- Second Quarter Highlights
Sales of $1.31 billion, up 51 percent year over year
Record gross margin of 42 percent
GAAP operating income of $184 million, up 68 percent year over year – driven by BNS acquisition
Adjusted operating income (excludes special items) of $291 million, or 22 percent of sales
Net income of $0.32 per diluted share, up 33 percent year over year
Adjusted net income of $0.74 per diluted share, up 51 percent year over year
Cash flow from operations of $151 million
CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported sales of $1.31 billion and net income of $62 million, or $0.32 per diluted share, for the quarter ended June 30, 2016. Sales rose 51 percent year over year driven by incremental
sales attributable to the BNS acquisition. Non-GAAP adjusted net income for the second quarter 2016 rose to $145 million, or $0.74 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
For the quarter ended June 30, 2015, CommScope reported sales of $867 million and net income of $46 million, or $0.24 per diluted share. Non-GAAP adjusted net income for the second quarter of 2015 was $95 million, or $0.49 per diluted share.
“We delivered strong sequential performance in both of our segments, with bottom line results that exceeded our expectations,” said President and Chief Executive Officer Eddie Edwards. “We are proud of our record gross margins, strong operating margins and robust cash flow that enables us to
announce the voluntary redemption of our remaining PIK Notes. This will bring our total 2016 debt reduction to over $500 million.
“We are pleased with the current progress of our BNS integration efforts and are increasing our BNS cost synergy target by $25 million. We now expect to achieve at least $100 million in synergies in calendar year 2016 and at least $200 million in annual synergies by calendar
year 2018. We continue to focus on accelerating and identifying new synergies while effectively and efficiently integrating the BNS business.”
Second Quarter 2016
Second quarter 2016 sales grew 51 percent year over year to $1.31 billion, which was consistent with guidance. On a pro forma basis for the BNS acquisition, revenue declined 2 percent year over year driven primarily by slow spending in markets outside of North America. Foreign exchange rate
changes negatively affected revenue by 1 percent year over year.
GAAP operating income in the second quarter 2016 was $184 million, an increase of 68 percent year over year. Adjusted operating income in the quarter, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, increased
65 percent year over year to $291 million. This increase was due primarily to the BNS acquisition, favorable product and geographic mix and benefits from cost reduction initiatives.
GAAP net income for the second quarter of 2016 increased 36 percent year over year to $62 million. Excluding amortization of purchased intangibles and other special items, second quarter adjusted net income increased 53 percent year over year to $145 million. Adjusted earnings were $0.74 per
diluted share, up 51 percent year over year.
Second Quarter 2016
Second quarter Connectivity Solutions segment sales increased 121 percent to $778 million, driven by incremental revenue from the BNS acquisition. On a pro forma basis for the BNS acquisition, Connectivity Solutions segment sales were essentially flat year over year. Foreign exchange rate changes negatively
affected revenue by approximately 1 percent from the year-ago period. In the quarter, Connectivity Solutions adjusted operating income increased 134 percent year over year to $169 million, or 22 percent of its sales. The nearly 110 basis point year-over-year increase in adjusted operating income margin was due
primarily to favorable product and geographic mix and benefits from cost reduction initiatives.
Mobility Solutions segment sales of $529 million increased 3 percent year over year due to incremental sales from the BNS acquisition. On a pro forma basis for the BNS acquisition, Mobility Solutions segment sales decreased 5 percent year over year. Higher
spending by certain North American wireless operators was more than offset by a decline in other major geographic regions and product rationalization. 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
adjusted operating income was $122 million, or 23 percent of its sales. The 18 percent increase in adjusted operating income compared to the prior year was driven by favorable product and geographic mix and benefits from cost reduction initiatives.
Planned PIK Notes
Today, CommScope notified holders of the 6.625%/7.375% Senior PIK Toggle Notes due 2020 that it will redeem the remaining principal amount of $236.6 million on August 29, 2016. The Notes will be redeemed at a redemption price of 103.313% of the principal plus unpaid interest.
BNS Cost Synergy Update
CommScope has increased its BNS cost synergy target by $25 million. The company now expects to achieve at least $100 million in synergies in calendar year 2016 and at least $200 million in annual synergies by calendar year 2018. CommScope continues to make progress on its cost synergy plan and is exceeding original
plan estimates in most functional areas.
“This increase in synergy targets is a testament to the hard work and determination of our team and to how well they are executing the BNS integration plan,” commented Edwards.
CommScope management provided the following third quarter and full year 2016 guidance.
Third Quarter 2016 Guidance:
- Revenue of $1.26 billion – $1.31 billion
Operating income of $166 million – $183 million
Adjusted operating income of $265 million – $285 million
Earnings per diluted share of $0.37 – $0.39, based on 196 million weighted average diluted shares
Adjusted earnings per diluted share of $0.69 – $0.74, up 35 percent year over year at the midpoint
Adjusted effective tax rate of 34 percent – 35 percent
Full Year 2016 Guidance:
Revenue of $4.85 billion – $4.95 billion
Operating income of $562 million – $597 million
Adjusted operating income of $990 million – $1,035 million
Earnings per diluted share of $0.91 – $0.96, based on 196 million weighted average diluted shares
Adjusted earnings per diluted share of $2.42 – $2.52, up 33 percent year over year at the midpoint
Adjusted effective tax rate of 34 percent – 35 percent
Cash flow from operations of more than $550 million
A reconciliation of GAAP to non-GAAP outlook is attached.
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 second quarter 2016 results. The conference call also will be webcast.
To participate in the conference call, dial 866-394-7514 (US and Canada only) or +1 706-758-2714. The conference identification number is 47476485. 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.
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 47476485 and will be available through August 28, 2016. A webcast replay will also be archived on
CommScope’s websitefor a limited period of time following the conference call.
Quarter 2016 Earnings Call Scheduled
CommScope plans to release its third quarter 2016 financial results on Thursday, November 3, 2016.
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 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 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 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; product performance issues and associated warranty claims; 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; 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; 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 value-added tax receivables; our ability to attract and retain qualified key employees; labor unrest; significant international operations expose 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; 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 2015 Annual Report on Form 10-K. Although the information
contained in this Quarterly Report on Form 10-Q 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.