CommScope Holding Company, Inc.

Thank you for standing by and welcome to CommScope's Q223 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please put star 11 on your telephone. Please be advised that today's call is being recorded. I would now like to turn the call over to your host, Mr. Massimo DiSabato, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to discuss CommScope's 2023 second quarter results. I'm Massimo Di Sabato, Vice President 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 discussions 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 Credway.

Thank you, Massimo, and good morning, everyone. I'll begin on slide two. ComSkills delivered core net sales of $1.589 billion and core adjusted EBITDA of $263 million for the second quarter of 2023. Our second quarter in CCS and OWN was impacted by larger than expected customer inventory corrections, customer capex reductions, and the macro environment. For consolidated comp scope, which includes our home networks business, we reported net sales of $1.918 billion down 17%, and adjusted EBITDA for $260 million, down 13%. Despite the market challenges, we continue to manage what we can control, including our CommScope Next initiatives. Two of our most significant achievements thus far in 2023 are cost efficiencies and mixed performance. On the cost side, we have aggressively evaluated our cost structure. This has resulted in an annualized cost savings of more than $150 million. This will position us well when demand returns to normal levels, as these reductions are permanent and will not be needed as volume returns. Additionally, we continue to drive performance in our next segment, where we achieved another record quarter of EBITDA of $75 million, up $90 million year-over-year. The team continues to drive substantial growth and value in our next segment. Before I talk about market outlook, let me talk about the progress of each of our businesses. As we indicated in previous calls, we believe CCS has strong long-term market tailwinds, including significant spending commitments to improve United States broadband infrastructure in addition to other country programs around the world. Although orders are down, we continue to manage what we can control in this business, including investing in new products and capacity ahead of market recovery. During this downturn in demand, we are working on our efficiencies, including deep bottlenecking efforts to improve throughput when volumes return. In addition to operational improvements, we continue to invest in new product development. We continue to move forward with the launch of our No-Bucks product line that will offer customers a modular approach to connectivity resulting in decreased installation costs for our customers. On some of the future investments, we are working with the state of North Carolina for funding. Recently, we announced a grant from the state to support several future growth projects. We have aggressively invested in our internal capacity to enable CommScope to take full advantage of future carrier footprint expansion, driving fiber deeper. In addition to the state grant, I had the honor and privilege to attend President Biden's announcement of his Internet for All initiative. This is an exciting announcement as it indicates the beginning of the $42 billion of BEAD funding. As demand for our products return, we are well positioned to deliver against significantly higher demand with an improved cost structure. Turning to NICS, the business continues to perform very well. Our first half EBITDA of $133 million is up $162 million over the first half of 2022. The next segment is on an annualized EBITDA run rate of $266 million. Backlog ended the quarter above $550 million. Based on current visibility, we expect second half EBITDA to be stronger than the first half. I'm extremely proud of the next team as they have significantly transformed the business over the last 24 months. We are well-positioned for continued growth as we invest in new services and software as part of the segment's transformational growth strategy. Through our next ComSkill Next plan, we have been able to improve all areas of the business, including growth, new products, and cost. The next segment has successfully leveraged the existing cost structure to dramatically improve profitability and cash generation. We expect continued growth in this segment driven by new hardware and software products as well as cost management. Recently, we announced the Ruckus One platform that is being sold with a network as a service option. Ruckus One is an AI-driven cloud-native platform delivering network assurance, service delivery, and business intelligence in a unified dashboard. It simplifies converged network management across multi-access public and private networks. In addition to Ruckus One, we are a leader in the development of Wi-Fi 7. We expect to be one of the first in the market when we launch our Wi-Fi 7 product in the fourth quarter of 2023. I'm extremely excited about the future of Next as the business has been a large benefactor of our CommScope Next program. We have created substantial value in this segment over the last two years and expect to create more moving forward. In OWN, as we mentioned in previous calls, we fully contemplated the decline in U.S. carrier capital spend. While this presents headwinds for 2023 revenue and adjusted EBITDA performance in the business, we continue to position the business for long-term growth. As we have done in the CCS segment, we're using this lower demand to focus on new products and efficiencies. We continue to further develop the Mosaic antenna to provide a unique solution to active passive requirements. We now expect Mosaic to make major inroads as the market demand returns. In addition to new products and positioning for growth, we are working aggressively on our cost structure, including operations. We're implementing several projects that will improve our costs and throughput in our factories in future periods. Finishing with ANS, as we have discussed, the segment has made a very successful transition a leading supplier of edge-related products, including nodes, amplifiers, and RPD, RMD modules. Although we remain a strong supplier of our legacy CMTS technology, we continue to grow our edge business as we're in the early phases of the DOCSIS 4.0 upgrade. We continue to work with all of the major cable operators on edge products. As previously discussed, we announced that we are working with Comcast on a next-generation FDX amplifier. FDX is a key driver for their upgrades to 10G. In addition to our position on amplifiers, we are well positioned in RPD, RMD modules, where we are selling significant quantities to large cable operators. Finally, we continue to commercialize our virtual CMTS solutions and are actively testing in cable operator labs. Overall, I'm extremely excited about our position in ANS, as DOCSIS 4.0 upgrades are in early phases. We're the only supplier that can provide all of the products required for an upgrade, including virtual CMTS, nodes, amplifiers, and modules. We're also finding success in the conversion of our legacy E6000 CMTS technology to a virtualized system that can compete with the existing virtualized solution. We continue to invest heavily in the future and we see 2023 as an inflection point moving forward. Finally, as we've discussed previously, A&S is a bit more of a project-based business than our other segments. Some revenue timing is driven by projects and licenses. In 2023, we would expect to see stronger second half than the first half as project timing is weighted to the second half and edge continues to ramp. Now let me address the market environment and what we were hearing in our discussions with our customers. Our near-term market challenges are CPS and OWN related. Starting with OWN, we were highly exposed to the three major carriers in the U.S. going into 2023. We expected to see a decline in capital expenditures as indicated by the carriers. This decline was included in our 2023 Core Adjusted EBITDA Guidepost of $1.35 to $1.5 billion. During the second quarter, carriers indicated a downward shift on 2023 demand as they continue to cut CapEx and manage 2023 cash flows. Other than the demand picking up because some customers have normalized inventories in the first half, we expect these decreased demand levels to remain through the rest of 2023. We will continue to monitor the major carrier CapEx plans for 2024 as they get developed. As it relates to CCS market conditions, there's a significant short-term uncertainty in the market today. At this point, it is clear that there are three major items driving softness in CCS orders. Inventory adjustments, capital expenditures, and the macroeconomic backdrop. Let me start with market conditions. We're seeing short-term pauses as spending on the fiber side is down. Several major customers are managing their cash after two years of significant investment in fiber build-out. Our conversations with customers continue to leave us with medium and long-term optimism for substantial spending. The conversations are also pointing to the additional large B government funding programs going into effect in the second half of 2024. In addition to lower market demand, customers clearly purchased more material than they needed in 2022. This had a significant impact on our demand in the first half as customers started to normalize inventory levels. The magnitude of these inventory bills was greater than we expected. We feel that we may have benefited more than our competition on the customer inventory bills. In speaking with our customers, we sensed that their inventory positions have improved. However, there is still too much inventory in the system, and it will continue to impact demand in the second half of 2023. We expect that we will see further improvement in 2024 as the spends pick up again. Based on the above challenges, we have revised our EBITDA guidepost down. We now expect full year 2023 Core Adjusted EBITDA to be in the range of $1.15 to $1.25 billion. It is important to note that this downward adjustment is based purely on current depressed market conditions. We believe that we are maintaining our market share and that our view of medium and long-term demand remains unchanged. And with that, I'd like to turn things over to Kyle to talk more about our second quarter results.