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Operator
Hello. Thank you for standing by and welcome to the CommScope fourth quarter 2021 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Russell Johnson, Vice President, Investor Relations and Treasurer. Please go ahead.
Russell Johnson
Good morning, and thank you for joining us today to discuss Comscope's 2021 full year and fourth quarter results. With me on today's call are Chuck Treadway, President and CEO, and Kyle Lorentzen, Executive Vice President and CFO. 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 for our adjusted results. All full-year and 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. Today, I'd like to start with the review of our 2021 full year and fourth quarter business highlights. Then I'll provide an update on our home network spinoff, as well as CommScope Next. After these opening remarks, I'll turn the call over to Kyle, our CFO, to provide more details regarding our annual and quarterly financial performance. Finally, I'll conclude today's presentation with some additional insights on where CommScope is heading next. I'm now on slide two. Starting with annual highlights, for full year 2021, consolidated net sales were $8.59 billion, a 2% increase over the prior year. Consolidated adjusted EBITDA was $1.12 billion, an 8% decline over the prior year. Core CompScope, which as a reminder, excludes our home network segment, grew sales by 12% versus prior year to $6.74 billion. We achieved this annual top-line growth in our consolidated and core business, despite significant supply chain-related challenges. Adjusted EBITDA at core Comscope grew about 1% to $1.09 billion. Turning to the quarterly highlights, for the fourth quarter, net sales for consolidated Comscope were $2.22 billion, up 4% year-over-year, while adjusted EBITDA of $261 million declined 28%. For core Comscope, net sales in the quarter were $1.75 billion, an increase of almost 13%. Fourth quarter core adjusted EBITDA of $254 million declined 21% compared to the prior year. As supply chain challenges and input cost inflation significantly impacted profitability. Our largest business segment, broadband networks, grew new sales 1% quarter over quarter. We saw strong quarterly growth in our outdoor wireless network segment, up 27%. Our venue and campus network segment also had a positive quarter, growing at 24%. And in our home networks business, which has the most exposure to the ongoing disruption in semiconductor supply, sales declined 18% during the fourth quarter. I want to emphasize that our entire business was pressured by supply chain disruptions and input cost inflation during 2021. and these pressures were made high during the fourth quarter. Shortages of semiconductor chips have been a major constraint on sales volume across Comscope, with the largest impacts felt in home networks, ruckus, and the active cable hardware product lines within our broadband segment. We have also experienced significant inflation in commodity and freight costs, which worsened in the fourth quarter. However, as I noted in our third quarter earnings call, we have responded to these inflationary pressures by undertaking a comprehensive set of price increases, and we are making very good progress in this area. Taking current input cost levels as a baseline, we expect our pricing actions to recover all of the inflationary cost increases we have experienced by the end of 2022. The P&L impact of raising prices should build gradually through 2022 and then accelerate in the second half of the year. I'll now share my perspectives on some key factors and trends that drove our business segment performance during the quarter. In our broadband network segment, we saw modest fourth quarter growth overall, but considerable diversity in business unit results. The strongest performance came from our network cabling and connectivity business, which grew over 23%. Within our network cabling and connectivity business, we continue to enjoy the strongest demand environment we've seen in many years. Major telco and cable operators are ramping up fiber expansion investments in order to achieve network efficiencies, pass more homes, and compete for customers with faster service. This strong multi-year capex cycle is receiving additional support from U.S. and international government funding, much of which is targeting underserved rural areas. In this regard, we were very encouraged to see a pickup of RDoF funding approvals during the fourth quarter. This is excellent news for CommScope given our strong legacy customer relationships with many of the largest RDOF funding winners. As RDOF funds are dispersed and as government stimulus programs such as American Rescue Act come online, we should see strong water flow from Tier 2 and Tier 3 service provider markets during 2022 and for many years to come. During the fourth quarter, we also made significant progress to bringing online new production capacity for fiber cabling and connectivity. This new capacity provided some relief from capacity restraints we've been experiencing. We should continue to see significant relief as we commission more lines during Q1 and Q2 of 22. By 2023, this new capacity will drive $350 to $400 million of organic revenue growth and over $100 million in incremental adjusted EBITDA. It should be noted that 2021 and 2022 are periods of investment for our connectivity and cable businesses. During this period, we will experience higher operating costs as we prepare ourselves for significant growth over the forecast period. This includes substantial expansion in Mexico, including new facilities. Please note that our CapEx investments we are putting in place have rapid and high payback. Within the active technology side of broadband segment, namely access technologies and converged network solutions, sales were weaker in the fourth quarter. This was due to a combination of factors, including a difficult compare against a strong fourth quarter of 2020, shifting cable operator spend patterns, and key component shortages. At Comscope, we continue to believe that active cable technology business has two primary advantages over our competitors. First, we have a very large installed hardware and active software code running on the HFC networks of a diverse mix of large and small cable operators. And second, we have the extensive product line and industry-leading development capabilities needed to serve each of our customers regardless of the technology path they might choose. And for telco and cable operators that want a more rapid transition to an all-fiber network architecture, we're seeing strong interest in our new XGS pond solution. Product qualifications for this technology have commenced during the first quarter of 2022, and by the second quarter, we expect early deployments and field trials to begin. Turning now to outdoor wireless, this segment had a strong quarter-over-quarter performance, in part due to the comparison with a weak fourth quarter in 2020 when 5G spectrum auctions slowed U.S. wireless operator spending. Nonetheless, during the fourth quarter of 2021, our outdoor wireless segment achieved strong sales in North America, where we saw increased CapEx spending by the major operators as they moved to deploy their 5G networks nationwide. This generated healthy demand for our broad outdoor wireless product line, again demonstrating the strength of CommScope's everything but the radio strategy. As we noted during our strategic transformation update in December, We expect our outdoor wireless business to grow low to mid single digits during 2022. Note that our expectation does not assume a significant contribution during 2022 from an important new CommScope antenna technology, our Universal Active Passive Antenna Solution, or UAPA. This innovative technology combines active and passive antennas in a unique space-saving form factor and can help solve 5G deployment challenges such as crowding, weight, and wind loading at the top of the tower. We're very excited about the prospects for UAPA, and we have multiple U.S. and international trials of this product that are pending. Now shifting to venue and campus networks, All of the businesses within venue and campus saw robust demand and contributed to segment growth during the quarter. We saw particular strength in our inside plant copper business, with sales up nearly 40%, and in our DAS and small cell business unit, which grew 30%. In our inside plant copper and fiber cabling product lines, we saw strength across the board as enterprise demand continued to grow and data center orders remained strong. Revenues also benefited as we raised prices to cover commodity cost inflation. Our DAS business saw a significant uptick in shipments in the fourth quarter. Service provider and enterprise customers continue to value our industry-leading ERA DAS platform as an ideal distributed coverage solution for medium and large-sized venues. And our small-cell business, which features our one-cell indoor cellular technology, had a strong fourth quarter as well. This innovative technology is an ideal 4G or 5G indoor solution for both public and private networks. We are actively investing in one-cell development and operator acceptance in order to take advantage of these growth opportunities as they materialize. In the meantime, both our DAS and one-cell business results will continue to reflect a mix of steady run rate business and more sporadic large projects. And as we highlighted during our strategic transformation update in December, We're very well positioned overall in the private network space, given our unique portfolio of Ruckus Wi-Fi, OneCell, and CBRS LTE products. Taken together, these products represent a powerful combination of unlicensed, licensed, and shared spectrum solutions. In our Ruckus business, component shortages for the fourth quarter continue to constrain our ability to ship products against the healthy market demand we're seeing for Wi-Fi access points and switches. Despite these headwinds, Ruckus sales in the quarter were up versus prior year. Ruckus sales benefited from a rebound in orders from service providers, and on the software side of the business, we were highly encouraged by the continued rapid growth in Ruckus subscription-related software sales. While overall demand from Ruckus customers remains very strong, our backlog in this business increased materially in the fourth quarter due to shortages of semiconductor chips. I'll finish up my segment highlights with home networks. In the fourth quarter, home sales declined 18% from the prior year. The biggest driver of this decline continued to be the acute shortage of semiconductor chips needed to produce essentially all of the segment's product line, with the impact being most significant to broadband gateway products during the quarter. I'm now turning to slide three. Before I turn the call over to Kyle to discuss our financial results in more detail, I want to update you on our previously announced plan to spin off our home networks business during the second quarter of 2022. Then I'll provide my thoughts on how our CompScope Next transformation initiative is progressing. Regarding home networks, our board of directors has determined that it is in the best interest of both CompScope and the future independent home networks business that we delay the execution of the spin-off. This decision was not an easy one, but was taken after thorough consideration of the current supply chain environment and its negative impact on Home Network's business performance. Although Home Networks ended 2021 with a backlog in excess of a billion dollars, the business has been contending with an acute shortage of semiconductor chips and higher input costs that have resulted in revenue and adjusted EBITDA significantly below our expectations for 2021. We now believe the chip shortage will persist throughout 2022, Given these unique circumstances, we believe the most prudent course of action is to defer the spinoff of home networks from Comscope until we see a more normalized and predictable supply environment. I want to emphasize that this delay has no impact whatsoever on our commitment to spinning off the home business. Both Comscope and home networks will be stronger and better positioned for success as separate businesses. And we intend to execute the spinoff as soon as market conditions allow. Although we will monitor the situation on an ongoing basis, we currently do not have a firm timeline for restarting the home spinoff. In the meantime, we will work to optimize homes' operational and financial performance using principles from the Comscope Next Playbook. And while home remains under Comscope's ownership, we will continue to report the financial results for Comscope separately from that of home networks. I also want to share my thoughts on how Comscope Next is progressing. During our strategic transformation update in December, we emphasized that CommScope Next is designed to drive profitable growth by focusing on three key pillars of change, organic growth, cost efficiency, and portfolio optimization. We also provided details about the many CommScope Next actions we have in flight to begin this change. And we laid out long-term revenue and adjusted EBITDA target ranges that quantify our plans and give you a scorecard to track our progress. While we still have work to do, I believe that CommScope Next is off to a very solid start and is clearly taking the company in the right direction. On the organic growth side of CommScope Next, we've invested in new fiber production capacity that is already driving revenue growth. We've implemented new pricing and quoting tools that allow us to better align our prices with the value of our products, and which also provided the foundation for the extensive repricing actions we've taken to offset inflation. And we've expanded our sales force and created key account managers so that our sales organization is now well positioned as a growth engine. While we're only getting started, we already see signs of progress in 2021, such as 12% year-over-year sales growth in core comm scope and international growth that exceeded our North American growth. On the cost efficiency side, we took quick action to reduce period overhead in early 2021. We launched major initiatives around procurement excellence that are functioning well despite the challenging supply chain environment. and we are now focused on various ways to optimize our manufacturing processes and footprint. These and other next cost actions have helped Core Comscopes year-over-year adjusted EBITDA to improve slightly despite extraordinary supply disruptions and cost inflation during 2021. And finally, regarding portfolio optimization, we have implemented a general manager model to drive focus and accountability for results across our business We've taken the decision to spin off our home network segment, and as we announced in our press release this morning, we have started work on a plan to resegment core CommScope that will make our core business easier for us to manage and clearer for our investors to understand and value. As these and other CommScope Next actions gain traction, we continue to uncover new ideas and add to our pipeline of improvement opportunities. While today I've given you an interim view of how things are progressing, we plan to provide you with a more comprehensive readout on CommScope Next during our third quarter earnings call in November. This readout will include an assessment of what we have achieved, more details around next steps, and updated financial guideposts. And with that, I'll now turn the call over to Kyle to discuss 2021 full year and fourth quarter financial results in more detail.
Chuck Treadway
Thank you, Chuck, and good morning, everyone. I'll start with an overview of our full year 2021 financial results on slide four. For the full year, consolidated Comscope reported net sales of $8.59 billion, up 2% from the prior year. This performance was driven by solid revenue growth at each of the three segments of core Comscope. Consolidated adjusted EBITDA of $1.12 billion was down 8% from prior year and driven primarily by challenges in our home networks segment. Adjusted earnings per share of $1.39 was down 11% from the prior year. Demand across our businesses remained strong, and as a result, consolidated CommScope ended 2021 with a book-to-bill ratio of approximately 1.3 versus 1.2 at the end of 2020. In our core CommScope portfolio, 2021 net sales of $6.74 billion grew approximately 12% from the prior year. Core adjusted EBITDA of $1.09 billion grew approximately 1%. Year-over-year adjusted EBITDA performance across the three CommScope segments was mixed, with 8% adjusted EBITDA growth in venue and campus networks, 1% growth in broadband networks, and a 4% decline in outdoor wireless networks. Rising commodity and freight costs negatively impacted full-year EBITDA in all three segments. Core Comscope ended 2021 with a book-to-bill ratio of approximately 1.4 versus 1.1 at the end of 2020. Turning to our fourth quarter results on slide five. For the fourth quarter, Consolidated Comscope reported net sales of $2.22 billion, an increase of over 4% from the prior year's fourth quarter and driven by growth at the three Core Comscope segments. adjusted EBITDA of $261 million declined 28% from the prior year. Approximately half of this decline was attributable to our home network segment. For Core CommScope, net sales of $1.75 billion increased nearly 13% from the prior year. This sales increase would have been larger were it not for the continuing shortage of semiconductor chips
Operator
Please remain on the line. Your conference will resume shortly.
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