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CommScope Reports First Quarter 2020 Results
Net sales of $2.03 billion
GAAP net loss of $159.9 million
Non-GAAP adjusted EBITDA of $231.2 million
Redeemed $100 million aggregate principal amount of 5% senior notes due 2021
Debt reduced by over $600 million since ARRIS acquisition close
CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported results for the quarter ended March 31, 2020.
“In this period of uncertainty in our global operating environment, we are focused first and foremost on the health and wellbeing of our employees, their families and the communities in which we operate. Protecting these resources is of the utmost importance to CommScope, and we are taking significant actions to ensure everyone’s safety,” said President and Chief Executive Officer Eddie Edwards.
“I am incredibly proud of our team and how resilient our business model is. We quickly mobilized across the company to respond to the COVID-19 pandemic; supporting the phenomenal and sudden increase in demand for broadband and connectivity by everyone: our emergency services, businesses, remote workers and everyone sheltering-in-place at home. On behalf of the Board and management team, I thank our employees for their fortitude, creativity, innovation, positive spirit and resilience in providing essential services.”
Edwards continued, “We saw strong performance in the first quarter with net sales, non-GAAP adjusted EBITDA and adjusted EPS consistent with our expectations. Despite the significant supply headwinds resulting from COVID-19, we remain well-positioned to support network operators globally, delivering our innovative products that are the backbone to critical communications infrastructure. The Board and leadership team are confident CommScope will successfully navigate through this challenging operating environment and emerge a stronger company.”
First Quarter Results and Comparison
For comparisons described below as a combined company, the first quarter of 2019 includes historical ARRIS results (with certain classification changes to align to CommScope’s presentation). Reconciliations of the combined company amounts and reported GAAP results to non-GAAP adjusted segment results are included below.
Net sales in the first quarter of 2020 increased 84.9% year over year to $2.03 billion primarily due to the contribution of $1.03 billion from the ARRIS acquisition. On a combined company basis, net sales decreased 18.0% year over year to $2.03 billion. The company estimates that first-quarter 2020 net sales were negatively impacted by approximately $70 million related to supply chain disruptions as a result of COVID-19, as well as certain other COVID-19 related disruptions.
CommScope generated a net loss of $(159.9) million, or $(0.89) per basic share, in the first quarter, a decrease from the prior year period's net loss of $(2.3) million, or $(0.01) per basic share. Non-GAAP adjusted net income for the first quarter was $27.2 million, or $0.12 per diluted share, versus $93.0 million, or $0.48 per diluted share, in the first quarter of 2019.
Non-GAAP adjusted EBITDA increased 10.9% to $231.2 million as compared to last year. On a combined company basis, non-GAAP adjusted EBITDA for the first quarter of 2020 decreased by 21.4% and was 11.4% of net sales compared to 11.9% of net sales in the first quarter of 2019. The company estimates that first-quarter 2020 non-GAAP adjusted EBITDA was negatively impacted by approximately $30 million related to supply chain disruptions as a result of COVID-19, as well as certain other COVID-19 related disruptions.
Broadband Networks (includes Network Cable & Connectivity and Network & Cloud)
Net sales of $613.4 million, down 20.0% with declines in Network Cable and Connectivity and Network & Cloud.
Home Networks (includes In-Home Video & Broadband Connectivity Devices)
Net sales of $601.4 million, down 27.0% driven by declines in In-Home Video, partially offset by growth in Broadband Connectivity Devices.
Outdoor Wireless Networks (includes Macro Tower Solutions and Metro Cell Solutions)
Net sales of $348.9 million, down 10.7% primarily driven by declines in Macro Tower Solutions.
Venue and Campus Networks (includes Enterprise which includes Indoor Copper and Fiber Connectivity, DCCS which includes DAS and OneCell, and Ruckus Networks)
Net sales of $469.5 million, down 5.9% primarily driven by declines in indoor copper.
Cash Flow and Balance Sheet
GAAP cash flow from operations of $(42.7) million
Non-GAAP adjusted free cash flow was $(43.1) million after adjusting operating cash flow for $23.9 million of additions to property, plant and equipment, $20.1 million of cash paid for restructuring costs and $3.4 million of cash paid for transaction and integration costs.
Ended the quarter with $394.3 million in cash and cash equivalents.
As of March 31, 2020, the company had no outstanding borrowings under its asset-based revolving credit facility and had availability of $735 million, after giving effect to borrowing base limitations and outstanding letters of credit, resulting in total liquidity of approximately $1.13 billion.
Redeemed $100 million aggregate principal amount of its 5.00% senior notes due 2021 (“the 2021 Notes”).
Following the redemption, $50 million aggregate principal amount of the 2021 Notes remained outstanding.
Due to the evolving and significant uncertainties related to the impact of the COVID-19 pandemic, CommScope is withdrawing its full-year 2020 outlook.
While the Company is not providing specific guidance for the second quarter, the Company expects its second quarter sales and non-GAAP adjusted EBITDA to improve modestly compared to the first quarter.
“Given the dynamic nature and unprecedented situation, we are taking decisive actions to strengthen our financial position and prudently manage our balance sheet. These actions include adjusting our operating plan to reduce costs and capital expenditures and drawing $250 million on our ABL revolving credit facility as a precautionary measure to preserve financial flexibility,” said Alex Pease, Executive Vice President and Chief Financial Officer. “While our business to date has proven to be remarkably resilient and we have seen extremely strong order rates across certain critical segments, we are acutely aware of the strains on the global economy and the impact that could have on many of our customers, particularly in the enterprise space. Due to this ongoing market uncertainty created by the COVID-19 pandemic, we are not providing specific guidance for the second quarter of 2020 and we are withdrawing our full year outlook. However, we do expect our second quarter sales and non-GAAP adjusted EBITDA to improve modestly compared to the first quarter.”
Pease continued, “We are monitoring the situation closely and remain in close contact with our business partners and customers. Never has it been more apparent how critical our products are to support the networks of the future, enabling remote working, and keeping people around the world connected. We continue to enable and deliver the broadband connectivity that is essential to a wide array of the functions crucial to our digital society and are committed to creating long-term value for shareholders.”
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 first quarter 2020 results. The conference call will also be webcast.
The live, listen-only audio of the call will be available through a link on the Events and Presentations page of CommScope’s Investor Relations website.
A webcast replay will be archived on CommScope’s website for a limited period of time following the conference call.
During the conference call, the Company may discuss and answer questions concerning business and financial developments and trends that have occurred after quarter-end. The Company’s responses to questions, as well as other matters discussed during the conference call, may contain or constitute information that has not been disclosed previously.
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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 combined company net sales, non-GAAP adjusted EBITDA, combined company non-GAAP adjusted EBITDA, non-GAAP adjusted net income, non-GAAP adjusted diluted earnings per share, and non-GAAP 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), cash flow from operations 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,” “plans,” “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 terms. 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 risks associated with the integration of the business and systems and that we may not realize estimated cost savings, synergies, growth or other anticipated benefits); 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; the scope, duration and impact of disease outbreaks and pandemics, such as COVID-19, on our business including employees, sites, operations, customers and supply chain; 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 successfully implement major systems initiatives; 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; the use of open standards; the long-term impact 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 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 restrictive 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 the risk and uncertainty related to tariffs or a potential global trade war that may impact our products; cost 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 2019 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and may be updated from time to time in our annual reports, quarterly reports, current reports and other filings we make with the Securities and Exchange Commission.
Although the information contained in this press release represents our best judgment as of 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. 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.
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