CommScope Holding (COMM) 8 Aug 242024 Q2 Earnings call transcript

Good day, and thank you for standing by. Welcome to the CommScope 2024 Second Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Massimo DiSabato, VP of Investor Relations. Please go ahead.

you Quarter us Results. thank CommScope's to and Second XXXX morning, for today joining discuss Good I'm Relations for DiSabato, CommScope. Massimo Vice President of Investor and Relations find the on Chuck that accompany Executive And call on slides President CEO; our report President Investor Vice can me Lorentzen, and CFO You with and this Kyle website. today's Treadway, are business. forward-looking our current on Please some our of based note comments of statements our that today will contain view and results differ materially. actual future may and risks that filings, which identify future see could Please recent performance. principal affect our SEC the uncertainties

associated I the financial described materials a contained adjusted in are website. today's detail adjusted are review. other measures will Before will turn disclosures Chuck, which our on call I today's non-GAAP rates more earnings certain our few Today, on this over be year-over-year have references unless morning's to discuss posted or to growth measures, in to during our non-GAAP earnings All financial quarterly housekeeping materials. in items otherwise and described during noted. of results. we Reconciliations basis presentation a All discussion are and

I'll Treadway. our the over and CEO, call now President turn Chuck to

Good begin X. the sales in our on quarter, segments. everyone. you, OWN In of net morning, and of CommScope driven Slide delivered adjusted billion by strength Thank second $X.XXX EBITDA Massimo. million I'll $XXX CCS and

$XXX adjusted of and we XXXX. net reported EBITDA $X.XX for quarter businesses, and the DAS core CommScope, which core OWN excludes For sales of the billion of million second

announced DAS to our and my start businesses deal the comments to will today sell recently I addressing Amphenol. OWN

to calls, exploring previous in structure. been have capital our alternatives As we optimize have discussed we

sales. DAS a offers we at opportune significant deal OWN that for alternatives the believe the We of time mentioned value an was buyer. strategic asset One and

of giving want for investment. and/or to all though our manage CommScope. XXXX to use The OWN expected time and half through intend evaluate have how for the accretive best DAS I we delever flexibility done reduce to close us debt proceeds, to to teams and deal to first is in this thank they

customers next Amphenol an our home and of growth. these ideal businesses For represents employees, for phase

consist Moving and RUCKUS cell. Core of CCS, forward, of NICS business and core now will NICS. small consist our core will ANS

business in core and and strength NICS. quarter with in second CCS was continued performance mixed ANS Our weakness

As can. we I've earnings mentioned in calls, to continue what past control we

While our NEXT has flat. a improvement our essentially percentage EBITDA XX.X% Adjusted sales from core was our revenue by increased down XX%, program. driven EBITDA as was XX.X%. of CommScope to adjusted This been

our to We very business have focused on in enhance profitability. specific areas of all initiatives

to In has normalize like each update Now to CCS as our customer rates continues and you give I'd of quarter, inventory businesses. improved. continued demand on improve an the to second order

in Although than data improvement we broadband. sequential we're building businesses, saw in revenue all in center order and recovery stronger experiencing and

from data is and building Our demand strong seeing and center very cloud. hyperscale business

The need resulted for in gen center growth bandwidth by business. data this has AI in of and our capacity area enhanced driven substantial

data and centers is next positioned as years. The with our in signaling robust very the one leaders customers strong are over connectors. cable well MPO in We outlook growth market of the several

less EBITDA are installed we've the annualized than the of million These of capacity Currently, to to and first $XXX the demand months. returns incremental assessing we with are investing expected In half X to investments are demand. capacity that year, accretive highly requirement drive meet in revenue. in

our continue drive products launch to and to to in center building new addition capacity, business growth. we In additional data

Turning to Broadband. our attention

rates. the Since to We the from first increased orders quarter. beginning have continue levels last improve, second year, the of driving inventory sequentially order seen customer quarter to improve sequential

assess and federal 'XX plans. BEAD evaluating funding programs their remains and 'XX. low their Customers including to on demand other of build continue upgrades, the However, to relative impact

a of level a broadband, the timing and the demand true on bullish remain of we uncertainty on recovery Although BEAD. timing of remains

have and recovery the we program. BEAD we are previously the As for prepared well mentioned,

and BEAD full second higher of ample pushed expected meet is we have the to feedback a suggests that program We suite half to The now XXXX. of capacity the have demands, latest BABA-compliant market products.

move based second the half As and levels. of than expect into closer would center, and on we data first building strength second CCS quarter continued year, levels the the revenue EBITDA tracking adjusted we quarter the in to

core which Turning DAS. NICS, to excludes

XXXX. continue channel see digest in second half to our market conditions inventory as depressed We built the of

a sequentially, demand improved feel is driven in as we second RUCKUS the on inventory improving. write-offs. EBITDA quarter, challenges optimistic core negative stronger first revenue second EBITDA has inventory Although NICS and half, by lower half channel the delivered Despite and in stabilized

RUCKUS, strong what inventory we have would back levels to we to inventory. normal. Current are visibility consider In channel

inventory In our initiatives, X normalized vertical to on subsequent we RUCKUS demand, addition traction several Wi-Fi are and One gaining strategy. RUCKUS market launch, including and

we products, core this, RMB amplifiers, and navigating segment virtual customers for NICS second continue OLTs cycle remain well ANS, faced ANS SaaS CMTS, the businesses and latest historically our to for with is believe including and RPD larger-than-expected our choices next-generation quarter, inventory make was RUCKUS positioned being on modules mentioned, to the due first to bullish our the PON. with take the the as advantage upgrade remote Finishing we business. half During HFC our architecture. XXXX offerings. with nodes, We Despite previously subscription breadth of weak node strides of the new of core in and

scale we example silicon to with installed maximum The choose product providing DOCSIS, we customers. with new flexibility base, will operators unified X.X is upgrades. legacy for and unified full allows ESD deep developing An Duplex product and and our development us are coupled excited about customer partner our allow technology of our a that This, are flexibility. DOCSIS

legacy effectively base improve modem In with with addition, change. software partner a their we only upgrade and to significant have opportunities our expansive customers' quickly to experience installed and

recent upgrading DOCSIS of was and a commercialized gigabits recently per achieving X provider gigabits X example to our second down second customers of per major software X.XE with performance. up. speeds a Our win DOCSIS network X.XE their and X to Tier increase An allows upgrade, dramatically service

Systems. of acquisition new be with legacy PON such and purchased Casa deleveraging. CMTS During upgraded will flow HFC products. second products and us the virtualized their This the base acquisition This as from customer the quarter, assets provides we cash

owned short and Casa, have time, CCAP customers. we inquiries the X In several X had have Tier Tier we about virtualized with

addition acquisition, products with of second In first finalized have with the the a large agreements These FDX XXXX to significant in products. X ramp customer the half XXXX. begin Casa on shipping we Tier will in of half a

our timing the The is ANS magnitude upcoming of real with and the business upgrade question cycle.

driver many over revenue be to several timing be these aggressive upgrades years, magnitude fairly out. appear and the of of next upgrade of cycle for these ANS. a indicated have an customers Although pushing The profitability will the upgrade cycles important and

to We our through continuing are varying business market navigate conditions.

of uncertain. Although and improvement we are remains term, long bullish, magnitude demand timing medium and

well core we are to of demand our believe businesses, advantage we product For a offerings. ample the with positioned rebound take and right capacity

supporting We control customers we requirements. through can, their navigate they including will to as our continue what

about And with Kyle to to that, second more I'd like turn our over to results. quarter things talk

Slide second an everyone. I'll good quarter Chuck, results overview our of with X. and you, morning, XXXX on start Thank

by billion, XXX%. quarter, We driven the year, NICS. share normalization revenue EBITDA CCS in and net a of EPS $XXX from improved increased $X.XX Adjusted declines million by XX%. increasing increased and Adjusted second per sales in XX% $X.XXX OWN. For experienced driven of decrease of ANS CommScope demand sequential by inventory reported prior of and

essentially EBITDA Core OWN For XX% adjusted with core flat and reported from CommScope, we quarter which year. of was declined the billion, which sales year prior for businesses, second million $XXX net of excludes DAS the of XXXX prior $X.XXX of million. $XXX

EBITDA costs. Core manage we at CommScope as a as $XXX backlog adjusted control, including up quarter. the of of revenues XXX increased points the Our ended the basis continue percentage million, can versus we to first end what by quarter

we Order are are mentioned in the to of direct all back our of backlog normalized As levels. rates previously revenues. driver businesses,

As Chuck from second quarter the XXXX, the we particularly in in earlier, rates to an and saw first CCS quarter NICS. mentioned increase order

behind XXXX a we to is this well sign, Although lag and revenue positive XXXX levels. continue

cost driven mix. adjusted as the revenue adjusted highlights primarily for was Slide CCS sales Starting a of on cost XXX% quarter CCS, from EBITDA from prior million by net second increased year, the CCS product X. mix, XX.X%, $XXX of cost by million increased our to year. with EBITDA now adjustments. X% the prior and Turning onetime of favorable driven savings quarter percentage reductions favorable and $XXX

these EBITDA in the levels CCS historical levels remain rates, Although basis, not still center building at second these a XXXX and revenue we adjusted it being increase particularly XXXX. to data rates and On business. hyperscale CCS order half. in would the by relative revenue is we was expect and cloud as low revenue a The to remain pickup remain the to expect driven the percentage order of sequential up XX%. Despite in business, strong,

inventory in and and million $XXX from decreased primarily bullish EBITDA $XX Core the short-term NICS decline sales revenue customer and remain negative NICS RUCKUS net demand by remains of Although by uncertain. Core still on decreased versus of CCS conversations adjusted XXXX. order write-offs. driven XX% rates second the million the medium- long-term improved quarter the of profile $X growth, prior million year,

XXXX. second As quarter of in indicated, of inventory quarter channel were by substantial resulted release and out impacted revenue first product from the EBITDA second and the adjusted higher-than-normal third quarter that the of backlog and

of half the the inventory third that channel quarter, support Toward expected, As sequential from improved lasted end XXXX. XXXX the will through normalization revenues. the saw second first we overhang of inventory a of quarter

RUCKUS We continue and our X drive to Wi-Fi initiatives. One

take adjustments EBITDA the with the in adjusted of driven was prior the inventory decreased and market products of XX% year deal inventory upgrade to from customers long million vertical down year and challenging to ANS these lower as delays. million upgrade XX% due prior The delayed net With focus, million new share revenue. ANS we well from cycles. medium market customer continues ANS $XXX to be are positioned or and by market sales and $XX excess $XX term.

of stronger Although we a the see low half this off first a historically year, half XXXX. comes to expect second of

a the supplier products. early that driven installed the over stages. on business by will entire the several be of FDX products the cycle upgrade magnitude advantage Our the with The of in of and next as and business remains is are cycles largest of have Performance take well launching the the should upcoming positioned upgrade suite speed quarters. impact base to we positive

cable Casa the Systems the of price during acquisition of quarter, second million. assets purchase we $XX a of completed Finally, certain for business

after the Finally, quarter the businesses DAS of divestiture we Amphenol. and to closed, announced our OWN

providers service close in OWN. Order and by the deal rates X% on through million the second $XXX the these of spending We work from increased of increase sales an upgrades. this year, first half in was the quarter driven in as businesses of large expect of two increased prior inventory to an XXXX. Net the segment

In year. continue from aggressively addition, increased this DAS manage in $XXX the adjusted we to and prior XX% EBITDA costs of million OWN segment.

We third to and revenue adjusted compared EBITDA decrease OWN to quarter the DAS second expect quarter.

move will we for we report the sale. as As third held into these quarter, businesses

Slide X an update for flow. cash on Turning to

generated quarter, a from operations we adjusted million free of During cash from XXXX quarter cash capital operations year $XX as declined working flow million. from the flow flow $XX result cash of second needs. of and prior the

Slide for capital an liquidity structure. update on to Turning and X our

cash quarter total During $XXX million roughly cash ended available We in and cash of the quarter, and $XXX our liquidity liquidity with strong. second and million. remains global the

acquisition. cash balance our revolver quarter the quarter, no paid the million During with ended did cash second decreased $XX not We primarily by and draw our Casa on the quarter ABL of a as for during balance. therefore, the the outstanding result

open amortization. purchased $X loan we term quarter, market. of debt paid the the the no on We During required million

where our CCS to a intend across with to the quarter buy driven of our cash continue quarter net gen from Slide X.Xx. I'm turning remarks business we ratio AI prepared I capital X.Xx, commentary of the In company saw in of securities center structure. of the use breadth conclude remainder strong opportunistically X, forward, expectation the core Going The data growth. to now back ended leverage down our prior to by with business, recovery XXXX. we around for will my some our

that ANS continue. continue segments to uncertain. will expect We remains NICS this Unfortunately, the lag trend as core the and environment demand

for to EBITDA current in on and positives $XXX core half small guidepost free in Based would We quarter. two million adjusted $XXX core with between businesses, third we some remain full year these breakeven cash million adjusted our see sequential we expect adjusted flow. expected Although improvements EBITDA is improvement visibility, revenue second the to cautious. be

our We costs continue including to we control can what control, and managing supporting customers.

of quarter what of improve revenue as core longer-term and the to second XXXX quarter is in Our control a XX.X% to profitability. XXXX. a priority improved testament to percentage we can EBITDA from our of XX.X% adjusted second control the in This

Finally, capital our I would like structure. to address

asset We address new beyond. continue maturity including to OWN sales, DAS the of exchanges and use and and XXXX additional evaluate proceeds, alternatives, to financing

We our with the expect to in quarter. current third engage lenders

to previously alternatives. As our We flexible. very flexibility use mentioned, evaluate credit this intend as documents we are

today's be further capital For respect making we call, will our structure. with comments not to

And updates the However, appropriate. back to as with Chuck we will for give remarks. provide floor to closing I'd that, some like

Thank you, Kyle.

While we to core are remain our with pleased CCS, in uncertainty the specifically with businesses. quarter results, second continues other in generally our strength

customer us and Although positions for in focus would core the XXXX. by support items half continued we second sequential well we This products, expect long-term improvement our and on a base, our including business off medium low focus encouraged see profitability. growth. of that to new of control, I'm in

we'll open And with for line that, the now questions.

first Marshall from Meta Stanley. Our Morgan Instructions] from comes question [Operator

question. first Maybe

a the assets, Just share just of opportunity growth there just Casa rising boats? business? business acquisition less maybe other Is data elements me of share there? business to this And the Just opportunity or with thinking in -- for on the all then an more you the tide there than Casa opportunities gain particularly CCS, within from center about how question the other gains? are the with second is are

this positioned Yes. AI think half. and we're growth first Thanks, center by Meta. the market I'd saying, We've in gen I data seen strong start the well in projects. cloud for

is more to we using XXx increase I we use our continue our going normally product, it's like is in the note would sell AI As to data center. than to than XXx CPU and important think of gen we intensity that -- what a think we're sales would normal or more

to is speed. a think And going market, do we strong that think be we're the terms grow, we fast we're going cautious how in this but when cautious about to it's of

new happened memories and we gained cautious related in we bit this on and a are there. what development the in we're in product 'XX, short investing the believe and have share little first We some half. to But market, we just have capacity broadband,

virtual up. of pleased some customers were we're first all, financial to early, very of base customer think virtual some but this Casa I they legacy traction the combination CMTS interest acquisition, of combined is and good our ours their deal. our addition seeing the some Related also CMTS with paused projects Casa's with I'd situation, that say base. -- It's driving seeing their to of our with customers Because now still are free in installed existing We're and have.

pleased support. provide Our customers over we're to able that to that take are and

JPMorgan. Our next from Samik Chatterjee comes from question

further if Pretty is how think to performance? EBITDA of? the Maybe the something CommScope sort strong of much some EBITDA the expand to bit to of I you're a given help of challenging? relation can more is in the been you margins this -- given And us has upon sort realized can NEXT macro seeing. a more revenue that of much there already you have how more program just CommScope to can declines EBITDA NEXT, Or of flow-through that drive remains sort And follow-up. that you of the scope deliver more

mean, performance I the business. profitability obviously pleased the I are Yes. of think we with

very been generate focused as calls, percentage stronger we've to during previous been match mentioning we've a and I basis. [indiscernible] cost to downturn think on in the profitability

quarter, you profitability think these I remember things that is upside, I is for impact during staying There levels example. like any should also that about mix, think some that are that certain forward, we as think specific there achievable. moving probably but at

forward NEXT our think in moving new CommScope about we coming initiatives mean and always I I are NEXT, CommScope evolving, up think with we're as projects.

of cost probably mention you're has large think million, we've in million that seeing in numbers about and majority think the of that I savings is and the this talking gone When it that implemented. that thing would $XXX I been to we the say $XXX been we've million implemented now. about $XXX

terms of the say those businesses on job market market. And seeing our The and the other of is going [indiscernible] where products lead in growth, could cost the also thing really is in where for than of at looking lot I'd giving side, corporate a a really the closer developing terms our in the the is cost, business do are a lot model at general-management teams ownership you level.

And for on the clarification margin to Got QX get sort quick We using AI able we is Okay. should better opportunity of for the comment my or the using? margins. second just mean, for there it. guidepost Are a the QX And should with in-line the of strong I opportunity not the $XXX similar performance whether comparable half? with broadband? sure of we to $XXX saw million the full you're be that sort what's I gen which just to the related the you follow-up, traditional year, number, CCS a million guide, QX, be number implied have in sort seeing

Yes.

it the I comparable mean, million Just those we QX is margins adjusted gen the products, AI, broadband on on get I materials, guide, the on the versus we EBITDA. an $XXX And it's basis. then slightly the be have think average but mean, should better in I sort of, products -- on

That's QX.

Oh, I'm million sorry, [ $XX ].

from comes Jefferies. Notter George Our next question from

Just continuing on profitability strength. the

cost what I the had that in in CCS a Could us think just was? adjustment numbers. you you that onetime said the favorable tell monologue

not timing is in $XX and probably of between quarter. and overly This G&A. $X it's cost the million the mean I million some It's G&A significant.

it. Got

sure other sustainable. any that favorable rolled there I'm EBITDA Okay. make here of I sort EBITDA through the I'm trying item maybe And recurring? is strength the just the there guess you're just Were not business. looking -- of that at again, to were performance onetime

don't think should I we remarks the profitability expect if the in as close drive these to maintain think in previous in I we the half, to I levels. second levels. forward, as is think to mean, can QX, way we I we question, mix stays mix better. that of get does said be But profitability maintain think the we Yes, and some percentage considerably prepared move able it I those

that to tell And for other could CCS revenue in could just Got data us business, you center mix on a give much goes you the Great. had, sense then it. or one I of the us general? just content providers how

XX% our goes market. business about that CCS in about business, of our to Yes,

Our Steven Advisors. next question comes from Fox from Fox

CommScope? flows. First cash of be flows. question ongoing imagine business we're some in to those off But can I help divested OWN for for estimates much we all, on at get Is of quarters, a -- how I would and looking cash the the of maybe business be next business. why part for couple to understand cash can soon of cash on flow going you it's expect terms off there the any of DAS going

we're I now year. mean over in guide cash quarters obviously cash we're to definitely there's give but we'll our get talked specific few would you that next between close, number, the we -- and forecast I we get -- the the our going about, cash cash not to the included a for breakeven that and mean, be that

conversion you the further the were conversion sort went cost initiatives of Can $XX versus versus Okay. CCS CCS? million. savings terms just from up looks million. $XXX typical was And up then sort break Profits out any sales detail of are margins mix quarter-over-quarter in what Like for significant. and your it business, like of

had operating CCS on period big increase see sequential operating leverage so the improvement, on don't our get in in mean we I costs we a XX% revenues, change that. the we that clearly, --

there the been mean, about the amount quarters. we're that it's mix in out of business the about I think is and break versus to cost we've now I side but mean, cost we're think of talking component component I a the not considerable of margins, think -- that going a it I a mix out, there's costs in managing it, there's for few a as side, we it. of

CCS one your conversion what's took margins typical to it from you ask that real way, Like current be just going can other business? quickly of level. as I posted we mix is margin Maybe if XX.X% the

be we'd we'd stay mix the would expect levels. think to current business, We close margin of that those at to

comes Simon question [Operator from Instructions] Our next Leopold Raymond James. from

cloud, understand XX that to is simple I about means. On make centers? understand Just that or want I want or what clarification. what sure XX% of hopefully, comment top that XX% make I to hyperscale CCS Just reference, all from data number sure

our be center would It business. data

that's So the you us a Can is what give hyperscale. of hyperscale... sense not

Yes it is.

it is. Oh,

all-inclusive. That

I'm Sorry, today. slow

center includes enterprise cloud? So and the data that

Correct.

what's... Are you able to break out

not No, to we're break going out. that

Our Niknam next Matt question Bank. comes Deutsche from from

I could. Two, if

on digestion. First inventory

help If us sizable there maybe about inventory think more you where are still of just could remaining. buildup

were were and of sounds of OWN on that it like like more that, of there's common it sounds past So ANS. quarter CCS maybe and some still RUCKUS last the but kind nearing

if on talk you you're buildup wondering you that there related terms maybe you can can headwinds And decision-making? of then sort customer just So any bigger help inventory. on impacting through us see the in seeing macro business, where RUCKUS think of note, to a of some somewhat

answer second just take off then of first Chuck Ultimately make just I'll can can question the I it it, again, sure I so properly. part. the have take part I -- and the

surviving Where, do I still that across see where need... segments, you the inventory guess, bigger buildup

the I question got was CCS. on I the it. just

as talked So that we've is built about, buildup. some inventory I have have we the a in place RUCKUS. ANS the think definitely segment We

becomes the a inventory. we pushed that of and in -- as sort we said talked out as And pushes that two sort remarks, as we've places prepared little clearly, to well. out think as as I of recovery our are bit the ANS monetize that RUCKUS the the about ability So inventory have

that in out any probably to we we're seeing, recovery, going just So there. some until that on But of pushed -- make monetize ability we're good the as -- our there's lag XXXX. to businesses just sort sizeable opportunity feel move like still gets think not on I based those it what

terms customer inventory level more [ a higher say give the the And with -- in ANS just ]. would you is ANS I operators. clarification cable to of in little

seeing think the in to doing out second up. the I had half that's that needed, be better they where first. -- some they needing when push that's and then more have that get than they're and to And buy more to because expecting than we're the they caught terms install we're of

On the RUCKUS match terms in we're we to normalized, the side, needed orders in what's actually see actually think the we on track in inventory really the and marketplace. our of right there going channel

terms market, In of good headwinds, what's momentum. on I now, would say, going the customers in believe there's I

our customers get think to and starting X, are One excited vertical our about -- I go-to-market Wi-Fi our approach. RUCKUS product market

So I'm this headwinds we're any macro not seeing orders pick at seeing point. up.

from Our question from Simon James. Leopold next comes Raymond

I wanted of couple had mentioned timing we like the opportunity you of development a know of seems could question a size ANS. this split broader If opportunity a how There opportunity for things within long I an One amplifiers that amplifier as the here. it's help the that a you of the platform? then over specifically revenue to And time, a unified out is around maybe platform. ask unified for a ESD get FDX are is can sense see in term but CommScope? you

Yes.

well close working for I'd there the And leading product. product show X.X unified to to our we're the on customers that of technology providers a but silicon looking are product. say, teams the with So working ESD. We're that allows the something, the use -- develop show customers DOCSIS, having at either the with we, the FDX to we're that together silicon or time to provider of and have

feedback imagine how there. amplifier. FDX it's in whether the can that, And In amplifiers the space, in we'll move many players be they the terms or getting of amplifiers, field. an you ESD amplifier major change good we're player an from have that to And they as very

This I Chuck to session. for our now remarks. like would back turn you. closing concludes to Thank question-and-answer it

Yes. Thank rest you today. Thank your great have time in and week. interest of appreciate I you. your CommScope, for a your

This today's in conference. participation conclude your for the program. you does Thank

now You may disconnect.