CommScope Reports Fourth Quarter and Full Year 2018 Results

  • Fourth Quarter 2018 Performance

    • Sales of $1.06 billion
    • GAAP operating income of $49 million
    • Non-GAAP adjusted operating income (excluding special items) of
      $179 million
    • GAAP net loss of $(0.12) per share
    • Non-GAAP adjusted EPS (excluding special items) increased 9% year
      over year to $0.51 per diluted share
  • Full Year 2018 Performance

    • Sales of $4.57 billion
    • GAAP operating income of $450 million
    • Non-GAAP adjusted operating income (excluding special items) of
      $838 million
    • GAAP net income of $0.72 per diluted share
    • Non-GAAP adjusted EPS (excluding special items) increased 6% to
      $2.27 per diluted share

HICKORY, N.C.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/CommScope?src=hash” target=”_blank”gt;#CommScopelt;/agt;–CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in
infrastructure solutions for communications networks, reported sales of
$1.06 billion and a net loss of $(23) million, or $(0.12) per share, for
the quarter ended December 31, 2018.

Non-GAAP adjusted net income for the fourth quarter of 2018 was
$100 million, or $0.51 per diluted share. In the quarter, the company
benefited from the positive impact of a lower than expected adjusted
effective tax rate. The favorable tax rate in the quarter was primarily
due to the lower U.S. federal tax rate, the favorable jurisdictional mix
of pretax earnings and the positive impact of new IRS regulations that
were released in the fourth quarter of 2018. A reconciliation of
reported GAAP results to non-GAAP results is attached.

In comparison, for the quarter ended December 31, 2017, CommScope
reported sales of $1.12 billion and net income of $54 million, or $0.27
per diluted share. Non-GAAP adjusted net income for the fourth quarter
of 2017 was $91 million, or $0.47 per diluted share.

“We are pleased to deliver fourth-quarter results at the high end of our
expectations. Our positive results reflected stronger than anticipated
sales volumes and favorable product and geographic mix, as well as our
ongoing cost reduction initiatives,” said President and Chief Executive
Officer Eddie Edwards.

“While we continue to expect near-term challenges, we remain focused on
closing the acquisition of ARRIS and are excited about the value
creation potential of this highly strategic combination. Our strong
market positioning, excellent customer relationships and differentiated
solutions and services will be immediately strengthened with the ARRIS
acquisition. We are also confident that it will further enable CommScope
to capitalize on industry trends including network convergence, fiber
and mobility everywhere, 5G and Internet of Things. We expect the
combined company to drive profitable growth in new markets and shape the
future of wired and wireless communications while delivering enhanced
value to shareholders for years to come.”

Fourth Quarter 2018 Overview

Fourth quarter 2018 sales decreased 6% year over year. Excluding the
impact of unfavorable foreign exchange rate changes, sales declined 4%.
Modest growth in the U.S. was more than offset by declines in
international regions, most notably in the Asia-Pacific (APAC) region
and to a lesser extent the Europe, Middle East and Africa (EMEA) region.

GAAP operating income in the fourth quarter of 2018 was $49 million.
Operating income in both segments was affected by the previously
disclosed impact of the termination of a significant U.S. defined
benefit plan, a foreign exchange loss due to the liquidation of a
foreign subsidiary and the impairment of an equity investment in a
privately-held company.

Non-GAAP adjusted operating income, which excludes amortization of
purchased intangibles, integration and transaction costs, restructuring
costs and other special items, declined 9% year over year to
$179 million. The decreases in operating income and non-GAAP adjusted
operating income were primarily driven by lower sales volumes and
selling prices, partially offset by favorable product and geographic
sales mix.

Fourth quarter Connectivity Solutions segment sales decreased 4% year
over year to $667 million. Excluding the impact of unfavorable foreign
exchange rate changes, sales declined 2%. Stable results in the U.S.
were more than offset by declines in the APAC and EMEA regions.

Connectivity Solutions GAAP operating income was $38 million. Non-GAAP
adjusted operating income decreased 2% year over year to $123 million.
Both GAAP and non-GAAP adjusted operating income declined year over year
primarily due to lower selling prices and the impact of foreign exchange
rate changes partially offset by a favorable product and geographic
sales mix.

Fourth quarter Mobility Solutions segment sales decreased 8% year over
year to $391 million. Excluding the impact of unfavorable foreign
exchange rate changes, sales declined 6%. Year-over-year growth in the
U.S. was more than offset by declines in the APAC and EMEA regions.

Mobility Solutions GAAP operating income was $11 million. Non-GAAP
adjusted operating income decreased 23% year over year to $56 million.
Both GAAP and non-GAAP adjusted operating income were primarily impacted
by lower sales volumes and selling prices, partially offset by favorable
product and geographic sales mix.

Calendar Year 2018 Overview

For 2018, sales were essentially flat at $4.57 billion. Growth in the
U.S. and EMEA regions was offset by declines in the APAC and Latin
America regions.

GAAP operating income was $450 million and non-GAAP adjusted operating
income declined 4% to $838 million versus prior year results. The
decline was primarily due to lower selling prices, the unfavorable
impact from foreign exchange rate changes and higher material costs.
These declines were partially offset by favorable product and geographic
sales mix, higher sales volumes and cost reduction initiatives.

Connectivity Solutions segment sales were essentially flat at
$2.81 billion. Sales increases in the U.S. and EMEA regions were offset
by a decline in the APAC region.

Connectivity Solutions GAAP operating income was $272 million. Non-GAAP
adjusted operating income for the segment was stable at $522 million, or
19% of sales. Both GAAP and non-GAAP adjusted operating income were
impacted by lower selling prices, higher material costs and the
unfavorable impact from foreign exchange rate changes. These unfavorable
impacts were partially offset by cost reduction initiatives and higher
sales volumes.

Mobility Solutions segment sales were essentially stable at
$1.76 billion. Growth in the U.S. and the EMEA regions was offset by a
decline in the APAC region.

Mobility Solutions GAAP operating income was $178 million. Non-GAAP
adjusted operating income for the segment decreased by 11% to
$316 million, or 18% of sales. The decline was largely due to lower
selling prices and the impact of unfavorable foreign exchange rate
changes. The decrease was partially offset by favorable product and
geographic sales mix and higher sales volumes.

Update on Proposed ARRIS Acquisition

In the first quarter of 2019, CommScope raised an incremental $7.0
billion to fund its proposed acquisition of ARRIS. The incremental debt
is comprised of:

  • A $3.2 billion 7-year senior secured term loan with an interest rate
    of LIBOR plus 3.25%;
  • $1.25 billion of 5-year senior secured notes at 5.5%;
  • $1.5 billion of 7-year senior secured notes at 6.0%; and
  • $1.0 billion of 8-year senior unsecured notes at 8.25%.

The debt financing, in addition to the $1.0 billion convertible
preferred equity investment by The Carlyle Group, a global alternative
asset manager, and cash on hand, will provide the funding necessary to
close the ARRIS acquisition.

The company continues to make strong progress toward completing the
transaction, including the expiration of the waiting period in the U.S.
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
approval of the proposed transaction by ARRIS shareholders at a special
general meeting of shareholders.

The transaction remains on track to close in the first half of 2019 and
is expected to enhance shareholder value and customer benefits. We
believe the combined company will:

  • Be positioned to Capitalize on Positive Industry Trends: The
    combined company will be well positioned to benefit from key industry
    trends by combining best-in-class capabilities in network access
    technology and infrastructure and creating end-to-end and
    comprehensive solutions.
  • Unlock Significant, High Growth Segments and Increases Product
    Addressable Market:
    The company expects to more than double its
    total product addressable market to more than $60 billion, with a
    unique set of complementary assets and capabilities.
  • Expand Product Offerings and R&D Capabilities to Meet Diversified
    Customer Base:
    CommScope and ARRIS will share strong technical
    expertise with approximately 15,000 patents and approximately $800
    million in average annual research and development investments. With a
    stronger global footprint, the combined company is expected to serve
    customers across more than 150 countries.
  • Have a Strong Financial Profile with Cost Savings Opportunities: As
    a result of the combined company’s increased scale, CommScope expects
    to generate nearly $1 billion in cash flow from operations in the
    first full year after closing. Additionally, the company expects to
    achieve annual run-rate cost savings of at least $150 million within
    three years post-close, with synergies of approximately $60 million
    expected to be realized in the first full year after closing and
    approximately $125 million expected to be realized in the second year
    after closing, driven from synergies primarily in direct procurement
    and SG&A.
  • Significantly Accretive to CommScope’s Earnings: The
    transaction is expected to be more than 30% accretive to CommScope’s
    adjusted earnings per share by the end of the first full year after
    closing, excluding purchase accounting charges, transition costs and
    other special items.

Outlook

“We continue to expect modest growth and relatively stable
year-over-year results in 2019,“ said Executive Vice President and Chief
Financial Officer Alex Pease. “Our cost reduction initiatives aim to
offset lower than expected spending from North American service
providers due to factors that include merger-related dynamics, the
timing of certain large projects and the competitive landscape. At the
same time, we are continuing to invest in R&D to position the company to
capitalize on opportunities that are expected to emerge as market
conditions improve. We are also working diligently to prepare for the
integration of the ARRIS acquisition. We believe these actions will
continue to strengthen CommScope for success over the longer term and
enable the company to achieve its full potential.”

CommScope management provided the following first quarter and full year
2019 guidance for standalone CommScope.

First Quarter 2019 Guidance:

  • Revenue of $1.055 billion – $1.105 billion
  • Operating income of $91 million – $113 million
  • Non-GAAP adjusted operating income of $167 million – $192 million
  • Non-GAAP adjusted effective tax rate of approximately 30% – 31%
  • Earnings per share of $0.10 – $0.13, based on 196 million weighted
    average diluted shares
  • Non-GAAP adjusted earnings per diluted share of $0.41 – $0.46, based
    on 196 million weighted average diluted shares

Full Year 2019 Guidance:

  • Revenue of $4.505 billion – $4.655 billion
  • Operating income of $516 million – $563 million
  • Non-GAAP adjusted operating income of $805 million – $855 million
  • Non-GAAP adjusted effective tax rate of 30% – 31%
  • Earnings per diluted share of $0.92 – $1.03, based on 196 million
    weighted average diluted shares
  • Non-GAAP adjusted earnings per diluted share of $2.10 – $2.25, based
    on 196 million weighted average diluted shares
  • Cash flow from operations of more than $500 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 fourth quarter and full
year 2018 results and 2019 guidance. The conference call will also be
webcast.

To participate in the conference call, dial +1 844-397-6169 (U.S. and
Canada only) or +1 478-219-0508. The conference identification number is
4356719. 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.

About CommScope

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 more 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/

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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, non-GAAP adjusted earnings per share, non-GAAP effective tax
rate, and adjusted free cash flow 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 statements may discuss goals, intentions or expectations as to
future plans, trends, events, results of operations or financial
condition or otherwise, in each case, based on current beliefs of
management, as well as assumptions made by, and information currently
available to, such management. These forward-looking statements are
generally identified by their use of such terms and phrases as “intend,”
“goal,” “estimate,” “expect,” “project,” “projections,” “plan,”
“potential,” “anticipate,” “should,” “could,” “designed to,”
“foreseeable future,” “believe,” “think,” “scheduled,” “outlook,”
“target,” “guidance” and similar expressions, although not all
forward-looking statements contain such language. This list of
indicative terms and phrases is not intended to be all-inclusive.

These forward-looking statements are subject to various risks and
uncertainties, many of which are outside our control, including, without
limitation, risks related to the ARRIS acquisition, including that such
transaction may not occur, 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 technology systems and to implement major systems
initiatives successfully; cyber-security incidents, including data
security breaches, ransomware 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; 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
materials and components; the risk that contract manufacturers we rely
on encounter production, quality, financial or other difficulties; our
ability to integrate and fully realize anticipated benefits from prior
or future divestitures, acquisitions or equity investments; potential
difficulties in realigning global manufacturing capacity and
capabilities among our global manufacturing facilities or those of our
contract manufacturers 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 attract and retain qualified key employees; labor unrest;
obligations under our defined benefit employee benefit plans requiring
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; the impact of Brexit; changes in the laws and
policies in the United States affecting trade, including recently
enacted tariffs on imports from China, as well as the risk and
uncertainty related to other potential tariffs or a potential global
trade war that may impact our products; costs of protecting or defending
intellectual property; costs and challenges of compliance with domestic
and foreign environmental laws; the impact of litigation and similar
regulatory proceedings that we are involved in or may become involved
in, including the costs of such litigation; risks associated with
stockholder activism, which could cause us to incur significant expense,
hinder execution of our business strategy and impact the trading value
of our securities; and other factors beyond our control. These and other
factors are discussed in greater detail in our 2018 Annual Report on
Form 10-K.

Such forward-looking statements are also subject to additional risks and
uncertainties related to ARRIS’ business and the proposed acquisition,
many of which are outside of our and/or ARRIS’ control, including,
without limitation: failure to obtain applicable regulatory approvals in
a timely manner, on acceptable terms or at all, or to satisfy the other
closing conditions to the proposed acquisition; the risk that we will be
required to pay a reverse break fee under the related acquisition
agreement; the risk that we will not successfully integrate ARRIS or
that we will not realize estimated cost savings, synergies, growth or
other anticipated benefits, or that such benefits may take longer to
realize than expected; risks relating to unanticipated costs of
integration; the potential impact of announcement or consummation of the
acquisition on relationships with third parties, including customers,
employees and competitors; failure to manage potential conflicts of
interest between or among customers; integration of information
technology systems; conditions in the credit markets that could impact
the costs associated with financing the acquisition; the possibility
that competing offers will be made; and other factors beyond our and/or
ARRIS’ control.

Although the information contained in this press release represents our
best judgment as of the date hereof 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 release, except as otherwise may be required by law.

 
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Operations
(Unaudited — In thousands, except per share amounts)
           
Three Months Ended Year Ended
December 31, December 31,
2018   2017 2018   2017
Net sales $ 1,057,729 $ 1,120,432 $ 4,568,507 $ 4,560,582
Operating costs and expenses:
Cost of sales 676,029 706,805 2,880,223 2,792,779
Selling, general and administrative 184,714 190,973 729,032 795,381
Research and development 43,260 45,044 185,696 185,612
Amortization of purchased intangible assets 65,110 68,099 264,563 270,989
Restructuring costs, net 24,287 19,261 44,025 43,782
Asset impairments   15,000     15,000  
Total operating costs and expenses   1,008,400   1,030,182   4,118,539   4,088,543
Operating income 49,329 90,250 449,968 472,039
Other expense, net (39,766 ) (221 ) (44,256 ) (9,469 )
Interest expense (55,362 ) (64,290 ) (242,017 ) (257,059 )
Interest income   1,644   437   7,017   4,221
Income (loss) before income taxes (44,155 ) 26,176 170,712 209,732
Income tax (expense) benefit   20,872   27,405   (30,495 )   (15,968 )
Net income (loss) $ (23,283 ) $ 53,581 $ 140,217 $ 193,764
 
Earnings (loss) per share:
Basic $ (0.12 ) $ 0.28 $ 0.73 $ 1.01
Diluted (a) $ (0.12 ) $ 0.27 $ 0.72 $ 0.98
 
Weighted average shares outstanding:
Basic 192,456 190,826 192,022 192,430
Diluted (a) 192,456 195,074 195,332 196,811
 
(a) Calculation of diluted earnings per share:
Net income (loss) (basic and diluted) $ (23,283 ) $ 53,581 $ 140,217 $ 193,764
 
Weighted average shares (basic) 192,456 190,826 192,022 192,430
Dilutive effect of stock awards     4,248   3,310   4,381
Denominator (diluted)   192,456   195,074   195,332   196,811
 
See notes to consolidated financial statements included in our Form
10-K.
 
CommScope Holding Company, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
       
December 31,
2018 2017
Assets
Cash and cash equivalents $ 458,195 $ 453,977
Accounts receivable, less allowance for doubtful accounts of
$17,398 and $13,976, respectively 810,359 898,829
Inventories, net 473,327 444,941
Prepaid expenses and other current assets   135,944   146,112
Total current assets 1,877,825 1,943,859
Property, plant and equipment, net of accumulated depreciation
of $437,713 and $390,389, respectively 450,861 467,289
Goodwill 2,852,309 2,886,630
Other intangible assets, net 1,351,990 1,636,084
Other noncurrent assets   97,555   107,804
Total assets $ 6,630,540 $ 7,041,666
Liabilities and Stockholders’ Equity
Accounts payable $ 399,237 $ 436,737
Other accrued liabilities   291,385   286,980
Total current liabilities 690,622 723,717
Long-term debt 3,985,904 4,369,401
Deferred income taxes 83,341 134,241
Pension and other postretirement benefit liabilities 16,843 25,140
Other noncurrent liabilities   97,062   141,341
Total liabilities 4,873,772 5,393,840
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value: Authorized shares: 200,000,000;
Issued and outstanding shares: None
Common stock, $0.01 par value: Authorized shares: 1,300,000,000;
Issued and outstanding shares: 192,376,255 and 190,906,110,
respectively 1,991 1,972
Additional paid-in capital 2,385,082 2,334,071
Retained earnings (accumulated deficit) (249,777 ) (395,998 )
Accumulated other comprehensive loss (159,205 ) (86,603 )
Treasury stock, at cost: 6,744,082 shares and 6,336,144 shares,
respectively   (221,323 )   (205,616 )
Total stockholders’ equity   1,756,768   1,647,826
Total liabilities and stockholders’ equity $ 6,630,540 $ 7,041,666
 

See notes to consolidated financial statements included in our
Form 10-K.

 

Contacts

Investor Contact:
Kevin Powers, CommScope
+1
828-323-4970
Kevin.powers@commscope.com

News Media Contact:
Rick Aspan, CommScope
+1
708-236-6568
publicrelations@commscope.com

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