CommScope Holding Company, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the CommScope second 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 your question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Russell Johnson. Please go ahead.

Good morning, and thank you for joining us today to discuss CommScope's second quarter 2021 results. With me on today's call are Chuck Treadway, President and CEO, Alex Pease, Executive Vice President and CFO, 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 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 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, and thank you all for taking the time to join our call this morning. I'm going to be starting on slide three. I'm pleased to report that Comscope's core business continues to perform well as we deliver on our commitments to customers and help them deploy the most advanced networking technologies in the world. With core revenue up nearly 18% year over year to roughly $1.7 billion, and core EBITDA up 21% to $293 million, our portfolio continues to demonstrate a strong recovery. Importantly, our backlog in the core business is more than $2 billion, with a book to bill of 1.2 times, representing continued strength in order entry and demand for our products and services. I am now over nine months into the job as CEO of CommScope, and I have observed a number of key factors that we believe will enable CommScope to perform very well in the coming years. First, we have built a leading technology portfolio. Whether it is our indoor and outdoor wireless technologies, our industry-leading fiber and copper cable and connectivity, our distributed access network solutions, or our innovative service offerings, We are a market leader in technologies that enterprise and service provider customers need to deliver the networks of the future. Second, we are well positioned to take advantage of some of the most powerful tailwinds in the communications industry. Key demand drivers include the Rural Digital Opportunity Fund, the introduction of new mid-band spectrum to Power 5G, and the fundamental shift toward distributed work and education. All of these forces and more are creating unprecedented need for high reliability, low latency network connectivity. And as a result, we're experiencing record demand for our products. Third, we're seeing encouraging signs of recovery and spending from last year's COVID driven softness. Our enterprise markets, more and more 5G related use cases are coming to market. Many companies and venues are upgrading their networks to support the return of employees and customers, and service providers continue to invest in additional capacity to meet growing demand. While significant uncertainty about the future path of COVID remains, at this time, we believe the worst aspects of last year's depressed business demand are now behind us. Lastly, the strength of the CommScope employee base has never been more evident. As I meet and work with more and more of our people, I continue to be impressed by their talent, domain expertise, and desire to win. Our team's response to the industry-wide supply chain challenges is just one example. During the quarter, we experienced significant supply chain issues, but as our results demonstrate, our people, from the factory floor to my senior leadership team, worked hard to mitigate a significant portion of the impact and continue to do so. Meanwhile, we were innovating at an unprecedented pace, introducing technologies such as cloud and analytics, advanced optical networking, remote MAC5 devices, and in-building LTE solutions to support our customers' most advanced networking needs and support future growth. This and much more is coming together well under the umbrella of CommScope Next, which I will describe more in depth shortly. Before moving on to our business results, I would like to provide more color on the supply chain disruptions I referred to earlier. Across many industries, companies are dealing with acute shortages and delays. CommScope is no exception. For some critical items, most notably semiconductor chips, lead times have pushed out beyond a year, and in some cases, manufacturers are decommitting, and prices for many key production inputs, including copper, resin, steel, and freight, have spiked dramatically. While we navigated these issues well during the second quarter and are proud of our performance, we acknowledge that these factors will persist at least through the balance of the year and likely beyond. Our strong backlog and order entry rate give me great confidence in our markets and our future performance. But these extended lead times will challenge our ability to convert backlog into sales as quickly as we'd like in the near term. Alex will discuss our supply chain challenges, impacts, and mitigation in more detail during his remarks. Now I would like to provide more detail on our second quarter results before concluding with an update on the ongoing progress of Comscope Next and our previously announced spinoff of the Home Networks business. Turning to slide four, On a consolidated basis, during the second quarter of 2021, revenue grew almost 4% year-over-year, and we achieved an adjusted EBITDA of $308 million, a 10% increase over the second quarter of last year. As I mentioned previously, core comp scope, which consists of three business segments that will remain after we complete the planned spinoff of our home networks business, grew revenue nearly 18% year-over-year. Our broadband network segment led the way with revenue up 22%, benefiting from strong node-splitting activity by cable operators and strong demand for fiber and connectivity products. In our venue and campus network segment, we also delivered significant year-over-year improvement, with segment revenues increasing almost 18%. this growth was driven by significant recovery in the sales of copper and fiber cabling to enterprise customers and robust fiber demand from hyperscale data center customers as well as strong ruckus sales and key vertical markets in our outdoor wireless network segment second quarter revenue increased by nine percent we're seeing steady progress by major north american wireless operators in upgrading macro cell sites to state of 5g readiness and we continue to be confident that our extensive wireless product line, which we describe as everything but the radio, will play a major role in the transition to 5G. During the second quarter, Outdoor Wireless experienced healthy demand and a growing backlog for a variety of macrocell site-related products, including base station antennas, Heliac's fiber-to-the-antenna solutions, PowerShift power management solutions, cabinets and enclosures, and related components. Together, our core business had a strong quarter, and that performance provides clear evidence of the growth and profit potential of Core Comm Scope after the spin of Home Networks. As a reminder, we announced in April of this year that we plan to spin off our Home Networks business into an independently traded public company. We are currently on track to complete the spinoff during the second quarter of 2022. This is slightly behind our initial projection of completing the transaction by the end of Q1, due to operational complexity of the transaction. The full strength of the core ComScope team and the Home Networks teams are working diligently to separate the businesses and create standalone organizations ahead of the planned spend-off date and position both organizations for a successful start, independent from one another. In the meantime, we continue to see strong demand for many Home Networks products. However, the segment's performance was heavily impacted by supply chain disruptions. As a result, quarterly revenue fell to $457 million, a 28% decrease versus prior year. We continue to believe that these supply disruptions are transitory in nature and will abate over time as supply catches up with demand. As this occurs, home networks should be well positioned to return to more normalized sales and EBITDA trends due to its large and growing backlog. Turning to slide five, I want to provide you with an update on how we are progressing with our CommScope Next initiative. As you will recall, CommScope Next is a comprehensive program to improve business performance by focusing on three key drivers, growth, cost efficiency, and portfolio optimization. We have committed that CommScope Next will deliver an annual run rate of at least $500 million in adjusted EBITDA improvement over the next three years. split equally between incremental growth and improved cost efficiency. I'm very excited to report that we are making excellent progress on Comscope Next. It has rapidly moved from the design and planning stage to an operational stage, consisting of building highly granular execution plans directly tied to concrete growth and efficiency targets and tracks centrally. These plans will be created and owned and managed at the individual business unit level, with business unit leaders and operational leaders held directly accountable for delivery. In an evolution from past CommScope practice, we have already taken steps to better empower our line leaders with comprehensive general management, growth, and P&L responsibilities, and they are responding enthusiastically. And we just passed an important milestone in the process. In mid-July, we gathered approximately 100 of CommScope's most senior leaders in Dallas for a three-day CommScope Next strategy session. The goal of this event was to introduce, explain, and generate excitement for the key components of CommScope Next. These sessions were invigorating, and broad alignment around the nature and scale of the opportunity was evident. Coming out of this session, our leaders are now well equipped to communicate the strategy to their respective teams and enable our goal of realigning priorities and ways of working across our entire organization. We're leaving no stone unturned in this process, and we will challenge head-on every bias and roadblock in the way of growth and change. And when we have finished the job, CommScope will be a changed company and positioned to succeed like never before. And in that regard, I'd like to share with you a few examples of early wins we've achieved through CommScope Next. The primary mission of the growth vector of CommScope Next is this. We will create a customer-centric company that can offer differentiated value propositions and achieve above-market growth across our core business segments. While we are taking a multi-pronged approach to accelerating our growth through CommScope Next, A key component of our growth plans is ensuring that we have ample manufacturing capacity in areas where we expect the largest and most enduring demand increases over the next decade. During the second quarter, we made significant progress on implementing a new capital investment program at four of our manufacturing facilities to increase our production capacity of fiber cabling, FDX cabinets, and fiber terminals enclosures. The first of these projects came online during the second quarter and will become operational throughout the next four quarters, and more will become operational throughout the next four quarters. This increased fiber capacity will allow Comscope to capture a meaningful share of the rapidly emerging fiber everywhere trend being driven by increased competition for home broadband customers and government spending on rural fiber initiatives such as the Rural Digital Opportunity Fund. Overall, we expect these new capacity investments to support $350 to $400 million of incremental annual revenue growth by 2023. I can also report some early progress of the cost vector of Comscope Next, where our key goal is to implement best-in-class procurement and operating practices to achieve significant and reoccurring cost savings. We recently completed an initial pilot of cost control towers at our manufacturing facilities in Claremont and Catawba, North Carolina. Cost control towers introduce a rigorous and highly structured approach to direct spend management. where functional committees are empowered to review, challenge, and if necessary, reject any proposed purchase above a minimum threshold. The results of this pilot were better than we expected. On average, the pilot program reduced spending by 8 to 14% during this initial period across a variety of indirect categories. And we've seen even stronger results as we scale the program globally. For reference, across CommScope, there's at least $500 million of indirect annual spend that could be appropriate targets for these types of local cost control towers. These are just a few examples of what our talented CommScope employees can achieve when challenged and given the right tools and latitude to execute independently. I look forward to sharing more details and success stories from the CommScope Next journey at our Investor Day event this December. In the meantime, our task and our challenge for the upcoming few quarters is clear. We will press forward with operationalizing CommScope Next while also continuing to meet our customers' increasing demands. We will manage through a volatile supply environment and emerge stronger when these conditions abate. As we execute on these priorities, I would remind you of some of my very first comments as CommScope's CEO. CommScope Next is a fundamental transformation of the company and it is key to unlocking a new level of shareholder value we're aggressively focused on delivering the step function improvements in the company's growth cost structure and portfolio structure by the end of 2023 and while we will encounter challenges along the way i'm confident that we will be successful with that i'd now like to turn the call over to alex to provide further details on our second quarter results alex thanks john and good morning everyone