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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

OR

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.

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

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. ☐

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

 

 

 

1


 

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.

 

 

2

 


 

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.

 

 

3

 


 

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.

 

 

4

 


 

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.

 

 

5

 


 

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

)

 

 

(178.0

)

Balance at end of period

 

$

(4,427.9

)

 

$

(2,393.3

)

 

$

(4,427.9

)

 

$

(2,393.3

)

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(276.2

)

 

$

(306.3

)

 

$

(296.3

)

 

$

(206.4

)

Other comprehensive loss, net of tax

 

 

(41.2

)

 

 

(90.8

)

 

 

(21.1

)

 

 

(