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- Third Quarter Highlights
- Sales of $1.13 billion, consistent with guidance
- Operating income of $127 million and adjusted operating income (excluding special items) of $224 million
- Net income of $0.26 per diluted share
- Adjusted net income (excluding special items) of $0.55 per diluted share
CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported sales of $1.13 billion and net income of $51 million, or $0.26 per diluted share, for the quarter ended September 30, 2017. Non-GAAP adjusted net income for the third quarter of 2017 was $107 million, or $0.55 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
In comparison, for the quarter ended September 30, 2016, CommScope reported sales of $1.29 billion and net income of $94 million, $0.48 per diluted share. Non-GAAP adjusted net income for the third quarter of 2016 was $159 million, or $0.81 per diluted share.
“We are pleased to deliver results at the upper end of our expectations despite a challenging industry environment,” said President and Chief Executive Officer Eddie Edwards. “To ensure CommScope is well positioned for success and value creation in the face of market headwinds, we are prudently managing costs while still providing our customers with the same world-class differentiated solutions and service. We will continue to take action to increase operational and financial performance, including adjusting pricing on certain enterprise products.
“As we look ahead to 2018, we expect a return to growth. We are particularly encouraged by our opportunities in North America with wireless and fiber deployments as well as growth within hyperscale data centers.”
Third Quarter 2017 Overview
Third quarter 2017 sales declined year over year in all major geographic regions. Foreign exchange rate changes positively impacted revenue by about 1 percent year over year. Additionally, the year-ago quarter included an extra week of BNS results.
Operating income in the third quarter of 2017 declined 30 percent year over year to $127 million. Non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, declined 25 percent year over year to $224 million. The decreases in operating income and non-GAAP adjusted operating income were primarily driven by lower sales volumes, partially offset by lower incentive compensation expense and the benefit of cost reduction initiatives.
Third Quarter 2017 Segment Overview
Third quarter Connectivity Solutions segment sales declined 13 percent year over year to $709 million. Modest growth in the Europe, Middle East and Africa region was more than offset by lower sales in the U.S., Asia-Pacific and Latin American regions. Lower sales at three large customers drove approximately three-quarters of the revenue decline. These customers include a North American service provider, a Southeast Asian service provider and a hyperscale data center customer. Foreign exchange rate changes positively impacted revenue by about 1 percent from the year-ago period.
Connectivity Solutions operating income declined 32 percent year over year to $71 million, while non-GAAP adjusted operating income decreased 26 percent year over year to $139 million, or 20 percent of segment sales. The decreases in operating income and non-GAAP adjusted operating income were primarily driven by lower sales volumes, partially offset by lower incentive compensation expense and the benefit of cost reduction initiatives.
Third quarter Mobility Solutions segment sales declined 12 percent year over year to $420 million. Year-over-year growth in the Asia-Pacific region was more than offset by declines in all other major geographic regions. The decrease is due primarily to a continuation of softness in spending at a certain North American service provider. Foreign exchange rate changes had a positive impact of 1 percent on Mobility Solutions segment sales compared to the year-ago period.
Mobility Solutions operating income declined 27 percent year over year to $56 million, while non-GAAP adjusted operating income decreased 21 percent year over year to $84 million, or 20 percent of segment sales. Both operating income and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavorable geographic mix, partially offset by lower incentive compensation expense.
Stock Repurchase Program
On August 2, 2017, the Board of Directors authorized the repurchase of up to $100 million of CommScope’s outstanding common stock. During the third quarter of 2017, the company repurchased $75 million of its common stock, or 2.3 million shares, at an average cost of $32.47 per share.
The company voluntarily repaid $25 million of its term loans during the third quarter of 2017 and repaid an additional $100 million of its term loans in October 2017. CommScope has repaid $940 million of its debt since the BNS acquisition in August 2015.
CommScope management provided the following fourth quarter and full year 2017 guidance.
Fourth Quarter 2017 Guidance:
- Revenue of $1.09 billion – $1.14 billion
- Operating income of $105 million – $120 million
- Non-GAAP adjusted operating income of $195 million – $215 million
- Earnings per diluted share of $0.09 – $0.14, based on 195 million weighted average diluted shares
- Non-GAAP adjusted earnings per diluted share of $0.43 – $0.50
- Non-GAAP adjusted effective tax rate of approximately 37 percent
Full Year 2017 Guidance:
- Revenue of $4.53 billion – $4.58 billion
- Operating income of $491 million – $506 million
- Non-GAAP adjusted operating income of $878 million – $898 million
- Earnings per diluted share of $0.80 – $0.85, based on 197 million weighted average diluted shares
- Non-GAAP adjusted earnings per diluted share of $2.10 – $2.17
- Non-GAAP adjusted effective tax rate of approximately 35 percent
- Cash flow from operations > $500 million
A reconciliation of GAAP to non-GAAP outlook is attached.
While full year revenue guidance is within management’s previous guidance range for 2017, margins are expected to be lower than previously anticipated due to unfavorable geographic and product mix and higher material costs. The company has taken action to raise pricing on certain enterprise products and expects to benefit from these actions beginning in the first quarter of 2018.
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 third quarter 2017 results. The conference call will also 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 97613753. 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 website for a limited period of time following the conference call.
CommScope (NASDAQ: COMM) helps design, build and manage wired and wireless networks around the world. As a communications infrastructure leader, we shape the always-on networks of tomorrow. For more than 40 years, our global team of greater than 20,000 employees, innovators and technologists have empowered customers in all regions of the world to anticipate what’s next and push the boundaries of what’s possible. Discover more at http://www.commscope.com/.
Non-GAAP Financial Measures
CommScope management believes that presenting certain non-GAAP financial measures enhances an investor’s understanding of our financial performance. CommScope management further believes that these financial measures are useful in assessing CommScope’s operating performance from period to period by excluding certain items that we believe are not representative of our core business. CommScope management also uses certain of these financial measures for business planning purposes and in measuring CommScope’s performance relative to that of its competitors. CommScope management believes these financial measures are commonly used by investors to evaluate CommScope’s performance and that of its competitors. However, CommScope’s use of the terms non-GAAP adjusted operating income, non-GAAP adjusted EBITDA, non-GAAP adjusted net income and non-GAAP adjusted earnings per share may vary from that of others in its industry. These financial measures should not be considered as alternatives to operating income (loss), net income (loss) or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance, operating cash flows or liquidity.
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 in 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 or 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 and similar 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