Resideo - Earnings Call - Q4 2020

Transcript

Speaker 0

Ladies and gentlemen, at this time, I'd like to welcome everyone to the Resideo Technologies Fourth Quarter twenty twenty Earnings Conference Call. Today's call is being recorded. All participants will be in a listen only mode until the formal question and answer portion of the call. It is now my pleasure to introduce Mr. Jason Willey, Senior Director of Investor Relations.

Mr. Willey, you may now begin, sir.

Speaker 1

Good morning, everyone, and thank you for joining us for Resideo's fourth quarter and full year twenty twenty earnings conference call. On today's call will be Keith Alpacher, Resideo's Chief Executive Officer and Tony Trunzo, our Chief Financial Officer. A copy of our earnings release and related presentation materials are available on the Investor Relations page of our website at investors.resideo.com. We would like to remind you that this morning's presentation contains forward looking statements. Statements other than historical facts made during this call may constitute forward looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties.

Actual results may differ materially from those in the forward looking statements a result of a number of factors, including those described from time to time in Resideo's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward looking statements. Additionally, during our call today, we may refer to certain non GAAP financial information. During A reconciliation of our GAAP to non GAAP results is included in the company's earnings press release and accompanying presentation, both of which can be found on the Investor Relations section of our website. We identified the principal risks and uncertainties that affect our performance in our annual report on Form 10 ks and other SEC filings.

I would also like to remind everyone that we will host a virtual Investor Day on the morning of Thursday, March 11. Information regarding this event is available on our Investor Relations website. With that, will now turn the call over to Jay.

Speaker 2

Thank you, Jason, and good morning, everyone. We closed 2020 with a strong Q4, delivering better than expected revenue and profitability and making significant progress on our transformation efforts. Demand in our residential markets remained robust, and the ADI team again delivered impressive growth in the face of mixed market conditions in our commercial categories. Our strong finish to 2020 enabled us to achieve modest revenue growth for the full year despite the unprecedented COVID-nineteen related challenges we and the global economy faced during the year. While we remain in the early stages of our transformation efforts, initial progress contributed to the margin expansion we delivered in the second half profitability improvement, combined with an increased focus on cash management, generated operating cash flow of $244,000,000 in 2020, up from $23,000,000 in 2019.

Improving cash generation is one element of the significant progress we have made in solidifying our balance sheet and enhancing our financial flexibility. In late twenty twenty, we completed a follow on equity offering raising $279,000,000 And after our debt refinancing in early February, we have no significant maturities before 2026. We are well positioned to make long term value enhancing investments in both our businesses and augment these organic initiatives with inorganic opportunities. Following a challenging first half of the year, we saw meaningful improvement in end market demand beginning in the early summer. In the 2020, we delivered strong year over year top line growth in both segments and significant margin expansion at Products and Solutions.

Investments in our operations and strong execution from our supply chain organization positioned us to deliver for customers as demand accelerated. As we enter 2021, we see a number of positive structural trends across the markets we serve. People continue to spend more time in their homes and are directing their attention and investment to renovation and repair projects. Security has risen in prominence in the minds of many home and business owners. Trends in residential new construction also remain favorable.

Our broad portfolio of product solutions, unmatched relationships with the Pro Channel, and distribution reach across home and commercial security markets positions us to capitalize on these positive market dynamics, which we believe have durability. Since I joined Resideo in May, I have focused on accelerating our transformation efforts and building a world class leadership team. Within products and solutions, we reorganized the breakdown silos that existed in the old line of business and engineering structure. We have brought the customer back front and center and are ensuring feedback happens across product management, marketing, and engineering. We have reprioritized customer service with that organization now reporting directly into Phil Theodore, president of products and solutions.

We have taken several steps towards reinvigorating innovation and technology development across the organization, beginning with bringing Jeff Frank on board. This continues with the recent alignment of resources to create a software and engineering organization optimized to deliver services through a common platform. Across the board, these efforts position the organization to move quicker to address customer needs and accelerate new product and market development. While many actions are only a few months old, I'm encouraged by the early results, the new ways the organization is interacting and the exciting opportunities that have already arisen. Combined with steps that were taken throughout 2020 to reduce our cost base and refocus resources, we are well positioned to pursue growth while focusing on scalable efficient business processes.

With that, I will turn the call over to Tony to discuss our fourth quarter and 2020 financial performance in more detail.

Speaker 3

Thank you, Jay, and good morning, everybody. Both ADI and Products and Solutions exceeded our expectations in Q4. Consolidated revenue was $1,500,000,000 an increase of 15% compared to Q4 last year. For the full year 2020, revenue was up 2% as a strong second half offset the negative impact of COVID-nineteen in the first half of the year. Q4 gross margin of 28.2% was up four twenty basis points from Q4 twenty nineteen due to improved cost absorption, lower inventory expenses and cost savings from transformation programs.

Selling, general and administrative expenses for the fourth quarter totaled $271,000,000 up 12% from Q4 last year. Included in Q4 SG and A was a $29,000,000 increase in bonus expense from improved business performance and a onetime COVID related bonus, as well as increased expenses related to transformation programs and investments in the business. Operating profit for the fourth quarter was $152,000,000 or 10.1% of sales compared to $72,000,000 or 5.5% of sales last year. For all of 2020, operating profit was $311,000,000 or 6.1% of sales, up from $258,000,000 or 5.2% of sales for 2019. We delivered over $50,000,000 of net savings from transformation initiatives in 2020 compared to our target of 30,000,000 to $40,000,000 Major factors behind these savings include lower SG and A through headcount reductions and savings on indirect spending as well as sales activation and direct procurement programs that positively impacted revenue and costs.

In 2021 and beyond, we will continue to focus on reducing costs while increasing the scalability, efficiency and control in the business. This work will be visible to our progress on expanding gross margin, leveraging our cost base to improve operating margin and driving cash generation. Products and Solutions Q4 revenue of $676,000,000 was up 18% due to improved demand across each of our major channels: OEM, trade, security dealers and retail. Backlog, while lower than at the beginning of Q4, remains above historic levels. This reflects both positive demand and global sourcing constraints that are impacting our manufacturing operations and supply chain.

Products and Solutions operating profit in Q4 was $166,000,000 or 24.6% of sales compared with $84,000,000 or 14.6% of sales in Q4 twenty nineteen. Improved performance reflects operating leverage from higher volume as well as reduced inventory expenses savings. ADI revenue of $825,000,000 increased 13% year over year in the fourth quarter compared with a strong Q4 twenty nineteen. Daily sales average for the fourth quarter was 12,500,000 up 10% compared with $11,400,000 in Q4 twenty nineteen. Demand was strong in residential oriented categories, including intrusion and networking, while more commercial centric categories such as fire and access control saw slower activity.

ADI's investments in e commerce and digital selling tools helped drive e commerce revenue sales over $100,000,000 in Q4, up nearly 40% year over year. ADI will continue to invest in digital sales tools designed to drive sales force effectiveness and enable better customer service in 2021. Over time, these investments will enable a more consultative selling approach and focus on higher value transactions. ADI operating profit was $59,000,000 or 7.2% of sales, up 13% from Q4 twenty nineteen. ADI operating profit benefited from higher revenue and a continued focus on cost management, partially offset by increased investment activity as well as restructuring costs in Europe.

Corporate costs for the quarter were $73,000,000 or 4.9% of sales compared with $64,000,000 also 4.9% of sales in the 2019. For the full year 2020, corporate costs were $291,000,000 or 5.7% of sales compared with $279,000,000 or 5.6% of sales for 2019. The growth for the full year reflects costs associated with transformation initiatives as well as increased bonus and pension expense, partially offset by transformation program savings and lower spin related costs. Consolidated cash from operations for the full year 2024 was $244,000,000 compared to $23,000,000 in 2019. This strong performance reflects our improved operating results and lower cash tax payments.

As Jay mentioned, we completed a follow on common equity offering in Q4 that raised $279,000,000 expanded our research coverage and added several significant new shareholders to our register. As a result of the offering and our strong cash generation, we ended Q4 with cash and cash equivalents of $517,000,000 and total outstanding debt of $1,200,000,000 In early February, we refinanced our senior secured credit facilities, consolidating two term loans into a single upsized $950,000,000 term loan b due in 2028 and extended and increased our revolving credit facility. Separately, we redeemed $140,000,000 of our senior unsecured notes. In connection with the refinancing, Moody's upgraded Resideo's corporate credit rating to b a three, while Standard and Poor's affirmed its existing issuer rating of BB and changed the credit outlook to stable from negative. These transactions combined with our strong cash flow have dramatically improved Resideo's financial structure, reduced net leverage and positioned us for strategic growth initiatives.

Moving to our full year outlook. We currently expect 2021 revenue to be in the range of $5,200,000,000 to $5,400,000,000 which implies year over year growth in the range of 3% to 6%. Consolidated gross margin is expected to be in the range of 26% to 28%, while GAAP operating profit is expected to be in the range of $450,000,000 to $500,000,000 Our 2021 outlook anticipates corporate expenses of approximately $225,000,000 capital expenditures of approximately $90,000,000, an effective tax rate in the mid twenties, and net interest expense of approximately $47,000,000. Note that ADI will have two fewer selling days in 2021 compared to 2020, reflecting three more days in the first quarter and five fewer days in the fourth quarter. As a reminder, the Honeywell reimbursement payments have limited tax deductibility, meaning that calculated tax rate on our pretax income will likely be higher than our effective tax rate.

For the 2021, we expect revenue in the range of $1,300,000,000 to $1,350,000,000 an increase of 12% at the midpoint compared to Q1 twenty twenty. Consolidated gross margin is expected to be in the range of 25% to 27%, an increase at the midpoint of 190 basis points. GAAP operating profit is expected to be in the range of $110,000,000 to $120,000,000 compared to $34,000,000 last Q1. Additionally, in Q1, we expect approximately $26,000,000 of costs related to the early extinguishment of debt, which will be reflected on the other expense line of our P and L. Our outlook for both 2021 and Q1 takes into account supply chain constraints associated with COVID-nineteen, higher freight, material expediting charges and market shortages of certain components such as microprocessors.

We are working aggressively to mitigate these impacts and are pleased with how our supply chain and operations teams have responded to the situation. Also included in our outlook for 2021 are incremental investments across the business. At ADI, these investments include systems to accelerate our e commerce offerings and sales effectiveness, improve customer experience and drive scalable growth. Within Products and Solutions, we will be investing in incremental engineering and innovation capabilities, customer experience, manufacturing optimization and processes and systems enhancements accelerating revenue growth and improving gross margins. As a reminder, moving forward, we will not report adjusted EBITDA and instead will focus on revenue, gross profit, operating profit and operating cash flow.

As we've stated previously, we believe these GAAP metrics present a clearer picture of actual results against a known benchmark. I'll now turn the call back to Jay for a few concluding remarks before we take questions. Jay?

Speaker 2

Thanks, Tony. I'm proud of what the organization accomplished in what was a very unprecedented year. The entire Resideo team stepped up to the immense challenges in personal and professional daily life brought about by COVID nineteen. As a company, we excelled at navigating the numerous impacts of the global pandemic while embracing a significant amount of organizational change. I would like to thank all our employees for their efforts in ensuring that we continue to meet and exceed the needs of our customers across the globe.

We enter 2021 in a much stronger position than where we were twelve months ago, both as an organization and the demand we see across our markets. We will continue to push aggressively on transformation, including accelerating investments will position the business for improved long term growth and profitability. This includes e commerce expansion and tools to drive improved sales force effectiveness at ADI, investment in the tools, processes, and organizational structure to better measure and improve our NPI and sales execution within products and solutions. And better aligning ADI and products and solutions to expand opportunities between the two businesses. Our focus as a management team remains on rightsizing our cost structure, improving our operational processes and execution, and accelerating our innovation and product introduction process.

We believe execution across these initiatives will drive improved financial performance and long term value creation. Finally, I'd like to remind everyone that we will host a virtual investor event on Thursday, March 11, beginning at ten a. M. Eastern Time. We plan to further discuss the opportunities that exist within Products and Solutions and ADI and outline the longer term financial framework we see for Resideo.

We hope you will join us for this event. This concludes our prepared remarks. Operator, we are now ready for questions.

Speaker 0

Thank you. Our first question comes from John Movallo from Bank of America. Please go ahead. Your line is open.

Speaker 4

Hey, guys. Thank you for taking my questions. The first one, Tony, just looking at the revenue outlook for the first quarter and then for the full year, it would seem to imply that the back half of the year could actually be down on a year over year basis. Is that consistent with what you're thinking?

Speaker 3

Hey, John. How are you? The the guidance we gave today is for is for 2021 and and for q one. We're not really in a position to to give quarterly or sort of have guidance, if you will. But for sure, the 2021, is gonna have yeah.

The 2020, second half twenty twenty was was very strong, and the comparables in the in the second half of this year are gonna be, are definitely gonna be tougher. I think the, you know, we've also talked, we also talked about the fact that we have some supply chain constraints in the early part of the year that we're trying to manage that definitely weigh into the cadence of our year as well.

Speaker 4

Okay. That's helpful. And then, you know, I can certainly appreciate the focus on on GAAP results. Just curious, will you be breaking out restructuring costs, stock comp, spin off costs, etcetera, so investors will be able to at least reconcile the numbers to historical results? Or is that something you're just going

Speaker 1

to back away from completely?

Speaker 5

We'll we'll give you we'll give

Speaker 3

you stock comp. We'll give you DNA. We'll give you the, you know, kind of the, what I'll call, the the line item pieces of, you know, of EBITDA. But in terms of in terms of restructuring expenses and and those kinds of things, As we said before, we're you know, we see those as, an ongoing activity within the business. And we'll talk about them.

And if they're significant, I guess it's possible that we could give a number. But the expectation is that that we won't. That we'll just be absorbing those costs into the operations of the business. And that's the way we've that's the way we've shaped our guidance. Those our guidance includes costs associated with those kinds of things.

Speaker 4

Okay. And then lastly, if we think about your guidance, is there any more color you can give us as a segment basis in terms of revenue and operating profit, I guess, notably on the trajectory of P and S margin?

Speaker 3

Not not at this point. We have, you know, we've obviously seen some meaningful improvement in P and S margins. We expect that to continue. But at this point, we're not in a position to give guidance by segment.

Speaker 4

Okay. Thanks for the time guys.

Speaker 0

Thank you. And our next question comes from Amit Daryanani from Evercore. Please go ahead. Your line is open.

Speaker 6

Yes. Thanks a lot for taking my questions. I have a couple as well. I guess, first off, I was hoping you could just touch on your calendar 2021 operating income expectations. Have a fairly good step up in operating income dollars, I think, about $165,000,000 or so.

Wondering if you just touch on what are the different buckets of this expansion that have come from? Is it maybe across leverage, the transformation savings mix? Just what are the big drivers of this operating dollar expansion in 2021?

Speaker 3

Sure. Hey, Amit. So a couple of things. First of all, you know, we're we're seeing significant, we're seeing a significant decline in SG and A this year. And again, I'm I'm talking about GAAP numbers.

And we talked about the fact that our corporate expenses are gonna drop by something on the order of 70,000,065 million dollars next year. And we do anticipate seeing margin expansion P and S in particular, even given the investments that we're gonna be making in the business. That expansion at some level is gonna be a product of the higher volumes, but it's also a product of transformation programs. And as I mentioned in my prepared remarks, headwinds there in terms of costs that are baked into our expectations for 2021. You know, particularly from the standpoint of freight, expediting charges, additional costs associated with procuring critical components that are they're pretty meaningful.

They're, you know, they're balancing out the benefits that I talked about. And then finally, we are gonna be making investments in the business. Those are as we've said before, those are, those are things we're gonna continue to do to the extent we think they can drive growth moving forward. And we've got those included in 2021 as well, both at PNS and at ADI.

Speaker 2

I think also, Tony, I think it's worth adding just on the major transformation initiatives for 2021, really covers a variety of different areas. It's cost, of course, areas of COGS like value engineering, our European footprint, price optimization activities, our integrated business planning on the SG and A side, SKU rationalization, legal entity rationalization. But also in the area of revenue, we have a profitability management office as part of this new transformation team. And so I think we have a lot of things in flight in the transformation area that will be impactful in 2021.

Speaker 6

Got it. That is really helpful. Then you told me you talked a couple of times about inefficiencies and freight costs that sort of impacting your margins. Is there a way to put a number around what these headwinds look like for you on a quarterly basis? And how do you offset this?

Is it going to be driven by some of these transformation things that Jay talked about? Or could we could you use this as a pricing mechanism to your customers?

Speaker 5

There's a you want me to take that, Jay?

Speaker 3

Sure. Yeah. There there's there's a lot baked into that, Amit. The freight and logistics costs are real time. We saw a significant increase in Q4.

It continues that elevated those elevated costs continue to be the case in Q1. We've had to sort of make some assumptions about how long that persists and and those kinds of things. And we've, you know, we've done our best to to make that happen. And, yes, they're they're being offset by all the things that that you just described.

Speaker 2

Yes. I'd add, as you know, mean, this is going to be some this is not new listening to us. I mean, this is going to think it'd be a dynamic that in the electronics industries that most companies are going to face during this year. And so, as Tony indicated earlier, we've factored in kind of both sides of the equation, right? What's going on out there in the supply chain, logistics challenges, as well as in terms of what's going to happen in the component industries and what have you.

So some of this transformation and the other things that Tony talked about. But we believe we've factored in in terms of our outlook. It's dynamic and it's going to change as we go along. Anybody that's been in electronics industry a long time know when these things happen, it's a little bit of a bouncing ball as you as you wrestle it through through a given period of time when these dynamics take place. And they seem to take place about once every ten years or something where you have one of these types of situations out there.

Part of it is also due to demands that are out there in the various markets. As Tony said, I think we have it, hopefully we have it all covered.

Speaker 6

Perfect. That's it for me. Thank you.

Speaker 0

Thank you. And our next question comes from Jeff Kessler from Imperial Capital. Please go ahead. Your line is open.

Speaker 7

Thank you. Thank you for taking my question. Judy, you've mentioned several times about investments that you made during the year and obviously are going to be making in e commerce at ADI. Can you position yourself where you think the company is right now against your major competitor, let's call it the major one or two competitors both here in The United States and abroad with regard to your position in e commerce and what you have to do to be on same plane with everyone else?

Speaker 3

Hey, Jeff. It's Tony. How are you?

Speaker 5

Hi, Tony.

Speaker 3

I think so a couple of things about that. I mean, we're we are I don't know if we're ahead, behind, or or equals specifically to our competitors. But what I can say is the growth in our ecommerce business has been dramatic. Part of that is obviously the dynamic in the industry. But more importantly, we've invested some significant amount of money already, and we're gonna invest an even more significant amount of money this year in driving our the entire ecommerce experience, making the ability for people to understand our product suite online, what's available, how it's available, making that experience seamless, and really driving people toward that channel is something that's a focus.

And we expect that channel to grow pretty rapidly. The the flip side of that, and really one of the major objectives is to and this is I guess it's an investment as well, is by doing that, we will create a situation where our sales associates can be much more focused on on sales rather than transactions, and they can be more consultative as opposed to to doing transactions. And it is not our expectation that we will scale back investments in our branches as a as a part of ecommerce. We're gonna maintain our investment at the at the branch level and and probably grow it, with the expectation that that will drive what I'll call more traditional, channel sales growth as well. So we see the e commerce growth really as incremental and additive as we build out that capability.

Speaker 2

Yeah. I would also add what Tony said. Tony, I think Tony had right on the head there in terms of what he just explained. And we've been accelerating the investment during 2020, and we'll be doing a lot more with Rob and his team in 2021. It's really a combination of many initiatives around what we call touchless sales, as Tony said, e commerce, email, order automation, EDI, digital marketing, promotional and sales activation campaigns, all the things that go underneath that.

But I'm pleased that the progress that ADI has made in this space and they've continued to accelerate their growth in that area. It's an important part of their future.

Speaker 7

My final question is, most of your competitors that I do cover, particularly the ones in the security area, have been talking about somewhat of a, if you want to call it, a tamp down expectation for revenue in 2021 as the as the economy slowly reopens. And what I'm getting to here is that it would be, you know, you've mentioned that you probably talked about it on on March 11, the trying to get communication and get the close, you want to call it the information loop much tighter between ADI and your product side so that you have a pretty good idea of what is going on. And how do you turn that into a competitive advantage, particularly if you begin to see the small to medium business area where you do operate begin to open up a little bit?

Speaker 3

So Jeff, I guess I'll make a couple of comments about that. You hit on a critically important point, which is that connectivity between P and S and ADI. And we really believe that that is a powerful competitive advantage. We've got obviously, you know, we're making real progress in terms of our NPI engine and our innovation engine and driving that through a world class organization like ADI a real opportunity. And I point to the introduction of our Pro Series finally at the end of last year, which is one of the most successful product introductions, if not the most successful product introduction ADI has ever has ever had.

And I I think you're right. I mean, there's more to discuss in respect of that connectivity over time. But I think that's that's gonna be a critical lever for us. In terms of the security market overall, it continues to be strong. You know, it's across the board right now, you know, our our constraint on the top line is more driven by the supply chain that we've talked about them than by demand, and that's true in security as well.

Speaker 2

Yeah. I would agree with that. That's all good points, Tony. I, know, I'd also say the only certain aspects of the commercial market during COVID that was somewhat suppressed because you couldn't get access to on-site. So I think things will begin to change in that dynamic moving forward into 2021.

And should be beneficial.

Speaker 0

Our next question comes from Paul Coster from JPMorgan. Please go ahead. Your line is open.

Speaker 3

Hey, Paul.

Speaker 5

Hey, this is Paul Chung on for Coster. Just another follow-up on ecommerce. What percent of ADI was that? And on the margin front, do you see that benefit kind of flow through on the operating margins? It looks like your gross margins were, you know, flattish for the quarter while your EBITDA margins were up nicely, or, you know, was that upside mostly on cost actions?

Just trying to get a sense for if your e commerce mix provides a longer term uplift in margins in general, if you could quantify the benefit to the extent you can as that channel growth accelerates? And I have a follow-up.

Speaker 3

Sure. Thanks for the question, Paul. So a couple of things. As we said, e commerce was about 100 So million dollars what is that? 12% of sales, something in that ZIP code for for ADI?

That that percentage is gonna grow over time. But as I said earlier, that's not necessarily because we expect to you know, we expect all of that growth to be at the expense of of what's happening in our in our branches. We expect the you know, we expect ecommerce to be a driver in and of itself as we improve our capabilities in that channel, and it will grow faster by all expectations than than ADI as a whole. But we are gonna continue to invest in the business. And, you know, from a you know, it it becomes a little bit of a circular discussion, but, we've said this a number of times.

We believe in the ADI business. It has executed exceptionally well for a really long time and it deserves incremental investment. And we're putting incremental investments against that business. And that's why you're not necessarily seeing significant expansion in the margins right now, is because of that investment. We'll continue to do that as long as we see returns against it.

And if those returns come in accelerated revenue growth ahead of our competitors, which we've consistently seen, that in and of itself is a value creating opportunity that we'll continue to put dollars against. So the margin, you know, the margin profile, all other things equal, if, you know, you were just steady state in the business, you're you're right. I mean, ecommerce should be somewhat more profitable just because it's, you know, just because it's got, you know, a lower overhead associated with it. But that's really not the way we're thinking about it. We're thinking about it as a sales accelerator and as an opportunity to continue to take share.

Speaker 5

Okay. That's that's actually very helpful.

Speaker 3

Thank you for that.

Speaker 5

And then on free cash flow, you know, nice finish to the year. You had a, you know, a nice benefit from working cap in in '20. Are there any kind of initiatives to maybe drive further, you know, benefits there? Or is there gonna be a slight drag this year on working cap? Just the puts and takes there.

And then what do you expect free cash flow to kinda shake out this year? If you could also help us with the seasonality of cash flows to the extent you can. Mean, because '21 was quite volatile.

Speaker 3

Yeah. So I'll try to unpack that a little bit. In terms of in terms of where we are with respect to working capital, I I think we've done a good job. You know, we haven't our our inventory levels, you know, they reflect tightness in the supply chain. I I'm not sure that to expect from where we are today.

I wouldn't expect our inventory turns to improve just because we're, you know, frankly, you know, we're tight in in a number of areas where we'd like to have a little bit more safety stock, particularly given the, you know, the continued strong demand. In terms of of collections, and and AR, we've 2020 was was a very positive surprise to us. We were prepared to see, you know, significant delays and significant, you know, impacts to the credit quality of our customers associated with with COVID. That didn't happen. And there's opportunities to improve the the execution there.

But there too, I think the you know, I think our our our days are are pretty good. One one other thing I'll call out, and this is sort of a little bit more philosophical. We're not believers in freeing up cash flow on the on the backs of our suppliers by by stretching payables. We did do that in the beginning of 2019 or 2020. During the COVID period, you know, there was, everybody was cautious and we were cautious among them in terms of how we how we treated AP.

But we're current with our vendors, and we expect to continue to be current with our vendors. And that's, you know, that's the philosophical approach we're gonna take. So I don't I I given all of the other initiatives in 2020, I don't wanna point to a meaningful improvement in, you know, cash velocity and the cash cycle time, in in 2021 just because we're focused on a lot of other areas, and, you we've got those inventory dynamics that we have to deal with.

Speaker 5

And any comments you can make on kind of seasonality of cash flow? It was it was quite volatile in 2020. Thank you.

Speaker 3

Yeah. I I think the you know, I I'm not sure that I've I've studied that in in great depth. There shouldn't be tremendous seasonality associated with it. You know, January, there's always a bunch of accruals at the end of the year that you pay in January. And we'll typically try to build inventory as we head into our somewhat busier season in Q3 and the early part of Q4.

But broadly, it shouldn't be as volatile going forward as it was in 2020.

Speaker 5

Okay, great. Thank you so much.

Speaker 0

Thank you. And our next question comes from Christopher Keller from Lumis Sales. Please go ahead. Your line is open.

Speaker 8

Good morning. Thanks for taking the question. I apologize if this was already addressed earlier in the call. I jumped on a little late. Can you make some comments on your ESG, environmental, social and governance initiatives?

What you see to be the risks and opportunities there, how you can disclose these items to the market? Thanks very much.

Speaker 3

Chris, thanks for the question and very much on point. We are in the early days with respect to our ESG journey, but we're absolutely committed to it. And we think that we have a strong position relative to ESG because of the types of products that we provide and the opportunity for energy savings and other benefits that are not just the functional benefits of product. We're gonna have meaningfully more to say about that over time. As I said, it's a journey, but it's one that I can tell you that our board, and the management team are very much focused on.

It really kind of broadens out not just in terms of ESG but DE and I. And we're we're gonna be moving forward on all of those fronts. And we've got activities going in the company on all of those fronts today.

Speaker 2

Yeah. I would add also that Tony is 100% right. It's just a major focus for myself, the whole management team, the board. We just finished up a board meeting here recently, and this was top of mind. So you'll hear a lot more about this as we move forward during 2021.

Speaker 7

By By the

Speaker 3

way, way Chris, thank you for the question. You know, this isn't something that has come up a ton yet with respect to Resideo, but it's we we see it as as an opportunity. We see it as a business opportunity, and we also see it as a cultural opportunity to really, you know, build out what we're about as a company.

Speaker 2

It helps define who we are as a company. It helps set the the culture of the various changes that we've been we've been driving over the last year. And it's, you know, it's critical not just should also include that to our employees and our customers and our investor base.

Speaker 8

Great. I really appreciate that color and I look forward to hearing more from the company as time goes on. Thanks very That's all for

Speaker 2

question, Chris. Thanks.

Speaker 0

Thank you. And that concludes our questions at this time. I will now turn the call back to Mr. Jason Willey for closing remarks.

Speaker 3

Say thank you everyone for your participation today.

Speaker 1

And we look forward to speaking with you over the coming weeks and hopefully you will join us on March 11 for our Virtual Investor Day. Have a good rest of your day. Thank you everyone.

Speaker 0

Thank you for joining us today. This concludes our conference. You may now disconnect.