- First Quarter 2018 Performance
- Sales of $1.12 billion, consistent with guidance
- GAAP operating income of $104 million and non-GAAP adjusted operating income (excluding special items) of $189 million
- GAAP net income of $0.17 per diluted share
- Non-GAAP adjusted net income (excluding special items) of $0.49 per diluted share, consistent with guidance
CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported sales of $1.12 billion and net income of $34 million, or $0.17 per diluted share, for the quarter ended March 31, 2018. Non-GAAP adjusted net income for the first quarter of 2018 was $95 million, or $0.49 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
In comparison, for the quarter ended March 31, 2017, CommScope reported sales of $1.14 billion and net income of $34 million, or $0.17 per diluted share. Non-GAAP adjusted net income for the first quarter of 2017 was $103 million, or $0.52 per diluted share.
“CommScope delivered first quarter results consistent with our expectations, and we are encouraged by the growing market demand for our Mobility Solutions products,” said President and Chief Executive Officer Eddie Edwards. “We remain confident in our ability to deliver sales and earnings growth this year, despite higher input costs and expectations for price changes at certain large North American operators. As we move through 2018 and 2019, we are collaborating with these large customers to lower their total cost of ownership with an aim to driving incremental sales opportunities, ensuring we retain our industry-leading position. As we look to mitigate these changes in pricing, we are focused on realizing further, significant cost reductions over the short- and long-term.”
First Quarter 2018 Overview
Sales were consistent with expectations and declined 1 percent year over year as growth in the Europe, Middle East and Africa (EMEA) and Asia-Pacific regions was more than offset by lower sales in the U.S. Net sales in most major international regions increased, primarily driven by the 2.4 percent favorable impact of foreign exchange rates as compared to the prior year period.
GAAP operating income in the first quarter of 2018 declined 14 percent year over year to $104 million. Non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, declined 13 percent year over year to $189 million. The decreases in operating income and non-GAAP adjusted operating income were primarily driven by lower sales volumes, reductions in certain selling prices and higher material costs. These were partially offset by the benefit of cost reduction initiatives.
First Quarter 2018 Segment Overview
First quarter Connectivity Solutions segment sales decreased 1 percent year over year to $674 million with broad-based international growth more than offset by declines in the U.S. The international growth was primarily driven by the 2.4 percent favorable impact from foreign exchange rate changes from the prior year period.
Connectivity Solutions GAAP operating income increased 13 percent year over year to $53 million, while non-GAAP adjusted operating income decreased 5 percent year over year to $109 million. GAAP operating income improved largely due to lower integration costs. The decrease in non-GAAP adjusted operating income was primarily driven by reductions in certain selling prices and higher material costs, partially offset by the benefit of cost reduction initiatives.
First quarter Mobility Solutions segment sales declined 2 percent year over year to $447 million. Year-over-year growth in the EMEA and Asia-Pacific regions was more than offset by lower sales in the U.S. The international growth was primarily driven by the 2.5 percent favorable impact from foreign exchange rate changes compared to the year-ago period. Sequentially, Mobility Solutions sales increased 5 percent with a growing North American backlog.
Mobility Solutions GAAP operating income declined 31 percent year over year to $51 million, and non-GAAP adjusted operating income decreased 21 percent year over year to $80 million. Both GAAP and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavorable geographic and product mix.
CommScope management revised its outlook primarily to reflect the price reductions at certain large North American operators expected in 2018 and 2019, as well as higher input costs. The company is taking action to mitigate these customer price changes through additional cost reduction initiatives, including manufacturing optimization, value engineering projects and additional product in-sourcing. The company provided the following second quarter and full year 2018 guidance.
Second Quarter 2018 Guidance:
- Revenue of $1.21 billion – $1.26 billion
- Operating income of $151 million – $166 million
- Non-GAAP adjusted operating income of $230 million – $250 million
- Non-GAAP adjusted effective tax rate of 29 percent – 30 percent
- Earnings per diluted share of $0.31 – $0.34, based on 196 million weighted average diluted shares
- Non-GAAP adjusted earnings per diluted share of $0.63 – $0.68
Full Year 2018 Guidance:
- Revenue of $4.675 billion – $4.825 billion
- Operating income of $545 million – $590 million
- Non-GAAP adjusted operating income of $870 million – $920 million
- Non-GAAP adjusted effective tax rate of 29 percent – 30 percent
- Earnings per diluted share of $1.20 – $1.32, based on 196 million weighted average diluted shares
- Non-GAAP adjusted earnings per diluted share of $2.33 – $2.48
- Cash flow from operations > $550 million
A reconciliation of GAAP to non-GAAP outlook is attached.
CommScope Investor Day
CommScope is hosting an investor day for the financial community at its facility in Shakopee, MN, on Wednesday, June 13, 2018 at 8:30 a.m. CT. Please see the Investor Relations Events and Presentations page of CommScope’s website at Investor Relations website for registration details and additional information on the event.
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 2018 results and second quarter and full year 2018 guidance. 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 7977267. 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.
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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 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 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, 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 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 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 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; 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 2017 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 release, except as otherwise may be required by law.
Investor Contact:
Jennifer Crawford, CommScope
+1 828-323-4970
jennifer.crawford@commscope.com
News Media Contact:
Rick Aspan, CommScope
+1 708-236-6568
publicrelations@commscope.com