CommScope(US:COMM)2023-05-03 16:00Part I—Financial Information Condensed Consolidated Financial Statements CommScope reported Q1 2023 net sales of $2.00 billion (down 10.2%), but operating income significantly increased to $152.5 million, leading to a net income of $3.4 million despite negative operating cash flow Condensed Consolidated Statements of Operations (Q1 2023 vs Q1 2022) | Financial Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $2,001.5 | $2,228.6 | (10.2%) | | Gross profit | $691.7 | $636.3 | 8.7% | | Operating income | $152.5 | $26.8 | 469.0% | | Net income (loss) | $3.4 | $(139.9) | NM | | Diluted loss per share | $(0.06) | $(0.75) | 92.0% | Condensed Consolidated Balance Sheet Highlights (as of March 31, 2023) | Account | March 31, 2023 (in millions) | Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $3,509.8 | $3,726.2 | | Total Assets | $11,337.0 | $11,685.4 | | Total Current Liabilities | $1,802.3 | $2,107.5 | | Long-term Debt | $9,410.5 | $9,469.6 | | Total Liabilities | $11,752.0 | $12,131.1 | | Total Stockholders' Deficit | $(1,530.4) | $(1,546.0) | Condensed Consolidated Statements of Cash Flows (Q1 2023 vs Q1 2022) | Cash Flow Activity | Q1 2023 (in millions) | Q1 2022 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | $(46.1) | $(14.6) | | Net cash generated by (used in) investing activities | $35.9 | $(16.0) | | Net cash used in financing activities | $(61.1) | $(17.2) | | Change in cash and cash equivalents | $(70.8) | $(45.6) | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management reported a 10.2% net sales decrease in Q1 2023 due to lower volumes, yet gross profit and operating income significantly improved, with liquidity remaining sufficient despite macroeconomic challenges - The CommScope NEXT transformation plan, initiated in 2021, focuses on profitable growth, operational efficiency, and portfolio optimization, though the plan to separate the Home Networks segment has been delayed due to market uncertainties40286 - Macroeconomic factors, including higher interest rates and inflation, have softened product demand, leading some customers to reduce purchases to manage inventory levels, while supply chain constraints for certain components like memory devices and silicon chips also persist287 Key Performance Indicators (Q1 2023 vs Q1 2022) | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,001.5 | $2,228.6 | (10.2%) | | Core Net Sales | $1,664.4 | $1,732.9 | (4.0%) | | Gross Profit | $691.7 | $636.3 | 8.7% | | Operating Income | $152.5 | $26.8 | 469.0% | | Non-GAAP Adjusted EBITDA | $312.0 | $253.3 | 23.2% | - Net sales decreased across most geographic regions, with the largest declines in Europe, Middle East and Africa (EMEA) by $79.9 million and the Caribbean and Latin American (CALA) region by $54.4 million44 Segment Results Q1 2023 segment results were mixed, with NICS sales up 51.3% due to improved supply, while OWN and Home segments saw significant declines, and Core adjusted EBITDA grew 37.1% Net Sales by Segment (Q1 2023 vs Q1 2022) | Segment | Q1 2023 (in millions) | Q1 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | CCS | $822.8 | $838.0 | (1.8%) | | OWN | $258.4 | $390.1 | (33.8%) | | NICS | $284.5 | $188.0 | 51.3% | | ANS | $298.7 | $316.8 | (5.7%) | | Home | $337.1 | $495.7 | (32.0%) | | Consolidated | $2,001.5 | $2,228.6 | (10.2%) | Adjusted EBITDA by Segment (Q1 2023 vs Q1 2022) | Segment | Q1 2023 (in millions) | Q1 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | CCS | $147.7 | $98.6 | 49.8% | | OWN | $59.5 | $71.0 | (16.2%) | | NICS | $58.0 | $(13.8) | NM | | ANS | $50.1 | $74.2 | (32.5%) | | Home | $(3.3) | $23.3 | (114.2%) | | Total | $312.0 | $253.3 | 23.2% | - NICS segment sales grew primarily due to higher sales volumes of Ruckus and distributed antenna systems products, benefiting from improved availability of chips76 - OWN segment sales decreased due to lower sales volumes resulting from spending reductions by certain North American operators103 Liquidity and Capital Resources As of March 31, 2023, the company maintained $327.3 million in cash and $907.3 million in credit availability, with $9.44 billion in long-term debt, despite $46.1 million in negative operating cash flow Liquidity and Capitalization Summary | Metric | March 31, 2023 (in millions) | Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $327.3 | $398.1 | | Availability under Revolving Credit Facility | $907.3 | $908.8 | | Long-term debt, including current portion | $9,442.5 | $9,501.6 | - Cash and cash equivalents decreased by $70.8 million during Q1 2023, driven by $46.1 million used in operations, $50.0 million for debt repurchases, and $14.4 million in capital expenditures, partially offset by $41.0 million in proceeds from asset sales81 - In March 2023, the company repurchased $57.5 million in aggregate principal of various senior notes for $50.0 million in cash, resulting in a gain on early extinguishment of debt of $7.5 million210305 Quantitative and Qualitative Disclosures About Market Risk No material changes were reported for interest rate risk, commodity price risk, or foreign currency exchange rate risk compared to the 2022 Annual Report - No material changes were reported for interest rate risk, commodity price risk, or foreign currency exchange rate risk compared to the 2022 Annual Report122 Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by this report94 - No material changes to the company's internal control over financial reporting occurred during the quarter ended March 31, 2023315 Part II—Other Information Legal Proceedings The company is involved in various legal matters, including intellectual property claims, with management believing outcomes will not materially adversely affect financial condition - The company is party to various intellectual property claims and other legal matters, with management believing the outcomes will not have a material adverse effect on the business96316 Risk Factors No material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K have occurred - No material changes to the risk factors disclosed in the 2022 Annual Report have occurred318 Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company withheld 700,666 shares at an average price of $7.17 per share to satisfy tax obligations related to vested employee equity awards - Shares purchased by the issuer were withheld to satisfy tax withholding obligations for employees on vested equity awards97 Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2023 | 7,646 | $7.55 | | Feb 2023 | 31,666 | $8.59 | | Mar 2023 | 661,354 | $7.10 | | Total | 700,666 | $7.17 | Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Key exhibits filed include the CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002130139131