ADI Global Distribution Inc.

11/12/2026 | Press release | Distributed by Public on 11/12/2026 16:12

Quarterly Report for Quarter Ending October 3, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of our financial statements with a narrative from the perspective of management and is intended to help the reader understand the results of operations and financial condition of the Company. Our MD&A should be read in conjunction with our MD&A and combined financial statements included in the Company's Information Statement filed as an exhibit to the Company's Form 10-12B/A on July 1, 2026 (the "Information Statement").
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than historical factual information are forward-looking statements, including, without limitation, statements regarding: the Separation of the Company from Resideo, which was completed on August 3, 2026 (the "Separation" or the "Spin-Off"); expected future financial and operating performance of, and future opportunities for, the Company following the Separation; anticipated benefits of the Separation; the tax treatment of the Separation; our liquidity position or other financial measures; management's plans and strategies for future operation; the effects of the Separation or the distribution on our business; growth, declines and other trends in markets we sell into, including the expected impact of trade and tariff policies; and any other statements that address events or developments that we intend or believe will or may occur in the future. Terminology such as "believe," "anticipate," "continue," "will," "should," "could," "intend," "plan," "expect," "estimate," "project," "target," "may," "possible," "potential," "goal," "forecast" and "positioned" and words and terms of similar substance or references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words.
Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to the risks and uncertainties set forth under "Cautionary Statement Concerning Forward-Looking Statements," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Information Statement and this Form 10-Q.
Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by the Company's forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statement. Forward-looking statements speak only as of the date of the document or other communication in which they are made (or such earlier date as may be specified in such statement). ADI assumes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise. Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include:
•weakness in the economy, market trends and end markets, and other conditions affecting the profitability and financial stability of our customers, our supply chain and our logistics network;
•adverse macroeconomic and market conditions affecting our customers, including weakness in residential housing markets, inflation, interest rates and access to credit, and the resulting impacts on demand, order patterns and pricing;
•competitive markets and our ability to retain and expand our customer relationships;
•goodwill, intangible assets, or long-lived asset impairment charges, including the impairment charge we recorded in the quarter ended October 3, 2026;
•cybersecurity incidents, data privacy breaches and other information security events;
•risks associated with the use of artificial intelligence and other emerging technologies, including model performance, bias, data governance, intellectual property and evolving legal and regulatory frameworks;
•our ability to forecast demand and manage working capital, including inventory and product availability;
•disruptions, delays or cost increases in our supply chain and fulfillment operations, including our reliance on third-parties;
•the impacts of tariffs (including the amount and timing of any potential tariff refund), import and export restrictions, trade barriers, sanctions and related judicial or regulatory developments;
•risks related to our international operations, including political instability, changes in law, compliance obligations, and currency exchange rate fluctuations;
•financial institution failures, defaults or other counterparty risks;
•harm to our brand, growth and expansion of our exclusive branded products, reputation or customer relationships resulting from product or service quality issues, recalls or negative publicity;
•risks associated with acquisitions and other strategic transactions, including our ability to identify, consummate and integrate acquisitions, realize expected benefits and manage integration-related costs and disruptions;
•the success of any new product introductions;
•failures or disruptions of our information technology systems and infrastructure;
•delays in the implementation and consolidation of certain ADI enterprise systems and websites, including as part of our One ADI and enterprise-resource planning activities;
•our ability to protect our intellectual property and defend against infringement or misappropriation claims;
•our ability to comply with, and changes in, applicable laws and regulations and related enforcement actions;
•the outcome from litigation, claims, investigations, government proceedings and enforcement actions;
•our ability to recruit and retain key personnel as a newly independent company;
•our limited operating history as a separate public company;
•Spin-Off-related costs, dis-synergies and business interruptions;
•indemnification and other obligations that may be owed between ADI and Resideo under the transaction agreements, and related disputes;
•the tax treatment of the Spin-Off and related transactions;
•Spin-Off related agreements that impose restrictions following the Spin-Off and limit our ability to raise capital, engage in certain corporate transactions or take other corporate actions;
•the risk that we may not achieve the anticipated benefits of the Spin-Off within the expected timeframe, or at all, including due to dis-synergies and Separation-related complexity;
•our post-Spin-Off indebtedness;
•restrictions in our debt agreements that may limit our operational and financial flexibility;
•the development of an active trading market for our common stock, and volatility in the market price and trading volume of our common stock following the Spin-Off;
•our failure to maintain effective internal controls over financial reporting or disclosure controls and procedures, which could reduce investor confidence and adversely affect our stock price;
•uncertainty regarding the amount and timing of any dividends;
•dilution to our stockholders from future equity issuances or other capital-raising transactions;
•the rights, preferences and terms of any preferred stock issued by ADI, including preferred shares issued to CD&R and the impact on our common stockholders;
•the influence of CD&R Group and its affiliates, including their equity interest and any board designation rights, and potential conflicts arising from such arrangements;
•actual or potential conflicts of interest involving our executive officers and directors arising from their equity ownership or other relationships with Resideo;
•the potential for competitive activities by Resideo;
•the allocation of assets and liabilities under the transaction agreements with Resideo;
•disputes with Resideo regarding the transaction agreements entered into as part of the Spin-Off, or other matters;
•anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law, as well as exclusive forum provisions, which could discourage or delay a change of control;
•the risk that the combined post-Spin-Off value of our common stock and Resideo's common stock, if applicable, may not equal or exceed the pre-Spin-Off value, and that the market price of each may fluctuate independently;
•changes in our effective tax rate;
•failure to realize the expected benefits of any restructuring program or cost savings initiatives, including the consolidation of our distribution and store network;
•the use of critical accounting estimates and judgments; and
•other risks detailed under the caption "Risk Factors" in this Quarterly Report and under "Cautionary Statement Concerning Forward-Looking Statements," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Information Statement.
Overview and Business Trends
ADI is a leading, global specialty distributor of professionally installed low-voltage products, including security and audio-visual ("AV") solutions, serving commercial and residential markets through an omnichannel go-to-market platform. ADI sells primarily to professional installers, dealers and integrators. Within North America, ADI is the market-leading distributor in the professionally installed security, fire/life safety and audio-visual product categories. We offer over
500,000 products from more than 1,000 suppliers across key specialty low-voltage categories with strong proximity to our customers with a large network of store locations.
Our omnichannel go-to-market platform is underpinned by a digital experience designed to deepen customer engagement and broaden our reach. We combine an extensive third-party product portfolio and deep supplier relationships with a growing suite of exclusive brands and software-based services. These exclusive brands and services are designed to help our customers build stronger businesses, differentiate our offerings and improve the end user experience.
Our results are affected by macroeconomic and market conditions, including inflation, interest rates and conditions in the residential housing market. During the third quarter of 2026, residential demand weakened, which adversely affected sales volumes and product mix, particularly within our higher-margin exclusive brands. We expect residential demand to remain soft in the near term. Inflationary pressures also continue to affect our operating costs. We are taking actions to address these trends, including pricing and cost-saving initiatives, efforts to improve product and customer mix and initiatives to increase penetration of our exclusive brands.
The Company has one operating segment and one reportable segment, based upon the information used by our chief operating decision maker ("CODM") in evaluating the performance of our business and allocating resources and capital. The Company's CODM is its Chief Executive Officer.
Separation from Resideo Technologies, Inc.
On July 1, 2026, the Board of Directors of Resideo Technologies, Inc. ("Resideo" or "Former Parent") approved the previously announced separation of Resideo's ADI Global Distribution business into an independent, publicly traded company through the pro rata distribution of all of the issued and outstanding common stock of ADI to Resideo's common stockholders (the "Separation" or "Spin-Off").
In connection with the Separation, on August 3, 2026, the assets comprising the ADI businesses were contributed to ADI, a wholly-owned subsidiary of the Former Parent, and, as partial consideration for such contribution, we made a cash payment to Resideo in the amount of $900 million. In addition, the shares of ADI common stock held by Resideo were recapitalized into 76 million shares of ADI common stock. All per share amounts presented in the Unaudited Consolidated and Combined Condensed Financial Statements have been retroactively adjusted to give effect to this recapitalization.
On August 3, 2026, Resideo completed the Spin-Off through the pro rata distribution of 100% of the outstanding shares of ADI common stock to holders of Resideo common stock as of the close of business on July 20, 2026 (the "Record Date"). Each Resideo common stockholder as of the Record Date received one share of ADI common stock for every two shares of Resideo common stock held. Following the Separation, Resideo retained no ownership interest in ADI, and ADI became an independent, publicly traded company. ADI's common stock began regular way trading on the New York Stock Exchange under the ticker "ADIG" on August 4, 2026.
In connection with the Separation, ADI and Resideo entered into a Separation and Distribution Agreement, dated July 31, 2026 and certain ancillary agreements that govern our relationship following the Separation, including a transition services agreement, a tax matters agreement and an intellectual property matters agreement (the "Separation and Distribution Agreement"). Refer to the section titled "The Separation and Distribution" included in the Company's Information Statement for additional information.
Immediately following the Separation, Clayton, Dubilier & Rice, LLC ("CD&R") (or any private equity fund managed or advised by CD&R or any general partner thereof, or any of their respective affiliates) (the "CD&R Group") beneficially owned shares of ADI common stock and ADI preferred stock, which, taken together on an as-converted basis, represented approximately 19.69% of ADI's total voting power.
The Separation and Distribution Agreement provided for a cash adjustment based on the Company's cash balances as of the closing of the Spin-Off, with a target cash amount of $150 million. During the third quarter of 2026, we received approximately $20 million from Resideo in complete settlement of this adjustment.
We have established additional procedures and practices required of a standalone public company. As a result, we have incurred, and will continue to, incur additional one-time and non-recurring expenses consisting primarily of employee-related costs, costs to establish certain standalone functions and information technology systems and other transaction related expenses. Additionally, we have incurred, and will continue to incur, incremental costs that arise from becoming a standalone public company, including costs related to external reporting, internal audit, treasury, investor relations, board of directors and officers and stock administration, as well as costs from expanding the services of existing functions, such
as information technology, finance, supply chain, human resources, legal, tax, facilities, branding, security, government relations, community outreach and insurance. In line with our long-term cost strategy, we will continue to evaluate operational cost improvement opportunities as a standalone company by utilizing our lean culture and innovative technologies to drive lower costs and increased productivity levels across our business and corporate functions.
Results of Operations
The following tables summarize our results of operations for the periods presented:
Three Months Ended
(in millions, except percentages) October 3, 2026 September 27, 2025 $ Change % Change
Net revenue $ 1,306 $ 1,203 $ 103 8.6 %
Cost of goods sold 1,033 931 102 11.0 %
Gross profit 273 272 1 0.4 %
Gross profit margin 20.9 % 22.6 % (170) bps
Operating expenses:
Selling, general and administrative expenses 202 190 12 6.3 %
Impairment of goodwill 659 - 659 N/A
Research and development expenses 10 11 (1) (9.1) %
Intangible asset amortization 24 24 - - %
Transaction related expenses 12 5 7 140.0 %
Restructuring expenses - 1 (1) (100.0) %
Total operating expenses 907 231 676 292.6 %
(Loss) income from operations (634) 41 (675) (1646.3) %
Other expense, net 1 1 - - %
Interest expense 19 17 2 11.8 %
Interest income (1) (2) 1 (50.0) %
(Loss) income before taxes (653) 25 (678) (2712.0) %
Provision for (benefit from) income taxes 2 (1) 3 (300.0) %
Net (loss) income $ (655) $ 26 (681) (2619.2) %
Nine Months Ended
(in millions, except percentages) October 3, 2026 September 27, 2025 $ Change % Change
Net revenue $ 3,798 $ 3,601 $ 197 5.5 %
Cost of goods sold 2,977 2,804 173 6.2 %
Gross profit 821 797 24 3.0 %
Gross profit margin 21.6 % 22.1 % (50) bps
Operating expenses:
Selling, general and administrative expenses 607 561 46 8.2 %
Impairment of goodwill 659 - 659 N/A
Research and development expenses 33 28 5 17.9 %
Intangible asset amortization 73 70 3 4.3 %
Transaction related expenses 38 9 29 322.2 %
Restructuring expenses 7 6 1 16.7 %
Total operating expenses 1,417 674 743 110.2 %
(Loss) income from operations (596) 123 (719) (584.6) %
Indemnification agreement expense - 364 (364) (100.0) %
Other expense (income), net 3 (1) 4 (400.0) %
Interest expense 52 29 23 79.3 %
Interest income (4) (6) 2 (33.3) %
Loss before taxes (647) (263) (384) 146.0 %
Provision for income taxes 3 9 (6) (66.7) %
Net loss $ (650) $ (272) $ (378) 139.0 %
Net Revenue
Three months ended
Net revenue for the three months ended October 3, 2026 was $1,306 million, an increase of $103 million, or 8.6%, compared to the same period in 2025. The increase was primarily driven by higher sales volume of $71 million including the impact of the Americas ERP conversion on the prior-year period and incremental selling days in the current period, and $35 million from favorable price increases. This was partially offset by $2 million of unfavorable foreign currency exchange rates.
Nine months ended
Net revenue for the nine months ended October 3, 2026 was $3,798 million, an increase of $197 million, or 5.5%, compared to the same period in 2025. The increase was primarily driven by $113 million from favorable price increases, higher sales volume of $72 million including the impact of the Americas ERP conversion on the prior-year period and incremental selling days in the current period, and $16 million from favorable foreign currency exchange rates.
Gross Profit and Gross Profit Margin
Three months ended
Gross profit for the three months ended October 3, 2026 was $273 million, an increase of $1 million, or 0.4%, as compared to 2025, and gross margin was 20.9% for the three months ended October 3, 2026, down 170 basis points ("bps") from the prior year period. The decrease in gross margin was primarily driven by unfavorable price and mix shift of 140 bps, temporary pricing benefit in the prior period ahead of tariffs impacting average cost of inventory to cost of goods sold of 70
bps, higher freight, duty, and inventory related charges of 50 bps, partially offset by $4 million of tariff refunds, or 30 bps, and $8 million of benefit from Spin-Off related inventory adjustments, or 60 bps.
Nine months ended
Gross profit for the nine months ended October 3, 2026 was $821 million, an increase of $24 million, or 3.0%, as compared to 2025, and gross margin was 21.6% for the nine months ended October 3, 2026, down 50 bps from the prior year period. The decrease in gross margin was primarily driven by unfavorable price and mix shift of 50 bps, temporary pricing benefit in the prior period ahead of tariffs impacting average cost of inventory to cost of goods sold of 40 bps, and higher duty, freight, and inventory related charges of 40 bps, primarily offset by the favorable impact from tariff refunds of $24 million, or 60 bps, and $8 million of benefit from Spin-Off related inventory adjustments, or 20 bps.
Selling, General and Administrative Expenses
Three months ended
Selling, general and administrative expenses for the three months ended October 3, 2026 were $202 million, an increase of $12 million, or 6.3%, as compared to the same period in 2025. The increase was primarily driven by $7 million of facility and other costs associated with consolidating our real estate footprint and operating the distribution centers, $6 million of merit and cost inflation impacts, $3 million of investments in third-party spend in the business, and $4 million of increases in finance, legal, human resources, information technology, and other standalone costs as compared to allocated cost in the prior period. The increase was partially offset by $9 million of operating expense reductions.
Nine months ended
Selling, general and administrative expenses for the nine months ended October 3, 2026 were $607 million, an increase of $46 million, or 8.2%, as compared to the same period in 2025. The increase was driven mainly by $17 million of facility and other costs associated with consolidating our real estate footprint and operating the distribution centers, $17 million of merit and cost inflation impacts, $12 million of increases in finance, legal, human resources, information technology, and other standalone costs as compared to allocated cost in the prior period, as well as $17 million from investments in third-party spend, increases in bad debt expense, incremental days in the current period, and unfavorable foreign currency exchange rates. The increase was partially offset by $21 million of people and operating expense reductions.
Research and Development Expenses
Three months ended
Research and development expenses for the three months ended October 3, 2026 were $10 million, a decrease of $1 million, or 9.1%, compared to the same period in 2025. The decrease was primarily due to people and operating expense reductions.
Nine months ended
Research and development expenses for the nine months ended October 3, 2026 were $33 million, an increase of $5 million, or 17.9%, compared to the same period in 2025. The increase was primarily due to incremental costs incurred to develop and introduce new products into the market partially offset by people and operating expense reductions.
Impairment of Goodwill
Three and nine months ended
Impairment of goodwill of $659 million represents a non-cash goodwill impairment charge recognized during the three months ended October 3, 2026 as a result of an interim quantitative goodwill impairment assessment. We performed the interim assessment after concluding that a triggering event had occurred, based on continued weakness in the residential market impacting demand for our exclusive brand products, unfavorable product and customer mix shifts, the resulting change in our near-term outlook and reduced projected future cash flows, and declines in our stock price and market capitalization. The impairment did not impact our cash flows or liquidity or our compliance with the financial covenants
under the Credit Agreement. Refer to Note 5. Goodwill and Other Intangible Assets, net, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
Intangible Asset Amortization
Three months ended
Intangible asset amortization for both the three months ended October 3, 2026 and September 27, 2025 was $24 million.
Nine months ended
Intangible asset amortization for the nine months ended October 3, 2026 was $73 million, an increase of $3 million as compared to the same period in 2025, primarily due to an increase in capitalized software.
Transaction Related Expenses
Three months ended
Transaction related expenses for the three months ended October 3, 2026 were $12 million, an increase of $7 million as compared to the same period in 2025. The increase was primarily due to $10 million of expenses incurred in connection with the Spin-Off, including third-party advisory, consulting, legal and other incremental separation-related costs, offset by a $3 million decrease in expenses related to integration costs incurred for the Snap One acquisition in the three months ended September 27, 2025.
Nine months ended
Transaction related expenses for the nine months ended October 3, 2026 were $38 million, an increase of $29 million as compared to the same period in 2025. The increase was primarily due to $36 million of expenses incurred in connection with the Spin-Off, including third-party advisory, consulting, legal and other incremental separation-related costs, offset by a $7 million decrease in expenses related to integration costs incurred for the Snap One acquisition in the nine months ended September 27, 2025.
Restructuring Expenses
Three months ended
Restructuring expenses for the three months ended October 3, 2026 decreased $1 million compared to the same period in 2025.
Nine months ended
Restructuring expenses for the nine months ended October 3, 2026 were $7 million, an increase of $1 million as compared to the same period in 2025. The increase was due to restructuring actions taken to better align our cost structure with our strategic objectives, improve operating efficiency and optimize our operating footprint.
Indemnification Agreement Expense
Nine months ended
We incurred no Indemnification Agreement expense for the nine months ended October 3, 2026, a decrease of $364 million compared to the same period in 2025. The decrease was driven by Resideo's termination of the Indemnification
Agreement with Honeywell in 2025. Refer to Note 9. Indemnification Agreement, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
Interest Expense
Three months ended
Interest expense for the three months ended October 3, 2026 was $19 million, an increase of $2 million compared to 2025. The change was due to higher interest rates on the Company's long-term debt incurred in connection with the Spin-Off. Refer to Note 8. Long-Term Debt, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
Nine months ended
Interest expense for the nine months ended October 3, 2026 was $52 million, an increase of $23 million compared to 2025. The change was due to higher interest rates on the Company's long-term debt incurred in connection with the Spin-Off, an increase in the total long-term debt held by Resideo through additional borrowings related to the termination of the Indemnification Agreement, and the resulting increase in the allocated debt and associated interest expense to the Company. Refer to Note 8. Long-Term Debt of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements, for additional information.
Interest Income
Three months ended
Interest income for the three months ended October 3, 2026 was $1 million, a decrease of $1 million compared to 2025.
Nine months ended
Interest income for the nine months ended October 3, 2026 was $4 million, a decrease of $2 million compared to 2025.
Provision for Income Taxes
Three and nine months ended
The Company's effective income tax rate was (0.3)% and (0.5)% for the three and nine months ended October 3, 2026, respectively, compared to (4)% for both the three and nine months ended September 27, 2025, which reflected income tax expense recorded on pre-tax losses for all comparative periods. The change in the effective tax rate for the three and nine months ended October 3, 2026 compared to the same periods in 2025 is primarily driven by the absence of nondeductible Indemnification Agreement expense in 2026, and increases in deductible stock-based compensation, transaction related expenses and goodwill impairment.
Income tax expense was $2 million and $3 million during the three and nine months ended October 3, 2026, compared to a net tax benefit of $1 million and an income tax expense of $9 million during the three and nine months ended September 27, 2025.
Non-GAAP Financial Measures
In addition to our financial results as prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we evaluate our operating performance using certain financial measures, including Adjusted EBITDA and Adjusted EBITDA margin, that are not defined by, or prepared in accordance with, GAAP. We refer to these measures as "non-GAAP" financial measures. These non-GAAP financial measures are supplemental measures of our performance that we believe help investors to better understand our financial condition and operating results and to analyze business trends by providing measures which management uses to evaluate operating performance. We use these non-GAAP financial measures, in addition to the corresponding GAAP financial measures, as important supplemental measures of our operating performance that exclude non-cash and other disclosed items that we believe are not indicative of our underlying business, core operating results and the overall health of our company. We believe the use of such non-GAAP financial measures assists investors in understanding the ongoing operating performance of the Company by presenting the
financial results between periods on a more comparable basis. These non-GAAP measures should be considered only as supplements to, and should not be considered in isolation or used as a substitute for, financial information prepared in accordance with GAAP. We further believe that providing this information assists our investors in understanding our operating performance and the methodology used by management to evaluate and measure such performance. In conjunction with our GAAP results, we use these non-GAAP measures to assess business performance, particularly when comparing performance to past periods. As such, we believe these measures are useful for investors because they facilitate a comparison of financial results from period to period.
Management recognizes that these non-GAAP financial measures have limitations, including that they may be calculated differently by other companies or may be used under different circumstances or for different purposes, thereby affecting their comparability from company to company. In order to compensate for these and the other limitations discussed below, management does not consider these measures in isolation from, or as alternatives to, the comparable financial measures determined in accordance with GAAP. Readers should review the reconciliations below and should not rely on any single financial measure to evaluate our business. The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.
We believe that Adjusted EBITDA and Adjusted EBITDA margin, which are adjusted to exclude the effects of unique and/or non-cash items that are not closely associated with ongoing operations, provide management and investors with meaningful measures of our performance that increase the period-to-period comparability by highlighting the results from ongoing operations and the underlying profitability factors. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net revenue. We believe Adjusted EBITDA and Adjusted EBITDA margin provide management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations without the effect of charges that do not relate to the core operations of our business, such as the impact of the goodwill impairment, restructuring charges, transaction related expenses, the Indemnification Agreement and foreign currency impacts, as these activities can obscure underlying trends.
We believe these measures provide additional insight into how our businesses are performing by excluding certain disclosed items that we believe are not representative of our underlying business and operating performance. However, Adjusted EBITDA and Adjusted EBITDA margin should not be construed as inferring that our future results will be unaffected by the items for which the measures adjust.
Adjusted EBITDA and Adjusted EBITDA margin
The following table provides a reconciliation of net (loss) income and net (loss) income margin, the most closely comparable GAAP financial measures, to Adjusted EBITDA and Adjusted EBITDA margin:
Three Months Ended Nine Months Ended
(in millions, except percentages) October 3, 2026 September 27, 2025 October 3, 2026 September 27, 2025
Net revenue $ 1,306 $ 1,203 $ 3,798 $ 3,601
Net (loss) income $ (655) $ 26 $ (650) $ (272)
Net (loss) income margin (50.2) % 2.2 % (17.1) % (7.6) %
Provision for (benefit from) income taxes 2 (1) 3 9
(Loss) income before taxes (653) 25 (647) (263)
Impairment of goodwill 659 - 659 -
Depreciation and amortization 30 29 89 86
Interest expense 19 17 52 29
Interest income (1) (2) (4) (6)
Indemnification Agreement expense (1)
- - - 364
Stock-based compensation expense (2)
7 6 19 18
Restructuring expenses (3)
- 1 7 6
Transaction related expenses (4)
12 5 38 9
Spin-Off inventory basis adjustment (5)
(8) - (8) -
Other (6)
1 1 3 (1)
Adjusted EBITDA $ 66 $ 82 $ 208 $ 242
Adjusted EBITDA margin 5.1 % 6.8 % 5.5 % 6.7 %
(1)Consists of charges associated with the Indemnification Agreement that were allocated to the Unaudited Consolidated and Combined Condensed Financial Statements. Refer to Note 9. Indemnification Agreement, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
(2)Represents non-cash compensation expenses recognized for stock-based compensation arrangements.
(3)Consists of non-recurring charges associated with restructuring initiatives. Refer to Note 10. Restructuring, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
(4)For the three and nine months ended October 3, 2026, represents $12 million and $38 million of transaction costs related to the Spin-Off. For the three months ended September 27, 2025, represents $3 million of Snap One integration costs and $2 million of transaction costs related to the Spin-Off. For the nine months ended September 27, 2025, represents $7 million of Snap One integration costs and $2 million of transaction costs related to the Spin-Off.
(5)Represents the benefit to cost of goods sold associated with inventory held at the Spin-Off that was previously purchased from Resideo and reflected in historical intercompany profit eliminations. The Company excludes this benefit from Adjusted EBITDA as the related inventory is sold.
(6)Represents amounts included in Other expense (income), net reported on the Unaudited Consolidated and Combined Condensed Statements of Operations.
Liquidity and Capital Resources
As of October 3, 2026, we had $208 million of cash and cash equivalents. Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations, supplemented by external sources of capital as needed.
The cash reflected on our Unaudited Consolidated and Combined Condensed Balance Sheets represents cash accounts legally owned by our subsidiaries and comprises both (a) bank accounts held by local jurisdictions that do not participate in centralized cash pooling arrangements, as well as (b) bank accounts that participate in centralized cash pooling arrangements and are owned by our subsidiaries.
Historically, Resideo had provided cash management and other treasury services to us, the effect of which was presented as Due from related parties - current, Due to related parties - current, Due from related parties - non-current, Due to related parties - non-current and Net Former Parent investment on the Unaudited Consolidated and Combined Condensed Balance Sheets. As a result of completing the Spin-Off, we ceased participating in Resideo's cash pooling process, effectively settling any outstanding related party loan arrangements and our cash and cash equivalents are now held and used solely for our own operations. As a result, our capital structure, long-term commitments and sources of liquidity changed meaningfully from our historical practices.
Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies, and the expansion of our sales and marketing activities. We may enter into acquisitions or strategic arrangements in the future, which also could require us to seek additional equity or debt financing. In connection with the Spin-Off, we entered into new financing arrangements and issued shares of ADI Preferred Stock which includes an obligation to pay regular dividends (in cash or in-kind) to the holders of the ADI Preferred Stock. Fulfilling our obligations to pay dividends or the exercise of any optional redemption rights with respect to the outstanding ADI Preferred Stock could, if paid in cash, impact our liquidity and reduce the amount of cash available for working capital, capital expenditures, growth opportunities, acquisitions and other general corporate purposes. We believe our existing cash held as of the Spin-Off, cash flows generated from operations and access to capital markets and financing facilities will provide adequate resources to meet the needs of our current and planned operations.
To the extent our current liquidity is insufficient to fund future activities, we may need to raise additional funds, such as refinancing or securing new secured or unsecured debt, issuing common or preferred equity, disposing of certain assets to fund our operations, and/or accessing other public or private sources of capital. If we raise additional funds by issuing equity securities, the ownership of our existing stockholders will be diluted. The incurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financial covenants that could restrict our operations.
With respect to long-term debt facilities remaining with Resideo and the Indemnification Agreement liability, the Company had not historically made cash payments to third parties as such payments were made by Resideo and there is no expectation or requirement for the Company to be obligated to make payments of this nature in the future as the Indemnification Agreement (including the guarantee provided by the Company) was terminated in the third quarter of 2025 and, in the case of the long-term debt facilities remaining with Resideo, ADI is no longer an obligor or guarantor with respect to these obligations upon completion of the Spin-Off.
Upon the completion of the Spin-Off, the Company used the aggregate proceeds received from the Senior Notes due 2034 and the Term Facility to make a one-time distribution payment of $900 million to Resideo in the form of a dividend. In connection with the cash adjustment provisions contemplated under the Separation and Distribution Agreement, the Company subsequently received approximately $20 million from Resideo. Following completion of these transactions, the Company had approximately $150 million of cash and cash equivalents.
Senior Notes due 2034
On June 30, 2026, ADI Escrow Issuer LLC (the "Escrow Issuer"), a direct, wholly-owned subsidiary of ADI and an indirect, wholly-owned subsidiary of our Former Parent, completed an offering of $400 million aggregate principal of the Escrow Issuer's 7.125% Senior Notes due 2034 ("Senior Notes due 2034"). The Senior Notes due 2034 were issued pursuant to an Indenture, dated June 30, 2026 (the "Indenture"), between the Escrow Issuer and U.S. Bank Trust Company, National Association, as trustee (the "Trustee"). The proceeds from the offering of the Senior Notes due 2034 were used as part of the financing for the Spin-Off.
In connection with the completion of the Spin-Off on August 3, 2026, and with the satisfaction of the Escrow Release Conditions (as defined in the Indenture), Escrow Issuer merged with and into ADI Global Distribution Funding LLC ("ADI Funding"), a direct wholly-owned subsidiary of ADI, and ADI Funding assumed the obligations of Escrow Issuer under the
Indenture and the Senior Notes due 2034. In addition, ADI and certain of ADI's other subsidiaries (collectively, the "Guarantors") guaranteed ADI Funding's obligations under the Indenture and the Senior Notes due 2034.
The Senior Notes due 2034 mature on July 15, 2034 and bear interest at an annual rate of 7.125%, payable semi-annually on January 15 and July 15 of each year, commencing January 15, 2027. The Senior Notes due 2034 are redeemable prior to July 15, 2029 at a make-whole redemption price (with a limited equity-funded redemption option for up to 40% of the principal at 107.125%), and become callable at specified redemption prices thereafter in accordance with the Indenture. Following the escrow release on August 3, 2026, the Indenture limits ADI's ability and the ability of its restricted subsidiaries to incur or guarantee additional indebtedness; pay dividends or distributions on, or redeem or repurchase capital stock and make other restricted payments; make investments; consummate certain asset sales; engage in certain transactions with affiliates; grant or assume certain liens; and consolidate, merge, or transfer all or substantially all of ADI's assets. Additionally, upon certain events constituting a change of control, the holders of the Senior Notes due 2034 will have the right to have their Senior Notes due 2034 repurchased at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest, to (but not including) the date of purchase.
The Indenture provides for customary events of default, which, if any of them occurs, may cause the principal and accrued interest on the Senior Notes due 2034 to become, or to be declared, due and payable on an accelerated basis.
The fair value of the Senior Notes due 2034 was estimated using quoted market prices for the same or similar debt issuances, which is a Level 2 measurement in the fair value hierarchy. As of October 3, 2026, the fair value of the Senior Notes due 2034 was $394 million.
Credit Agreement of ADI
On July 1, 2026, ADI Funding entered into a senior secured Credit Agreement (the "Credit Agreement") with the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement provides for (i) term loans in an aggregate principal amount of $600 million (the "Term Facility") and (ii) revolving credit commitments in an aggregate initial principal amount of $500 million (the "Revolving Facility" and, together with the Term Facility, the "Credit Facilities"). With the completion of the Spin-Off, on August 3, 2026, the Company borrowed $600 million under the Term Facility portion of the Credit Agreement and borrowings became available under the five-year $500 million Revolving Facility. No amounts have been drawn under the Revolving Facility. Borrowings under the Credit Facilities bear an interest rate, at the Company's option at either a base rate or the Secured Overnight Financing Rate ("SOFR"), in each case, plus an applicable margin. The applicable margin on borrowings under the Revolving Facility varies based on ADI's consolidated total net leverage ratio. The Term Facility requires quarterly amortization payments of 0.25% commencing the first full quarter after the Spin-Off. As of October 3, 2026, the effective interest rate on the Term Facility was 6.7%.
In addition, on August 3, 2026, the Guarantors, other than ADI, entered into supplements to the guarantee agreement and collateral agreement related to the Credit Agreement pursuant to which such Guarantors provided guarantees of our obligations under the Credit Agreement and the related documents and pledges of their respective assets, subject to certain exceptions, to secure their respective obligations in each case in a manner consistent with the requirements of the Credit Agreement.
The Term Facility will mature, and the term loans thereunder will be required to be repaid, seven years after the Spin-Off, subject to certain extension rights in the discretion of each lender. The Revolving Facility will mature, and all borrowings thereunder will be required to be repaid, five years after the Spin-Off, with certain extension rights in the discretion of each lender. Borrowings under the Term Facility may not be re-borrowed once repaid. Voluntary prepayments of borrowings may generally be made without premium or penalty, except for a 1% premium on certain repricing transactions involving the Term Facility in the first six months following the Spin-Off, and certain borrowings may be subject to customary breakage costs. The Credit Agreement also contains customary mandatory prepayment provisions upon the occurrence of specified events, as well as excess cash flow sweep requirements for the Term Facility, beginning with the fiscal year ending on December 31, 2027.
The Revolving Facility contains financial covenants, which were first tested as of October 3, 2026, including a consolidated total net leverage ratio that steps down over time and a minimum consolidated interest ratio. There were no outstanding borrowings and no letters of credit issued under the Revolving Facility as of October 3, 2026. As of October 3, 2026, the Company was in compliance with all covenants.
The fair value of the Term Facility was estimated using observable market inputs for similar debt instruments and is classified as a Level 2 measurement in the fair value hierarchy. As of October 3, 2026, the fair value of the Term Facility was $605 million.
Allocated Resideo Debt
Prior to the Spin-Off, Resideo was the obligor of multiple third-party debt instruments, for some of which the Company was also jointly and severally liable, while other third-party debt instruments transferred to the Company upon the completion of the Spin-Off. For the debt instruments that the Company was jointly and severally liable for, a portion of the Former Parent's long-term debt and short-term debt was allocated to the Company as of December 31, 2025. The related interest expense and unamortized deferred financing costs on the debt was allocated to the Company for the periods presented prior to the Spin-Off. Given the lack of a contractual agreement for the Company to pay a specified amount to the Former Parent (i.e., its co-obligors), the allocation basis was determined based on what the Company would reasonably expect to pay on behalf of its co-obligors. No payments were made by the Company to third-party creditors, as payments historically were made by the Former Parent in each reporting period.
Refer to Note 8. Long-Term Debt, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
Indemnification Agreement
Resideo separated from Honeywell in 2018, becoming an independent, publicly traded company as a result of the Former Parent's Spin-Off. In connection with our Former Parent's Spin-Off, Resideo entered into the Indemnification Agreement for which we were jointly and severally liable along with other subsidiaries of Resideo until the termination thereof in the third quarter of 2025. Accordingly, a portion of Resideo's historical obligations under the agreement, and the resulting termination discussed below, had been allocated to us for the periods presented. The related expenses were also allocated to us for the periods presented. The portion of Resideo's obligation and related items allocated to us was based on what we would have reasonably expected to pay on behalf of our co-obligors. Refer to Note 9. Indemnification Agreement, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
Indemnification Agreement expenses were presented within Indemnification agreement expense in the Unaudited Consolidated and Combined Condensed Statements of Operations. The Indemnification Agreement was terminated in the third quarter of 2025.
Cash Flow Summary
Our cash flows from operating, investing, and financing activities for the nine months ended October 3, 2026 and September 27, 2025, as reflected in the Unaudited Consolidated and Combined Condensed Financial Statements are summarized as follows:
Nine Months Ended
(in millions) October 3, 2026 September 27, 2025 $ Change
Cash provided by (used in):
Operating activities $ (12) $ (616) $ 604
Investing activities (22) (50) 28
Financing activities 116 616 (500)
Effect of exchange rate changes on cash 2 6 (4)
Net increase (decrease) in cash and cash equivalents $ 84 $ (44) $ 128
Operating Activities
Net cash used in operating activities for the nine months ended October 3, 2026 was $12 million, a decrease of $604 million, compared to $616 million of net cash used in operating activities in the same period of 2025. The $604 million decrease in the use of cash was primarily driven by higher non-cash adjustments of $669 million and a $313 million favorable change in working capital which were partially offset by a decrease in net income of $378 million. The favorable change in non-cash adjustments was primarily driven by the $659 million impairment of goodwill. The favorable change in
working capital primarily related to the $270 million termination of the Indemnification Agreement liability, $62 million from accounts payable due to the timing of supplier payments and $22 million from lower cash used for inventory, partially offset by $44 million unfavorable change in accounts receivable due to the timing of cash receipts.
Investing Activities
Net cash used in investing activities for the nine months ended October 3, 2026 was $22 million, a decrease of $28 million, compared to the $50 million of net cash used in investing activities in the same period of 2025. The $28 million decrease was primarily driven by a $26 million increase in proceeds from related party loan arrangements.
Financing Activities
Net cash provided by financing activities for the nine months ended October 3, 2026 was $116 million, a decrease of $500 million compared to $616 million of net cash provided by financing activities in the same period of 2025. The $500 million decrease was primarily driven by the $900 million dividend distribution to Former Parent in connection with the Spin-Off, a $523 million decrease in Net transfers to Former Parent, and a $60 million increase in net cash outflows due to related parties due to cash pooling arrangements which were partially offset by $988 million of net proceeds from the Senior Notes due 2034 and the Term Facility.
Contractual Obligations and Probable Liability Payments
In addition to our long-term debt discussed above, our material cash requirements include the following contractual obligations:
Operating Leases
We have operating lease arrangements for the majority of our stores, distribution centers, offices, engineering sites, automobiles, and certain equipment. As of October 3, 2026, we had operating lease payment obligations of $259 million, with $41 million payable within 12 months.
Purchase Obligations
On occasion, we enter into purchase obligations with certain vendors. During the three months ended October 3, 2026, we entered into a new agreement that includes minimum product purchase commitments, resulting in additional purchase obligations of approximately $207 million. As of October 3, 2026, our total purchase obligations were $243 million, of which approximately $155 million is expected to be paid within the next 12 months, with the remainder expected to be paid thereafter.
As of October 3, 2026, we have additional operating leases that have not yet commenced. The total undiscounted future lease payments for these leases were $23 million.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, net revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Estimates
Our Unaudited Consolidated and Combined Condensed Financial Statements are prepared in accordance with GAAP and pursuant to the regulations of the SEC and are based in part on the application of significant accounting policies, many of which require us to make estimates and assumptions. Application of critical accounting estimates requires management's significant judgments and involves a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition and results of operations. We review our estimates and assumptions on an ongoing basis and reflect changes as appropriate when additional information becomes available. Except as described below, there have been no significant changes to the Company's critical accounting estimates described in the Company's Information Statement.
Goodwill
As described in Note 5. Goodwill and Other Intangible Assets, net, during the third quarter of 2026 we concluded that a triggering event had occurred and performed an interim quantitative goodwill impairment assessment of our single reporting unit, which resulted in a non-cash impairment charge of $659 million. We estimated the fair value of our reporting unit using an equal weighting of an income approach and a market approach, which required significant judgment and incorporated assumptions regarding projected future cash flows, including revised near-term revenue and operating margin expectations, the discount rate and the terminal growth rate. The discount rate reflects the risks inherent in the projected future cash flows, including macroeconomic and industry-specific factors. The market approach incorporated valuation multiples derived from guideline public companies selected based on their comparability to the Company. The fair value estimate was classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. If our operating results or projections decline further, if our stock price or market capitalization declines, or if the discount rate increases, we may be required to record additional impairment charges.
Other Matters
Litigation and Indemnification Agreement
Refer to Note 9. Indemnification Agreement and Note 14. Commitments and Contingencies, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
Recent Accounting Pronouncements
Refer to Note 2. Summary of Significant Accounting Policies, of the Notes to the Unaudited Consolidated and Combined Condensed Financial Statements for additional information.
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