HICKORY, NC: Third Quarter Highlights
- Net sales of $2.381 billion
- Core net sales of $1.990 billion*
- GAAP net income of $22.9 million
- Non-GAAP adjusted EBITDA of $347.6 million
- Core adjusted EBITDA of $352.9 million*
Cash flow used in operations of $(87.6) million and non-GAAP adjusted free cash flow of $(91.0) million
References to certain supplementary “Core” financial measures reflect the results of the Connectivity and Cable Solutions (CCS); Networking, Intelligent Cellular and Security Solutions (NICS), Outdoor Wireless Networks (OWN); and Access Network Solutions segments (ANS), in the aggregate. Core financial measures exclude the results and performance of the Home Networks (Home) segment. See the third quarter segment comparison tables below showing the aggregation of the Core financial measures.
CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in network connectivity solutions, today reported results for the quarter ended September 30, 2022.
“I am pleased to share that we delivered Core net sales of $1.99 billion and Core adjusted EBITDA of $353 million for the third quarter of 2022 – our highest performance on record since completing the ARRIS acquisition. As we have continued to reiterate over the last several quarters, we are taking swift action to drive growth in our business and offset inflationary impacts. Our third quarter results, namely turning our NICS segment profitable in the quarter, are a testament to our execution. While supply chain challenges remain and there is broader macroeconomic uncertainty, we maintain our expectation to deliver Core adjusted EBITDA for the full year 2022 within the previously provided range of $1.15–$1.25 billion,” said Chuck Treadway, President and Chief Executive Officer.
Treadway added, “Our CommScope NEXT transformation continues its strong progression in driving organic growth and efficiency opportunities throughout the Core company. Our teams have executed well in ramping capacity, and our general manager model is enabling greater visibility and flexibility in how we manage our business. As we drive all of these initiatives forward, we believe CommScope is well-positioned to deliver on our targets and create significant incremental shareholder value.”
“Our third quarter performance is a result of strong execution across the entire CommScope team, who continue to deliver on our CommScope NEXT transformation plans. As we continue to drive results through the end of the year, we maintain our expectation to deliver on our target net leverage within the range of 6.8x–7.2x. Looking forward, while we are seeing some limited signs of broader macro-related uncertainty and recessionary risk, we believe our CommScope NEXT actions have enabled the Company to maintain the expectation to deliver Core adjusted EBITDA within the range of $1.35–$1.5 billion for the full year 2023,” said Kyle Lorentzen, Chief Financial Officer.
In 2021, CommScope announced a transformation initiative called CommScope NEXT designed to drive shareholder value through three pillars: profitable growth, operational efficiency and portfolio optimization. As a step toward optimizing its portfolio through CommScope NEXT, as of January 1, 2022, the Company reorganized its internal management and reporting structure to align its portfolio of products and solutions more closely with the markets it serves and bring better performance clarity with its competitive peer set. As a result, the Company is reporting financial performance for the 2022 year based on the following operating segments: (i) Connectivity and Cable Solutions (CCS), (ii) Networking, Intelligent Cellular and Security Solutions (NICS), (iii) Outdoor Wireless Networks (OWN), (iv) Access Network Solutions (ANS) and (v) Home Networks (Home). All prior period amounts have been recast to reflect these operating segment changes.
Also as a step in the CommScope NEXT transformation plan, in 2021, the Company announced a plan to separate the Home Networks business. Due to the impact of the uncertain supply chain environment on the Home Networks business, the Company delayed its separation plan, but it continues to analyze the financial results of its "Core" business separately from Home Networks. As such, in this comparison discussion, reference is made to certain supplementary Core financial measures, which reflect the results of the CCS, OWN, NICS and ANS segments, in the aggregate. Core financial measures exclude the results of the Home segment.
Impacts of Supply Chain Constraints
The negative impacts of COVID-19 on CommScope's financial performance have receded as the Company is seeing a recovery in demand for its products over the past year, but this has created negative indirect consequences such as inflation, shortages in materials and components and increased logistic costs. Prices for certain commodities that it uses have experienced significant volatility as a result of changes in the levels of global demand, supply disruptions and other factors. As a result, the Company has seen a significant increase in costs that has negatively impacted its results of operations. CommScope is also experiencing limited supply of memory devices, capacitors and silicon chips, which has increased its costs and has impacted its ability to deliver products on a timely basis due to extended lead times. The Company is trying to mitigate the increasing component and logistics costs by implementing higher prices on its products and services. CommScope is also mitigating certain shortages by purchasing components in advance and maintaining higher levels of inventory, finding alternate vendors for some components or in certain cases, product redesign. The Company believes the global supply chain challenges and their adverse impact on its business and financial results will continue to improve in the fourth quarter of 2022 but certain shortages could continue into 2023. CommScope also believes certain macroeconomic pressures in the United States and the global economy such as rising interest rates, energy prices and fear about an economic slow-down could impact the timing and amount of capital spending by its customers in 2023 and could negatively impact its results of operations.
Third Quarter Results and Comparisons
Net sales in the third quarter of 2022 increased 13.1% year-over-year to $2.38 billion. Core net sales increased 17.7% year-over-year primarily due to higher net sales in the CCS, NICS and OWN segments.
Net income of $22.9 million, or $0.04 per share, in the third quarter of 2022, improved compared to the prior year period's net loss of $(124.2) million, or $(0.68) per share. Non-GAAP adjusted net income for the third quarter of 2022 was $124.6 million, or $0.50 per share, versus $72.3 million, or $0.29 per share, in the third quarter of 2021.
Non-GAAP adjusted EBITDA increased 34.2% to $347.6 million in the third quarter of 2022 compared to the same period last year. Non-GAAP adjusted EBITDA as a percentage of net sales increased to 14.6% in the third quarter of 2022 compared to 12.3% in the same prior year period. Core segment adjusted EBITDA increased 28.5% to $352.9 million in the third quarter of 2022 compared to the same prior year period. Core segment adjusted EBITDA as a percentage of net sales increased to 17.7% in the third quarter of 2022 compared to 16.2% in the same prior year period.
CCS - Net sales of $1.008 billion increased 27.9% from the prior year period driven by growth in Network Cable and Connectivity.
NICS - Net sales of $257.9 million increased 24.5% from the prior year period driven by growth in Ruckus Networks.
OWN - Net sales of $382.1 million increased 6.9% from the prior year period driven by growth in Integrated Solutions and HELIAX products.
ANS - Net sales of $342.3 million increased 1.3% from the prior year period driven by growth in Access Technologies.
Home - Net sales of $391.4 million decreased 5.7% from the prior year period driven by a decline in Broadband Home Solutions.
Cash Flow and Balance Sheet
GAAP cash flow used in operations was $(87.6) million.
Non-GAAP adjusted free cash flow was $(91.0) million after adjusting operating cash flow for $23.6 million of additions to property, plant and equipment, $11.5 million of cash paid for restructuring costs and $8.7 million of cash paid for transaction, transformation and integration costs.
Ended the quarter with $145.5 million in cash and cash equivalents.
As of September 30, 2022, the Company had $105.0 million of outstanding borrowings under its asset-based revolving credit facility and had availability of $779.1 million, after giving effect to borrowing base limitations and outstanding letters of credit. The Company ended the quarter with total liquidity of approximately $924.6 million.
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