- Sales of $867 million, up 5% sequentially
- Operating income of $109 million and adjusted operating income of $176 million,
or 20 percent of sales
- Net income of $0.24 per diluted share
- Adjusted net income, excluding special items, of $0.49 per diluted share
CommScope Holding Company, Inc. (NASDAQ: COMM), a global provider of connectivity and essential infrastructure solutions for wireless, business enterprise and residential broadband networks, reported sales of $867 million and net income of $46 million, or $0.24 per diluted share, for the quarter ended June 30, 2015. Non-GAAP adjusted net income for the second quarter of 2015 was $95 million, or $0.49 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
For the quarter ended June 30, 2014, CommScope reported sales of $1.1 billion and net income of $28 million or $0.15 per diluted share. Non-GAAP adjusted net income for the second quarter of 2014 was $139 million, or $0.73 per diluted share.
“We delivered stronger sequential performance in all of our businesses, which was consistent with our outlook,” said President and Chief Executive Officer Eddie Edwards. “We executed despite slow spending by certain North American wireless operators and foreign exchange rate headwinds.
“Meanwhile, we continue to make progress toward our planned acquisition of TE Connectivity’s Telecom, Enterprise and Wireless businesses. During the quarter, we established a foundational capital structure, cleared more regulatory hurdles and completed additional integration planning. Both companies are working hard to close the acquisition, which we expect to complete within the next few months. The acquisition positions us to solve more customer challenges, deliver more innovative solutions and increase our global scale. We will become a leader in fiber-optic connectivity for wired and wireless networks.”
On January 28, 2015, CommScope announced an agreement to acquire TE Connectivity’s Telecom, Enterprise and Wireless businesses (Broadband Network Solutions or the BNS business). The BNS business is a global leader in fiber-optic connectivity for wireline and wireless networks, and the transaction is expected to be in excess of 20 percent accretive to CommScope’s adjusted earnings per share by the end of the first full year after closing, excluding purchase accounting charges, integration costs and other special items.
Second Quarter 2015 Overview
Second quarter 2015 sales were $867 million, up 5 percent sequentially but down 19 percent year over year from the atypically robust second quarter of 2014. Growth in the Broadband and Enterprise segments was offset by lower Wireless sales. Foreign exchange rate changes negatively impacted sales by 3 percent in the quarter compared to the prior year period.
Operating income in the second quarter increased 18 percent sequentially but declined 46 percent year over year to $109 million. Adjusted operating income in the second quarter, which excludes amortization of purchased intangibles, costs associated with the BNS acquisition, restructuring costs and other special items, was $176 million, up 12 percent sequentially but down 32 percent year over year.
GAAP net income increased 63 percent year over year to $46 million. Excluding amortization of purchased intangibles, restructuring costs and other special items, second quarter adjusted net income increased 16 percent sequentially but decreased 32 percent year over year to $95 million. Adjusted earnings were $0.49 per diluted share, up 17 percent sequentially but down 33 percent year over year.
Second Quarter 2015 Segment Overview
Wireless segment sales in the second quarter rose modestly sequentially to $515 million, but declined 29 percent year over year from the unusually strong second quarter of 2014. The year-over-year decrease was primarily due to a slowdown in spending by certain North American wireless operators, which was partially offset by growth in the Central and Latin America region. Additionally, foreign exchange rate changes had a negative impact of approximately 5 percent on Wireless segment sales in the second quarter compared to the prior year period. The company’s acquisition of two businesses of United Kingdom-based Alifabs Group, completed in July 2014, provided incremental net sales to the Wireless segment of $9 million during the second quarter of 2015. Wireless adjusted operating income was $103 million, or 20 percent of sales, for the quarter. The decrease from prior year was primarily due to lower sales.
Second quarter Enterprise segment sales increased 5 percent sequentially and 2 percent year over year to $222 million. Sales increased year over year primarily driven by strong sales of data center fiber solutions and growth in the Asia Pacific and Europe, Middle East and Africa regions, partially offset by declines in North America. Foreign exchange rates had a negative impact of approximately 1 percent on Enterprise segment sales in the second quarter of 2015 compared to the prior year period. Enterprise adjusted operating income for the quarter increased 27 percent year over year to $55 million, or 25 percent of sales, primarily due to higher fiber sales to data centers.
Second quarter Broadband segment sales increased 11 percent sequentially and 6 percent year over year to $131 million. Sales increased year over year primarily due to increased investment in North America as cable operators continue to expand fiber technology further into their networks and invest to enhance the quality of video and broadband offerings, partially offset by lower sales in the Central and Latin America region. Foreign exchange rates had a negative impact of approximately 1 percent on Broadband segment sales in the second quarter of 2015 compared to the prior year period. Broadband adjusted operating income improved to $17 million, or 13 percent of sales. The increase was primarily due to higher sales, lower material costs, a favorable mix of products sold and the benefit of cost reduction initiatives.
Update on Proposed TE Connectivity Transaction
During the second quarter, CommScope raised an incremental $2.75 billion to finance, with cash on hand, its proposed acquisition of TE Connectivity’s BNS business. The incremental debt is made up of a $1.25 billion 7.5-year term loan and $1.5 billion of 10-year senior unsecured notes. In addition, the company refinanced a portion of its existing term loans with new $500 million 5-year senior secured notes.
CommScope has been informed that the European Commission has granted unconditional clearance to the proposed acquisition of TE Connectivity’s BNS business. The Anti-monopoly Bureau of the Ministry of Commerce of the People’s Republic of China has also unconditionally approved the proposed acquisition of the BNS business. While the company is still in the midst of the anti-trust regulatory process in several other jurisdictions around the world, it currently expects that the BNS acquisition will close in the next few months, subject to regulatory approvals and other customary closing conditions.
CommScope management provided the following third quarter guidance, which excludes the impact of the planned acquisition, amortization of purchased intangibles, restructuring costs, transaction and integration costs and other special items.
Third Quarter 2015 Guidance:
- Revenue of $850 million – $900 million
- Adjusted operating income of $160 million – $180 million
- Adjusted earnings per diluted share of $0.45 – $0.50
On a standalone basis, CommScope management expects full year 2015 earnings of $1.80 to $1.90 per diluted share, assuming stable business conditions. Additionally, the company intends to provide combined company guidance for the fourth quarter of 2015 following the close of the acquisition, which is expected within the next few months.
Conference Call, Webcast and Investor Presentation
As previously announced, CommScope will host a conference call at 8:30 a.m. ET today in which management will discuss second quarter 2015 results. The conference call also will be webcast over the Internet.
To participate in the conference call, dial 866-394-7514 (US and Canada only) or +1 706-758-2714. The conference identification number is 81174529. 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 the Investor Relations Events and Presentations page of CommScope’s website at www.commscope.com.
If you are unable to participate and would like to hear a replay, dial 855-859-2056 (US and Canada only) or +1 404-537-3406. The replay identification number is 81174529 and will be available through August 28, 2015. A webcast replay will also be archived on CommScope’s website for 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 network infrastructure solutions 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 and in cable headends; 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 which 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,” “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 dependence on customers’ capital spending on communication systems; concentration of sales among a limited number of customers or distributors; changes in technology; our ability to fully realize anticipated benefits from prior or future acquisitions or equity investments; industry competition and the ability to retain customers through product innovation, introduction and marketing; risks associated with our sales through channel partners; possible production disruptions due to supplier or contract manufacturer bankruptcy, reorganization or restructuring; 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; our ability to maintain effective information management systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches or computer viruses; product performance issues and associated warranty claims; significant international operations and 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; 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; possible future impairment charges for fixed or intangible assets, including goodwill; increased obligations under employee benefit plans; cost of protecting or defending intellectual property; changes in laws or regulations affecting us or the industries we serve; costs and challenges of compliance with domestic and foreign environmental laws and the effects of climate change; 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; our ability to attract and retain qualified key employees; allegations of health risks from wireless equipment; availability and adequacy of insurance; natural or man-made disasters or other disruptions; income tax rate variability and ability to recover amounts recorded as value-added tax receivables; labor unrest; risks of not realizing benefits from research and development projects; substantial indebtedness and maintaining compliance with debt covenants; our ability to incur additional indebtedness; ability of our lenders to fund borrowings under their credit commitments; changes in capital availability or costs, such as changes in interest rates, security ratings and market perceptions of the businesses in which we operate, or the ability to obtain capital on commercially reasonable terms or at all; our ability to generate cash to service our indebtedness; our ability to consummate the proposed acquisition of the BNS business on a timely basis or at all; risks associated with antitrust approval of the acquisition of the BNS business; our ability to integrate the BNS business on a timely and cost effective manner; our reliance on TE Connectivity for transition services for some period of time after closing of the acquisition of the BNS business; our ability to realize expected growth opportunities and cost savings from the acquisition of the BNS business; and other factors beyond our control. These and other factors are discussed in greater detail in our 2014 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 press release, except as otherwise may be required by law.