all public info...
let's look at some math to try to understand what's going on with rezi
according to the latest earnings:
- rezi has ~$531m in cash and cash equivalents
- generated $147m in operating cash flow during Q3
- over the last trailing 12 months, generated free cash flow of $415m
- is projecting to generate at least $375m in operating cash flow, but that's depending on Q4 performance, so it could go either way
all that looks good for any company when you can generate hundreds of millions in cash. however, the layers need to be peeled off to see what's really underneath...
*** after the snap one acquisition, rezi now has a whopping ~$1.99B (billion) in total debt.
you would think having over $500m in cash you're in good shape to pay off the debt, but not really. here are the obligations:
- $140m/year to honeywell ($35/quarter) for indemnification clause
- $35m/year to CD&R, $500m at 7%
- $39m /year interest payments on the $600m senior notes at 6.5% interest issued
- so every year $214m is gone to pay off some kind of debt. that's more than half of the cash expected to be generated this year.
also need to look at how this cash has been generated. p&s revenue continues to decline, ADI revenue is only up because of snap one, otherwise it's flat. so overall if revenue is not really growing, that could only mean cash is generated by cutting expenses. everyone knows another round of rifs is around the corner. the simple question is: how many more heads can you cut to keep this up? don't you still need people around to write checks to pay the interests?
when the snap acquisition as announced, all this smoke up the butt about synergies. that just means if the return on the investment does not start soon, this whole thing will go south very fast. but one has to wonder, how did rezi decide to pay $1.4b for a company that was never profitable? what kind of bet is this? how much cash you expecting to generate with this supposed synergy?
here's an opinionated thought: could this be a strategy to get out of the honeywell indemnification clause? is rezi trying to do what garrett did to get out of their clause???