CommScope Reports First Quarter 2015 Results
First Quarter Adjusted EPS of
-
Sales of
$825 million , consistent with guidance -
Operating income of
$93 million and adjusted operating income of$157 million , or 19 percent of sales -
Net income of
$0.20 per diluted share -
Adjusted net income, excluding special items, of
$0.42 per diluted share
For the quarter ended
"CommScope delivered solid first quarter performance and exceeded
earnings per share guidance despite a slow start in North American
wireless carrier spending and foreign exchange headwinds," said
President and Chief Executive Officer
On
"We continue to believe that the ever increasing global demand for
broadband connectivity and our planned transformative acquisition of TE
Connectivity's Telecom, Enterprise and Wireless businesses will position
First Quarter 2015 Overview
First quarter 2015 sales declined 12 percent year over year to
Operating income in the first quarter declined 36 percent to
GAAP net income decreased 39 percent year over year to
First Quarter 2015 Segment Overview
Wireless segment sales in the first quarter were
First quarter Enterprise segment sales increased 5 percent year over
year to
First quarter Broadband segment sales increased 10 percent year over
year to
Update on Proposed TE Connectivity Transaction
Outlook
Second Quarter 2015 Guidance:
-
Revenue of
$850 million -$900 million -
Adjusted operating income of
$160 million -$180 million -
Adjusted earnings per diluted share of
$0.45 -$0.50 , based on a share count of 194 million weighted average diluted shares
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About
Non-GAAP Financial Measures
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 which reflect our current views with respect to future events and financial performance. These forward-looking statements are 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," "guidance" and similar expressions. 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 communication systems; concentration of sales among a limited number of customers or distributors; changes in technology; our ability to fully realize anticipated benefits from prior or future acquisitions or equity investments; industry competition and the ability to retain customers through product innovation, introduction and marketing; risks associated with our sales through channel partners; possible production disruptions due to supplier or contract manufacturer bankruptcy, reorganization or restructuring; 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; our ability to maintain effective information management systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches or computer viruses; product performance issues and associated warranty claims; significant international operations and 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; 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; possible future impairment charges for fixed or intangible assets, including goodwill; increased obligations under employee benefit plans; cost of protecting or defending intellectual property; changes in laws or regulations affecting us or the industries we serve; costs and challenges of compliance with domestic and foreign environmental laws and the effects 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; our ability to attract and retain qualified key employees; allegations of health risks from wireless equipment; availability and adequacy of insurance; natural or man-made disasters or other disruptions; income tax rate variability and ability to recover amounts recorded as value-added tax receivables; labor unrest; risks of not realizing benefits from research and development projects; substantial indebtedness and maintaining compliance with debt covenants; our ability to incur additional indebtedness; ability of our lenders to fund borrowings under their credit commitments; changes in capital availability or costs, such as changes in interest rates, security ratings and market perceptions of the businesses in which we operate, or the ability to obtain capital on commercially reasonable terms or at all; our ability to generate cash to service our indebtedness; our ability to consummate the proposed acquisition (the Acquisition) of TE Connectivity's Telecom, Wireless and Enterprise businesses (the BNS business) on a timely basis or at all; risks associated with antitrust approval of the Acquisition; our ability to integrate the BNS business on a timely and cost effective manner; our reliance on TE Connectivity for transition services for some period of time after closing of the Acquisition; our ability to realize expected growth opportunities and cost savings from the Acquisition; and other factors beyond our control. These and other factors are discussed in greater detail in our 2014 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. However, 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.
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Condensed Consolidated Statements of Operations | |||||||||||
(Unaudited -- In thousands, except per share amounts) | |||||||||||
Three Months Ended | |||||||||||
|
|||||||||||
2015 | 2014 | ||||||||||
Net sales | $ | 825,400 | $ | 935,036 | |||||||
Operating costs and expenses: | |||||||||||
Cost of sales | 532,196 | 597,325 | |||||||||
Selling, general and administrative | 125,671 | 113,028 | |||||||||
Research and development | 27,736 | 31,870 | |||||||||
Amortization of purchased intangible assets | 44,786 | 44,298 | |||||||||
Restructuring costs, net | 1,871 | 1,980 | |||||||||
Total operating costs and expenses | 732,260 | 788,501 | |||||||||
Operating income | 93,140 | 146,535 | |||||||||
Other income (expense), net | 2,627 | (3,195 | ) | ||||||||
Interest expense | (36,329 | ) | (42,280 | ) | |||||||
Interest income | 1,029 | 1,104 | |||||||||
Income before income taxes | 60,467 | 102,164 | |||||||||
Income tax expense | (20,991 | ) | (37,677 | ) | |||||||
Net income | $ | 39,476 | $ | 64,487 | |||||||
Earnings per share: | |||||||||||
Basic | $ | 0.21 | $ | 0.35 | |||||||
Diluted (a) | $ | 0.20 | $ | 0.34 | |||||||
Weighted average shares outstanding: | |||||||||||
Basic | 188,480 | 185,942 | |||||||||
Diluted (a) | 193,137 | 190,922 | |||||||||
(a) Calculation of diluted earnings per share: | |||||||||||
Net income (basic) | $ | 39,476 | $ | 64,487 | |||||||
Weighted average shares (basic) | 188,480 | 185,942 | |||||||||
Dilutive effect of stock options | 4,657 | 4,980 | |||||||||
Denominator (diluted) | 193,137 | 190,922 | |||||||||
See notes to unaudited condensed consolidated financial statements included in our Form 10-Q. |
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Condensed Consolidated Balance Sheets | ||||||||||||
(Unaudited -- In thousands, except share amounts) | ||||||||||||
|
|
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2015 | 2014 | |||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 735,142 | $ | 729,321 | ||||||||
Accounts receivable, less allowance for doubtful accounts of
|
689,574 | 612,007 | ||||||||||
Inventories, net | 353,060 | 367,185 | ||||||||||
Prepaid expenses and other current assets | 65,152 | 67,875 | ||||||||||
Deferred income taxes |
45,017 | 51,230 | ||||||||||
Total current assets | 1,887,945 | 1,827,618 | ||||||||||
Property, plant and equipment, net of accumulated depreciation of
|
282,244 | 289,371 | ||||||||||
Goodwill | 1,449,822 | 1,451,887 | ||||||||||
Other intangible assets, net | 1,214,832 | 1,260,927 | ||||||||||
Other noncurrent assets | 123,597 | 126,082 | ||||||||||
Total assets | $ | 4,958,440 | $ | 4,955,885 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||
Accounts payable | $ | 234,032 | $ | 177,806 | ||||||||
Other accrued liabilities | 236,385 | 289,006 | ||||||||||
Current portion of long-term debt | 8,972 | 9,001 | ||||||||||
Total current liabilities | 479,389 | 475,813 | ||||||||||
Long-term debt | 2,697,173 | 2,698,724 | ||||||||||
Deferred income taxes | 318,214 | 339,945 | ||||||||||
Pension and other postretirement benefit liabilities | 23,211 | 29,478 | ||||||||||
Other noncurrent liabilities | 101,099 | 104,306 | ||||||||||
Total liabilities | 3,619,086 | 3,648,266 | ||||||||||
Commitments and contingencies | ||||||||||||
Stockholders' equity: | ||||||||||||
Preferred stock, |
||||||||||||
200,000,000; Issued and outstanding shares: None at |
— | — | ||||||||||
Common stock, |
||||||||||||
1,300,000,000; Issued and outstanding shares: 189,409,474 and
187,831,389 at |
1,904 | 1,888 | ||||||||||
Additional paid-in capital | 2,167,740 | 2,141,433 | ||||||||||
Retained earnings (accumulated deficit) | (702,043 | ) | (741,519 | ) | ||||||||
Accumulated other comprehensive loss | (117,612 | ) | (83,548 | ) | ||||||||
Treasury stock, at cost: 961,566 shares at |
(10,635 | ) | (10,635 | ) | ||||||||
Total stockholders' equity | 1,339,354 | 1,307,619 | ||||||||||
Total liabilities and stockholders' equity | $ | 4,958,440 | $ | 4,955,885 | ||||||||
See notes to unaudited condensed consolidated financial statements included in our Form 10-Q. |
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Condensed Consolidated Statements of Cash Flows | |||||||||||
(Unaudited -- In thousands) | |||||||||||
Three Months Ended | |||||||||||
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2015 | 2014 | ||||||||||
Operating Activities: | |||||||||||
Net income | $ | 39,476 | $ | 64,487 | |||||||
Adjustments to reconcile net income to net cash generated by (used in) operating activities: |
|||||||||||
Depreciation and amortization | 59,454 | 59,461 | |||||||||
Equity-based compensation | 5,253 | 3,676 | |||||||||
Deferred income taxes | (13,623 | ) | 7,343 | ||||||||
Excess tax benefits from equity-based compensation | (10,414 | ) | (1,542 | ) | |||||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable | (95,317 | ) | (101,793 | ) | |||||||
Inventories | 5,792 | (38,636 | ) | ||||||||
Prepaid expenses and other assets | (1,134 | ) | 4,341 | ||||||||
Accounts payable and other liabilities | 12,682 | (31,063 | ) | ||||||||
Other | (929 | ) | (1,763 | ) | |||||||
Net cash generated by (used in) operating activities | 1,240 | (35,489 | ) | ||||||||
Investing Activities: | |||||||||||
Additions to property, plant and equipment | (8,213 | ) | (6,675 | ) | |||||||
Proceeds from sale of property, plant and equipment | 125 | 1,183 | |||||||||
Other | 2,633 | 46 | |||||||||
Net cash used in investing activities | (5,455 | ) | (5,446 | ) | |||||||
Financing Activities: | |||||||||||
Long-term debt repaid | (2,199 | ) | (17,558 | ) | |||||||
Long-term debt proceeds | — | 15,000 | |||||||||
Proceeds from the issuance of common shares under equity-based compensation plans |
11,999 | 1,957 | |||||||||
Excess tax benefits from equity-based compensation | 10,414 | 1,542 | |||||||||
Net cash generated by financing activities | 20,214 | 941 | |||||||||
Effect of exchange rate changes on cash and
cash equivalents |
(10,178 | ) | (1,138 | ) | |||||||
Change in cash and cash equivalents | 5,821 | (41,132 | ) | ||||||||
Cash and cash equivalents, beginning of period | 729,321 | 346,320 | |||||||||
Cash and cash equivalents, end of period | $ | 735,142 | $ | 305,188 | |||||||
See notes to unaudited condensed consolidated financial statements included in our Form 10-Q. |
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Reconciliation of GAAP Measures to Non-GAAP Adjusted Measures | ||||||||
(Unaudited -- In millions, except per share amounts) | ||||||||
Three Months Ended | ||||||||
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2015 | 2014 | |||||||
Operating income, as reported | $ | 93.1 | $ | 146.5 | ||||
Adjustments: | ||||||||
Amortization of purchased intangible assets | 44.8 | 44.3 | ||||||
Restructuring costs, net | 1.9 | 2.0 | ||||||
Equity-based compensation | 5.3 | 3.7 | ||||||
Transaction and integration costs | 11.4 | 0.9 | ||||||
Purchase accounting adjustments | - | (5.4 | ) | |||||
Total adjustments to operating income | 63.4 | 45.5 | ||||||
Non-GAAP adjusted operating income | $ | 156.5 | $ | 192.0 | ||||
Income before income taxes, as reported | $ | 60.5 | $ | 102.2 | ||||
Income tax expense, as reported | (21.0 | ) | (37.7 | ) | ||||
Net income, as reported | $ | 39.5 | $ | 64.5 | ||||
Adjustments: | ||||||||
Total pretax adjustments to operating income | 63.4 | 45.5 | ||||||
Pretax amortization of deferred financing costs & OID(1) | 3.1 | 3.4 | ||||||
Pretax gain on sale of equity investment (2) | (2.4 | ) | - | |||||
Tax effects of adjustments and other tax items(3) | (22.2 | ) | (18.1 | ) | ||||
Non-GAAP adjusted net income | $ | 81.4 | $ | 95.3 | ||||
Diluted EPS, as reported | $ | 0.20 | $ | 0.34 | ||||
Non-GAAP adjusted diluted EPS | $ | 0.42 | $ | 0.50 | ||||
(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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Segment Information | ||||||||||||||||||||
(Unaudited -- In millions) | ||||||||||||||||||||
Sales by Segment | ||||||||||||||||||||
% Change | ||||||||||||||||||||
Q1 2015 | Q4 2014 | Q1 2014 | Sequential | YOY | ||||||||||||||||
Wireless | $ | 496.3 | $ | 484.8 | $ | 627.2 | 2.4 | % | (20.9 | ) | % | |||||||||
Enterprise | 211.3 | 212.5 | 201.5 | (0.6 | ) | % | 4.9 | % | ||||||||||||
Broadband | 118.0 | 130.6 | 107.5 | (9.6 | ) | % | 9.8 | % | ||||||||||||
Inter-segment eliminations | (0.2 | ) | (0.1 | ) | (1.2 | ) | N/A | N/A | ||||||||||||
Total Net Sales | $ | 825.4 | $ | 827.9 | $ | 935.0 | (0.3 | ) | % | (11.7 | ) | % | ||||||||
Non-GAAP Adjusted Operating Income by Segment | ||||||||||||||||||||
% Change | ||||||||||||||||||||
Q1 2015 | Q4 2014 | Q1 2014 | Sequential | YOY | ||||||||||||||||
Wireless | $ | 98.1 | $ | 84.0 | $ | 153.9 | 16.8 | % | (36.3 | ) | % | |||||||||
Enterprise | 49.0 | 42.5 | 36.1 | 15.3 | % | 35.7 | % | |||||||||||||
Broadband | 9.4 | 12.9 | 1.9 | (27.1 | ) | % | 394.7 | % | ||||||||||||
Total Non-GAAP Adjusted Operating Income | $ | 156.5 | $ | 139.4 | $ | 192.0 | 12.3 | % | (18.5 | ) | % | |||||||||
Components may not sum to total due to rounding | ||||||||||||||||||||
See Description of Non-GAAP Financial Measures |
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Reconciliation of GAAP to Non-GAAP Adjusted Operating Income by Segment | ||||||||||||||||
(Unaudited -- In millions) | ||||||||||||||||
First Quarter 2015 Non-GAAP Adjusted Operating Income Reconciliation by Segment | ||||||||||||||||
Wireless | Enterprise | Broadband | Total | |||||||||||||
Operating income, as reported | $ | 64.4 | $ | 26.9 | $ | 1.8 | $ | 93.1 | ||||||||
Amortization of purchased intangible assets | 23.1 | 17.4 | 4.3 | 44.8 | ||||||||||||
Restructuring costs, net | 1.8 | - | 0.1 | 1.9 | ||||||||||||
Equity-based compensation | 2.9 | 1.7 | 0.6 | 5.3 | ||||||||||||
Transaction and integration costs | 6.0 | 3.0 | 2.4 | 11.4 | ||||||||||||
Non-GAAP adjusted operating income | $ | 98.1 | $ | 49.0 | $ | 9.4 | $ | 156.5 | ||||||||
Non-GAAP adjusted operating margin % | 19.8 | % | 23.2 | % | 8.0 | % | 19.0 | % | ||||||||
Fourth Quarter 2014 Non-GAAP Adjusted Operating Income Reconciliation by Segment | ||||||||||||||||
Wireless | Enterprise | Broadband | Total | |||||||||||||
Operating income, as reported | $ | 47.8 | $ | 21.5 | $ | 6.9 | $ | 76.2 | ||||||||
Amortization of purchased intangible assets | 23.1 | 17.4 | 4.4 | 44.8 | ||||||||||||
Restructuring costs, net | 7.5 | - | 0.1 | 7.6 | ||||||||||||
Equity-based compensation | 3.0 | 1.7 | 0.7 | 5.4 | ||||||||||||
Asset impairments | (2.1 | ) | - | - | (2.1 | ) | ||||||||||
Transaction and integration costs | 4.7 | 1.9 | 0.9 | 7.5 | ||||||||||||
Non-GAAP adjusted operating income | $ | 84.0 | $ | 42.5 | $ | 12.9 | $ | 139.4 | ||||||||
Non-GAAP adjusted operating margin % | 17.3 | % | 20.0 | % | 9.9 | % | 16.8 | % | ||||||||
First Quarter 2014 Non-GAAP Adjusted Operating Income Reconciliation by Segment | ||||||||||||||||
Wireless | Enterprise | Broadband | Total | |||||||||||||
Operating income (loss), as reported | $ | 127.6 | $ | 22.6 | $ | (3.7 | ) | $ | 146.5 | |||||||
Amortization of purchased intangible assets | 22.5 | 17.4 | 4.4 | 44.3 | ||||||||||||
Restructuring costs, net | 1.2 | 0.2 | 0.5 | 2.0 | ||||||||||||
Equity-based compensation | 2.0 | 1.2 | 0.5 | 3.7 | ||||||||||||
Transaction and integration costs | 0.6 | 0.2 | 0.1 | 0.9 | ||||||||||||
Purchase accounting adjustments | - | (5.4 | ) | - | (5.4 | ) | ||||||||||
Non-GAAP adjusted operating income | $ | 153.9 | $ | 36.1 | $ | 1.9 | $ | 192.0 | ||||||||
Non-GAAP adjusted operating margin % | 24.5 | % | 17.9 | % | 1.8 | % | 20.5 | % | ||||||||
Components may not sum to total due to rounding | ||||||||||||||||
See Description of Non-GAAP Financial Measures |
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Adjusted Free Cash Flow | ||||||||||||||||||||
(Unaudited -- In millions) | ||||||||||||||||||||
Adjusted Free Cash Flow | ||||||||||||||||||||
Q1 2015 | Q1 2014 | |||||||||||||||||||
Cash flow from operations | $ | 1.2 | $ | (35.5 | ) | |||||||||||||||
Transaction and integration costs | 6.6 | * | ||||||||||||||||||
Capital expenditures | (8.2 | ) | (6.7 | ) | ||||||||||||||||
Adjusted Free Cash Flow | $ | (0.4 | ) | $ | (42.2 | ) | ||||||||||||||
* Not significant | ||||||||||||||||||||
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Quarterly Adjusted Operating Income and Adjusted EBITDA | ||||||||||||||||||||
(Unaudited -- In millions) | ||||||||||||||||||||
GAAP to Non-GAAP Adjusted Operating Income and Adjusted EBITDA Reconciliation | ||||||||||||||||||||
Q1 2015 | Q4 2014 | Q3 2014 | Q2 2014 | Q1 2014 | ||||||||||||||||
Operating income, as reported | $ | 93.1 | $ | 76.2 | $ | 151.0 | $ | 203.7 | $ | 146.5 | ||||||||||
Amortization of purchased intangible assets | 44.8 | 44.8 | 44.8 | 44.3 | 44.3 | |||||||||||||||
Restructuring costs, net | 1.9 | 7.6 | 7.4 | 2.3 | 2.0 | |||||||||||||||
Equity-based compensation | 5.3 | 5.4 | 5.6 | 6.5 | 3.7 | |||||||||||||||
Asset impairments | - | (2.1 | ) | 7.0 | 7.2 | - | ||||||||||||||
Transaction and integration costs | 11.4 | 7.5 | 2.7 | 1.0 | 0.9 | |||||||||||||||
Purchase accounting adjustments | - | - | - | (6.4 | ) | (5.4 | ) | |||||||||||||
Non-GAAP adjusted operating income | $ | 156.5 | $ | 139.4 | $ | 218.5 | $ | 258.5 | $ | 192.0 | ||||||||||
Non-GAAP adjusted operating margin % | 19.0 | % | 16.8 | % | 21.8 | % | 24.2 | % | 20.5 | % | ||||||||||
Depreciation | 11.6 | 12.7 | 12.4 | 12.1 | 11.7 | |||||||||||||||
Non-GAAP adjusted EBITDA | $ | 168.1 | $ | 152.0 | $ | 230.9 | $ | 270.6 | $ | 203.7 | ||||||||||
Components may not sum to total due to rounding | ||||||||||||||||||||
See Description of Non-GAAP Financial Measures |
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