UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 3, 2017
COMMSCOPE HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36146 | 27-4332098 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1100 CommScope Place, SE
Hickory, North Carolina 28602
(Address of principal executive offices)
Registrant’s telephone number, including area code: (828) 324-2200
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
On August 3, 2017, CommScope Holding Company, Inc. (“CommScope”) issued a press release relating to its financial results for the second quarter of 2017. A copy of the press release, which is incorporated by reference herein, is attached hereto as Exhibit 99.1. Following the publication of the press release, CommScope will host an earnings call during which its financial results for the second quarter of 2017 will be discussed.
The foregoing information (including the exhibit hereto) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
| Item 8.01. | Other Events. |
On August 3, 2017, the Company announced that the Board has authorized the repurchase of up to $100 million of the Company’s outstanding common stock. The intent of the repurchase program is to enhance stockholder value and returns. Any share repurchases under this authorization will be made in accordance with applicable securities laws in either open market or privately negotiated transactions. The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its shares under this authorization. The method, timing and amount of shares repurchased under the authorization will depend on several factors, including capital and liquidity requirements, market conditions and alternative uses for cash. The program does not obligate the Company to acquire any particular amount of its common stock, and the program may be extended, modified, suspended or discontinued at any time. The repurchase authorization expires on July 31, 2018.
| Item 9.01. | Financial Statements and Exhibits. |
| Exhibit. |
Description. | |
| 99.1 | CommScope Holding Company, Inc. press release, dated August 3, 2017. | |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 3, 2017
| COMMSCOPE HOLDING COMPANY, INC. | ||
| By: | /s/ Mark A. Olson | |
| Name: | Mark A. Olson | |
| Title: | Executive Vice President and Chief Financial Officer | |
3
INDEX OF EXHIBITS
| Exhibit. |
Description. | |
| 99.1 | CommScope Holding Company, Inc. press release, dated August 3, 2017. | |
4
Exhibit 99.1
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CommScope Reports Second Quarter 2017 Results
| • | Second Quarter Highlights |
| • | Sales of $1.17 billion |
| • | Operating income of $138 million and adjusted operating income (excluding special items) of $242 million |
| • | Net income of $0.28 per diluted share |
| • | Adjusted net income (excluding special items) of $0.60 per diluted share |
HICKORY, NC, August 3, 2017—CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported sales of $1.17 billion and net income of $55 million, or $0.28 per diluted share, for the quarter ended June 30, 2017. Non-GAAP adjusted net income for the second quarter of 2017 was $119 million, or $0.60 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
In comparison, for the quarter ended June 30, 2016, CommScope reported sales of $1.31 billion and net income of $62 million, $0.32 per share. Non-GAAP adjusted net income for the second quarter of 2016 was $145 million, or $0.74 per diluted share.
“Our results for the second quarter reflect the continued impact of the challenging industry environment,” said President and Chief Executive Officer Eddie Edwards. “We expect certain North American service providers to spend cautiously over the next few quarters due primarily to industry consolidation, competitive dynamics and timing of certain large projects. In the interim, we will continue to stringently manage our costs and work to position CommScope for long-term success.
“We believe that our recent acquisition of Cable Exchange and our new high-speed migration platform will enhance our position in the data center market over the longer term. We expect to return to overall growth in 2018.”
Second Quarter 2017 Overview
Second quarter 2017 sales declined year over year in all major geographic regions. Foreign exchange rate changes negatively affected revenue by less than 1 percent year over year.
Operating income in the second quarter of 2017 declined 25 percent year over year to $138 million. Non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, declined 17 percent year over year to $242 million. The decreases in operating income and non-GAAP adjusted operating income were driven by lower sales volumes and unfavorable mix of products sold, partially offset by the benefit of cost reduction initiatives and lower incentive compensation expense. In addition, lower intangible amortization offset higher restructuring charges in operating income.
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Second Quarter 2017 Segment Overview
Second quarter Connectivity Solutions segment sales declined 7 percent year over year to $726 million. Revenue declined in both indoor and outdoor network solutions. Modest growth in the Europe, Middle East and Africa region was more than offset by decreased sales in the U.S., Asia-Pacific and Latin American regions. While indoor network solutions sales remained weak, the company made progress improving its market position with multi-tenant and hyperscale data center customers. Outdoor network solutions sales were affected by fewer large projects in the Asia-Pacific region and industry competitive dynamics and consolidation, which impacted service provider spending patterns. Foreign exchange rate changes negatively affected revenue by less than 1 percent from the year-ago period.
Connectivity Solutions operating income declined 20 percent year over year to $75 million and non-GAAP adjusted operating income decreased 13 percent year over year to $146 million, or 20 percent of segment sales. Both operating income and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavorable mix of products sold, partially offset by the benefit of cost reduction initiatives and lower incentive compensation expense.
Second quarter Mobility Solutions segment sales declined 15 percent year over year to $448 million. Sales declined in all major geographic regions. The decrease is due primarily to a slowdown in spending at certain North American operators and fewer large projects in the Asia-Pacific region. Foreign exchange rate changes had a negative impact of less than 1 percent on Mobility Solutions segment sales compared to the year-ago period.
Mobility Solutions operating income declined 31 percent year over year to $63 million and non-GAAP adjusted operating income decreased 22 percent year over year to $96 million, or 21 percent of segment sales. Both operating income and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavorable mix of products sold, partially offset by lower incentive compensation expense.
Cable Exchange Acquisition
On August 1, CommScope completed the previously announced acquisition of Cable Exchange, a privately-held quick-turn supplier of fiber optic and copper assemblies for data, voice and video communications.
Cable Exchange, based in Santa Ana, Calif., manufactures a variety of fiber optic and copper cables, trunks and related products used in high-capacity data centers and other business enterprise applications. The company, founded in 1986, specializes in quick-turn delivery of its infrastructure products to customers from its two U.S. manufacturing centers located in Santa Ana, Calif. and Pineville, NC.
This highly complementary acquisition deepens CommScope’s capabilities in supporting the growing market for high-capacity, multi-tenant data centers and hyperscale data centers operated by the world’s largest technology and retail companies.
CommScope funded the acquisition with cash on hand.
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Capital Allocation Priorities
Following the BNS acquisition in August 2015, the company has consistently focused the use of its free cash flow on reinvesting in the business and reducing debt. The company continues to believe that reducing leverage benefits all stakeholders and expects to reach its goal of repaying approximately $1 billion of acquisition financing by year-end 2017.
Additionally, on August 2, the CommScope board of directors authorized the repurchase of up to $100 million of the company’s outstanding common stock. The intent of the repurchase program is to enhance stockholder value and returns. Any share repurchases under this authorization will be made in accordance with applicable securities laws in either open market or privately negotiated transactions. The company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its shares under this authorization. The method, timing and amount of shares repurchased under the authorization will depend on several factors, including capital and liquidity requirements, market conditions and alternative uses for cash. The program does not obligate the company to acquire any particular amount of its common stock, and the program may be extended, modified, suspended or discontinued at any time. The repurchase authorization expires on July 31, 2018.
Outlook
In the near-term, CommScope management expects cautious spending patterns at certain North American service providers due primarily to industry competitive dynamics, consolidation and delayed timing of certain expected network upgrades. The company has already taken incremental actions to manage costs, including lowering incentive compensation; cutting selling, general and administrative expenses; and reducing its workforce.
These factors are reflected in the following third quarter and full year 2017 guidance provided by CommScope management.
Third Quarter 2017 Guidance:
| • | Revenue of $1.1 billion – $1.15 billion |
| • | Operating income of $105 million – $140 million |
| • | Non-GAAP adjusted operating income of $200 million – $240 million |
| • | Earnings per diluted share of $0.20 – $0.25, based on 197 million weighted average diluted shares |
| • | Non-GAAP adjusted earnings per diluted share of $0.50 – $0.55 |
| • | Non-GAAP adjusted effective tax rate of approximately 35 percent |
Full Year 2017 Guidance:
| • | Revenue of $4.5 billion – $4.6 billion |
| • | Operating income of $500 million – $540 million |
| • | Non-GAAP adjusted operating income of $885 million – $935 million |
| • | Earnings per diluted share of $0.87 – $0.99, based on 198 million weighted average diluted shares |
| • | Non-GAAP adjusted earnings per diluted share of $2.15 – $2.30 |
| • | 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.
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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 second quarter 2017 results. The conference call also will 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 51023785. 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 companies around the world design, build and manage their wired and wireless networks. Our vast portfolio of network infrastructure includes some of the world’s most robust and innovative wireless and fiber optic solutions. Our talented and experienced global team is driven to help customers increase bandwidth; maximize existing capacity; improve network performance and availability; increase energy efficiency; and simplify technology migration. You will find our solutions in the largest buildings, venues and outdoor spaces; in data centers and buildings of all shapes, sizes and complexity; at wireless cell sites; in telecom central offices and cable headends; in FTTX deployments; and in airports, trains, and tunnels. Vital networks around the world run on CommScope solutions.
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
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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 and 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 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.
| 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 |
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CommScope Holding Company, Inc.
Condensed Consolidated Statements of Operations
(Unaudited — In thousands, except per share amounts)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales |
$ | 1,174,090 | $ | 1,306,788 | $ | 2,311,375 | $ | 2,450,767 | ||||||||
| Operating costs and expenses: |
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| Cost of sales |
701,306 | 753,029 | 1,383,765 | 1,449,917 | ||||||||||||
| Selling, general and administrative |
207,369 | 234,333 | 418,923 | 443,530 | ||||||||||||
| Research and development |
46,887 | 51,934 | 95,782 | 104,124 | ||||||||||||
| Amortization of purchased intangible assets |
66,981 | 76,015 | 134,619 | 149,631 | ||||||||||||
| Restructuring costs, net |
13,773 | 7,605 | 19,161 | 13,677 | ||||||||||||
| Asset impairments |
— | — | — | 15,293 | ||||||||||||
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| Total operating costs and expenses |
1,036,316 | 1,122,916 | 2,052,250 | 2,176,172 | ||||||||||||
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| Operating income |
137,774 | 183,872 | 259,125 | 274,595 | ||||||||||||
| Other income (expense), net |
1,515 | (14,653 | ) | (15,221 | ) | (14,352 | ) | |||||||||
| Interest expense |
(61,417 | ) | (74,113 | ) | (130,971 | ) | (146,675 | ) | ||||||||
| Interest income |
1,730 | 1,148 | 2,604 | 3,727 | ||||||||||||
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| Income before income taxes |
79,602 | 96,254 | 115,537 | 117,295 | ||||||||||||
| Income tax expense |
(24,138 | ) | (34,293 | ) | (26,511 | ) | (42,754 | ) | ||||||||
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| Net income |
$ | 55,464 | $ | 61,961 | $ | 89,026 | $ | 74,541 | ||||||||
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| Earnings per share: |
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| Basic |
$ | 0.29 | $ | 0.32 | $ | 0.46 | $ | 0.39 | ||||||||
| Diluted (a) |
$ | 0.28 | $ | 0.32 | $ | 0.45 | $ | 0.38 | ||||||||
| Weighted average shares outstanding: |
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| Basic |
193,092 | 192,241 | 193,555 | 191,996 | ||||||||||||
| Diluted (a) |
197,218 | 196,073 | 198,173 | 195,815 | ||||||||||||
| (a) Calculation of diluted earnings per share: |
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| Net income (basic and diluted) |
$ | 55,464 | $ | 61,961 | $ | 89,026 | $ | 74,541 | ||||||||
| Weighted average shares (basic) |
193,092 | 192,241 | 193,555 | 191,996 | ||||||||||||
| Dilutive effect of equity-based awards |
4,126 | 3,832 | 4,618 | 3,819 | ||||||||||||
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| Denominator (diluted) |
197,218 | 196,073 | 198,173 | 195,815 | ||||||||||||
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See notes to unaudited condensed consolidated financial statements included in our Form 10-Q.
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CommScope Holding Company, Inc.
Condensed Consolidated Balance Sheets
(Unaudited — In thousands, except share amounts)
| June 30, 2017 |
December 31, 2016 |
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| Assets | ||||||||
| Cash and cash equivalents |
$ | 484,491 | $ | 428,228 | ||||
| Accounts receivable, less allowance for doubtful accounts of $18,838 and $17,211, respectively |
931,654 | 952,367 | ||||||
| Inventories, net |
529,604 | 473,267 | ||||||
| Prepaid expenses and other current assets |
146,375 | 139,902 | ||||||
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| Total current assets |
2,092,124 | 1,993,764 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $351,021 and $303,734, respectively |
475,297 | 474,990 | ||||||
| Goodwill |
2,810,738 | 2,768,304 | ||||||
| Other intangible assets, net |
1,694,282 | 1,799,065 | ||||||
| Other noncurrent assets |
103,535 | 105,863 | ||||||
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| Total assets |
$ | 7,175,976 | $ | 7,141,986 | ||||
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| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable |
$ | 448,464 | $ | 415,921 | ||||
| Other accrued liabilities |
308,345 | 429,397 | ||||||
| Current portion of long-term debt |
— | 12,500 | ||||||
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| Total current liabilities |
756,809 | 857,818 | ||||||
| Long-term debt |
4,569,967 | 4,549,510 | ||||||
| Deferred income taxes |
189,914 | 199,121 | ||||||
| Pension and other postretirement benefit liabilities |
31,295 | 31,671 | ||||||
| Other noncurrent liabilities |
108,368 | 109,782 | ||||||
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| Total liabilities |
5,656,353 | 5,747,902 | ||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
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| Preferred stock, $.01 par value: Authorized shares: 200,000,000; |
— | — | ||||||
| Common stock, $0.01 par value: Authorized shares: 1,300,000,000; |
1,970 | 1,950 | ||||||
| Additional paid-in capital |
2,311,374 | 2,282,014 | ||||||
| Retained earnings (accumulated deficit) |
(500,736 | ) | (589,556 | ) | ||||
| Accumulated other comprehensive loss |
(162,916 | ) | (285,113 | ) | ||||
| Treasury stock, at cost: 4,010,752 shares and 1,129,222 shares, respectively |
(130,069 | ) | (15,211 | ) | ||||
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| Total stockholders’ equity |
1,519,623 | 1,394,084 | ||||||
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| Total liabilities and stockholders’ equity |
$ | 7,175,976 | $ | 7,141,986 | ||||
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See notes to unaudited condensed consolidated financial statements included in our Form 10-Q.
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CommScope Holding Company, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited — In thousands)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating Activities: |
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| Net income |
$ | 55,464 | $ | 61,961 | $ | 89,026 | $ | 74,541 | ||||||||
| Adjustments to reconcile net income to net cash generated |
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| Depreciation and amortization |
90,052 | 103,559 | 190,453 | 200,497 | ||||||||||||
| Equity-based compensation |
11,186 | 9,411 | 20,598 | 18,246 | ||||||||||||
| Deferred income taxes |
2,371 | (37,879 | ) | (14,073 | ) | (48,319 | ) | |||||||||
| Asset impairments |
— | — | — | 15,293 | ||||||||||||
| Changes in assets and liabilities: |
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| Accounts receivable |
24,292 | (78,772 | ) | 43,975 | (137,532 | ) | ||||||||||
| Inventories |
(23,111 | ) | (8,523 | ) | (42,243 | ) | (18,386 | ) | ||||||||
| Prepaid expenses and other assets |
10,541 | 16,517 | (1,773 | ) | 10,139 | |||||||||||
| Accounts payable and other liabilities |
(92,745 | ) | 91,836 | (120,777 | ) | 164,855 | ||||||||||
| Other |
9,194 | 7,680 | 24,847 | 5,929 | ||||||||||||
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| Net cash generated by operating activities |
87,244 | 165,790 | 190,033 | 285,263 | ||||||||||||
| Investing Activities: |
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| Additions to property, plant and equipment |
(17,667 | ) | (17,712 | ) | (30,577 | ) | (32,184 | ) | ||||||||
| Proceeds from sale of property, plant and equipment |
4,623 | 56 | 4,978 | 3,740 | ||||||||||||
| Cash paid for acquisitions including purchase price |
— | (9,092 | ) | — | 6,263 | |||||||||||
| Other |
6,139 | 1,182 | 6,778 | 1,656 | ||||||||||||
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| Net cash used in investing activities |
(6,905 | ) | (25,566 | ) | (18,821 | ) | (20,525 | ) | ||||||||
| Financing Activities: |
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| Long-term debt repaid |
(30,379 | ) | (303,124 | ) | (780,379 | ) | (306,270 | ) | ||||||||
| Long-term debt proceeds |
30,379 | — | 780,379 | — | ||||||||||||
| Debt issuance and modification costs |
(2,248 | ) | — | (8,363 | ) | — | ||||||||||
| Debt extinguishment costs |
— | (9,939 | ) | (14,800 | ) | (9,939 | ) | |||||||||
| Cash paid for repurchase of common stock |
(41,230 | ) | — | (100,000 | ) | — | ||||||||||
| Proceeds from the issuance of common shares under |
2,701 | 5,501 | 8,506 | 6,991 | ||||||||||||
| Tax withholding payments for vested equity-based |
(100 | ) | (75 | ) | (14,858 | ) | (2,796 | ) | ||||||||
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| Net cash used in financing activities |
(40,877 | ) | (307,637 | ) | (129,515 | ) | (312,014 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents |
7,392 | (4,912 | ) | 14,566 | 435 | |||||||||||
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| Change in cash and cash equivalents |
46,854 | (172,325 | ) | 56,263 | (46,841 | ) | ||||||||||
| Cash and cash equivalents at beginning of period |
437,637 | 688,368 | 428,228 | 562,884 | ||||||||||||
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| Cash and cash equivalents at end of period |
$ | 484,491 | $ | 516,043 | $ | 484,491 | $ | 516,043 | ||||||||
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See notes to unaudited condensed consolidated financial statements included in our Form 10-Q.
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CommScope Holding Company, Inc.
Reconciliation of GAAP Measures to Non-GAAP Adjusted Measures
(Unaudited — In millions, except per share amounts)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating income, as reported |
$ | 137.8 | $ | 183.9 | $ | 259.1 | $ | 274.6 | ||||||||
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| Adjustments: |
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| Amortization of purchased intangible assets |
67.0 | 76.0 | 134.6 | 149.6 | ||||||||||||
| Restructuring costs, net |
13.8 | 7.6 | 19.2 | 13.7 | ||||||||||||
| Equity-based compensation |
11.2 | 9.4 | 20.6 | 18.2 | ||||||||||||
| Asset impairments |
— | — | — | 15.3 | ||||||||||||
| Integration and transaction costs |
12.6 | 14.5 | 26.2 | 30.4 | ||||||||||||
| Purchase accounting adjustments |
— | (0.4 | ) | — | 0.6 | |||||||||||
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| Total adjustments to operating income |
104.6 | 107.1 | 200.6 | 227.7 | ||||||||||||
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| Non-GAAP adjusted operating income |
$ | 242.4 | $ | 291.0 | $ | 459.7 | $ | 502.4 | ||||||||
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| Income before income taxes, as reported |
$ | 79.6 | $ | 96.3 | $ | 115.5 | $ | 117.3 | ||||||||
| Income tax expense, as reported |
(24.1 | ) | (34.3 | ) | (26.5 | ) | (42.8 | ) | ||||||||
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| Net income, as reported |
$ | 55.5 | $ | 62.0 | $ | 89.0 | $ | 74.5 | ||||||||
| Adjustments: |
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| Total pretax adjustments to operating income |
104.6 | 107.1 | 200.6 | 227.7 | ||||||||||||
| Pretax amortization of deferred financing costs & OID (1) |
2.8 | 7.2 | 15.6 | 10.9 | ||||||||||||
| Pretax loss on debt transactions (2) |
1.1 | 9.9 | 16.0 | 9.9 | ||||||||||||
| Pretax net investment gains (2) |
(6.0 | ) | (0.1 | ) | (6.6 | ) | (0.5 | ) | ||||||||
| Tax effects of adjustments and other tax items (3) |
(39.4 | ) | (41.4 | ) | (92.8 | ) | (83.4 | ) | ||||||||
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| Non-GAAP adjusted net income |
$ | 118.6 | $ | 144.7 | $ | 221.8 | $ | 239.1 | ||||||||
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| Diluted EPS, as reported |
$ | 0.28 | $ | 0.32 | $ | 0.45 | $ | 0.38 | ||||||||
| Non-GAAP adjusted diluted EPS |
$ | 0.60 | $ | 0.74 | $ | 1.12 | $ | 1.22 | ||||||||
| (1) | Included in interest expense. |
| (2) | Included in other income (expense), net. |
| (3) | The tax rates applied to adjustments reflect the tax expense or benefit based on the tax jurisdiction of the entity generating the adjustment. There are certain items for which we expect little or no tax effect. |
Note: Components may not sum to total due to rounding
See Description of Non-GAAP Financial Measures
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CommScope Holding Company, Inc.
Sales by Region
(Unaudited — In millions)
Sales by Region
| % Change | ||||||||||||
| Q2 2017 | Q2 2016 | YOY | ||||||||||
| United States |
$ | 643.9 | $ | 710.2 | (9.3 | )% | ||||||
| Europe, Middle East and Africa |
235.8 | 241.2 | (2.2 | ) | ||||||||
| Asia Pacific |
203.8 | 249.6 | (18.3 | ) | ||||||||
| Central and Latin America |
56.1 | 76.9 | (27.0 | ) | ||||||||
| Canada |
34.5 | 28.9 | 19.4 | |||||||||
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| Total Net Sales |
$ | 1,174.1 | $ | 1,306.8 | (10.2 | )% | ||||||
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CommScope Holding Company, Inc.
Segment Information
(Unaudited — In millions)
Sales by Segment
| % Change | ||||||||||||||||||||
| Q2 2017 | Q1 2017 | Q2 2016 | Sequential | YOY | ||||||||||||||||
| Connectivity Solutions |
$ | 725.7 | $ | 681.6 | $ | 778.0 | 6.5 | % | (6.7 | )% | ||||||||||
| Mobility Solutions |
448.4 | 455.7 | 528.8 | (1.6 | )% | (15.2 | )% | |||||||||||||
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| Total Net Sales |
$ | 1,174.1 | $ | 1,137.3 | $ | 1,306.8 | 3.2 | % | (10.2 | )% | ||||||||||
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Non-GAAP Adjusted Operating Income by Segment
| % Change | ||||||||||||||||||||
| Q2 2017 | Q1 2017 | Q2 2016 | Sequential | YOY | ||||||||||||||||
| Connectivity Solutions |
$ | 146.3 | $ | 115.3 | $ | 168.5 | 26.9 | % | (13.2 | )% | ||||||||||
| Mobility Solutions |
96.1 | 102.0 | 122.5 | (5.8 | )% | (21.6 | )% | |||||||||||||
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| Total Non-GAAP Adjusted Operating Income |
$ | 242.4 | $ | 217.3 | $ | 291.0 | 11.6 | % | (16.7 | )% | ||||||||||
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Components may not sum to total due to rounding
See Description of Non-GAAP Financial Measures
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CommScope Holding Company, Inc.
Reconciliation of GAAP to Non-GAAP Adjusted Operating Income by Segment
(Unaudited — In millions)
Second Quarter 2017 Non-GAAP Adjusted Operating Income Reconciliation by Segment
| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 74.8 | $ | 63.0 | $ | 137.8 | ||||||
| Amortization of purchased intangible assets |
42.9 | 24.1 | 67.0 | |||||||||
| Restructuring costs, net |
9.6 | 4.2 | 13.8 | |||||||||
| Equity-based compensation |
6.5 | 4.7 | 11.2 | |||||||||
| Integration and transaction costs |
12.5 | 0.2 | 12.6 | |||||||||
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| Non-GAAP adjusted operating income |
$ | 146.3 | $ | 96.1 | $ | 242.4 | ||||||
| Non-GAAP adjusted operating margin % |
20.2 | % | 21.4 | % | 20.6 | % | ||||||
| First Quarter 2017 Non-GAAP Adjusted Operating Income Reconciliation by Segment
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| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 47.8 | $ | 73.6 | $ | 121.4 | ||||||
| Amortization of purchased intangible assets |
43.6 | 24.1 | 67.6 | |||||||||
| Restructuring costs, net |
4.8 | 0.6 | 5.4 | |||||||||
| Equity-based compensation |
5.5 | 3.9 | 9.4 | |||||||||
| Integration and transaction costs |
13.7 | (0.2 | ) | 13.5 | ||||||||
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| Non-GAAP adjusted operating income |
$ | 115.3 | $ | 102.0 | $ | 217.3 | ||||||
| Non-GAAP adjusted operating margin % |
16.9 | % | 22.4 | % | 19.1 | % | ||||||
| Second Quarter 2016 Non-GAAP Adjusted Operating Income Reconciliation by Segment
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| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 92.9 | $ | 91.0 | $ | 183.9 | ||||||
| Amortization of purchased intangible assets |
50.6 | 25.4 | 76.0 | |||||||||
| Restructuring costs, net |
6.6 | 1.0 | 7.6 | |||||||||
| Equity-based compensation |
5.3 | 4.1 | 9.4 | |||||||||
| Integration and transaction costs |
13.5 | 1.0 | 14.5 | |||||||||
| Purchase accounting adjustments |
(0.4 | ) | — | (0.4 | ) | |||||||
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| Non-GAAP adjusted operating income |
$ | 168.5 | $ | 122.5 | $ | 291.0 | ||||||
| Non-GAAP adjusted operating margin % |
21.7 | % | 23.2 | % | 22.3 | % | ||||||
Components may not sum to total due to rounding
See Description of Non-GAAP Financial Measures
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CommScope Holding Company, Inc.
Adjusted Free Cash Flow
(Unaudited — In millions)
Adjusted Free Cash Flow
| Q2 2017 | Q2 2016 | |||||||
| Cash flow from operations |
$ | 87.2 | $ | 165.8 | ||||
| Integration and transaction costs |
16.7 | 15.4 | ||||||
| Capital expenditures |
(17.7 | ) | (17.7 | ) | ||||
| Capex related to BNS integration |
— | 1.9 | ||||||
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| Adjusted Free Cash Flow |
$ | 86.2 | $ | 165.4 | ||||
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See Description of Non-GAAP Financial Measures
CommScope Holding Company, Inc.
Quarterly Adjusted Operating Income and Adjusted EBITDA
(Unaudited — In millions)
GAAP to Non-GAAP Adjusted Operating Income and Adjusted EBITDA Reconciliation
| Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | ||||||||||||||||
| Operating income, as reported |
$ | 137.8 | $ | 121.4 | $ | 119.4 | $ | 180.7 | $ | 183.9 | ||||||||||
| Amortization of purchased intangible assets |
67.0 | 67.6 | 72.9 | 74.6 | 76.0 | |||||||||||||||
| Restructuring costs, net |
13.8 | 5.4 | 18.4 | 10.8 | 7.6 | |||||||||||||||
| Equity-based compensation |
11.2 | 9.4 | 8.4 | 8.4 | 9.4 | |||||||||||||||
| Asset impairments |
— | — | 15.9 | 7.4 | — | |||||||||||||||
| Integration and transaction costs |
12.6 | 13.5 | 17.2 | 14.7 | 14.5 | |||||||||||||||
| Purchase accounting adjustments |
— | — | — | — | (0.4 | ) | ||||||||||||||
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| Non-GAAP adjusted operating income |
$ | 242.4 | $ | 217.3 | $ | 252.2 | $ | 296.7 | $ | 291.0 | ||||||||||
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| Non-GAAP adjusted operating margin % |
20.6 | % | 19.1 | % | 21.4 | % | 22.9 | % | 22.3 | % | ||||||||||
| Depreciation |
20.2 | 20.0 | 20.2 | 20.2 | 20.4 | |||||||||||||||
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| Non-GAAP adjusted EBITDA |
$ | 262.6 | $ | 237.3 | $ | 272.5 | $ | 316.9 | $ | 311.4 | ||||||||||
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Components may not sum to total due to rounding
See Description of Non-GAAP Financial Measures
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CommScope Holding Company, Inc.
Reconciliation of GAAP Measures to Non-GAAP Adjusted Measures
(Unaudited — In millions, except per share amounts)
| Outlook | ||||||||
| Three Months Ended |
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| September 30, 2017 |
Full Year 2017 |
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| Operating income |
$ | 105 - $140 | $ | 500 - $540 | ||||
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| Adjustments: |
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| Amortization of purchased intangible assets |
$ | 70 | $ | 270 | ||||
| Equity-based compensation |
$ | 10 | $ | 45 | ||||
| Restructuring costs, integration costs and other (1) |
$ | 15 - $20 | $ | 70 - $80 | ||||
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| Total adjustments to operating income |
$ | 95 - $100 | $ | 385 - $395 | ||||
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| Non-GAAP adjusted operating income |
$ | 200 - $240 | $ | 885 - $935 | ||||
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| Diluted earnings per share |
$ | 0.20 - $0.25 | $ | 0.87 - $0.99 | ||||
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| Adjustments (2): |
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| Total adjustments to operating income |
$ | 0.33 - $0.34 | $ | 1.24 - $1.26 | ||||
| Debt-related costs and other special items (3) |
$ | (0.03) - $(0.04) | $ | 0.04 - $0.05 | ||||
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| Non-GAAP adjusted diluted earnings per share |
$ | 0.50 - $0.55 | $ | 2.15 - $2.30 | ||||
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| (1) | Reflects projections for restructuring costs, integration costs and other special items. Actual adjustments may vary from projections. |
| (2) | The tax rates applied to projected adjustments reflect the tax expense or benefit based on the expected tax jurisdiction of the entity generating the projected adjustments. There are certain items for which we expect little or no tax effect. |
| (3) | Reflects projections for amortization of debt issuance costs, loss on debt extinguishment, net investment gains or losses and other tax items. Actual adjustments may vary from projections. |
Our actual results may be impacted by additional events for which information is not currently available, such as additional restructuring activities, asset impairments, debt extinguishments, additional transaction and integration costs, foreign exchange rate fluctuations and other gains or losses related to events that are not currently known or measurable.
See Caution Regarding Forward-Looking Statements and Description of Non-GAAP Financial Measures.