SEC Filing | CommScope Holding Company, Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36146

CommScope Holding Company, Inc.

(Exact name of registrant as specified in its charter)

Delaware

27-4332098

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

3642 E. US Highway 70

Claremont, North Carolina

(Address of principal executive offices)

28610

(Zip Code)

(828) 459-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

COMM

The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 26, 2023, there were 212,058,471 shares of Common Stock outstanding.

CommScope Holding Company, Inc.

Form 10-Q

September 30, 2023

Table of Contents


Part I—Financial Information (Unaudited):

Item 1. Condensed Consolidated Financial Statements:

Condensed Consolidated Statements of Operations		2

Condensed Consolidated Statements of Comprehensive Loss		3

Condensed Consolidated Balance Sheets		4

Condensed Consolidated Statements of Cash Flows		5

Condensed Consolidated Statements of Stockholders’ Deficit		6

Notes to Unaudited Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3. Quantitative and Qualitative Disclosures About Market Risk		42

Item 4. Controls and Procedures		43

Part II—Other Information:

Item 1. Legal Proceedings		44

Item 1A. Risk Factors		44

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities		44

Item 3. Defaults Upon Senior Securities		44

Item 4. Mine Safety Disclosures		44

Item 5. Other Information		45

Item 6. Exhibits		46

Signatures		47

PART 1 – FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Operations

(Unaudited – In millions, except per share amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Net sales	$	1,599.5		$	2,381.4		$	5,519.4		$	6,910.2
Cost of sales		1,053.3			1,645.1			3,664.3			4,854.4
Gross profit		546.2			736.3			1,855.1			2,055.8
Operating expenses:
Selling, general and administrative		229.7			281.7			748.1			844.9
Research and development		125.5			161.9			432.1			498.0
Amortization of purchased intangible assets		101.3			134.6			329.1			414.3
Restructuring costs, net		20.4			2.5			51.8			53.1
Asset impairments		895.1			—			895.1			—
Total operating expenses		1,372.0			580.7			2,456.2			1,810.3
Operating income (loss)		(825.8	)		155.6			(601.1	)		245.5
Other income, net		6.4			5.4			14.5			6.4
Interest expense		(171.3	)		(150.9	)		(504.9	)		(427.5	)
Interest income		3.4			0.6			7.8			1.8
Income (loss) before income taxes		(987.3	)		10.7			(1,083.7	)		(173.8	)
Income tax (expense) benefit		158.6			12.2			158.0			(4.2	)
Net income (loss)		(828.7	)		22.9			(925.7	)		(178.0	)
Series A convertible preferred stock dividends		(15.5	)		(14.9	)		(45.9	)		(44.1	)
Net income (loss) attributable to common stockholders	$	(844.2	)	$	8.0		$	(971.6	)	$	(222.1	)

Earnings (loss) per share:
Basic	$	(3.98	)	$	0.04		$	(4.62	)	$	(1.07	)
Diluted	$	(3.98	)	$	0.04		$	(4.62	)	$	(1.07	)

Weighted average shares outstanding:
Basic		211.9			208.2			210.4			207.1
Diluted		211.9			211.3			210.4			207.1

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited – In millions)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Comprehensive loss:
Net income (loss)	$	(828.7	)	$	22.9		$	(925.7	)	$	(178.0	)
Other comprehensive loss, net of tax:
Foreign currency translation loss		(45.1	)		(94.5	)		(24.4	)		(204.9	)
Pension and other postretirement benefit activity		0.1			—			—			(1.3	)
Gain on hedging instruments		3.8			3.7			3.3			15.5
Total other comprehensive loss, net of tax		(41.2	)		(90.8	)		(21.1	)		(190.7	)
Total comprehensive loss	$	(869.9	)	$	(67.9	)	$	(946.8	)	$	(368.7	)

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share amounts)


	Unaudited September 30, 2023			December 31, 2022
Assets
Cash and cash equivalents	$	518.9		$	398.1
Accounts receivable, net of allowance for doubtful accounts of $66.3 and $82.8, respectively		1,144.5			1,523.6
Inventories, net		1,364.6			1,588.1
Prepaid expenses and other current assets		186.7			216.4
Total current assets		3,214.7			3,726.2
Property, plant and equipment, net of accumulated depreciation of $918.6 and $873.5, respectively		539.1			609.6
Goodwill		3,635.7			4,072.4
Other intangible assets, net		1,673.2			2,473.5
Other noncurrent assets		1,002.9			803.7
Total assets	$	10,065.6		$	11,685.4
Liabilities and Stockholders' Deficit
Accounts payable	$	795.3		$	1,025.5
Accrued and other liabilities		719.2			1,050.0
Current portion of long-term debt		32.0			32.0
Total current liabilities		1,546.5			2,107.5
Long-term debt		9,353.3			9,469.6
Deferred income taxes		105.2			173.4
Other noncurrent liabilities		404.4			380.6
Total liabilities		11,409.4			12,131.1
Commitments and contingencies
Series A convertible preferred stock, $0.01 par value		1,146.3			1,100.3
Stockholders' deficit:
Preferred stock, $0.01 par value: Authorized shares: 200,000,000;
Issued and outstanding shares: 1,146,324 and 1,100,310, respectively, Series A convertible preferred stock		—			—
Common stock, $0.01 par value: Authorized shares: 1,300,000,000; Issued and outstanding shares: 211,918,754 and 208,371,426, respectively		2.3			2.2
Additional paid-in capital		2,554.4			2,542.9
Accumulated deficit		(4,427.9	)		(3,502.2	)
Accumulated other comprehensive loss		(317.4	)		(296.3	)
Treasury stock, at cost: 14,345,829 shares and 12,726,695 shares, respectively		(301.5	)		(292.6	)
Total stockholders' deficit		(2,490.1	)		(1,546.0	)
Total liabilities and stockholders' deficit	$	10,065.6		$	11,685.4

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited – In millions)


	Nine Months Ended
	September 30,
	2023			2022
Operating Activities:
Net loss	$	(925.7	)	$	(178.0	)
Adjustments to reconcile net loss to net cash generated by (used in) operating activities:
Depreciation and amortization		442.2			529.1
Equity-based compensation		35.5			45.3
Deferred income taxes		(249.9	)		(75.2	)
Asset impairments		895.1			—
Changes in assets and liabilities:
Accounts receivable		375.0			(191.0	)
Inventories		218.0			(153.3	)
Prepaid expenses and other assets		13.2			(4.7	)
Accounts payable and other liabilities		(524.8	)		(154.8	)
Other		(49.1	)		(14.1	)
Net cash generated by (used in) operating activities		229.5			(196.7	)
Investing Activities:
Additions to property, plant and equipment		(43.9	)		(78.7	)
Proceeds from sale of property, plant and equipment		41.8			0.1
Other		20.4			16.0
Net cash generated by (used in) investing activities		18.3			(62.6	)
Financing Activities:
Long-term debt repaid		(24.0	)		(252.0	)
Long-term debt repurchases		(92.1	)		—
Long-term debt proceeds		—			333.0
Dividends paid on Series A convertible preferred stock		—			(14.9	)
Proceeds from the issuance of common shares under equity-based compensation plans		—			0.1
Tax withholding payments for vested equity-based compensation awards		(8.9	)		(14.0	)
Other		2.1			2.2
Net cash generated by (used in) financing activities		(122.9	)		54.4
Effect of exchange rate changes on cash and cash equivalents		(4.1	)		(9.9	)
Change in cash and cash equivalents		120.8			(214.8	)
Cash and cash equivalents at beginning of period		398.1			360.3
Cash and cash equivalents at end of period	$	518.9		$	145.5

See notes to unaudited condensed consolidated financial statements.


CommScope Holding Company, Inc.
Condensed Consolidated Statements of Stockholders' Deficit
(Unaudited – In millions, except share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Number of common shares outstanding:
Balance at beginning of period		211,912,464			208,162,986			208,371,426			204,567,294
Issuance of shares under equity-based compensation plans		9,362			46,467			5,166,462			5,305,926
Shares surrendered under equity-based compensation plans		(3,072	)		(11,210	)		(1,619,134	)		(1,674,977	)
Balance at end of period		211,918,754			208,198,243			211,918,754			208,198,243
Common stock:
Balance at beginning of period	$	2.3		$	2.2		$	2.2		$	2.2
Issuance of shares under equity-based compensation plans		—			—			0.1			—
Balance at end of period	$	2.3		$	2.2		$	2.3		$	2.2
Additional paid-in capital:
Balance at beginning of period	$	2,558.7		$	2,540.4		$	2,542.9		$	2,540.7
Issuance of shares under equity-based compensation plans		—			0.1			—			0.1
Equity-based compensation		11.3			16.4			35.5			45.3
Dividends on Series A convertible preferred stock		(15.5	)		(14.9	)		(45.9	)		(44.1	)
Other		(0.1	)		—			21.9			—
Balance at end of period	$	2,554.4		$	2,542.0		$	2,554.4		$	2,542.0
Accumulated deficit:
Balance at beginning of period	$	(3,599.2	)	$	(2,416.2	)	$	(3,502.2	)	$	(2,215.3	)
Net income (loss)		(828.7	)		22.9			(925.7	)