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CommScope Reports Second Quarter 2017 Results

HICKORY, N.C.--(BUSINESS WIRE)--CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported sales of $1.17 billion and net income of $55 million, or $0.28 per diluted share, for the quarter ended June 30, 2017. Non-GAAP adjusted net income for the second quarter of 2017 was $119 million, or $0.60 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.

In comparison, for the quarter ended June 30, 2016, CommScope reported sales of $1.31 billion and net income of $62 million, $0.32 per share. Non-GAAP adjusted net income for the second quarter of 2016 was $145 million, or $0.74 per diluted share.

“Our results for the second quarter reflect the continued impact of the challenging industry environment,” said President and Chief Executive Officer Eddie Edwards. “We expect certain North American service providers to spend cautiously over the next few quarters due primarily to industry consolidation, competitive dynamics and timing of certain large projects. In the interim, we will continue to stringently manage our costs and work to position CommScope for long-term success.

“We believe that our recent acquisition of Cable Exchange and our new high-speed migration platform will enhance our position in the data center market over the longer term. We expect to return to overall growth in 2018.”

Second Quarter 2017 Overview

Second quarter 2017 sales declined year over year in all major geographic regions. Foreign exchange rate changes negatively affected revenue by less than 1 percent year over year.

Operating income in the second quarter of 2017 declined 25 percent year over year to $138 million. Non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, declined 17 percent year over year to $242 million. The decreases in operating income and non-GAAP adjusted operating income were driven by lower sales volumes and unfavorable mix of products sold, partially offset by the benefit of cost reduction initiatives and lower incentive compensation expense. In addition, lower intangible amortization offset higher restructuring charges in operating income.

Second Quarter 2017 Segment Overview

Second quarter Connectivity Solutions segment sales declined 7 percent year over year to $726 million. Revenue declined in both indoor and outdoor network solutions. Modest growth in the Europe, Middle East and Africa region was more than offset by decreased sales in the U.S., Asia-Pacific and Latin American regions. While indoor network solutions sales remained weak, the company made progress improving its market position with multi-tenant and hyperscale data center customers. Outdoor network solutions sales were affected by fewer large projects in the Asia-Pacific region and industry competitive dynamics and consolidation, which impacted service provider spending patterns. Foreign exchange rate changes negatively affected revenue by less than 1 percent from the year-ago period.

Connectivity Solutions operating income declined 20 percent year over year to $75 million and non-GAAP adjusted operating income decreased 13 percent year over year to $146 million, or 20 percent of segment sales. Both operating income and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavorable mix of products sold, partially offset by the benefit of cost reduction initiatives and lower incentive compensation expense.

Second quarter Mobility Solutions segment sales declined 15 percent year over year to $448 million. Sales declined in all major geographic regions. The decrease is due primarily to a slowdown in spending at certain North American operators and fewer large projects in the Asia-Pacific region. Foreign exchange rate changes had a negative impact of less than 1 percent on Mobility Solutions segment sales compared to the year-ago period.

Mobility Solutions operating income declined 31 percent year over year to $63 million and non-GAAP adjusted operating income decreased 22 percent year over year to $96 million, or 21 percent of segment sales. Both operating income and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavorable mix of products sold, partially offset by lower incentive compensation expense.

Cable Exchange Acquisition

On August 1, CommScope completed the previously announced acquisition of Cable Exchange, a privately-held quick-turn supplier of fiber optic and copper assemblies for data, voice and video communications.

Cable Exchange, based in Santa Ana, Calif., manufactures a variety of fiber optic and copper cables, trunks and related products used in high-capacity data centers and other business enterprise applications. The company, founded in 1986, specializes in quick-turn delivery of its infrastructure products to customers from its two U.S. manufacturing centers located in Santa Ana, Calif. and Pineville, NC.

This highly complementary acquisition deepens CommScope’s capabilities in supporting the growing market for high-capacity, multi-tenant data centers and hyperscale data centers operated by the world’s largest technology and retail companies.

CommScope funded the acquisition with cash on hand.

Capital Allocation Priorities

Following the BNS acquisition in August 2015, the company has consistently focused the use of its free cash flow on reinvesting in the business and reducing debt. The company continues to believe that reducing leverage benefits all stakeholders and expects to reach its goal of repaying approximately $1 billion of acquisition financing by year-end 2017.

Additionally, on August 2, the CommScope board of directors authorized the repurchase of up to $100 million of the company’s outstanding common stock. The intent of the repurchase program is to enhance stockholder value and returns. Any share repurchases under this authorization will be made in accordance with applicable securities laws in either open market or privately negotiated transactions. The company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its shares under this authorization. The method, timing and amount of shares repurchased under the authorization will depend on several factors, including capital and liquidity requirements, market conditions and alternative uses for cash. The program does not obligate the company to acquire any particular amount of its common stock, and the program may be extended, modified, suspended or discontinued at any time. The repurchase authorization expires on July 31, 2018.

Outlook

In the near-term, CommScope management expects cautious spending patterns at certain North American service providers due primarily to industry competitive dynamics, consolidation and delayed timing of certain expected network upgrades. The company has already taken incremental actions to manage costs, including lowering incentive compensation; cutting selling, general and administrative expenses; and reducing its workforce.

These factors are reflected in the following third quarter and full year 2017 guidance provided by CommScope management.

Third Quarter 2017 Guidance:

  • Revenue of $1.1 billion – $1.15 billion
  • Operating income of $105 million – $140 million
  • Non-GAAP adjusted operating income of $200 million – $240 million
  • Earnings per diluted share of $0.20 – $0.25, based on 197 million weighted average diluted shares
  • Non-GAAP adjusted earnings per diluted share of $0.50 – $0.55
  • Non-GAAP adjusted effective tax rate of approximately 35 percent

Full Year 2017 Guidance:

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