CommScope Holding Company, Inc.

Thank you for standing by. Welcome to the CommScope first quarter 2021 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you may press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I will now like to turn today's call over to Russell Johnson, Vice President, Treasurer, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us today to discuss CommScope's first quarter 2021 results. With me on today's call are Chuck Treadway, President and CEO, Alex Pease, Executive Vice President and CFO, Morgan Kirk, Executive Vice President, CTO, and Segment Leader for Broadband Networks, and Bud Watts, Chairman of the Board. You can find the slides that accompany this report on our Investor Relations website. Please note that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Before I turn the call over to Chuck, I have a few housekeeping items to review. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. All references during today's discussion will be to our adjusted results. All quarterly growth rates described during today's presentation are on a year-over-year basis unless otherwise noted. I'll now turn the call over to our President and CEO, Chuck Treadway. Chuck? Thank you, Russell, and good morning, everyone.

2021 is already shaping up to be a very exciting year of progress at CommScope. We're putting in place a broad transformational agenda and are beginning to feel the impact of these efforts and our results. This morning, we released our results for the first quarter of 2021, and I'm pleased to report that our consolidated business showed strong performance, led by sustained momentum in our broadband network segment. In our core business segments that will remain after the separation of Home Network's business, sales were up 11% year-over-year, and adjusted EBITDA was up 25%. And just one month ago, we announced two critical components of our CommScope Next initiative. First, that we intend to spin off our Home Network's business into an independent, publicly traded company. And second, that we have taken initial steps to optimize our company's cost profile and free up resources to reinvest and grow. Today, I will provide you with more insights into our broader plans for transforming CommScope into a growth-oriented, profitable technology leader. And I hope that you will share our excitement about the company's future. But first, I'd like to provide more detail on our first quarter results. I'm now turning to slide three. On a consolidated basis, during the first quarter of 2021, Revenue grew almost 2% year over year, and we achieved adjusted EBITDA of $290 million, a 25% increase over the first quarter of last year. In the core post-spin-off business segments of Comscope, namely broadband networks, outdoor wireless networks, and venue and campus networks, our broadband segments stood out with very impressive revenue and profit performance during the quarter, up 29% and 93% respectively. The broadband segment has benefited from a number of industry trends, such as the continued node-splitting activity of cable operators to relieve uplink pressure on their networks, and the accelerating trend of fiber deeper that we see in service provider network upgrades and government spending on rural broadband. In addition, the segment has been investing for future growth. We are developing cutting-edge technologies such as remote MAC5 and advanced optical networking as well as making significant fiber cable and connectivity capacity investments that will benefit Comscope for years to come. In our outdoor wireless segment, as we expected, the first quarter got off to a slower start, especially when compared to the strong first half of 2020. By way of reminder, several North American operators invested heavily in the most recent C-band auction and are actively planning their investments and deployment strategies for this newly acquired 5G spectrum. While this 4G to 5G transition has resulted in lower current spending by these operators as compared to last year, demand for the key macro components supplied by Comscope should increase in the future as 5G rollouts expand and benefit our outdoor wireless segment. We are also making traction in Europe with operator trials for our new integrative passive active antenna technology that is an ideal solution for managing the transition to 5G. In addition, Europe and Asia Pacific saw outdoor wireless sales growth of almost 29% and more than 100% respectively during the first quarter. Our venue and campus segment continues to feel the effects of the COVID-19 pandemic during the first quarter due to exposure to commercial real estate and ongoing secular declines in our in-building copper portfolio. In addition, our gas and small cell business was soft during the quarter, as some large public venue projects that occurred in 2020 did not repeat. Even with these headwinds, segment performance during the first quarter was steady versus the prior year, with particular strength in ruckus growing more than 15%. As we look forward, we are not yet seeing a full rebound in new-build real estate activity. but we are encouraged by the signs that the rising level of COVID-19 vaccinations is freeing up enterprise network spending, and our copper business has largely stabilized relative to the double-digit declines we experienced in 2020. In addition, we're seeing significant stimulus dollars continuing to flow into education and healthcare, both of which benefited our ruckus business unit during the first quarter. Additional tailwinds include continued strong pipeline of hyperscale data center projects, as well as sustained interest among venue operators of airports, casinos, and hotels in upgrading their in-building and venue licensed and unlicensed coverage through our next-generation ERA DAS platform, OneCell, and Ruckus product portfolios. Finally, an update on our home networks business. We are running on a schedule toward our target date of completing the spinoff by the end of Q1 2022, with the team making excellent progress on the work required to cleanly separate this business from our core businesses. Against the backdrop of that work, and despite healthy demand from our home network products during the quarter, our ability to supply in recent months has been severely constrained by the semiconductor chip shortages that have made global headlines this year. While it is difficult to forecast when these supply constraints will be resolved, this is a transitory issue. Because demand during the quarter exceeded our ability to ship products, home network products ended the first quarter with more than $1 billion in backlog, which is more than twice our average in 2020. We also secured key customer wins in DOCSIS 3.1 gateways, IP streamers, and international video set-top boxes, and have made significant progress in our Wi-Fi 6E, PON, and low-latency technology development. Despite the transitory supply challenges, the significant size of the home networks backlog, combined with the proactive cost management steps we have taken in this segment, bode well for the future profitability performance of the home networks segment once silicon supply normalizes. Before I finish my remarks on the quarter, I would also note that Comscope, like many other global companies, has begun experiencing significant price increases across a variety of inputs and components, including copper, steel, resins, freight, and semiconductor chips. I want to emphasize that as a company, we'll be working hard to utilize all available levers to offset the impact of these inflationary forces on our business. Now turning to slide four, I'd like to shift gears and provide you with some additional context around where we are and where we are heading with our CommScope Next initiative. As I've communicated before, CommScope Next is about three vectors of performance improvement, growth, cost efficiency, and portfolio optimization. I want to emphasize that these three vectors are not separate efforts but are interrelated and mutually reinforcing. As we reposition the company to fully realize the growth potential inherent in our core markets, we are looking for opportunities to invest in both under-penetrated regions and customers, as well as high potential vertical markets and technologies. Fueling this investment will be a portion of the resources we liberate by streamlining inefficient processes, cutting unproductive spending, eliminating redundant processes, and realizing manufacturing efficiencies. As a team, We have aligned around a set of near and intermediate term priorities, and we are already beginning to see some early progress, which I will describe later. As we get the flywheel in motion to drive EBITDA improvement, we will continue to reinvest, ultimately driving the shareholder returns that are more in line with our true potential. Now turning to slide five. I'll share some details about actions we are taking to free up growth capital through cost efficiency. After taking the cost actions that we communicated to you in April, we are now poised to widen the aperture to include areas such as procurement and operations. To focus on just one example, that of indirect procurement, Comscope's annual spend in this area is approximately $1.2 billion, more than half of which is discretionary. But we are not enjoying the full benefits that can accrue to a large-scale focus purchaser. as evidenced by the fact that 20% of our indirect spend is inefficiently dispersed across more than 13,000 vendors. We're undertaking a multifaceted effort to attack this opportunity, and one facet that we kicked off just yesterday is a new pilot program of cost control towers at our Claremont and Catawba North Carolina manufacturing facilities. Cost control towers are a proven method for empowering employees with an owner's mindset to rigorously challenge every dollar in the budget. Once proven out at Claremont and Catawba, we will implement this program broadly to reduce non-critical spending on a company-wide basis. In addition to our efforts around cost, we have recently kicked off the first phase of Comscope Next growth agenda. After working at Comscope for just a short time, It was clear to me that CommScope has a long history of acquiring businesses, but has struggled to achieve consistent organic growth. This has to change. To turbocharge our growth efforts, we must become a market-driven company and get closer to our existing customers and expand our existing customer base so that their voice and needs directly inform our strategies and portfolio decisions. The first step we are taking for our core spend businesses is to transfer most of our sales and marketing resources directly into broadband, outdoor wireless, and venue and campus business segments. This will give every course segment a dedicated go-to-market team equipped with an end-to-end sales toolkit, including marketing, pricing, partner engagement, and sales training and enablement. and it will create an environment where segment-level decisions around R&D and product development are directly linked to the customer value chain. Our new sales structure will also include a key account manager component that will allow us to expand our deep relationships with existing distributors and large service providers. Our key account managers will also broaden our reach to include many untapped service provider markets outside the United States. We will also refocus our sales efforts on select verticals, such as education, healthcare, and hospitality, where we know that our networking products and our solutions offer a unique value to our customers. And we'll use our most innovative technologies, such as our one-cell radio access point and our ruckus cloud and analytics applications to develop tailored and vertical market solutions for sales teams to offer to their customers. These are just some of the ways in which CommScope Next will drive a new level of efficiency and growth for our company. Taken together, we expect these actions to deliver an annual run rate of at least $500 million in adjusted EBITDA improvement within the next three years, split roughly equally between incremental growth and cost efficiency. As the plan begins to crystallize and results materialize through our financial performance in future quarters, we will share these success stories with you. In addition, at our planned investor day later this year, we will be prepared to lay out more detail regarding our expectations about the timing results being reflected in our financial performance, as well as our timeline for getting leverage much closer to our long-term target. Although we are just getting started on this multi-year journey, and we still have much hard work ahead of us, our views around the potential benefits that we can drive through CommScope Next are starting to take shape. With a clear and ambitious roadmap laid out, our entire team is energized by the opportunities in front of us. I'd now like to turn the call over to Alex to provide further details on our first quarter results.