CommScope(COMM) - 2022 Q1 - Quarterly Report

Part I—Financial Information (Unaudited) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the company Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for CommScope Holding Company, Inc. for the three months ended March 31, 2022 and 2021, including statements of operations, comprehensive loss, balance sheets, cash flows, and stockholders' equity (deficit), along with detailed notes explaining accounting policies, segment reorganization, goodwill, revenue, financing, fair value measurements, restructuring, preferred stock, and equity-based compensation Condensed Consolidated Statements of Operations This statement details the company's revenues, costs, and net loss for the three months ended March 31, 2022 and 2021 | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | |:---|:---|:---| | Net sales | $2,228.6 | $2,072.0 | | Cost of sales | $1,592.3 | $1,399.8 | | Gross profit | $636.3 | $672.2 | | Total operating expenses | $609.5 | $663.3 | | Operating income | $26.8 | $8.9 | | Loss before income taxes | $(109.0) | $(127.1) | | Income tax (expense) benefit | $(30.9) | $29.5 | | Net loss | $(139.9) | $(97.6) | | Series A convertible preferred stock dividends | $(14.5) | $(14.3) | | Net loss attributable to common stockholders | $(154.4) | $(111.9) | | Basic Loss per share | $(0.75) | $(0.55) | | Diluted Loss per share | $(0.75) | $(0.55) | Condensed Consolidated Statements of Comprehensive Loss This statement presents the net loss and other comprehensive income (loss) components for the three months ended March 31, 2022 and 2021 | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | |:---|:---|:---| | Net loss | $(139.9) | $(97.6) | | Foreign currency translation loss | $(16.7) | $(51.3) | | Pension and other postretirement benefit activity | $(1.3) | $0.3 | | Gain on hedging instruments | $8.8 | $12.6 | | Total other comprehensive loss, net of tax | $(9.2) | $(38.4) | | Total comprehensive loss | $(149.1) | $(136.0) | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2022, and December 31, 2021 | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | |:---|:---|:---| | Cash and cash equivalents | $314.7 | $360.3 | | Accounts receivable, net | $1,590.1 | $1,532.6 | | Inventories, net | $1,507.5 | $1,435.8 | | Total current assets | $3,643.4 | $3,579.7 | | Goodwill | $5,220.5 | $5,231.7 | | Other intangible assets, net | $2,884.4 | $3,027.3 | | Total assets | $13,119.3 | $13,259.5 | | Accounts payable | $1,272.6 | $1,160.7 | | Total current liabilities | $2,221.9 | $2,182.5 | | Long-term debt | $9,476.3 | $9,478.5 | | Total liabilities | $12,362.8 | $12,360.0 | | Series A convertible preferred stock | $1,070.7 | $1,056.1 | | Total stockholders' deficit | $(314.2) | $(156.6) | | Total liabilities and stockholders' deficit | $13,119.3 | $13,259.5 | Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021 | Cash Flow Activity | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | |:---|:---|:---| | Net cash used in operating activities | $(14.6) | $(124.0) | | Net cash used in investing activities | $(16.0) | $(25.4) | | Net cash used in financing activities | $(17.2) | $(42.7) | | Effect of exchange rate changes on cash and cash equivalents | $2.2 | $(3.9) | | Change in cash and cash equivalents | $(45.6) | $(196.0) | | Cash and cash equivalent at end of period | $314.7 | $325.9 | Condensed Consolidated Statements of Stockholders' Equity (Deficit) This statement details changes in stockholders' equity (deficit) for the three months ended March 31, 2022 and 2021, including common stock and accumulated deficit | Metric | Three Months Ended March 31, 2022 (in millions, except shares) | Three Months Ended March 31, 2021 (in millions, except shares) | |:---|:---|:---| | Number of common shares outstanding (end of period) | 207,052,122 | 203,996,914 | | Common stock (end of period) | $2.2 | $2.1 | | Additional paid-in capital (end of period) | $2,542.8 | $2,526.0 | | Accumulated deficit (end of period) | $(2,355.2) | $(1,850.3) | | Accumulated other comprehensive loss (end of period) | $(215.6) | $(194.3) | | Treasury stock, at cost (end of period) | $(288.4) | $(275.7) | | Total stockholders' equity (deficit) | $(314.2) | $207.8 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements 1. Background and Basis of Presentation CommScope is a global provider of infrastructure solutions for communication and entertainment networks. The company reorganized its operating segments as of January 1, 2022, into Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS), Access Network Solutions (ANS), and Home Networks (Home). The financial statements are unaudited and prepared in accordance with GAAP for interim information, with no material changes in significant accounting policies. The company relies on limited suppliers for key components and Carlyle owns 100% of the Series A convertible preferred stock - CommScope is a global provider of infrastructure solutions for communication and entertainment networks, offering solutions for wired and wireless networks, digital video, IP television distribution, and broadband access[28] - As of January 1, 2022, the Company reorganized its operating segments to align with markets served and improve performance clarity. The new segments are Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS), Access Network Solutions (ANS), and Home Networks (Home)[29] - No direct customer accounted for 10% or more of total net sales or accounts receivable for the three months ended March 31, 2022 or 2021. The Company relies on sole or limited suppliers for certain key components, which could pose a material adverse impact if disrupted[32][33] Product Warranty Accrual Activity (in millions) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Product warranty accrual, beginning of period | $66.8 | $59.5 | | Provision for warranty claims | $5.1 | $10.6 | | Warranty claims paid | $(6.0) | $(7.8) | | Foreign exchange | $0.1 | $(0.2) | | Product warranty accrual, end of period | $66.0 | $62.1 | - For the three months ended March 31, 2022, the Company recognized $30.9 million of income tax expense on a pretax loss of $109.0 million, driven by U.S. anti-deferral provisions and non-creditable withholding taxes. In the prior year, a tax benefit of $29.5 million was recognized on a pretax loss of $127.1 million[48][49] Earnings Per Share (EPS) Computations (in millions, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Net loss attributable to common stockholders | $(154.4) | $(111.9) | | Weighted average common shares outstanding – basic | 205.4 | 201.7 | | Weighted average common shares outstanding – diluted | 205.4 | 201.7 | | Basic Loss per share | $(0.75) | $(0.55) | | Diluted Loss per share | $(0.75) | $(0.55) | 2. Goodwill Goodwill was reallocated across the new reportable segments as of January 1, 2022, following the company's reorganization. Impairment testing was performed immediately before and after this change, and no goodwill impairment was identified Goodwill by Reportable Segment (in millions) | Segment | Goodwill December 31, 2021 | Activity (Foreign Exchange and Other) | Goodwill March 31, 2022 | |:---|:---|:---|:---| | CCS | $2,255.8 | $(4.8) | $2,251.0 | | OWN | $507.1 | $(1.1) | $506.0 | | NICS | $611.8 | $(1.3) | $610.5 | | ANS | $1,857.0 | $(4.0) | $1,853.0 | | Home | $0 | $0 | $0 | | Total | $5,231.7 | $(11.2) | $5,220.5 | - No goodwill impairment was identified during the three months ended March 31, 2022 or 2021, even after the segment reorganization and reallocation of goodwill[46][63] 3. Revenue from Contracts with Customers This note provides details on the allowance for doubtful accounts and customer contract balances, including unbilled accounts receivable and deferred revenue. The change in contract liabilities was primarily due to upfront support billings Allowance for Doubtful Accounts (in millions) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Allowance for doubtful accounts, beginning of period | $63.7 | $40.3 | | Provision (benefit) | $2.5 | $(7.2) | | Write-offs | $(0.9) | $(0.1) | | Foreign exchange and other | $(0.5) | $(0.9) | | Allowance for doubtful accounts, end of period | $64.8 | $32.1 | Customer Contract Balances (in millions) | Contract Balance Type | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | Unbilled accounts receivable | $44.6 | $35.0 | | Deferred revenue - current | $121.1 | $94.6 | | Deferred revenue - noncurrent | $61.8 | $61.1 | | Total contract liabilities | $182.9 | $155.7 | - During the three months ended March 31, 2022, the Company recognized $37.8 million of revenue related to contract liabilities recorded as of December 31, 2021[70] 4. Supplemental Financial Statement Information This section provides detailed breakdowns of inventories, accrued and other liabilities, operating lease information, and accumulated other comprehensive loss, along with cash flow information for income taxes and interest paid Inventories (in millions) | Inventory Type | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | Raw materials | $513.1 | $436.0 | | Work in process | $204.7 | $178.3 | | Finished goods | $789.7 | $821.5 | | Total Inventories | $1,507.5 | $1,435.8 | Accrued and Other Liabilities (in millions) | Liability Type | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | Compensation and employee benefit liabilities | $282.5 | $304.7 | | Deferred revenue | $121.1 | $94.6 | | Accrued interest | $56.7 | $118.3 | | Product warranty accrual | $50.2 | $54.0 | | Restructuring liabilities | $44.7 | $41.0 | | Operating lease liabilities | $44.0 | $46.7 | | Patent claims and litigation settlements | $13.5 | $17.0 | | Other | $304.6 | $313.5 | | Total | $917.3 | $989.8 | Operating Lease Information (in millions) | Metric | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | Right of use assets | $149.9 | $162.5 | | Lease liabilities - current | $44.0 | $46.7 | | Lease liabilities - noncurrent | $134.0 | $140.8 | | Total lease liabilities | $178.0 | $187.5 | Cash Paid During the Period (in millions) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Income taxes, net of refunds | $28.7 | $18.1 | | Interest | $191.7 | $195.4 | 5. Financing This note details the company's debt obligations, including senior notes and term loans, and provides information on the revolving credit facility. It also highlights the weighted average effective interest rate on outstanding borrowings Long-Term Debt (in millions) | Debt Instrument | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | 7.125% senior notes due July 2028 | $700.0 | $700.0 | | 5.00% senior notes due March 2027 | $750.0 | $750.0 | | 8.25% senior notes due March 2027 | $1,000.0 | $1,000.0 | | 6.00% senior notes due June 2025 | $1,300.0 | $1,300.0 | | 4.75% senior secured notes due September 2029 | $1,250.0 | $1,250.0 | | 6.00% senior secured notes due March 2026 | $1,500.0 | $1,500.0 | | Senior secured term loan due April 2026 | $3,120.0 | $3,128.0 | | Total principal amount of debt | $9,620.0 | $9,628.0 | | Total long-term debt (net) | $9,476.3 | $9,478.5 | - During the three months ended March 31, 2022, the Company borrowed and repaid $85.0 million under the Revolving Credit Facility. As of March 31, 2022, there were no outstanding borrowings, and availability was $715.6 million[81] - The weighted average effective interest rate on outstanding borrowings was 5.77% as of March 31, 2022, a slight increase from 5.74% at December 31, 2021[85] 6. Fair Value Measurements This note outlines the fair value measurements for the company's financial instruments, including debt instruments, interest rate derivatives, and foreign currency contracts, categorized by the fair value hierarchy (Level 1, 2, or 3) Fair Value Measurements of Financial Instruments (in millions) | Instrument | March 31, 2022 Carrying Amount | March 31, 2022 Fair Value | December 31, 2021 Carrying Amount | December 31, 2021 Fair Value | Valuation Inputs | |:---|:---|:---|:---|:---|:---| | Foreign currency contracts (Assets) | $7.4 | $7.4 | $5.7 | $5.7 | Level 2 | | 7.125% senior notes due 2028 | $700.0 | $619.5 | $700.0 | $690.4 | Level 2 | | 5.00% senior notes due 2027 | $750.0 | $651.3 | $750.0 | $705.0 | Level 2 | | 8.25% senior notes due 2027 | $1,000.0 | $974.0 | $1,000.0 | $1,023.8 | Level 2 | | 6.00% senior notes due 2025 | $1,300.0 | $1,241.5 | $1,300.0 | $1,300.0 | Level 2 | | 4.75% senior secured notes due 2029 | $1,250.0 | $1,153.1 | $1,250.0 | $1,240.3 | Level 2 | | 6.00% senior secured notes due 2026 | $1,500.0 | $1,513.6 | $1,500.0 | $1,554.4 | Level 2 | | Senior secured term loan due 2026 | $3,120.0 | $3,038.1 | $3,128.0 | $3,092.8 | Level 2 | | Foreign currency contracts (Liabilities) | $1.9 | $1.9 | $0.8 | $0.8 | Level 2 | | Interest rate swap contracts | $0.5 | $0.5 | $11.8 | $11.8 | Level 2 | 7. Segments and Geographic Information This note details the company's five new reportable operating segments (CCS, OWN, NICS, ANS, Home) and provides summary financial information, including identifiable assets, net sales, adjusted EBITDA, depreciation, and capital expenditures by segment, as well as net sales disaggregated by geographic region - The Connectivity and Cable Solutions (CCS) segment provides fiber optic and copper connectivity and cable solutions for telecommunications, cable television, residential broadband, data centers, and business enterprises[92] - The Outdoor Wireless Networks (OWN) segment focuses on macro and metro cell markets, including base station antennas, RF filters, tower connectivity, and microwave antennas[93] - The Networking, Intelligent Cellular and Security Solutions (NICS) segment provides wireless networks for enterprises and service providers, offering Wi-Fi and LTE access points, switches, IoT suites, and management systems[96] - The Access Network Solutions (ANS) segment offers product solutions like cable modem termination systems, video infrastructure, distribution and transmission equipment, and cloud solutions for service providers[97] - The Home Networks (Home) segment includes subscriber-based solutions for broadband and video applications, such as modems, gateways, and set-top boxes[98] Identifiable Segment-Related Assets (in millions) | Segment | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | CCS | $4,402.1 | $4,377.2 | | OWN | $1,393.8 | $1,386.5 | | NICS | $1,323.9 | $1,397.0 | | ANS | $3,792.1 | $3,831.9 | | Home | $1,477.6 | $1,479.5 | | Total identifiable segment-related assets | $12,389.5 | $12,472.1 | | Total assets (reconciled) | $13,119.3 | $13,259.5 | Segment Performance Metrics (Three Months Ended March 31, in millions) | Metric | 2022 Net Sales | 2021 Net Sales | 2022 Adjusted EBITDA | 2021 Adjusted EBITDA | 2022 Depreciation Expense | 2021 Depreciation Expense | 2022 Additions to PP&E | 2021 Additions to PP&E | |:---|:---|:---|:---|:---|:---|:---|:---|:---| | CCS | $838.0 | $676.9 | $98.6 | $106.0 | $14.0 | $13.0 | $17.4 | $14.3 | | OWN | $390.1 | $324.2 | $71.0 | $73.7 | $3.8 | $3.9 | $2.9 | $2.2 | | NICS | $188.0 | $191.2 | $(13.8) | $(17.4) | $4.4 | $5.5 | $2.2 | $5.1 | | ANS | $316.8 | $378.7 | $(6.6) | $23.9 | $74.2 | $108.0 | $2.4 | $2.8 | | Home | $495.7 | $501.0 | $23.3 | $19.4 | $4.8 | $7.5 | $2.5 | $2.0 | | Consolidated Total | $2,228.6 | $2,072.0 | $253.3 | $289.7 | $33.0 | $37.7 | $27.4 | $26.4 | Net Sales by Reportable Segment and Geographic Region (Three Months Ended March 31, in millions) | Geographic Region | CCS (2022) | OWN (2022) | NICS (2022) | ANS (2022) | Home (2022) | Total (2022) | CCS (2021) | OWN (2021) | NICS (2021) | ANS (2021) | Home (2021) | Total (2021) | |:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---| | United States | $542.4 | $270.9 | $97.3 | $192.2 | $244.3 | $1,347.1 | $402.6 | $190.4 | $98.4 | $249.7 | $250.8 | $1,191.9 | | Europe, Middle East and Africa | $131.6 | $71.4 | $61.2 | $32.0 | $110.2 | $406.4 | $121.7 | $63.4 | $58.4 | $26.6 | $115.6 | $385.7 | | Asia Pacific | $101.4 | $28.2 | $24.0 | $29.2 | $20.6 | $203.4 | $105.3 | $42.1 | $23.3 | $36.6 | $18.1 | $225.4 | | Caribbean and Latin America | $42.0 | $8.8 | $3.2 | $49.3 | $59.0 | $162.3 | $34.2 | $11.2 | $4.3 | $55.3 | $87.1 | $192.1 | | Canada | $20.6 | $10.8 | $2.3 | $14.1 | $61.6 | $109.4 | $13.1 | $17.1 | $6.8 | $10.5 | $29.4 | $76.9 | | Consolidated net sales | $838.0 | $390.1 | $188.0 | $316.8 | $495.7 | $2,228.6 | $676.9 | $324.2 | $191.2 | $378.7 | $501.0 | $2,072.0 | 8. Restructuring Costs, Net This note details restructuring costs associated with the CommScope NEXT initiative and ARRIS integration, primarily consisting of employee-related costs and asset impairments. It provides a breakdown of these costs by segment and the associated liabilities Net Pretax Restructuring Activity by Segment (Three Months Ended March 31, in millions) | Segment | 2022 | 2021 | |:---|:---|:---| | CCS | $2.9 | $16.7 | | OWN | $2.2 | $5.8 | | NICS | $3.6 | $11.2 | | ANS | $2.6 | $4.8 | | Home | $0.8 | $5.9 | | Total | $12.1 | $44.4 | Restructuring Liabilities (in millions) | Liability Type | March 31, 2022 | December 31, 2021 | |:---|:---|:---| | Accrued and other liabilities | $44.7 | $41.0 | | Other noncurrent liabilities | $19.9 | $28.2 | | Total restructuring liabilities | $64.6 | $69.2 | - The CommScope NEXT initiative, designed to drive shareholder value through profitable growth, operational efficiency, and portfolio optimization, has incurred $99.1 million in restructuring charges to date. The Company expects to make cash payments of $33.6 million during the remainder of 2022 and $27.1 million in 2023 for these actions[112][113] - Restructuring charges related to the ARRIS integration totaled $179.5 million since the acquisition. The Company expects to make cash payments of $3.7 million during the remainder of 2022 and $0.1 million in 2023 to settle these initiatives, with no significant additional actions expected[114][115] 9. Series A Convertible Preferred Stock This note describes the Series A convertible preferred stock issued to Carlyle, including its conversion rate, cumulative dividend rate, and the company's option to pay dividends in cash or in-kind - On April 4, 2019, the Company issued 1,000,000 shares of Convertible Preferred Stock to Carlyle for $1.0 billion. It is convertible at the option of holders into common stock at an initial conversion rate of 36.3636 shares per preferred share ($27.50 per common share)[118] - Holders are entitled to a cumulative dividend of 5.5% per year, payable quarterly. For the three months ended March 31, 2022, the Company paid $14.5 million in dividends in-kind, recorded as additional Convertible Preferred Stock[119] 10. Stockholders' Equity This note details the company's equity-based compensation plans, including stock options, restricted stock units (RSUs), and performance share units (PSUs). It provides summaries of activity, unrecognized compensation expense, and key assumptions used for valuation - As of March 31, 2022, $102.6 million of total unrecognized compensation expense related to unvested stock options, RSUs, and PSUs is expected to be recognized over a remaining weighted average period of 2.1 years[120] Equity-Based Compensation Expense (Three Months Ended March 31, in millions) | Expense Category | 2022 | 2021 | |:---|:---|:---| | Selling, general and administrative | $9.4 | $11.9 | | Research and development | $4.9 | $7.7 | | Cost of sales | $2.2 | $3.9 | | Total equity-based compensation expense | $16.5 | $23.5 | Stock Option Activity (in millions, except per share data and years) | Metric | Shares | Weighted Average Option Exercise Price Per Share | Weighted Average Remaining Contractual Term in Years | |:---|:---|:---|:---| | Options outstanding at December 31, 2021 | 2.7 | $24.77 | 4.2 | | Expired | (0.1) | - | - | | Options outstanding at March 31, 2022 | 2.6 | $24.77 | 4.2 | | Options vested at March 31, 2022 | 2.3 | $25.70 | 3.9 | | Options unvested at March 31, 2022 | 0.3 | $7.00 | 7.0 | Restricted Stock Unit (RSU) Activity (in millions, except per share data) | Metric | Restricted Stock Units | Weighted Average Grant Fair Value Per Share | |:---|:---|:---| | Non-vested share units at December 31, 2021 | 10.4 | $15.04 | | Granted | 1.6 | $8.77 | | Vested and shares issued | (3.7) | $13.68 | | Forfeited | (0.3) | $15.74 | | Non-vested share units at March 31, 2022 | 8.0 | $14.42 | Performance Share Unit (PSU) Activity (in millions, except per share data) | Metric | Performance Share Units | Weighted Average Grant Fair Value Per Share | |:---|:---|:---| | Non-vested share units at December 31, 2021 | 2.1 | $7.69 | | Granted | 1.1 | $9.60 | | Non-vested share units at March 31, 2022 | 3.2 | $8.30 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on CommScope's financial condition and results of operations for the three months ended March 31, 2022, compared to the prior year. It covers the company's business overview, the impacts of COVID-19 and supply chain constraints, a detailed comparison of financial results, segment-specific performance, liquidity and capital resources, and a reconciliation of non-GAAP financial measures Overview CommScope is a global provider of infrastructure solutions for communication and entertainment networks. The company initiated 'CommScope NEXT' in 2021 for profitable growth, operational efficiency, and portfolio optimization, leading to a segment reorganization as of January 1, 2022. A planned spin-off of the Home Networks business has been delayed due to supply chain uncertainties - CommScope is a global provider of infrastructure solutions for communication and entertainment networks, enabling wired and wireless connectivity for service providers and enterprises[138] - The 'CommScope NEXT' transformation initiative, launched in 2021, aims to drive shareholder value through profitable growth, operational efficiency, and portfolio optimization. This led to a reorganization of operating segments into CCS, OWN, NICS, ANS, and Home as of January 1, 2022[139][140] - The plan to separate the Home Networks business via a spin-off transaction has been delayed due to the uncertain supply chain environment[141] Impacts of COVID-19 and Supply Chain Constraints The company continues to face dynamic impacts from COVID-19, including new lockdowns in China. While demand has recovered, this has led to inflation, material/component shortages, and increased logistics costs. Mitigation efforts include price increases and inventory adjustments, but these challenges are expected to persist through 2022 and potentially into 2023 - The COVID-19 pandemic continues to impact the business, with new lockdowns in China. While demand has recovered, it has led to inflation, material and component shortages, and increased logistics costs[143][144] - The Company is mitigating increasing costs by implementing higher prices, purchasing components in advance, maintaining higher inventory levels, and finding alternate vendors[144] - Global supply chain challenges and their adverse impact on business and financial results are expected to persist at least through the remainder of 2022 and potentially into periods thereafter[145] Comparison of Results of Three Months Ended March 31, 2022 for 2022 and 2021 Consolidated net sales increased by 7.6% year-over-year, primarily driven by higher pricing and increased volume, especially in Core segments. However, gross profit decreased due to significantly higher material and freight costs. Operating income saw a substantial increase, while net loss widened. SG&A and R&D expenses remained relatively stable, with SG&A benefiting from cost savings but offset by higher bad debt Key Financial Results (Three Months Ended March 31, in millions, except per share amounts) | Metric | 2022 Amount | % of Net Sales (2022) | 2021 Amount | % of Net Sales (2021) | Change | % Change | |:---|:---|:---|:---|:---|:---|:---| | Net sales | $2,228.6 | 100.0% | $2,072.0 | 100.0% | $156.6 | 7.6% | | Core net sales | $1,732.9 | 77.8% | $1,571.0 | 75.8% | $161.9 | 10.3% | | Gross profit | $636.3 | 28.6% | $672.2 | 32.4% | $(35.9) | (5.3)% | | Operating income | $26.8 | 1.2% | $8.9 | 0.4% | $17.9 | 201.1% | | Core operating income | $40.6 | 2.3% | $40.4 | 2.6% | $0.2 | 0.5% | | Non-GAAP adjusted EBITDA | $253.3 | 11.4% | $289.7 | 14.0% | $(36.4) | (12.6)% | | Core adjusted EBITDA | $230.0 | 13.3% | $270.3 | 17.2% | $(40.3) | (14.9)% | | Net loss | $(139.9) | (6.3)% | $(97.6) | (4.7)% | $(42.3) | 43.3% | | Diluted loss per share | $(0.75) | - | $(0.55) | - | $(0.20) | 35.5% | - Net sales for the three months ended March 31, 2022, increased by $156.6 million, or 7.6%, to $2,228.6 million, primarily driven by higher pricing and increased volume. Core net sales increased by 10.3%[148] - Gross profit decreased by $35.9 million, or 5.3%, despite higher net sales, primarily due to significantly higher material and freight costs[152] - SG&A expense decreased by $6.7 million, or 2.3%, due to cost savings initiatives, partially offset by a $9.4 million increase in bad debt expense, including $5.4 million related to Russian customers. R&D expense remained relatively unchanged[153][154] - Amortization of purchased intangible assets decreased by $14.0 million, or 9.0%, as certain intangible assets became fully amortized. Net restructuring costs decreased by $32.3 million, or 72.7%, to $12.1 million[155][156][157] - Interest expense was relatively unchanged. The Company recognized $30.9 million of income tax expense on a pretax loss of $109.0 million, driven by U.S. anti-deferral provisions and non-creditable withholding taxes[163][164] Segment Results This section provides a detailed breakdown of net sales, operating income (loss), and adjusted EBITDA for each of CommScope's five reportable segments: Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS), Access Network Solutions (ANS), and Home Networks (Home). It highlights segment-specific drivers for changes in performance, including demand, pricing, supply shortages, and cost impacts Segment Performance (Three Months Ended March 31, in millions) | Segment | 2022 Net Sales | 2021 Net Sales | 2022 Operating Income (Loss) | 2021 Operating Income (Loss) | 2022 Adjusted EBITDA | 2021 Adjusted EBITDA | |:---|:---|:---|:---|:---|:---|:---| | CCS | $838.0 | $676.9 | $37.3 | $26.1 | $98.6 | $106.0 | | OWN | $390.1 | $324.2 | $52.9 | $50.8 | $71.0 | $73.7 | | NICS | $188.0 | $191.2 | $(43.0) | $(60.4) | $(13.8) | $(17.4) | | ANS | $316.8 | $378.7 | $(6.6) | $23.9 | $74.2 | $108.0 | | Home | $495.7 | $501.0 | $(13.8) | $(31.5) | $23.3 | $19.4 | | Consolidated Total | $2,228.6 | $2,072.0 | $26.8 | $8.9 | $253.3 | $289.7 | - CCS net sales increased due to increased demand, pricing, and capacity expansion, but supply shortages for network cable products hindered ability to meet demand. Operating income and adjusted EBITDA benefited from pricing and higher sales volumes, offset by higher material and freight costs[169][171] - OWN net sales increased due to higher customer demand for metro and macro cell solutions and favorable pricing. Operating income and adjusted EBITDA benefited from increased sales volumes and pricing, but were offset by higher material and freight costs[172][173] - NICS net sales decreased slightly due to material shortages impacting Ruckus products, partially offset by favorable pricing and increased demand for distributed antenna systems and small cell products. Operating loss decreased and adjusted EBITDA increased due to favorable pricing, product mix, and lower selling expenses, partially offset by lower sales volumes and higher costs[174][175] - ANS net sales decreased due to supply shortages delaying ability to meet customer demand. Operating loss increased and adjusted EBITDA decreased due to lower sales volumes and unfavorable geographic and product mix, partially offset by lower material and freight costs and lower SG&A and R&D costs[176][177] - Home net sales decreased slightly due to lower sales volumes of certain products caused by supply shortages, despite favorable pricing for broadband solutions. Operating loss decreased and adjusted EBITDA increased due to favorable pricing, cost savings, lower warranty costs, and favorable product mix, partially offset by higher component and freight costs and lower sales volumes[179][180] Liquidity and Capital Resources CommScope's liquidity is primarily supported by cash, operating cash flows, and credit facilities. Key uses include debt service, capital expenditures, and transformation costs. Cash and cash equivalents decreased, while working capital increased due to higher inventory. The company believes existing liquidity sources are sufficient to meet anticipated future cash needs and is in compliance with debt covenants Key Liquidity and Capital Resources Measures (in millions, except percentage data) | Metric | March 31, 2022 | December 31, 2021 | Change | % Change | |:---|:---|:---|:---|:---|\ | Cash and cash equivalents | $314.7 | $360.3 | $(45.6) | (12.7)% | | Working capital, excluding cash and cash equivalents and current portion of long-term debt | $1,138.8 | $1,068.9 | $69.9 | 6.5% | | Availability under revolving credit facility | $715.6 | $684.1 | $31.5 | 4.6% | | Long-term debt, including current portion | $9,508.3 | $9,510.5 | $(2.2) | — | | Total capitalization | $10,264.8 | $10,410.0 | $(145.2) | (1.4)% | - Principal sources of liquidity are cash and cash equivalents, cash flows from operations, and credit facilities. Primary uses include debt service, working capital, capital expenditures, and transformation costs. Interest payments are expected to increase due to rising interest rates[183][184] - Cash and cash equivalents decreased by $45.6 million, primarily due to cash used for operating activities ($14.6 million), capital expenditures ($27.4 million), and tax withholding payments for equity-based compensation ($10.6 million)[188] - Working capital, excluding cash and cash equivalents and current portion of long-term debt, increased primarily due to higher inventory balances driven by rising material costs and building stock for incomplete products. This was partially offset by an increase in accounts payable[189] Cash Flow Overview (Three Months Ended March 31, in millions) | Cash Flow Activity | 2022 | 2021 | |:---|:---|:---| | Net cash used in operating activities | $(14.6) | $(124.0) | | Net cash used in investing activities | $(16.0) | $(25.4) | | Net cash used in financing activities | $(17.2) | $(42.7) | - Net cash used in operating activities decreased significantly from $(124.0) million in 2021 to $(14.6) million in 2022, primarily due to higher collections of accounts receivable and a shift in the timing of certain variable incentive compensation payments[191] - Net cash used in investing activities decreased from $(25.4) million in 2021 to $(16.0) million in 2022, driven by proceeds from the sale of an equity method investment ($6.9 million) and a return on equity method investments ($4.5 million)[193] - Net cash used in financing activities decreased from $(42.7) million in 2021 to $(17.2) million in 2022, primarily due to lower long-term debt repayments and reduced tax withholding payments for vested equity-based compensation awards[194][196] Reconciliation of Non-GAAP Measures This section explains the use of non-GAAP financial measures, particularly adjusted EBITDA, to enhance investor understanding of core business performance. It provides a detailed reconciliation of net loss to non-GAAP adjusted EBITDA for consolidated results and individually for each operating segment - Non-GAAP financial measures like adjusted EBITDA are used to assess operating performance by excluding items not representative of the core business, for business planning, and competitor comparison[198] Reconciliation of Net Loss to Non-GAAP Adjusted EBITDA (in millions) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Year Ended December 31, 2021 | Twelve Months Ended March 31, 2022 | |:---|:---|:---|:---|:---|\ | Net loss | $(139.9) | $(97.6) | $(462.6) | $(504.9) | | Operating income | $26.8 | $8.9 | $48.6 | $66.5 | | Amortization of purchased intangible assets | $140.7 | $154.7 | $613.0 | $599.0 | | Restructuring costs, net | $12.1 | $44.4 | $91.9 | $59.6 | | Equity-based compensation | $16.5 | $23.5 | $79.6 | $72.6 | | Transaction, transformation and integration costs | $15.6 | $15.7 | $90.3 | $90.2 | | Depreciation | $33.0 | $37.7 | $136.7 | $132.0 | | Non-GAAP adjusted EBITDA | $253.3 | $289.7 | $1,117.0 | $1,080.6 | - For the twelve months ended March 31, 2022, non-GAAP pro forma adjusted EBITDA, as measured for debt covenants, was $1,132.6 million, including annualized savings from cost reduction initiatives[187] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's previously reported interest rate risk, commodity price risk, or foreign currency exchange rate risk information - There have been no material changes in the interest rate risk, commodity price risk, or foreign currency exchange rate risk information previously reported in the 2021 Annual Report on Form 10-K[212] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2022, and concluded they are effective. No material changes in internal control over financial reporting occurred during the quarter - Management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that the disclosure controls and procedures were effective as of March 31, 2022[214] - There have been no changes in internal control over financial reporting during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[215] Part II—Other Information This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is involved in intellectual property claims and other legal matters in the normal course of business. While outcomes are uncertain, management believes these will not have a material adverse effect on the company's financial condition. The company also complies with environmental laws and regulations - The Company is party to intellectual property claims and other legal matters, with uncertain outcomes, but management believes none will have a material adverse effect on the business or financial condition[218][219] - Compliance with federal, state, local, and foreign laws and regulations governing hazardous materials has not had, and is not expected to have, a materially adverse effect on the Company's financial condition or results of operations[220] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors disclosed in Part I - Item 1A, Risk Factors, of the Company's Form 10-K for the year ended December 31, 2021[221] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities. The company's equity purchase activity for the quarter involved shares withheld to satisfy tax withholding obligations related to vested restricted stock units and performance share units - No unregistered sales of equity securities occurred during the period[222] Issuer Purchases of Equity Securities (Three Months Ended March 31, 2022) | Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | |:---|:---|:---|\ | January 1, 2022 - January 31, 2022 | 10,504 | $11.44 | | February 1, 2022 - February 28, 2022 | 3,981 | $9.20 | | March 1, 2022 - March 31, 2022 | 1,216,754 | $8.62 | | Total | 1,231,239 | $8.65 | (1) Shares purchased were withheld to satisfy tax withholding obligations for vested equity-based compensation awards. Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[224] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[225] Item 5. Other Information No other information is reported under this item - None[226] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including various certifications and XBRL-related documents - Form of Performance Share Unit Award Certificate under the CommScope Holding Company, Inc. Amended and Restated 2019 Long-Term Incentive Plan[228] - Certification of Principal Executive Officer pursuant to Rule 13a-14(a)[229] - Certification of Principal Financial Officer pursuant to Rule 13a-14(a)[229] - Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002[230] - Inline XBRL Instance Document, Schema Document, Taxonomy Extension Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, and Cover Page Interactive Data File[230] Signatures The report is duly signed on behalf of CommScope Holding Company, Inc. by its Executive Vice President and Chief Financial Officer - The report was signed on May 4, 2022, by Kyle D. Lorentzen, Executive Vice President and Chief Financial Officer[232]