CommScope Reports First Quarter 2019 Results

First Quarter 2019 Highlights (all comparisons are year-over-year)

  • Sales of $1.10 billion decreased 1.9%
  • GAAP operating income of $90.7 million decreased 12.6%
  • Non-GAAP adjusted operating income (excluding special items) increased
    1.1% to $190.7 million, or 17.3% of sales, an increase of 50 basis
    points
  • Non-GAAP adjusted EBITDA increased 0.1% to $208.4 million, or 19.0% of
    sales, an increase of 40 basis points
  • GAAP net loss of $(0.01) per basic share compared to net income of
    $0.17 per diluted share
  • Non-GAAP adjusted net income (excluding special items) of $0.48 per
    diluted share decreased 2.0%.
  • Issuing second quarter EPS guidance in a range of $0.54 to $0.62 that
    includes the impact of the acquisition of ARRIS.

HICKORY, N.C.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/CommScope?src=hash” target=”_blank”gt;#CommScopelt;/agt;–CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in
infrastructure solutions for communications networks, reported results
for the quarter ended March 31, 2019.

The company reported first quarter sales of $1.10 billion, a decrease of
1.9% compared to $1.12 billion during the same period in the prior year.
CommScope generated a net loss of $2.3 million, or $(0.01) per basic
share, a decrease from the prior year period’s net income of $33.7
million, or $0.17 per diluted share. Non-GAAP adjusted net income for
the first quarter of 2019 was $93.0 million, or $0.48 per diluted share,
versus $95.0 million, or $0.49 per diluted share, in the first quarter
of 2018. A reconciliation of reported GAAP results to non-GAAP results
is attached.

First quarter results do not include ARRIS, which CommScope acquired on
April 4, 2019.

“We delivered solid first quarter revenue at the high end of our range
and adjusted earnings per share that exceeded our expectations,” said
President and Chief Executive Officer Eddie Edwards. “Capitalizing on
our excellent customer relationships and market position, we drove
strong Mobility Solutions results, as telco providers continued to rely
on CommScope to build out their networks’ rapidly increasing capacity
and coverage requirements. While Connectivity Solutions results were
softer than expected, we see improving trends in the second half of the
year, and we are well positioned for future earnings growth.

“We are excited to have closed the ARRIS acquisition early last month
and welcome the new team members to CommScope. We believe that together
we can transform our combined companies to deliver even greater benefits
to customers worldwide. While we still expect to deliver the financial
targets from the acquisition that we previously disclosed, the recent,
significant declines in capital spending by certain cable providers is
having a pronounced impact on ARRIS. We are taking steps to address this
situation and moving quickly to combine ARRIS, Ruckus and CommScope in a
way that positions us for long-term success. We are confident that, with
ARRIS and Ruckus, we can grow faster than the industry and benefit from
favorable networking market trends, while enhancing shareholder value.”

CommScope First Quarter 2019 Overview

Sales decreased 1.9% year over year as growth in the U.S. was more than
offset by lower sales in the Europe, Middle East and Africa (EMEA) and
Asia-Pacific regions. Sales benefited from the continued build out of 4G
networks partially offset by a decline in Indoor Copper. Changes in
foreign exchange rates unfavorably impacted net sales by approximately
2%.

GAAP operating income decreased 12.6% year over year to $90.7 million.
Non-GAAP adjusted operating income, which excludes amortization of
purchased intangibles, integration and transaction costs and other
special items, increased 1.1% year over year to $190.7 million, or 17.3%
of net sales, an increase of 50 basis points. Both GAAP operating income
and non-GAAP adjusted operating income benefited from higher North
America sales volumes, mix and lower material costs. These favorable
trends more than offset the impact of reductions in certain selling
prices. GAAP operating income was also negatively impacted by
restructuring, integration and transaction costs, which are excluded
from non-GAAP adjusted operating income.

Non-GAAP adjusted EBITDA, which equates to non-GAAP adjusted operating
income excluding depreciation, increased year over year to $208.4, or
19.0% of net sales, an increase of 40 basis points.

First Quarter 2019 Segment Overviews (all comparisons are
year-over-year)

Connectivity Solutions

  • Segment sales of $646.1 million decreased 4.1% resulting from declines
    in EMEA and Asia-Pacific regions, partially offset by a slight
    increase in North America. Changes in foreign exchange rates
    negatively impacted segment net sales by approximately 3%.
  • GAAP operating income of $29.9 million decreased 43.8%. Non-GAAP
    adjusted operating income decreased 12.1% to $95.5 million, or 14.8%
    of segment net sales, a 130 basis point decline from a year ago. GAAP
    operating income and non-GAAP adjusted operating income were
    negatively impacted by reductions in certain selling prices and the
    impact of unfavorable foreign exchange rates on costs. GAAP operating
    income was also negatively impacted by higher costs related to the
    ARRIS transaction and restructuring costs, which are excluded from
    non-GAAP adjusted operating income.
  • Non-GAAP adjusted EBITDA decreased 12.2% to $107.7 million, or 16.7%
    of segment net sales, reflecting a 160 basis point decline from a year
    ago.

Mobility Solutions

  • Sales of $453.4 million increased 1.5% amid strong demand in North
    America and to a lesser extent the EMEA region, which more than offset
    a decline in the Asia-Pacific region. Changes in foreign exchange
    rates negatively impacted segment net sales by approximately 2%.
  • GAAP operating income of $60.7 million increased 20.2%, and non-GAAP
    adjusted operating income increased 19.1% to $95.2 million, or 21.0%
    of segment net sales, a 310 basis point increase from a year ago. Both
    GAAP and non-GAAP adjusted operating income benefited from higher
    sales volumes, favorable geographic mix and favorable impacts from
    foreign exchange rate changes on costs, which more than offset the
    impact of reductions in certain selling prices. GAAP operating income
    was also negatively impacted by higher costs related to the ARRIS
    transaction and restructuring costs, which are excluded from non-GAAP
    adjusted operating income.
  • Non-GAAP adjusted EBITDA increased 17.9% to $100.7 million, or 22.2%
    of net segment sales, a 310 basis point increase from the year ago
    period.

ARRIS Acquisition Update

On April 4, 2019, we completed the acquisition of ARRIS. The combination
of the two companies is expected to drive profitable growth in new
markets and shape the future of wired and wireless communications. With
the acquisition, CommScope will be better positioned to capitalize on
long-term industry growth trends, including network convergence, fiber
and mobility everywhere, Internet of Things, demand for additional
bandwidth, low latency and ultra-high reliability.

In addition to creating long-term growth opportunities, the acquisition
is also expected to deliver near-term financial benefits including:

  • 30%-plus accretion to adjusted EPS1 in the first full year
    following closing;
  • Nearly $1 billion of cash flow from operations1 in the
    first full year;
  • Annual cost synergies of at least $150 million within three years; and
  • Revenue synergies.

1Financial metrics presented are adjusted to exclude
purchase accounting charges, transaction and integration costs and other
special items.

ARRIS First Quarter 2019 Financial Performance

The company is providing ARRIS’ first quarter 2019 results in an effort
to provide greater transparency into performance trends. All comparisons
are year over year to ARRIS’s 2018 first quarter.

Total ARRIS revenue for the first quarter was $1.38 billion, reflecting
a decrease of 12.4%, and operating loss for the first quarter was $45.9
million. ARRIS’s total non-GAAP adjusted operating income of $66.7
million decreased 64.2%, and non-GAAP adjusted EBITDA of $85.9 million
decreased 58.9%.

  • Customer Premises Equipment (CPE):

    • Revenue of $824.2 million decreased 5.8%;
    • Operating loss of $23.8 million;
    • Non-GAAP adjusted operating income of $28.8 million increased
      57.4%; and
    • Non-GAAP adjusted EBITDA of $35.8 million increased 32.6%.
  • Network and Cloud (N&C):

    • Revenue of $440.2 million decreased 18.2%;
    • Operating income of $32.4 million;
    • Non-GAAP adjusted operating income of $70.6 million decreased
      53.0%; and
    • Non-GAAP adjusted EBITDA of $79.0 million decreased 50.7%.
  • Enterprise (including Ruckus):

    • Revenue of $116.9 million decreased 28.8%;
    • Operating loss of $54.5 million;
    • Non-GAAP adjusted operating loss of $32.7 million decreased
      285.8%; and
    • Non-GAAP adjusted EBITDA loss of $29.0 million decreased 233.6%.

A reconciliation of ARRIS’s GAAP results to non-GAAP results is attached.

“The ARRIS business has been navigating revenue pressures driven by
several external factors,” said Executive Vice President and Chief
Financial Officer Alex Pease. “This includes a reduction in capital
spending by certain large North American network operators, a channel
inventory draw-down and the impact of transitioning production out of
China due to tariffs. We believe these issues are largely timing related
and are confident in our ability to manage through them. We expect to
build upon our well-established track record of meeting or exceeding
synergy targets to deliver solid value for shareholders.”

Outlook

Today, CommScope management issued second quarter 2019 guidance. This
guidance excludes ARRIS results recorded in the first three days of
April 2019 during the pre-close period.

“After a thoughtful and constructive evaluation of the company’s
business dynamics, specifically that a significant portion of revenue is
derived from short-cycle or project-based engagements, CommScope’s Board
of Directors and executive leadership team have decided to transition
away from providing annual financial guidance,” Edwards said. “We
believe quarterly guidance is more helpful in evaluating our company and
appropriately reflective of our forecasting capabilities, and that the
timing to make this change is appropriate as we integrate with ARRIS.”

During the company’s conference call, CommScope management will continue
to provide a qualitative overlay of the expected full-year performance.

Second Quarter 2019 Guidance:

  • Revenue of $2.490 billion – $2.650 billion
  • Operating loss of $124 million – $170 million
  • Non-GAAP adjusted EBITDA of $365 million – $405 million
  • Non-GAAP adjusted effective tax rate of approximately 27% – 29%
  • Loss per share of $1.21 – $1.44, based on 196 million weighted average
    basic shares
  • Non-GAAP adjusted earnings per diluted share of $0.54 – $0.62, based
    on 231 million weighted average diluted shares (assuming the
    if-converted method is applied for our Series A Convertible Preferred
    Stock).

A reconciliation of GAAP to non-GAAP outlook is attached.

Conference Call, Webcast and Investor Presentation

As previously announced, CommScope will host a conference call today at
8:30 a.m. ET in which management will discuss first quarter 2019 results
and second quarter 2019 guidance. The conference call will also be
webcast.

To participate in the conference call, dial +1 844-397-6169 (US and
Canada only) or +1 478-219-0508. The conference identification number is
4392174. Please plan to dial in 15 minutes before the start of the call
to facilitate a timely connection. The live, listen-only audio of the
call and corresponding presentation will be available through a link on CommScope’s
Investor Relations page
.

A webcast replay will be archived on CommScope’s
website
for a limited period of time following the conference call.

About CommScope

CommScope (NASDAQ: COMM) and the recently acquired ARRIS and Ruckus
Networks are redefining tomorrow by shaping the future of wired and
wireless communications. Our combined global team of employees,
innovators and technologists have empowered customers in all regions of
the world to anticipate what’s next and push the boundaries of what’s
possible. Discover more at www.commscope.com.

Follow us on Twitter
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Non-GAAP Financial Measures

CommScope management believes that presenting certain non-GAAP financial
measures enhances an investor’s understanding of our financial
performance. CommScope management further believes that these financial
measures are useful in assessing CommScope’s operating performance from
period to period by excluding certain items that we believe are not
representative of our core business. CommScope management also uses
certain of these financial measures for business planning purposes and
in measuring CommScope’s performance relative to that of its
competitors. CommScope management believes these financial measures are
commonly used by investors to evaluate CommScope’s performance and that
of its competitors. However, CommScope’s use of the terms non-GAAP
adjusted operating income, non-GAAP adjusted EBITDA, non-GAAP adjusted
net income and non-GAAP adjusted diluted earnings per share and adjusted
free cash flow may vary from that of others in its industry. These
financial measures should not be considered as alternatives to operating
income (loss), net income (loss) or any other performance measures
derived in accordance with U.S. GAAP as measures of operating
performance, operating cash flows or liquidity.

Forward Looking Statements

This press release or any other oral or written statements made by us or
on our behalf may include forward-looking statements that reflect our
current views with respect to future events and financial performance.
These statements may discuss goals, intentions or expectations as to
future plans, trends, events, results of operations or financial
condition or otherwise, in each case, based on current beliefs of
management, as well as assumptions made by, and information currently
available to, such management. These forward-looking statements are
generally identified by their use of such terms and phrases as “intend,”
“goal,” “estimate,” “expect,” “project,” “projections,” “plans,”
“potential,” “anticipate,” “should,” “could,” “designed to,”
“foreseeable future,” “believe,” “think,” “scheduled,” “outlook,”
“target,” “guidance” and similar expressions, although not all
forward-looking statements contain such terms. This list of indicative
terms and phrases is not intended to be all-inclusive.

These statements are subject to various risks and uncertainties, many of
which are outside our control, including, without limitation, risks
related to the ARRIS acquisition, our dependence on customers’ capital
spending on data and communication systems; concentration of sales among
a limited number of customers and channel partners; changes in
technology; industry competition and the ability to retain customers
through product innovation, introduction and marketing; risks associated
with our sales through channel partners; changes to the regulatory
environment in which our customers operate; product quality or
performance issues and associated warranty claims; our ability to
maintain effective management information technology systems and to
implement major systems initiatives successfully; cyber-security
incidents, including data security breaches, ransomware or computer
viruses; the risk our global manufacturing operations suffer production
or shipping delays, causing difficulty in meeting customer demands; the
risk that internal production capacity or that of contract manufacturers
may be insufficient to meet customer demand or quality standards;
changes in cost and availability of key raw materials, components and
commodities and the potential effect on customer pricing; risks
associated with our dependence on a limited number of key suppliers for
certain raw materials and components; the risk that contract
manufacturers we rely on encounter production, quality, financial or
other difficulties; our ability to integrate and fully realize
anticipated benefits from prior or future divestitures, acquisitions or
equity investments; potential difficulties in realigning global
manufacturing capacity and capabilities among our global manufacturing
facilities or those of our contract manufacturers that may affect our
ability to meet customer demands for products; possible future
restructuring actions; substantial indebtedness and maintaining
compliance with debt covenants; our ability to incur additional
indebtedness; our ability to generate cash to service our indebtedness;
possible future impairment charges for fixed or intangible assets,
including goodwill; income tax rate variability and ability to recover
amounts recorded as deferred tax assets; our ability to attract and
retain qualified key employees; labor unrest; obligations under our
defined benefit employee benefit plans requiring plan contributions in
excess of current estimates; significant international operations
exposing us to economic, political and other risks, including the impact
of variability in foreign exchange rates; our ability to comply with
governmental anti-corruption laws and regulations and export and import
controls worldwide; our ability to compete in international markets due
to export and import controls to which we may be subject; the impact of
Brexit; changes in the laws and policies in the United States affecting
trade, including the risk and uncertainty related to tariffs or a
potential global trade war that may impact our products; costs of
protecting or defending intellectual property; costs and challenges of
compliance with domestic and foreign environmental laws; the impact of
litigation and similar regulatory proceedings that we are involved in or
may become involved in, including the costs of such litigation, risks
associated with stockholder activism, which could cause us to incur
significant expense, hinder execution of our business strategy and
impact the trading value of our securities; and other factors beyond our
control. These and other factors are discussed in greater detail in Part
II, Item 1A, Risk Factors, of our Quarterly Report on Form 10-Q for the
three months ended March 31, 2019.

Such forward-looking statements are also subject to additional risks and
uncertainties related to the recently acquired ARRIS business, many of
which are outside of our control, including, without limitation: the
risk that we will not successfully integrate ARRIS or that we will not
realize estimated cost savings, synergies, growth or other anticipated
benefits, or that such benefits may take longer to realize than
expected; risks relating to unanticipated costs of integration; the
potential impact of the acquisition on relationships with third parties,
including customers, employees and competitors; failure to manage
potential conflicts of interest between or among customers; integration
of information technology systems; and other factors beyond our control.

Although the information contained in this press release represents our
best judgment as of the date of this release based on information
currently available and reasonable assumptions, we can give no assurance
that the expectations will be attained or that any deviation will not be
material. Given these uncertainties, we caution you not to place undue
reliance on these forward-looking statements, which speak only as of the
date made. We are not undertaking any duty or obligation to update this
information to reflect developments or information obtained after the
date of this report, except as otherwise may be required by law.

 
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Operations
(Unaudited — In millions, except per share amounts)
 
Three Months Ended
March 31,
2019   2018
Net sales $ 1,099.5 $ 1,120.5
Cost of sales   687.7   709.1
Gross profit 411.8 411.4
Operating costs and expenses:
Selling, general and administrative 199.2 185.1
Research and development 50.2 49.9
Amortization of purchased intangible assets 59.3 67.2
Restructuring costs, net   12.4   5.5
Total operating expenses   321.1   307.7
Operating income 90.7 103.7
Other income (expense), net (5.7 ) 1.0
Interest expense (97.5 ) (59.8 )
Interest income   11.8   1.4
Income (loss) before income taxes (0.7 ) 46.3
Income tax expense   (1.6 )   (12.6 )
Net income (loss) $ (2.3 ) $ 33.7
Earnings (loss) per share:
Basic $ (0.01 ) $ 0.18
Diluted (a) $ (0.01 ) $ 0.17
Weighted average shares outstanding:
Basic 192.8 191.4
Diluted (a) 192.8 195.5
(a) Calculation of diluted earnings per share:
Net income (loss) (basic and diluted) $ (2.3 ) $ 33.7
 
Weighted average shares (basic) 192.8 191.4
Dilutive effect of equity-based awards     4.1
Denominator (diluted)   192.8   195.5
 
See notes to unaudited condensed consolidated financial statements
included in our Form 10-Q.
 
CommScope Holding Company, Inc.
Condensed Consolidated Balance Sheets
(Unaudited — In millions, except share amounts)
   
March 31, 2019 December 31, 2018
Assets
Cash and cash equivalents $ 176.4 $ 458.2
Accounts receivable, less allowance for doubtful accounts of

$19.5 and $17.4, respectively

957.6 810.4
Inventories, net 535.5 473.3
Prepaid expenses and other current assets   151.5   135.9
Total current assets 1,821.0 1,877.8
Property, plant and equipment, net of accumulated depreciation

of $449.2 and $437.7, respectively

453.8 450.9
Goodwill 2,859.9 2,852.3
Other intangible assets, net 1,290.0 1,352.0
Funds restricted for acquisition 3,760.1
Other noncurrent assets   189.5   97.5
Total assets $ 10,374.3 $ 6,630.5
Liabilities and Stockholders’ Equity
Accounts payable $ 475.3 $ 399.2
Accrued and other liabilities   429.6   291.4
Total current liabilities 904.9 690.6
Long-term debt 7,459.6 3,985.9
Deferred income taxes 79.9 83.3
Other noncurrent liabilities   185.4   113.9
Total liabilities 8,629.8 4,873.7
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value: Authorized shares: 200,000,000;
Issued and outstanding shares: None
Common stock, $0.01 par value: Authorized shares: 1,300,000,000;
Issued and outstanding shares: 193,456,207 and 192,376,255,
respectively 2.0 2.0
Additional paid-in capital 2,393.9 2,385.1
Retained earnings (accumulated deficit) (252.1 ) (249.8 )
Accumulated other comprehensive loss (170.5 ) (159.2 )
Treasury stock, at cost: 7,060,763 shares and 6,744,082 shares,
respectively   (228.8 )   (221.3 )
Total stockholders’ equity   1,744.5   1,756.8
Total liabilities and stockholders’ equity $ 10,374.3 $ 6,630.5
 

See notes to unaudited condensed consolidated financial statements
included in our Form 10-Q.

 
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited — In millions)
 
Three Months Ended
March 31,
2019 2018
Operating Activities:
Net income (loss) $ (2.3 ) $ 33.7

Adjustments to reconcile net income to net cash generated by (used
in) operating activities:

Depreciation and amortization 83.7 89.4
Equity-based compensation 7.5 10.5
Deferred income taxes (1.4 ) (5.4 )
Changes in assets and liabilities:
Accounts receivable (150.7 ) (71.1 )
Inventories (62.4 ) (25.2 )
Prepaid expenses and other assets (24.5 ) (24.5 )
Accounts payable and other liabilities 136.8 15.4
Other   3.3   12.4
Net cash generated by (used in) operating activities (10.0 ) 35.2
Investing Activities:
Additions to property, plant and equipment (21.4 ) (13.6 )
Proceeds from sale of property, plant and equipment 0.6 3.0
Acquisition funds held in escrow (3,750.0 )

Cash paid for acquisitions, including purchase price adjustments,
net of cash acquired

  (11.0 )  
Net cash used in investing activities (3,781.8 ) (10.6 )
Financing Activities:
Long-term debt repaid (225.0 )
Long-term debt proceeds 3,750.0
Debt issuance costs (9.3 )

Proceeds from the issuance of common shares under equity-based
compensation plans

1.3 3.9

Tax withholding payments for vested equity-based compensation
awards

  (7.5 )   (15.4 )
Net cash generated by (used in) financing activities 3,509.5 (11.5 )
Effect of exchange rate changes on cash and cash equivalents   0.5   5.6
Change in cash and cash equivalents (281.8 ) 18.7
Cash and cash equivalents at beginning of period   458.2   454.0
Cash and cash equivalents at end of period $ 176.4 $ 472.7
 
See notes to unaudited condensed consolidated financial statements
included in our Form 10-Q.

Contacts

Investor Contact:
Kevin Powers, CommScope
+1
828-323-4970
Kevin.powers@commscope.com

News Media Contact:
Rick Aspan, CommScope
+1
708-236-6568
publicrelations@commscope.com

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