CommScope Holding Company, Inc.

Good day, and thank you for standing by. Welcome to the CommScope second quarter 2022 results conference call. At this time, all participants are on the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, to Mick McCluskey, head of investor relations. Please go ahead, sir.

Good morning, and thank you for joining us today to discuss CommScope's 2022 second quarter results. I'm Nick McCluskey, Head of Investor Relations for CommScope, and with me on today's call are Chuck Treadway, President and CEO, and Kyle Lorenzen, 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 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.

Thank you, Mick, and good morning, everyone. I'll begin on slide two. I'm pleased to share that we delivered core net sales of $1.88 billion and core adjusted EBITDA of $287 million for the second quarter of 2022. For consolidated CompScope, which includes home networks, we reported net sales of $2.3 billion and adjusted EBITDA of $300 million. As discussed over the last several quarters, We have taken actions to continue to grow the business and offset inflationary impacts. Our second quarter results are a step in that direction as we have sequentially improved top line and profitability from the first quarter. As we head into the second half, we maintain our core adjusted EBITDA expectation for the full year to be in the range of $1.15 billion to $1.25 billion. As a result of our expectation to improve adjusted EBITDA in the second half, we expect our net leverage ratio will decline to a range of 6.8 times to 7.2 times by the end of this calendar year. I'm encouraged by our position as we move into the second half of the year. As indicated by our guideposts for core adjusted EBITDA, the ramp in the second half will be significant. Our short-term and medium-term performance will be primarily driven by our CCS and NICS segments. CCS has tremendous market tailwinds, and we are at the beginning of a multi-year build-out of fiber cable and connectivity. Our additional installed capacity will support this growth in addition to supporting operating leverage. As evident by our margin improvement during the quarter, we were able to raise price. Due to our large backlog, pricing benefits will accelerate sequentially in the second half of the year. We are pleased with the results of our pricing initiatives as our customers have been collaborative in assisting us in offsetting most of our inflationary impacts. Mixed performance in the second half will substantially improve. Markets remain very strong, especially in our ruckus products. NICS backlog grew 158% since the second quarter of 2021. Our second quarter 2022 TTM book to bill was 1.6. NICS has operated at an adjusted EBITDA loss in the first two quarters of 2022, as we dealt with significant chip constraints, as well as heavy development funding on new products. We have better visibility to improve chip supply and our heavy investment in technology and new products will begin turning into revenue as we move through the second half. I'm very excited about value creation opportunities in NICS for the short, medium, and long term. In OWN, we continue to expect our business to experience annual growth in the mid to low single digits. We're experiencing a shift from passive to active antennas that will negatively impact our growth. With that said, we're excited about our everything but the radio strategy, including our mosaic antenna and power shift. It is still early in these initiatives, but we are encouraged with customer interest and consider these as potential upsides. Margin percentages have been under pressure as we continue to work with customers to offset inflation and recognize mixed changes towards site prep. These impacts, have been partially offset by improved operating efficiencies. ANS has seen a balancing of their demand after a strong pandemic drive for bandwidth. In addition, as our mix has moved to the edge, margins have declined. Both of the above have negatively impacted our year-over-year adjusted EBITDA. We would expect the annual 2022 adjusted EBITDA to be more reflective of the ongoing business performance. We continue to innovate in ANS. Our large installed base and customer relationships allow us to be on the leading edge of new hardware and software developments as new architectures are selected and defined. I'm now turning to slide three for a review of the second quarter and my priorities for CommScope. Overall, demand for CommScope products and solutions continues to be encouraging. evidenced by the strong top-line performance of our core portfolio, growing net sales 9% from the prior year and 8% from the first quarter. Additionally, our growth would have been stronger if not for the continued semiconductor chip supply shortages impacting our business, specifically in our ANS and NIC segments. While there is significant uncertainty in the global macroeconomic environment, Demand for core CommScope products and solutions remained resilient in the second quarter as backlog grew 5% from the first quarter, ending at approximately $3.8 billion. Despite our strong sales quarter, core CommScope delivered a book-to-bill of 1.1. At the beginning of this year, we introduced our general management model to create individual ownership of our reorganized segments and business units. We believe this structure creates more focused and streamlined businesses, allowing us to better serve our customers and drive accountability deeper into the organization. This enhanced focus and flexibility is what will enable CommScope to drive performance given our strong in-market demand. It will allow us to invest significantly in R&D and new product introductions and drive future growth for years to come. and we are already starting to see the benefits of the structure. When we last spoke in May, Kyle and I shared our expectation to begin driving sequential margin improvement. During the quarter, we increased our core adjusted EBITDA margins 200 basis points sequentially, primarily driven by price and operational efficiencies. This is the beginning of our ramp as we expect continued margin improvement in the second half of the year. An example of our improvement is best represented in our largest segment, connectivity and cabling solutions, or CCS. In the second quarter, we were able to increase CCS net sales by 18% and improve adjusted EBITDA margins by 530 basis points sequentially. This is a testament to our focus on growth and success in increasing price to offset inflation. Core CommScope margins will continue to improve as we work through older price backlog and introduce our renegotiated prices into our P&L. Additionally, we expect to gain operating leverage from our top line growth, including the continued ramp up of our new facility in Mexico. For purpose of scaling our different businesses from their profitability contributions, I'll refer to the middle chart this morning. CCS represents 52% of our first half adjusted EBITDA for the core portfolio. The CCS segment had a strong quarter with segment sales growing 26% over last year. Our fiber cable and fiber connectivity business net sales growth in the second quarter was 39% year-over-year and 19% sequentially. We expect CCS to continue to deliver top-line growth given the strong in-market segment demand and as additional capacity continues to come online. We also expect our margins to improve as we recover price to offset inflation, in addition to driving operational leverage as our manufacturing capacity ramps. We believe the CCS market is in the early phases of a multi-year build cycle. MIX represents a negative adjusted EBITDA contribution in the first half. The business has experienced strong demand. NICS backlog grew 55% since the beginning of the year and delivered a second-quarter book-to-bill of 1.9. Revenue and profitability have been negatively impacted by semiconductor chip constraints. We expect second-half profitability improvement in NICS as chip supply constraints improve. Additionally, NICS is investing heavily in new products, service and software offerings, and ruckus in oneself. Next is some of our most exciting growth potential in the company, as demand increases for indoor networking in private as well as public wireless networks. OWN represents 28% of our first half adjusted EBITDA. OWN first half net sales grew 14% from the prior year, primarily driven by site prep activities at the macro site. I'd note that site prep activities drove an increase in our integrated solutions business, which carries lower margin. That said, we expect second half owned adjusted EBITDA margins to be above the second half of last year and first half of this year, driven by price recovery to offset inflation and operating efficiencies. And finishing up on our core segments, ANS represents 26% of our core Comscope adjusted EBITDA for the first half of the year. First half net sales were down 18% versus prior year driven by normalization from high pandemic-related bandwidth demand. As discussed in previous calls, ANS is our most project-oriented business, and their results are best analyzed on a full-year versus full-year rather than quarter versus quarter basis. Similar to NICS, ANS was challenged with chip supply constraints in the first half. In addition, ANS mix-shifted to lower-margin hardware products at the edge of the network. We expect an improved chip supply and software mix for ANS that should improve net sales and profitability in the second half, significantly weighted to the fourth quarter. Finally, our home segment represents 7% of our first half adjusted EBITDA and 20% of our first half net sales. Home's contribution to the consolidated adjusted EBITDA performance of CommScope will remain in the mid-single-digit percentage level. Significant progress was made in our CommScope Next initiative. Driving organic growth and operational efficiencies throughout the company are paramount to our CommScope Next transformation. Our capacity investments thus far in CCS have been evidenced by the top line growth we've delivered in the past few quarters. As we continue to bring on more capacity, drive operational leverage, and increase price to recover commodity inflation, we expect to continue driving margin expansion. We're also evaluating future rounds of capacity additions. As part of our CommScope Next organic growth strategy, our teams are responsible for prioritizing R&D initiatives and new product introductions in our core businesses. We continue to focus on paying for our incremental R&D through cost saving initiatives in other areas. Our 2022 core spend of approximately $600 million for R&D and new product introductions will be the highest level of investment since the close of the ARIS acquisition. Within our CCS segment, in addition to driving capacity to fuel growth, we are also focusing our investments into new product families. Whether it's our NOVAX fiber connectivity products for outdoor fiber deployments, or our Propel platform for indoor data centers, there's a common thread behind our drive to innovate. The demand for high-speed, low-latency networks is increasing exponentially, and CommScope is designing the technologies that not only deliver the capabilities to deploy these networks, but do so in a way that increases efficiency for the customer, saving time, energy, and reducing overall deployment costs. In the PON space, there continues to be strong interest in our XGS pond architecture. Lab trials are expected to start during the third quarter and remain on track for expected commercial deployment growing next year. In NICS, we maintain our commitment to invest in ruckus and oneself given the encouraging market interest in our capabilities. While these investments have driven overall segment EBITDA performance negative in the first half of the year, we believe these strategic decisions will unlock significant value for the segment's future and its role to play in the public and private indoor networking space. In addition to the progress we continue to make with carrier approval for OneCell, I'm excited to discuss a significant new partnership in the OneCell space. A few weeks ago, we announced that we collaborated with Microsoft on developing a solution in our Chacopee, Minnesota facility using our OneCell and Microsoft's cloud services to support a fully integrated private wireless network. This solution allows us to run a private wireless network integrated with state-of-the-art IoT solutions focused on industrial automation applications. Together, we will market our joint solutions and other similar applications. And next, We're investing over $200 million this year in R&D to further develop our Ruckus and OneCell products. We expect to see some of the value from these investments in the second half of the year. For Ohm, we've spoken about our continued innovation in antenna space over the past few quarters. Mosaic, our active passive antenna platform, designed to drastically reduce the footprint at the top of the tower, continues to generate interest in North America and international markets. And trials of the mosaic are expected to continue throughout the balance of the year. Another area within OWN where investments in innovation are now paying dividends is in power management. PowerShift is the industry's first intelligent plug-and-play DC power supply. It continues to see significant benefit from C-band deployments in the U.S., as regulating voltage to high-power remote radio units in 5G deployments is a primary focus of carriers. Our investments in this industry-leading technology have positioned Comscope's power shift business well, and we are on track to double in sales from the prior year. In ANS, we're investing in innovation to accelerate the next evolution of HFC networks. We recently announced that Liberty Global has selected our remote MAC5 device, also called RMD, node platform for DOCSIS 4.0. This will be the industry's first DOCSIS 4.0 DAA initiative in Europe, and it will leverage CommScope's DOCSIS leadership. Our end-to-end portfolio solutions will deliver a new European node and custom DAA platform designed specifically for Liberty Global. I hope the above demonstrates that while we are focused on capacity, pricing, and efficiency, our commitment to leading industry technology is very strong. We continue to feel that investing in future development is necessary as we manage our cash position. With our refocused investment in technology innovation, capacity expansion, and operational efficiency, CommScope is well positioned to deliver on our transformation targets and creates significant incremental shareholder value. And with that, I'd like to turn things over to Kyle to talk more about our second quarter results.