- First Quarter 2017 Highlights
o Sales were $1.14 billion, essentially unchanged year over year
o GAAP operating income rose 34 percent to $121 million
o Adjusted operating income (excluding special items) increased 3 percent year over year to $217 million
o Earnings improved significantly to $0.17 per diluted share
o Adjusted earnings per diluted share increased 8 percent year over year to $0.52 per diluted share
o Cash flow from operations of $103 million
CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported sales of $1.14 billion and net income of $34 million, or $0.17 per diluted share, for the quarter ended March 31, 2017. Non-GAAP adjusted net income for the first quarter 2017 was $103 million, or $0.52 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
In comparison, for the quarter ended March 31, 2016, CommScope reported sales of $1.14 billion and net income of $13 million, $0.06 per share. Non-GAAP adjusted net income for the first quarter of 2016 was $94 million, or $0.48 per diluted share.
“Once again we delivered strong quarterly performance that met expectations, despite some integration challenges that we are actively addressing. We are pleased with the results of our U.S. wireless and fiber-to-the-X businesses, as well as a return to growth in Europe and the Middle East,” said President and Chief Executive Officer Eddie Edwards. “These bright spots were dampened by the underperformance of our Indoor Network Solutions business.
“We continue to provide our customers with world-class solutions, empowering them to build the high-quality networks of the future that enable the connected lifestyle. We are confident in the strength of our team and portfolio.”
First Quarter 2017 Overview
First quarter 2017 sales were essentially unchanged year over year at $1.14 billion. Strength in the U.S. and the Europe, Middle East and Africa (EMEA) region – particularly in the wireless and FTTX markets – was offset by weakness in other geographies. Foreign exchange rate changes negatively affected revenue by approximately 1 percent year over year.
GAAP operating income in the first quarter of 2017 rose 34 percent year over year to $121 million. Non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, increased 3 percent year over year to $217 million. The increases to both GAAP and non-GAAP operating income were driven by benefits from cost reduction initiatives and favorable geographic mix. In addition, GAAP operating income increased due to the absence of goodwill impairment charges and lower intangible amortization.
GAAP net income for the first quarter 2017 rose substantially year over year to $34 million, or $0.17 per diluted share. Excluding special items, first quarter adjusted net income increased 9 percent year over year to $103 million. Adjusted earnings were $0.52 per diluted share, up 8 percent year over year.
First quarter Connectivity Solutions segment sales declined by approximately 1 percent to $682 million. Growth in North American and EMEA FTTX solutions was offset by a decline in our Indoor Network Solutions business. Foreign exchange rate changes negatively affected revenue by approximately 1 percent from the year-ago period. Connectivity Solutions GAAP operating income declined 4 percent to $48 million in the quarter. Adjusted operating income decreased 14 percent year over year to $115 million. Results were impacted by manufacturing inefficiencies related to ramping capacity in several North American facilities and the impact of lower pricing. These decreases were partially offset by cost reduction initiatives.
First quarter Mobility Solutions segment sales of $456 million were essentially stable year over year. Strong, double-digit percentage growth in the U.S., driven by higher spending by certain North American wireless operators, coupled with mid-single digit percentage growth in EMEA, was tempered by declines in the Asia Pacific region. Foreign exchange rate changes had a negative impact of approximately 1 percent on Mobility Solutions segment sales compared to the year-ago period. Mobility Solutions GAAP operating income rose 81 percent to $74 million. Adjusted operating income for the Mobility segment increased 33 percent to $102 million, or 22 percent of segment sales. The more than 550 basis point increase in operating income margin compared to the prior year was driven by favorable geographic mix, which was partially offset by lower pricing.
Stock Repurchase Program
On February 23, 2017, the Board of Directors authorized the repurchase of up to $100 million of CommScope’s outstanding common stock. During the first quarter of 2017, the company repurchased $65 million of its common stock, or 1.6 million shares, at an average cost of $39.81 per share. During April, CommScope completed its stock repurchase program. Total company stock repurchased under the program was 2.5 million shares at an average cost of $40.23 per share. The intent of the repurchase was to reduce dilution from the CommScope equity-based award programs.
In March, CommScope issued $750 million of 5 percent senior unsecured notes due March 2027. The company used the proceeds of the issuance of the notes, together with cash on hand, to (i) redeem all $500 million of the 4.375 percent senior secured notes due 2020, (ii) repay a portion of the outstanding borrowings under its senior secured term loans, including all $112 million of outstanding principal on the senior secured term loan due 2018 and $138 million of outstanding principal on the senior secured term loan due 2022 and (iii) pay related fees and expenses. The refinancing extended the average tenor of CommScope’s debt and increased the amount of fixed-rate, unsecured debt.
CommScope management expects more cautious spending patterns at certain North American operators, continuing softness in the Indoor Network Solutions business and integration challenges to impact our near-term performance. CommScope expects improved operator spending in the second half of 2017.
These factors are reflected in the following second quarter and full year 2017 guidance provided by CommScope management.
Second Quarter 2017 Guidance:
- Revenue of $1.2 billion – $1.25 billion
- Operating income of $145 million – $160 million
- Adjusted operating income of $245 million – $265 million
- Earnings per diluted share of $0.28 – $0.32, based on 197 million weighted average diluted shares
- Adjusted earnings per diluted share of $0.62 – $0.67
- Adjusted effective tax rate of approximately 35 percent
Full Year 2017 Guidance:
- Revenue of $4.85 billion – $4.95 billion
- Operating income of $670 million – $700 million
- Adjusted operating income of $1.05 billion – $1.09 billion
- Earnings per diluted share of $1.41 – $1.48, based on 198 million weighted average diluted shares
- Adjusted earnings per diluted share of $2.70 – $2.80
- Adjusted effective tax rate of approximately 35 percent
- Cash flow from operations > $600 million
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 2017 results. The conference call also will be webcast.
To participate in the conference call, dial 844-397-6169 (US and Canada only) or +1 478-219-0508. The conference identification number is 6055459. 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 websitefor a limited period of time following the conference call.
CommScope (NASDAQ: COMM) helps companies around the world design, build and manage their wired and wireless networks. Our vast portfolio of network infrastructure includes some of the world’s most robust and innovative wireless and fiber optic solutions. Our talented and experienced global team is driven to help customers increase bandwidth; maximize existing capacity; improve network performance and availability; increase energy efficiency; and simplify technology migration. You will find our solutions in the largest buildings, venues and outdoor spaces; in data centers and buildings of all shapes, sizes and complexity; at wireless cell sites; in telecom central offices and cable headends; in FTTX deployments; and in airports, trains, and tunnels. Vital networks around the world run on CommScope solutions.
Non-GAAP Financial Measures
CommScope management believes that presenting certain non-GAAP financial measures provides meaningful information to investors in understanding operating results and may enhance investors' ability to analyze financial and business trends. Non-GAAP measures are not a substitute for GAAP measures and should be considered together with the GAAP financial measures. As calculated, our non-GAAP measures may not be comparable to other similarly titled measures of other companies. In addition, CommScope management believes that these non-GAAP financial measures allow investors to compare period to period more easily by excluding items that could have a disproportionately negative or positive impact on results in any particular period.
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 forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “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, our ability to integrate the BNS business on a timely and cost-effective manner; our reliance on TE Connectivity for transition services for the BNS business; our ability to realize expected growth opportunities and cost savings from the BNS business; 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 systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches 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 and that of contract manufacturers may be insufficient to meet customer demand or quality standards for our products; 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 material and components; the risk that contract manufacturers we rely on encounter production, quality, financial or other difficulties; our ability to fully realize anticipated benefits from prior or future acquisitions or equity investments; potential difficulties in realigning global manufacturing capacity and capabilities among our global manufacturing facilities, including delays or challenges related to removing, transporting or reinstalling equipment, 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 recover value-added tax receivables; our ability to attract and retain qualified key employees; labor unrest; obligations under our defined benefit employee benefit plans may require 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; changes in the laws and policies in the United States affecting trade; cost of protecting or defending intellectual property; costs and challenges of compliance with domestic and foreign environmental laws; and other factors beyond our control. These and other factors are discussed in greater detail in our 2016 Annual Report on Form 10-K. Although the information contained in this press release represents our best judgment as of the date of this report 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.
Jennifer Crawford, CommScope
News Media Contact:
Rick Aspan, CommScope