- Sales grew 13 percent year over year, or $125 million, to $1.1 billion
- Gross margin rose more than 300 basis points year over year to a record 39 percent
- Adjusted operating income rose 40 percent to $259 million, or 24 percent of sales
- Adjusted net income grew 51 percent to $139 million, resulting in adjusted earnings of $0.73 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 $1.1 billion and net income of $28 million, or $0.15 per diluted share for the quarter ended June 30, 2014. Non-GAAP adjusted net income was $139 million or $0.73 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
For the quarter ended June 30, 2013, CommScope reported sales of $941 million and net income of $1 million, or $0.01 per diluted share. Non-GAAP adjusted net income was $93 million or $0.58 per diluted share.
“We are pleased to deliver an outstanding second quarter,” said President and Chief Executive Officer Eddie Edwards. “Our Wireless team had another strong quarter, trends in Enterprise remain positive and our Broadband team delivered significant sequential operating improvement.
“We continue to benefit from global wireless operator investment in LTE and 3G network modernization. High quality broadband connectivity over licensed spectrum has become a competitive differentiator for wireless operators. Our industry leading cell site and small cell DAS solutions address the need for additional network coverage and densification. We believe our leading technology, global scale and service model position CommScope to benefit from continued operator investment in network quality.”
Second Quarter Overview
Second quarter 2014 sales rose $125 million, or 13 percent, year over year to $1.1 billion. Operating income in the second quarter grew 116 percent to $204 million, compared to $94 million in the year-ago quarter. Adjusted operating income, which excludes amortization of purchased intangibles, restructuring costs and other special items, rose 40 percent to $259 million, an increase of $74 million compared to the prior year period.
GAAP net income rose substantially to $28 million, compared to net income of $1 million in the year-ago period. Excluding amortization of purchased intangibles, restructuring costs and other special items, second quarter adjusted net income increased $47 million, or 51 percent, year over year to $139 million.
In May 2014, CommScope issued $650 million of 5.0% senior notes due June 2021 and $650 million of 5.5% notes due June 2024. Proceeds from the new notes were used to redeem the entire amount of the $1.1 billion 8.25% notes outstanding plus pay a redemption premium of $94 million, which was included in other expense in the second quarter of 2014. As a result of these transactions, the company will reduce annualized interest expense by approximately $23 million.
Second Quarter Segment Overview
Wireless segment sales increased 23 percent year over year to $725 million. The increase was primarily driven by significant growth in most major regions with particular strength in the U.S. Operators are investing in CommScope’s industry leading cell site and small cell DAS solutions to extend the coverage, increase the capacity and improve the quality of wireless networks. In the quarter, Wireless adjusted operating income rose 64 percent year over year to $207 million, or 29 percent of sales.
Enterprise segment sales of $218 million were essentially unchanged year over year as growth in the U.S. was offset by modest declines outside the U.S. and the slightly negative impact of foreign exchange rate changes. Enterprise adjusted operating income declined 6 percent year over year to $43 million, or 20 percent of sales, primarily due to increased investment in growth initiatives. While sales were essentially unchanged year over year, the Enterprise market continues to show signs of modest improvement as large enterprises invest in data centers and local area networks.
Broadband segment sales declined 6 percent year over year to $123 million. Adjusted operating income declined 30 percent year over year to $8 million, or 6 percent of sales. The profit decline is due primarily to lower sales volume and prices. However, Broadband operating performance improved meaningfully sequentially, benefitting from cost reduction activities initiated in 2013. Continued adjusted operating income improvement is expected in 2014 as in-process cost reduction activities are realized.
In July 2014, CommScope acquired two of the businesses of Alifabs Group, a leading provider of metro cell and small cell services and enclosures in the United Kingdom. Alifabs designs and supplies enclosures for the telecommunications, utility and energy markets. Alifabs also supplies a full range of monopoles, smaller streetworks towers and tower solutions to wireless operators.
CommScope management provided the following third quarter and full year 2014 guidance, which excludes the amortization of purchased intangibles, restructuring costs and other special items:
Third Quarter 2014 Guidance:
- Revenue of $970 million - $1.02 billion
- Adjusted operating income of $190 million - $210 million
- Adjusted earnings per diluted share of $0.53 to $0.58, reflecting 192 million weighted average diluted shares
Full Year 2014 Guidance:
- Revenue of approximately $3.9 billion
- Adjusted effective tax rate of 35% - 37%
- Adjusted earnings per diluted share of $2.20 to $2.30, reflecting 192 million weighted average diluted shares
- Strong free cash flow
Conference Call, Webcast and Investor Presentation
As previously announced, the company will host a conference call at 8:30 a.m. ET today in which management will discuss second quarter results, outlook and trends. Internet users can access the company’s presentation materials and live, “listen only” webcast at http://ir.commscope.com.
To participate in the conference call, dial 866-394-7514 (US and Canada only) or +1 706-758-2714. The conference identification number is 72797556. Please plan to dial in 15 minutes before the start of the call to facilitate a timely connection.
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 72797556 and will be available through August 31, 2014. A webcast replay will also be archived on CommScope’s website for a limited period of time following the conference call.
CommScope (NASDAQ: COMM, www.commscope.com) has played a role in virtually all the world’s best communication networks. We create the infrastructure that connects people and technologies through every evolution. Our portfolio of end-to-end solutions includes critical infrastructure our customers need to build high-performing wired and wireless networks. As much as technology changes, our goal remains the same: to help our customers create, innovate, design, and build faster and better. We’ll never stop connecting and evolving networks for the business of life at home, at work, and on the go.
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. GAAP to non-GAAP reconciliations are included in this press release.
Forward Looking Statements
This Press Release and 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 identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “anticipate,” “should,” “designed to,” “foreseeable future,” “believe,” “think,” “scheduled,” “outlook,” “guidance” and similar expressions. 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; customer orders, including those for which we have ordered or purchased inputs, may be cancelled; 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; risks associated with currency fluctuations and currency exchange; the divestiture of one or more product lines; political and economic instability, both in the U.S. and internationally; 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 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 associated with future research and development projects; increased costs as a result of operating as a public company; our ability to comply with new regulations related to conflict minerals; risks associated with the seasonality of our business; substantial indebtedness and maintaining compliance with debt covenants; our ability to incur additional indebtedness; cash requirements to service 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; continued global economic weakness and uncertainties and disruption in the capital, credit and commodities markets; any statements of belief and any statements of assumptions underlying any of the foregoing; and other factors beyond our control. These and other factors are discussed in greater detail in our 2013 Annual Report on Form 10-K. Although the information contained in this press release represents our best judgment at the date of this release 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. However, we are not undertaking any duty or obligation to update this information to reflect developments or information obtained after the date of this report.