Spruce Point Capital Management Announces Investment Opinion: Releases Report and Strong Sell Research Opinion on Resideo Technologies, Inc. (NYSE: REZI)

NOTE TO EDITORS: The Following Is an Investment Opinion Issued by Spruce Point Capital Management

Identifies Long-Term Failures By Management To Achieve Organic Growth, Margin or Cash Flow Targets or To Rectify Operational Challenges And Complexities With A Fully Implemented ERP System

Expresses Concerns With The Revolving Door At the CFO and CAO Roles, While Financial Reporting and Accounting For Recent M&A Transactions, Notably First Alert And Snap One Holdings, Appears Problematic

Believes That Dubious Recurring Restructuring Add-Backs and Questionable Tax Maneuvers At Foreign Entities Where Deloitte Was Replaced As Auditor May Be Inflating Financial Results

Calls on the Audit Committee to Suspend the Split-Up Process Until A Committee With, The Assistance of Outside Experts, Reviews Our Findings

Estimates That Even If REZI's Split-Up Occurs, the Shares Face 25% – 50% Downside Risk Potential From Its Rich Valuation And Propensity To Disappoint Under Current Management

Spruce Point Capital Management, LLC ("Spruce Point" or "we" or "us"), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled "Red Alert, Where There's Smoke, There's Fire" that outlines why we believe and estimate that shares of Resideo Technologies, Inc. (NYSE:REZI) ("REZI" or the "Company") face up to 25% – 50% potential long-term downside to approximately $17.64 – $26.45 per share, representing material risk of market underperformance. Download and view the report, disclaimers, additional information, and exclusive updates by visiting www.SprucePointCap.com.

Spruce Point Report Overview

Headquartered in Scottsdale, AZ, Resideo manufactures, markets, and distributes a range of home comfort and security solutions, along with low voltage products. Originally a spin-off from Honeywell in 2018, Resideo operates in two segments, 1) ADI Global Distribution (62% of 2024 revenue) which is a wholesale distributor of low voltage products, and 2) Products and Solutions (38% of revenue) which sells safety, security, water, air, and energy products and solutions. In July 2025, Resideo announced its intention to split-up the Company in the second half of 2026. Resdieo has a market capitalization of $5.3 billion and in the last 12 months ending September 30, 2025, generated $7,435 million of revenue and $303 million of adjusted operating cash flow.

The issues we analyze in our report include the following:

• REZI has a troubled history of organizational complexity, financial failure, and the recent split up announcement is likely to intensify its problems.
  • REZI spun-off from Honeywell in 2018 with the high hopes of unlocking value for the assets. But according to a former high-level executive we spoke said the businesses were "smushed together" for the spin-off and "operationally behind the scenes there were a lot of growing pains in terms of how to harmonize these businesses". The initial vision of being a software-centric company did not pan out and early slides promoting connected customers and recurring revenue were dropped. Today, we believe solutions for the residential and commercial building space need connectivity and technology edge to succeed, especially with the likes of Amazon and Google focusing on the home. After a period of 16% annual connected customer growth, we estimate that REZI's growth rate plummeted to 1.6% in 2025. The Company has also deemphasized R&D and has made three expense reporting reclassifications. By our estimate, R&D expense per engineer has fallen -10% in the past three years while its current and pending patent portfolio has declined.
  • We frequently find that companies with capex mis-forecasting issues either have underlying business problems or poor financial management. For starters, REZI has changed its capex nomenclature on its cash flow statement four times to obscure the amount of software spending. Management has frequently missed capex forecasts by 15-25%, with a 122% miss at spin-off. At its March 2021 Investor Day, REZI said annual capex would be 2-3% of revenue through 2024, but it never exceeded 2%. Capex spending is crucial to the story, especially when it comes to spending on its ERP system.
  • A former executive told us it was a, "bit of a rat nest that spun out in terms of those back office systems". Management has only gingerly discussed the ERP since 2021, but recently revised financial guidance and blamed the ERP while suggesting that even some issues may not be fixable from systems that can't connect. Based on REZI's size and complexity (e.g. ADI which distributes more than 500,000 products from over 1,000 manufacturers to a customer base of more than 100,000), we conservatively estimate it may need to spend another $100 - $250 million.
  • Our forensic research finds severely problematic financial reporting when it comes to explanatory factors driving revenue and acquisitions. These issues are likely a function of REZI's problematic ERP and further complicated by the fact it has completed at least thirteen acquisitions and three divestitures since the spin-off. Of course, with the Company having rotated through four Chief Financial Officers and four Chief Accounting Officers since coming public, the potential for problems are exacerbated from the lack of continuity in leadership. Complicating matters, Nebraska's Attorney General recently sued Resideo for "deceptive and unfair business practices" and "deceptively marketed" security products.

• Recent acquisitions look troubled, paper over REZI's long-term goal failures, and appear to intensify its financial problems. Its initial foray into large scale acquisitions was First Alert in 2022.
  • In March 2021 during its Investor Day, REZI set specific organic revenue and gross margin by segment and consolidated operating cash flow goals to be achieved by 2024. The Company did not mention acquisitions as being integral to the strategy, leading investors to believe its objectives were organic growth. In fact, acquisitions were listed as its lowest priority at its 2018 spin-off. Based on our analysis, we believe that REZI has woefully missed its 2024 targets communicated to investors in early 2021. Over the same period, REZI has ceased to provide key annual guidance metrics such as revenue growth per segment, gross margin and corporate expenses. Our analysis, which adjusts for recent acquisitions, FX, and divestitures estimates that total organic growth was ~2.9% or 310bps below the target with anemic 0.8% organic growth in the Product and Solutions segment.
  • We also provide analysis that suggests that REZI has engaged in value-destructive M&A with questionable financial reporting to bolster the appearance of earnings growth. Notably, in 2022 it acquired First Alert (smoke detectors) from Newell Brands (NASDAQ:NWL) for $593m. Ironically, First Alert was once used as an acquisition pawn to cover-up a massive accounting fraud in 1998 by Sunbeam Corp. (NYSE:SOC) run by the notorious Al "Chainsaw" Dunlap. Later, the business would pass to Newell (through Jarden Corp.) where both it and the CEO settled with the SEC in 2023 for $12.5m related to accounting violations and misrepresenting core "organic" growth. We provide evidence of challenges that lie ahead with the business, which one former employee who went through the acquisition described as "a disaster". Notably, we find revenue reporting issues around the time of acquisition and uncharacteristic strength followed by restructuring programs and sporadic synergy updates. The early revenue in 2022 went ahead of plan, and in early 2025, First Alert again had uncharacteristically strong performance against what it previously said were seasonally weak Q1 trends. The business is heavily retail distribution focused (66% Home Depot, Lowes, Costco, etc.) and 34% professional. An uplift in 2025 from a new Google connected device is likely to create difficult comps and carry lower margins. REZI is touting strengthening partnerships with home builders, but we believe price wars and volume discounts result in lower margins through this channel. Overall, a former executive intimately familiar with the First Alert business expressed the view that REZI overpaid for the business. First Alert's "premium" connected brand called Onelink also appears to have been quietly discontinued.
  • Following the First Alert deal, REZI acquired Snap One Holdings ("Snap") (NASDAQ:SNPO) for $1.4 billion. Snap was an amalgamation of businesses, notably through SnapAV's acquisition of Control4 (NASDAQ:CTRL) in 2019 for $680 million. This created a hybrid company with both product development and distribution. For reporting purposes, REZI classifies it within the ADI distribution segment, despite requiring significant R&D costs. We provide evidence that Snap came under various culture, financial reporting, and accounting strains during the integration. Former Snap employees working through the Control4 acquisition describe it as challenged and that product innovation had fallen behind. Increasing adoption of Matter, a universal smart home technology standard, is also seen as likely to pressure REZI's branded hardware. For example, IKEA just launched 21 Matter-enabled products. Sonos has also been described as an emerging competitor, especially in the Do-It-Yourself ("DIY") market which has been gaining traction. Snap's early success was high-end installations among the wealthy Do-It-For-Me ("DIFM") segment which received a boost during COVID-19 along with general home project improvement trends. Another former executive highlights that Comcast was a big customer who bought a lot of RG6 coaxial cable. Given cable cord-cutting trends, we expect this to impact Snap. Our analysis of Control4, ~30% of Snap's revenue, indicates stagnant home installs and dealer network expansion.
  • Following the preliminary deal valuation, we find that REZI made two revisions to lower Snap's inventory value. In our opinion, this increases the likelihood that Snap's historical earnings were overstated by under-provisioning for slow moving or obsolete inventory. Second, REZI increased its customer life assumption from 10 to 12 years. Given challenges described by former employees, we believe this is an extremely aggressive assumption and well beyond the 7 – 8 years supported by our competitive analysis. Also, as a proxy and based on a recent interview of an executive at a major security company that moved away from Alarm.com and Resideo, the average customer life is 7 – 8 years and that moving is a big reason for churn. We believe that REZI's pre-tax income in the YTD 2025 period is inflated by 8-12% as a result of overly aggressive assumptions about the average customer life from the Snap transaction.

• REZI's promoted avenues of growth appear to be sputtering.
  • In the ADI segment, REZI points investors to opportunities with its ecommerce sales and exclusive brands which it says are faster growing with higher margins. The problem appears self-evident in that we find cases of brands on ADI's website that can be purchased directly from the manufacturer and available elsewhere with easy price comparison. REZI also recently claims its goals are to have touchless revenue at 60-65% of revenue and that exclusive brands can be a $1 billion business. To have faith in these goals, REZI should provide reliable and consistent metrics for investors to track its progress. REZI stopped disclosing touchless revenue at the end of FY23.
  • Moreover, reported organic ecommerce revenue appears to have received a big uplift during the first year of the Snap One transaction. However, in Q3'25 the growth rate declined dramatically back to just 3%. ADI (ex-Snap) exclusive brands organic revenue growth collapsed from 32% to 3% from Q2-Q3'25. If we include Snap exclusive products, organic revenue growth declined from 5% to 3% over the same period. Overall, it appears that these growth vectors are starting to meaningfully decelerate. This analysis is corroborated by Similarweb analytics which show a -27% decline in web traffic to SnapAV's homepage and generally flat traffic to its order status page since REZI closed its acquisition. Control4 and OVRC, its professional remote management platform for Control4 dealers, are critical exclusive brands acquired through the Snap transaction. Similarweb analytics also show weak trends to each website.
  • There is another strong clue that ADI's revenue momentum will slow in the coming quarters. From Q3'24 through Q2'25, ADI President Aarnes referenced the number of new product and SKUs launched. However, in the last quarter of Q3'25 he conspicuously stopped referencing new product launches. This factor, along with REZI now signaling that third party services are being used to develop products, suggests to us that any revenue uplift from new product introductions is likely to slow.
  • REZI started talking about adjacent category expansion more prominently in 2023 by focusing on Pro and Residential AV, along with Data Communications ("Datacom"). Combined, REZI claimed sales were over $500 million in 2022, up 20% year-over-year. Ever since, REZI has not updated its product segment or combined revenue figures for these growth categories. However, based on recent commentary, it appears that growth has significantly flattened, with Datacom and Pro AV growing at low double digits, while Residential AV seeing flat growth. The Residential AV category performance is even more troubling given that REZI bolstered its capabilities with the Snap acquisition.

• Ignore REZI's Non-GAAP results; cash flow never lies and we believe it is the ultimate arbiter of REZI's failures.
  • REZI wants investors to buy that its eight line-item adjusted Non-GAAP EPS results, up 29% YTD'25, are a credible measure of its financial success. We beg to differ and believe cash flow is king and how the Company should be evaluated.
  • There are two key factors which we believe heavily fluff REZI's Non-GAAP results:
    • Since 2018, REZI has reported $220 million of cumulative restructuring and impairment charges as recurring add-backs every year except 2021. We don't believe these are ignorable, one-time costs, but rather necessary legacy and on-going optimization costs that management was likely aware of from the onset of the spin-off.
    • Tax reporting is an area of accounting that requires significant judgement. We evaluate REZI's income tax expense vs. cash taxes paid, net over the long run and should expect them to be roughly equal. However, since 2021 REZI has been reporting less GAAP income taxes than cash taxes paid. Cumulatively, the amount of taxes under-reported on the income statement relative to cash taxes paid is ~$142 million. Therefore, we argue that Net Income has also been cumulatively overstated by the corresponding amount. Bolstering our concerns, we observe that REZI started providing quantitative disclosure of uncertain tax positions in the 2022 10-K. Moreover, we are concerned by the removal of house auditor Deloitte in favor of Grant Thornton at three U.K. entities where REZI has generated combined losses of £84m in 2024 and involved large restructuring and reversal impairment charges related to intercompany entities.
  • At the 2021 Investor Day, REZI outlined its 2024 operating cash flow ("OCF") goal to be >$600 million. However, by our estimate OCF was $425 million when adjusted for the fixed costs obligations to service its preferred stock dividends. In the last 12 months, OCF has markedly deteriorated. REZI is now disclosing cash payments to repurchase shares for stock award tax withholding. By classifying these costs as operational, we find that trailing OCF is only $303 million. These results should also be put into context that REZI spent over $2 billion on acquisitions and said it achieved $30 million of First Alert synergies and has reported $17 million of synergies from Snap in 2024. Despite these transactions and synergy results, performance has fallen well short of the goals. In fact, in the LTM period we estimate cash flow has collapsed by -37% since the 2018 spin-off. Compounding our concerns, the short-term incentive program for management's bonus removed OCF as a criteria in 2024. REZI stopped providing details of its goodwill testing methodology after 2021 but references cash flows and claims no impairments are required. With cash flow down so much below plan, it is hard for us to accept this conclusion at face value.
    
    

• Given the removal of a lingering obligation to Honeywell and the split-up announcement, we see few, if any, upside catalysts to expand REZI's multiple beyond this historically high level.
  • Only two analysts cover REZI with the average price target to be $45 (27% upside). We believe this is a poor risk / reward. We deconstruct the promotional case and believe it is easy to refute given the obvious failures by management and the significant financial uncertainties that remain including: 1) Changing end market dynamics and weakening growth opportunities 2) Transparency in ongoing ERP costs, and 3) The structure of the new entity and costs to execute.
  • REZI currently trades at 1.3x 2026E revenue (double the median long-term multiple of 0.6x) based on our adjustments which considers: 1) The $500 million convertible preferred stock as in-the-money equity, and 2) Incorporates environmental, pension and other tax liabilities of $215 million. We believe 1.3x revenue is a rich multiple given that REZI is mostly a low-growth hardware manufacturer and distributor that fails to even disclose its true software spend.
  • Based on our sum-of-the-parts analysis which compares the profile of the ADI business and P&S segments vs. comparable companies, we believe it has both lower projected revenue growth and gross margins and should be valued at a discount to peers. LTM leverage has also risen dangerously to 5.5x (up from 3.3x in 2018) with significant financial uncertainties ahead. We also factor in $75 – $100 million of separation costs. Of note, at least $80 million of costs were incurred upon the initial spin-off of REZI from Honeywell in 2018.
  • We believe the share price to be materially overvalued and see 25% – 50% downside risk. We expect shares to underperform the market and its related industries.

Please note that the items summarized in this press release are expanded upon and supported with data, public filings and records, and images in Spruce Point's full report. As a reminder, our full report, along with its investment disclaimers, can be downloaded and viewed at www.SprucePointCap.com.

As disclosed, Spruce Point and/or its clients have a short position in Resideo Technologies, Inc. (NYSE:REZI) and owns derivative securities that stand to net benefit if its share price falls. Following publication of the report, we intend to continue transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial opinion. For additional important information, please review the "Full Legal Disclaimer" contained in the report.

About Spruce Point

Spruce Point Capital Management, LLC is a forensic fundamentally-oriented investment manager that focuses on short-selling, value, and special situation investment opportunities.

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Daniel Oliver

Spruce Point Capital Management

[email protected]

(914) 999-2019