliance with all covenants related to the A&R Senior Credit Facilities.

We entered into certain interest rate swap agreements in March 2021, which were amended in June 2023 to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows. These interest rate swap agreements effectively convert a portion of our variable-rate debt to fixed rate debt. Additionally, we acquired an interest rate cap as part of the Snap One acquisition which caps the interest on a portion of our variable rate debt. Refer to Note 13. Derivative Financial Instruments for further discussion.

Senior Notes due 2029

On August 26, 2021, we issued $300 million in principal amount of 4.00% Senior Notes due 2029 (the “Senior Notes due 2029”). The Senior Notes due 2029 are senior unsecured obligations guaranteed by the Company’s existing and future domestic subsidiaries and rank equally with all senior unsecured debt and senior to all subordinated debt.

Refer to Note 11. Long-Term Debt in our 2023 Annual Report on Form 10-K for further discussion.

Note 13. Derivative Financial Instruments

In March 2021, we entered into eight interest rate swap agreements (“Swap Agreements”) with several financial institutions for a combined notional value of $560 million. The Swap Agreements were entered into to reduce the consolidated interest rate risk associated with variable rate, long-term debt.

During 2023, we modified the Swap Agreements blending the asset positions of the original interest rate swap agreements into new interest swap agreements and extending the term of our hedged positions. The new pay-fixed interest rate swap agreements qualify as hybrid instruments in accordance with Accounting Standards Codification 815, Derivatives and Hedging, consisting of financing components and embedded at-market derivatives that were designated as cash flow hedges. We also amended the Swap Agreements to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows.

Refer to Note 12.Derivative Financial Instruments in our 2023 Annual Report on Form 10-K for further discussion.

As part of our acquisition of Snap One, we acquired an interest rate cap with a notional of $346 million and a strike rate of 4.79%, which effectively caps SOFR on the notional amount at that rate (the “Interest Rate Cap”). We are required to pay a premium of $7 million at the maturity date of December 31, 2025. The Interest Rate Cap qualifies as a hybrid instrument consisting of a financing component and an embedded at-market derivative that was designated as a cash flow hedge on our A&R Term B Facility as of the Snap One acquisition date.

The Swap Agreements and Interest Rate Cap (referred to collectively as “interest rate derivatives”) are adjusted to fair value on a quarterly basis. The following tables summarizes the fair value and presentation of derivative instruments in the Unaudited Consolidated Balance Sheets as well as the changes in fair value recorded in accumulated other comprehensive loss:

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)


	Fair Value of Derivative Assets
(in millions)	Financial Statement Line Item	June 29, 2024		December 31, 2023





Derivatives designated as hedging instruments
Interest rate derivatives	Other current assets	$	19	$	20
Interest rate derivatives	Other assets	8		10
Total derivative assets designated as hedging instruments		$	27	$	30

	Fair Value of Derivative Liabilities
(in millions)	Financial Statement Line Item	June 29, 2024		December 31, 2023
Derivatives designated as hedging instruments:

Interest rate derivatives	Other liabilities	$	6	$	—
Total derivative liabilities designated as hedging instruments		$	6	$	—

Unrealized gain	Accumulated other comprehensive loss	$	20	$	25

The following table summarizes the effect of derivative instruments designated as cash flow hedges in other comprehensive income and the Unaudited Consolidated Statements of Operations:


	Three Months Ended				Six Months Ended
(in millions)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Gains recorded in accumulated other comprehensive loss, beginning of period	$	24	$	35	$	25	$	42
Current period gain (loss) recognized in/reclassified from other comprehensive income	(4)		13		(3)		7
Gains reclassified from accumulated other comprehensive loss to net income	—		(8)		(2)		(9)
Gains recorded in accumulated other comprehensive loss, end of period	$	20	$	40	$	20	$	40

Unrealized gains expected to be reclassified from accumulated other comprehensive loss in the next 12 months are estimated to be $19 million as of June 29, 2024.

Note 14. Fair Value

The estimated fair value of our financial instruments held, and when applicable, issued to finance our operations, is summarized below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that we would realize upon disposition, nor do they indicate our intent or ability to dispose of the financial instrument. Assets and liabilities that are carried at fair value are required to be classified and disclosed in one of the following three categories:

Level 1—quoted market prices in active markets for identical assets and liabilities

Level 2—observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3—unobservable inputs that are not corroborated by market data

Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no changes in the methodologies used in our valuation practices as of June 29, 2024.

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Notes to Consolidated Financial Statements

(Unaudited)

The fair values of long-term debt instruments were determined using quoted market prices in inactive markets or discounted cash flows based upon current observable market interest rates and therefore were classified as Level 2 measurements in the fair value hierarchy.

The following table provides a summary of the carrying amount and fair value of outstanding debt:


	June 29, 2024				December 31, 2023
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Debt
4.000% Senior Notes due 2029	$	300	$	265	$	300	$	266
Variable rate A&R Term B Facility	1,714		1,717		1,119		1,122

Total debt	$	2,014	$	1,982	$	1,419	$	1,388

Refer to Note 12. Long-Term Debt to the Unaudited Consolidated Financial Statements for further discussion.

Interest Rate Risk—We have exposure to movements in interest rates associated with cash and borrowings. We have entered, and in the future may enter, into various interest rate protection agreements in order to limit the impact of movements in interest rates. The fair values of interest rate swaps have been determined based on market value equivalents at the balance sheet date, taking into account the current interest rate environment and therefore, were classified as Level 2 measurements in the fair value hierarchy.

The following table provides a summary of the carrying amount and fair value of our interest rate derivatives:


	June 29, 2024		December 31, 2023
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Interest rate derivatives	$	27	$	27	$	30	$	30
Liabilities:

Interest rate derivatives	6		6		—		—
Total, net	$	21	$	21	$	30	$	30

Refer to Note 13. Derivative Financial Instruments to the Unaudited Consolidated Financial Statements for further discussion.

There are no material Level 1 or Level 3 assets or liabilities for the periods presented. The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued liabilities approximate fair value because of the short-term maturity of these amounts.

Note 15. Accrued Liabilities

Accrued liabilities consist of the following:

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)



(in millions)	June 29, 2024		December 31, 2023
Obligations payable under Indemnification Agreements	$	140	$	140
Customer rebate reserve	88		104
Compensation, benefit and other employee-related	74		110
Current operating lease liability	52		39
Deferred revenue	28		4
Product warranties	28		24
Freight payable	26		25




Other (1)	166		162
Total accrued liabilities	$	602	$	608

(1) Other includes accruals for advertising, legal and professional reserves, taxes, interest, restructuring, royalties and other miscellaneous items.

Note 16. Commitments and Contingencies

Environmental Matters

We are subject to various federal, state, local, and foreign government requirements relating to the protection of the environment and accrue costs related to environmental matters when it is probable that we have incurred a liability related to a contaminated site and the amount can be reasonably estimated. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury and that our handling, manufacture, use and disposal of hazardous substances are in accordance with environmental and safety laws and regulations. We have incurred remedial response and voluntary cleanup costs for site contamination and are a party to claims associated with environmental and safety matters, including products containing hazardous substances. Additional claims and costs involving environmental matters are likely to continue to arise in the future.

Environment-related expenses for sites owned and operated by us are presented within cost of goods sold for operating sites. For the six months ended June 29, 2024 and July 1, 2023, environmental expenses related to these operating sites were not material. Liabilities for environmental costs were $22 million at June 29, 2024 and December 31, 2023.

Obligations Payable Under Indemnification Agreements

The Reimbursement Agreement and the Tax Matters Agreement (collectively, the “Indemnification Agreements”) are further described below.

Reimbursement Agreement

We separated from Honeywell International Inc. (“Honeywell”) on October 29, 2018, becoming an independent publicly traded company as a result of a pro rata distribution of our common stock to shareholders of Honeywell (the “Spin-off”). In connection with the Spin-Off, we entered into a reimbursement agreement, pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of payments for certain Honeywell environmental-liability payments (the “Reimbursement Agreement”) which include amounts billed (payments), less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales (the recoveries). The Reimbursement Agreement extends until the earlier of (1) December 31, 2043; or (2) December 31 of the third consecutive anniversary where the annual reimbursement obligation (including accrued amounts) has been less than $25 million. While the amount payable by us in respect of such liabilities arising in any given year is subject to a cap of $140 million under the Reimbursement Agreement, the estimated liability for resolution of pending and future environmental-related liabilities recorded on our balance sheets are calculated as if we were responsible for 100% of the environmental-liability payments associated with certain sites. Refer to Note 15. Commitments and Contingencies in our 2023 Annual Report on Form 10-K for further discussion.

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Tax Matters Agreement

In connection with the Spin-Off, we entered into the Tax Matters Agreement with Honeywell, pursuant to which we are responsible and will indemnify Honeywell for certain taxes, including certain income taxes, sales taxes, VAT and payroll taxes, relating to the business for all periods, including periods prior to the consummation of the Spin-Off. In addition, the Tax Matters Agreement addresses the allocation of liability for taxes that are incurred as a result of restructuring activities undertaken to effectuate the Spin-Off.

We are required to indemnify Honeywell for any taxes resulting from the failure of the Spin-Off and related internal transactions to qualify for their intended tax treatment under U.S. federal, state and local income tax law, as well as foreign tax law, where such taxes result from our action or omission not permitted by the Separation and Distribution Agreement between Honeywell and Resideo dated as of October 19, 2018 or the Tax Matters Agreement.

The following table summarizes information concerning the Reimbursement and Tax Matter Agreements’ liabilities:


(in millions)	Reimbursement Agreement		Tax Matters Agreement		Total
Balance as of January 1, 2024	$	652	$	97	$	749
Accruals for liabilities deemed probable and reasonably estimable	90		—		90
Payments to Honeywell	(70)		(4)		(74)
Balance as of June 29, 2024	$	672	$	93	$	765

The liabilities related to the Reimbursement and Tax Matters Agreements are included in the following balance sheet accounts:


(in millions)	June 29, 2024		December 31, 2023
Accrued liabilities	$	140	$	140
Obligations payable under Indemnification Agreements	625		609
Total indemnification liabilities	$	765	$	749

For the three and six months ended June 29, 2024, net expenses related to the Reimbursement Agreement were $47 million and $90 million, respectively. For the three and six months ended July 1, 2023, net expenses related to the Reimbursement Agreement were $44 million and $85 million, respectively.

We do not currently possess sufficient information to reasonably estimate the amounts of indemnification liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with such indemnification liability payments can be determined although they could be material to our consolidated results of operations and operating cash flows in the periods recognized or paid.

Independent of our payments under the Reimbursement Agreement, we will have ongoing liability for certain environmental claims, which are part of our ongoing business.

Other Matters

We are subject to lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, acquisitions and divestitures, employee matters, intellectual property, and environmental, health, and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses, based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. No such matters are material to our financial statements. Refer to Note 15. Commitments and Contingencies in our 2023 Annual Report on Form 10-K for further discussion of these matters.

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Notes to Consolidated Financial Statements

(Unaudited)

On June 28, 2023, Lisset Tredo, a Company employee, filed a putative class action complaint in the San Diego County Superior Court on behalf of all non-exempt employees in California, in which she alleged violations by the Company of the California Labor Code related to sick leave pay, accurate wage statements, recordkeeping, and pay timing, and on August 28, 2023 she filed a first amended complaint adding a claim under the California Private Attorneys General Act (“PAGA”).

The parties executed a Class Action and PAGA Settlement Agreement on or about June 3, 2024 in which they agreed, subject to Court approval, to settle the entire action for a gross amount of $0.3 million. As part of the settlement, the Company denied all liability and the claims against it will be released.

Warranties and Guarantees

In the normal course of business, we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and product performance guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Product warranties and product performance guarantees are included in accrued and other liabilities. The following table summarizes information concerning recorded obligations for product warranties and product performance guarantees:


	Six Months Ended		Twelve Months Ended
(in millions)	June 29, 2024		December 31, 2023
Beginning balance	$	34	$	48
Accruals for warranties/guarantees issued/acquired during the period	18		24

Settlement of warranty/guarantee claims	(12)		(38)

Ending balance	$	40	$	34

Note 17. Income Taxes

For interim periods, income tax is equal to the total of (1) year-to-date pretax income multiplied by the forecasted effective tax rate plus (2) tax expense items specific to the period. In situations where we expect to report losses and where we do not expect to receive tax benefits, we apply separate forecast effective tax rates to those jurisdictions rather than including them in the consolidated forecast effective tax rate.

For the three and six months ended June 29, 2024, the net tax expense was $29 million and $59 million, respectively, and for the three and six months ended July 1, 2023, net tax expense was $44 million and $68 million, respectively, and consists primarily of interim period tax expense based on year-to-date pretax income multiplied by our forecasted effective tax rate. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.

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Notes to Consolidated Financial Statements

(Unaudited)

Note 18. Earnings Per Common Share

The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per common share follows:


	Three Months Ended				Six Months Ended
(in millions, except per share data)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Numerator for basic and diluted earnings per common share:


Net income	$	30	$	50	$	73	$	107
Less: preferred stock dividends	2		—		2		—

Net income available to common stockholders	$	28	$	50	$	71	$	107

Denominator for basic and diluted earnings per common share:
Weighted average basic number of common shares outstanding	146		147		146		147
Plus: dilutive effect of common stock equivalents	3		2		2		2
Weighted average diluted number of common shares outstanding	149		149		148		149

Earnings per common share:



Basic	$	0.19	$	0.34	$	0.49	$	0.73




Diluted	$	0.19	$	0.34	$	0.48	$	0.72

Diluted earnings per common share is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the if-converted and treasury stock method with the average market price of our common stock for the period.

The following potentially dilutive instruments, presented as a weighted average of the instruments outstanding, were excluded from the calculation of diluted net income per common share because their effect would have been antidilutive, and in the case of certain PSUs, the contingency has not been satisfied.


	Three Months Ended		Six Months Ended
(in millions)	June 29, 2024	July 1, 2023	June 29, 2024	July 1, 2023
RSUs and other rights	0.7	2.1	0.7	1.7
PSUs	0.9	0.9	1.1	0.8
Preferred stock	0.1	—	—	—

Note 19. Subsequent Events

On July 17, 2024, we issued $600 million in aggregate principal of 6.500% Senior Notes due 2032 (the “Notes”). The issue price of the Notes was equal to 100% of the principal amount. The net proceeds from the Notes were used to repay $596 million principal amount of outstanding indebtedness under the Company’s senior secured Term B loans maturing on February 21, 2028.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the Unaudited Consolidated Financial Statements included herein under “Item 1. Financial Statements.” and the Audited Consolidated Financial Statements and the notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) included in our 2023 Annual Report on Form 10-K.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and projections about our industries and our business and financial results. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and words and terms of similar substance in connection with discussions of future operating or financial performance. This Quarterly Report includes industry and market data that we obtained from various third-party sources, including forecasts based upon such data; as with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Quarterly Report are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

•competition from other companies in our markets and segments, as well as in new markets and emerging markets;

•compatibility and ease of integration with third-party products and services, outside of our control;

•our ability to identify consumer preferences and industry standards, develop and protect intellectual property related thereto, and successfully market new technologies, products, and services to consumers;

•our reliance on independent integrators to sell and install our solutions;

•our reliance on certain suppliers;

•the impact of disruptions in our supply chain from third-party suppliers and manufacturers, including our inability to obtain necessary raw materials and product components, production equipment or replacement parts;

•inability to consummate acquisitions on satisfactory terms or to integrate such acquisitions effectively;

•the impact of earthquakes, hurricanes, fires, power outages, floods, pandemics, epidemics, natural disasters and other catastrophic events or other public health emergencies;

•the impact of potentially volatile global market and economic conditions and industry and end market cyclicality, including factors such as interest rates, inflation, energy costs, availability of financing, consumer spending habits and preferences, housing market changes, and employment rates;

•failure to achieve and maintain a high level of product and service quality, including the impact of warranty claims, product recalls, and product liability actions that may be brought against us;

•our ability to retain or expand relationships with significant customers;

•the significant failure or inability to comply with specifications and manufacturing requirements or delays or other problems with existing or new products or inability to meet price requirements;

•inability to successfully execute transformation programs or to effectively manage our workforce;

•the failure to increase productivity through sustainable operational improvements;

•economic, political, regulatory, foreign exchange and other risks of international operations;

•our dependence upon information technology infrastructure and network operations having adequate cyber-security functionality;

•the potential adverse impacts of enhanced tariff, import/export restrictions, or other trade barriers on global economic conditions, financial markets and our business;

•risks associated with the Reimbursement Agreement, the other agreements we entered into with Honeywell in connection with the Spin-Off, and our relationships with Honeywell, including our reliance on Honeywell for the Honeywell Home trademark and potential material environmental liabilities;

•regulations and societal actions to respond to global climate change;

• failure to comply with the broad range of current and future standards, laws and regulations in the jurisdictions in which we operate;

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•the impact of potential material litigation matters, government proceedings, and other contingencies and uncertainties;

•our ability to borrow funds and access capital markets in light of the terms of our debt documents or otherwise;

•provisions in our governing documents discouraging takeovers;

•our ability to recruit and retain qualified personnel;

•currency exchange rate, stock price, and effective tax rate fluctuations;

•the CD&R Stockholder's interest in and influence over us that may diverge from, or event conflict with, interests of the holders of our common stock, and the reduction in the relative voting power of holders of our common stock resulting from the issuance of preferred stock;

•our ability to maintain effective internal controls, deliver timely financial statements, and avoid the financial statements to become impaired and damage public opinion, including the process we are currently undertaking to assess the internal controls over financial reporting of Snap One, which had disclosed a material weakness at the time we acquired the business;

•impairment of other intangible assets and long-lived assets;

•being required to make significant cash contributions to our defined benefit pension plans; and

•other risks detailed under the caption “Risk Factors” in this Quarterly Report, in Part I, Item 1A, in our 2023 Annual Report on Form 10-K, and other filings we make with the SEC.

There have been no material changes to the risk factors described in our 2023 Annual Report on Form 10-K. These risks could cause actual results to differ materially from those implied by forward-looking statements in this Quarterly Report. Even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements made by us in this Quarterly Report speak only as of the date on which they are made. We are under no obligation to and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

Table of Contents

Overview and Business Trends

We are a leading global manufacturer and distributor of technology-driven products and solutions that help homeowners and businesses stay connected and in control of their comfort, security and energy use. We are a leader in the home heating, ventilation and air conditioning controls markets, smoke and carbon monoxide detection home safety and fire suppression products, and security markets. We have a global footprint serving commercial and residential end-markets. We manage our business operations through two operating segments, Products and Solutions and ADI Global Distribution. The Products and Solutions operating segment, consistent with our industry, has a higher gross and operating profit profile in comparison to the ADI Global Distribution operating segment. In the second quarter of 2024, we expanded the business through the acquisition of Snap One, which has been incorporated into the ADI Global Distribution segment. The acquisition expands our distribution into and reach with smart-living products, services, and software.

Our Products and Solutions operating segment offerings include temperature and humidity control, energy products and solutions, water and air solutions, smoke and carbon monoxide detection home safety products, security panels, sensors, peripherals, wire and cable, communications devices, video cameras, other home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software.

Our ADI Global Distribution business is a leading wholesale distributor of low-voltage security products including access control, fire detection, fire suppression, security, and video products and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. Our ADI Global Distribution strategy is focused on growth in our omni-channel presence, expansion into adjacent markets, and continued enhancements to our value-add services to support our professional installers’ efficiency and profitability.

Our financial performance is influenced by macroeconomic factors such as repair and remodeling activity, residential and non-residential construction, new and existing home sales, employment rates, interest rates and bank lending standards, supply chain dynamics, and the overall macroeconomic environment. The ongoing uncertainty and volatility in the global macroeconomic conditions have affected and could continue to affect our visibility toward future performance. While supply chain and logistics continue to normalize over 2024, customer demand continues to moderate as inventories rebalance over the period and uncertainties remain including the potential for changes in inflation and interest rates, increased labor costs, reduced consumer spending due to softening labor markets, elevated mortgage rates, unfavorable foreign currency impacts from a stronger U.S. dollar, and potential market and other disruption from the ongoing conflict between Russia and Ukraine as well as the Middle East crisis between Hamas and Israel.

Current Period Highlights