CommScope Holding Company, Inc.

Good day and thank you for standing by. Welcome to the CommScope's third quarter 2022 earnings conference 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker for today, Mr. Mick McCloskey, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to discuss Comscope's 2022 third quarter results. I'm Mick McCloskey, Head of Investor Relations for Comscope, 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. For the third quarter of 2022, Core CompScope delivered net sales of $1.99 billion and Core adjusted EBITDA of $353 million, the highest on record since the ARIS acquisition. For Consolidated CompScope, which includes home networks, we reported net sales of $2.38 billion and adjusted EBITDA of $348 million. Our third quarter results represent strong execution by the CommScope team in driving growth and efficiencies through our CommScope Next transformation. In addition, our results reflect the continued progress in working to offset inflationary impacts to our margins. We are reaffirming the core CommScope business to deliver adjusted EBITDA in the range of $1.15 to $1.25 billion and net leverage between the range of 6.8 times to 7.2 times. As we've continued to indicate, I'm encouraged by our performance as we close out the remainder of 2022. We are pleased with our performance in our CCS, OWN, and NICS segments. As indicated in our previous earnings call, consistent with our expectations, our NICS team delivered strong revenue and EBITDA growth for the quarter as our renewed strategy is paying significant dividends. As we move toward the end of the year, we continue to monitor the macro environment and how potential recession scenarios may impact CommScope. In Q3, we started to see some project delays and inventory adjustments slowing demand. With current visibility, we expect to see some spillover of these impacts into 2023. As we've predicted, in some of our businesses, whether through increased capacity or better supply, some of our lead times are beginning to come down. Despite backlog reduction, our backlog is very healthy and represents approximately six months of trailing 12-month revenue. Our CCS business continues to capitalize on healthy in-market demand and the capacity we've installed to serve it. CCS segment sales grew 28% from the prior year as we continue to leverage our capacity investments in a growing demand environment and offset input cost inflation through price. Similar to last quarter, our most notable growth within this segment was driven by fiber cable and connectivity, growing 47% from the prior year. We are very proud of this accomplishment, as it equates to an approximate $900 million in annualized growth. We remain very bullish for the medium and long term in our CCSN markets, and we are now looking at the next round of capacity expansions. Recently, we approved capital to expand our fiber connectivity injection molding capacity to service immediate demand. Overall backlog within CCS remains strong, with more than two times historical levels at approximately $1.7 billion. But as expected, with a significant portion of our capacity brought online and lead times coming in, we maintain our expectation for this to modestly normalize over time. Turning to profitability, In the quarter, CCS adjusted EBITDA grew 55% from the prior year. As expected, we continue to drive price to offset inflation while driving operating efficiencies throughout the business. In our manufacturing plants, we are driving operating leverage as capacity ramps. Additionally, we are making significant progress in our CommScope Next efficiency plans as we generate savings from better material utilization and throughput improvements. Nick's delivered an impressive quarter of top-line growth, growing the business to approximately 25% both annually and sequentially. Nick's growth was led by ruckus as they delivered their highest quarterly revenue on record. Strong execution in our product design and procurement processes enabled the business to deliver product in spite of a challenging chip environment. Market demand remained strong overall. While lead times are beginning to come down, the business still maintained a backlog of nearly $820 million, up 100% from the prior year. Importantly, as we indicated on our second quarter earnings call, NICS delivered a substantial improvement in profitability, turning the segment's adjusted EBITDA from a loss in the first and second quarters to a positive EBITDA in the third quarter. I'd add that we expect this profitability trend to continue going forward while we continue to invest in R&D for the future for future growth in both Ruckus and OneCell. OWN delivered 7% growth over prior year. Performance in the business was led by continued site preparation activities in our integrated solutions and Heliacs businesses. Operational efficiencies and pricing actions helped improve adjusted EBITDA to $82 million, an increase of 36% from the prior year. ANS delivered net sales that were relatively flat the prior year. As expected, the businesses lapped the tougher comparables from prior quarters, which were related to peak pandemic demand for bandwidth. In addition to net sales, adjusted EBITDA performance was down versus prior year, driven by the mixed shift from the head end to the edge. I'm now turning to slide three for some additional perspective on the third quarter and an update on my priorities for CommScope. Overall, our team continues to execute well in a challenging environment. We are working hard to continue driving price to offset inflation and are starting to deliver efficiency through our general manager model. Our general manager model is enabling better alignment throughout the CommScope portfolio, and the enhanced visibility, accountability, speed, and workflow improvements are starting to contribute to our bottom line, all while we are continuing to invest heavily in R&D and new product introductions. As Kyle and I shared in August, we expected our increased volumes, pricing offset, and efficiency actions to continue driving overall core EBITDA margin expansion through the back half of the year. Execution on this front is evidenced in the 240 basis point sequential improvement in core EBITDA margins during the quarter. And this sequential improvement in profitability was most impactful in our next segment, which grew overall adjusted EBITDA by $40 million quarter over quarter. Before I hand the call over to Kyle, I'd like to provide an update on Home Networks as well as my priorities for the remainder of the year and into 2023. Turning to Home Networks, Home continues to be challenged with chip constraints, demand, and negative impacts from foreign exchange rates. In response to this, we're implementing a transformation plan specific to Home to help improve performance. And finishing with Core CommScope, Our organization remains intently focused on driving organic growth initiatives and becoming more operationally efficient in every way we do business. This includes innovation and new technologies that will support our customers in creating the future of wireless and wireline networks. Additionally, our CommScope Next priorities are driving incremental profitability. Our business leaders are directly aligned with sales, operations, supply chain planning, and engineering functions to reduce waste in the system, challenge costs, drive better material utilization, and boost overall productivity. We believe our actions are continuing to make great progress and will enable us to deliver significant incremental shareholder value. With that, I will now turn the call over to Kyle to talk more about the quarter.