Will REZI's Q1 2026 operating cash flow fall below $120M?

FY2025 adjusted OCF of $453M implies ~$113M average quarterly, but this average is heavily distorted by Q4 GAAP OCF of $299M in a single quarter — the remaining three quarters averaged only ~$51M. Stripping the one-time $40M Honeywell benefit reduces true run-rate to ~$103M/quarter, and Q1 is historically the weakest quarter for REZI given post-holiday demand patterns and working capital builds. Even with 2026 EBITDA guidance of $935-985M (+12-18% growth), Q1 OCF seasonality combined with ongoing separation costs and $202M annual interest burden keeps the probability of falling below $120M slightly below even.

The structural deterioration thesis from the original context is partially undermined by FY2025 OCF recovering to $453M, but the quarterly distribution is the critical issue. Q4 carries a disproportionate share of annual OCF for REZI (likely 60-65% based on Q4 GAAP $299M vs. $453M annual), leaving Q1 extremely thin. The Snap One synergies ($75M, 18 months ahead of schedule) provide incremental EBITDA but may not fully convert to cash in Q1 due to working capital timing and ERP integration costs. The 3.9x leverage (corrected from 5.5x) meaningfully improves the stress scenario, slightly reducing the tail risk of a liquidity-driven OCF collapse.

The $120M threshold sits almost exactly at the true adjusted quarterly run-rate (~$103-113M/quarter), making this a genuine coin-flip with directional bias depending on Q1 seasonal factors. REZI's business mix (security products to professional dealers) typically sees Q1 demand softness as dealers work through Q4 holiday inventory builds, which would compress both revenue and working capital contribution. However, the 2026 EBITDA guidance uplift and ADI's +3% organic growth in FY2025 (reversing prior narrative) suggest the business has more cash generation capacity than the original analysis indicated. The absence of OCF guidance is itself a cautionary signal — management would likely guide if they expected strong Q1 cash flow.

The delta materially improves the OCF picture — FY2025 adjusted OCF of $453M and record EBITDA of $833M represent genuine recovery, not just optics. However, the Q4 outsized performance ($299M GAAP) creates a high base effect and suggests Q1 will be significantly weaker due to working capital normalization. With 2026 EBITDA guidance of $935-985M and Snap One synergies running 18 months ahead of schedule, the structural headwinds are easing, which modestly reduces the probability that Q1 falls below $120M relative to the original 57% baseline.

Balancing the improved annual OCF figure against the quarterly distribution issue, a probability around 44% reflects the genuine uncertainty. The $40M one-time Honeywell benefit distortion and the heavily seasonal quarterly profile (Q4 carrying ~66% of annual GAAP OCF) mean Q1 is structurally likely to be below $120M even in a good year. But the EBITDA growth momentum and synergy execution reduce the probability that Q1 falls materially short of the threshold. Separation costs remain an unquantified wildcard that could suppress Q1 cash flow.

The combination of record EBITDA and Snap One synergies ahead of schedule creates a more optimistic baseline than the original 57% implied. The corrected 3.9x leverage removes the debt-stress amplification that was a key downside driver in the original context. Still, the quarterly OCF profile is the swing factor — Q4 pulling forward $299M GAAP leaves Q1-Q3 averaging well below $120M, and without OCF guidance there is limited visibility into whether Q1 2026 specifically benefits from the EBITDA uplift or faces headwinds from separation preparation costs.

FY2025 OCF came in at $453M and Q4 alone was $299M — these are strong numbers that suggest REZI's cash generation is much healthier than the original 57% probability implied. With EBITDA guidance of $935-985M for 2026 and synergies ahead of schedule, the trajectory is clearly improving. The $120M threshold now looks relatively achievable for Q1 given the improved baseline.

The headline numbers from Q4 2025 earnings are clearly positive — $453M OCF, $299M in Q4 alone, record EBITDA, leverage corrected to 3.9x. The original concern about structural deterioration appears overblown given the actual FY2025 outcome. The growing EBITDA trajectory gives REZI more buffer above the $120M threshold in Q1 2026.

The FY2025 numbers are materially better than expected, with OCF at $453M and EBITDA at a record $833M. However, even anchoring on recent strength, Q4's outsized $299M OCF likely benefited from year-end timing, and Q1 could see a meaningful step-down. Still, with improving EBITDA momentum, staying above $120M in Q1 seems more likely than not.