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spk08: Good day and thank you for standing by. Welcome to ComScope's 2023 full year and fourth quarter results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Massimo Di Sabato, Vice President Investor Relations. Please go ahead.
spk07: Good morning and thank you for joining us today to discuss ComScope's 2023 full year and fourth quarter results. I'm Massimo Di Sabato, Vice President 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 the 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 and 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 full year and quarterly growth rates described during today's presentation are on a -over-year basis unless otherwise noted. I'll now turn the call over to our President and CEO, Chuck Treadway.
spk09: Thank you, Massimo. Good morning, everyone. I'll be beginning on slide two. Before getting into the details of our quarter, I want to address the current state of our business and change it since our last call. The business continues to be under significant pressure as demand remains low. We continue to have minimal visibility to when a recovery will occur. During the quarter, we also experienced unexpected, significant downward pressure in our NICs and ANS businesses. We are now in a position where all of our segments are dealing with market demand challenges. Although we have seen some slight uptick in demand in our OWN and CCS segments, we expect a very difficult first half and specifically first quarter. We expect the first quarter revenue and adjusted EBITDA to be substantially lower than the fourth quarter of 2023. Starting with annual results, Core CommScope delivered net sales of $5.79 billion, decreasing 23% from the prior year. The decline in revenue resulted in Core Adjusted EBITDA of $1.02 billion, a decrease of 18% from the prior year, meaning our previously provided 1.00 to $1.05 billion Core Adjusted EBITDA range provided on our last call. Shifting to the fourth quarter, CommScope delivered Core Net Sales of $1.186 billion and Core Adjusted EBITDA of $199 million for the fourth quarter of 2023. Our fourth quarter continued to be impacted by lower customer orders driven by lower market demand and larger than expected customer inventory buildup. As I mentioned in past calls, we continue to control what we can control. We are the market leader in most of our businesses with capacity in place to meet expected future demand. This capacity, as well as our new product offerings, positions us well for when the demand does recover. In addition, as referenced on our third quarter call, we are managing our cost structure, including a plan to take out $100 million of annual costs. Now I'd like to give you an update on each of our businesses. As we indicated in previous calls, CCS has strong long-term market tailwinds, including significant spending commitments expected to start late in 2024 and into 2025, driven by continued buildout of fiber networks and data centers. We have seen some small but inconsistent upticks in order rates in some product lines as customers are reaching normalized inventory levels. I don't think we're ready to declare this as the beginning of a recovery, but these small indicators give us some evidence of a potentially stronger second half of 2024 and return to growth. As we turn our focus to helping our customers meet the objectives of connecting the United States with reliable broadband connectivity, we have developed a series of products and solutions focused on rural broadband architectures, meeting the needs of Build America by America requirements, or otherwise known as BABA. Outside of the broadband investments, we are also encouraged by developments in our building and data center portion of our CCS business, supporting our enterprise customers. As you are aware, significant momentum is occurring on the cloud and AI side of data centers. We have also seen a boost in our hyperscale and cloud business as a result, supporting investments in gen AI projects with key customers. As we invest in new products and technologies, we are well positioned to take advantage of growth in this market. We have also found some new momentum with our innovation of our Systemax 2.0 structured cable solutions, offering new products for in-building solutions. In CCS, we continue to be aggressive with our cost structure. We are looking at additional opportunities to drive efficiency. There is still value that we can drive on the cost side. We remain bullish on CCS as a result of the long-term market tailwinds and our strong position in this market. CCS will recover, it is just a matter of timing and degree. Turning to NICS, the business had a standout year even after the slower than predicted fourth quarter. The team worked extremely hard to introduce new products and solutions to the market. The Ruckus team was one of the first to market the new Wi-Fi 7 enterprise grade access point and nearly doubled the attached rate of our Ruckus One and Ruckus AI solutions. Our full year 2023 adjusted EBITDA in NICS of $225 million is up $100 million. That's $173 million over prior year. Our CommScope Next initiatives program has supported the improvement in this business. We are not done as we continue to evaluate every aspect of this business for incremental opportunities, including investing in the next generation of product solutions and SaaS. Our Ruckus One suite and Wi-Fi 7 enterprise class access point products are also contributing to the new technology refresh that is in the early phases. Our NICS business was also supported by the strong ICM performance led by the DAS business providing in-building 5G connectivity. With that said, our NICS segment and specifically Ruckus is under substantial short-term pressure as demand significantly declined in the last quarter driven by too much inventory in the system and slower demand. The level of this demand adjustment is much more severe than what we had expected and our leading indicators identified. Although our funnel remains strong, purchasing decisions are being pushed to future periods. We expect the lower demand will continue throughout the first half of this year as inventory is digested and demand drivers reset. The results of the reduced demand for Ruckus product will be a key contributor to our overall sequential decline from the fourth quarter of 2023 to the first quarter of 2024. In OWN, as we mentioned in previous calls, 2023 saw a decline in US carrier capital spend. As with CCS, visibility remains limited. During the fourth quarter and early in the first quarter, we have seen some slight recovery in order rates. We're not calling this a recovery, but it is a start. Based on our conversations with customers, 2024 will continue to be a challenging year. We would expect that 2024 will look similar to what we saw in 2023, but with a stronger second half of the year. Again, as previously stated, we continue to focus on what we can control and would be ready to support our customers when they are ready. In addition, we continue to develop and commercialize new products. We have discussed the Mosaic antenna solution in the past and are seeing increased traction around the world. We have also introduced our new SEED base station antenna solution aimed at delivering 15% greater efficiency at a fixed power level. Again, like we are in CCS, we are well positioned in the market and feel like we will benefit when the market recovers. Finishing with ANS, as we've discussed, in 2023, the segment has made a successful transition to a leading supplier of edge-related products, including nodes, amplifiers, RPD and R&D modules, and remote OLTs for node pawns. We have done this while continuing to support our large install base of CMTS products across multiple architectures. We introduced the first FDX amplifier, made headway with our virtual CMTS solution, and paved the transitional path to DOCSIS 4.0 architecture. We also launched our DOCSIS 3.1 enhanced solution, enabling operators to offer services between 5 and 8 gigabits per second through the use of new in-home DOCSIS CPE along with enhanced E6000 software. We are bullish on DOCSIS 4.0 upgrades, and we will likely see increased momentum in the latter part of 2024. On both DOCSIS 3.1E and virtual CMTS, we have trials underway with major MSOs. However, in the quarter, as expected, our customers were faced with larger than expected inventory and adjusted shipments to right-size their inventory. In addition, some of our customers have announced slower than expected ramps on their DOCSIS 4.0 upgrade projects. As a result of these two issues, order rates and revenues will be negatively impacted in the first few quarters. This impact will be a key contributor to our overall sequential decline from the fourth quarter of 2023 to the first quarter of 2024. We understand that our message is not ideal as we navigate through the challenging market conditions and capital structure. We are well positioned for a market recovery and a recovery will occur. The timing and intensity of that recovery continues to be uncertain. Although we are in regular dialogue with our customers and evaluate market data and projections, understanding demand drivers has been difficult for us and our competitors. In most cases, projections have been incorrect. The uncertainty is not optimal as we continue to manage cash and capital structure. And we will continue to control what we can. And with that, I'd like to turn things over to Kyle to talk more about our fourth quarter results. Thank you,
spk10: Chuck, and good morning, everyone. I'll start with an overview of our full year 2023 results on slide three. For the full year, Consolidated CommScope reported net sales of $5.79 billion, a decrease of 23% from the prior year. This performance was driven by a decline in all businesses, with the exception of NICS. It should be noted that due to the home transaction, home is now being reported as discontinued operations. Consolidated Justitibeta of $999 million decreased 18% from the prior year. Justitibeta declined for the full year across all segments, with exception of NICS. Justed earnings per share of $0.64 decreased by 61% from the prior year. As a result of our annual goodwill impairment testing, we recorded $145.4 million impairment charge during the fourth quarter, which is excluded from the adjusted earnings per share calculation. For the full year, Core Conscope reported net sales of $5.79 billion, a decrease of 23% from the prior year. The net sales decline was led by a significant -over-year decrease in CCS, followed by OWN and ANS, while partially offset by growth index. Core Justitibeta for the full year was $1.02 billion, a decrease of 18% from the prior year, and with our expected range for the full year 2023 that we provided in our third quarter call. Similar to net sales, Core Justitibeta decline was driven by decreases in CCS, OWN and ANS, while being partially offset by an increase in NICS. Now turning to slide four. For the fourth quarter, Consolidated Comscope reported net sales of $1.186 billion, a decrease of 38% from the prior year, driven by declines in all segments. Adjusted EBITDA of $191 million decreased by 49%. Adjusted EPS was negative 2 cents per share. We experienced lower revenue driven by our customers continuing to manage inventory and overall lower market demand. Customers continue to manage their capital spend, including pushing out some network upgrades. For Core Comscope, net sales of $1.186 billion declined 38% from the prior year, and adjusted EBITDA of $199 million decreased 48%. As we have experienced lower orders, Core Conscope backlog continued to decrease and ended the quarter at $1.152 billion, a decrease of 26% versus the end of the third quarter. In all of our businesses, we're back to normalized backlog levels. As a result of the normalized backlogs, order rates are going to be the direct driver of revenue as we move into 2024. Turning now to our fourth quarter segment highlights on slide five. Starting with CCS, net sales of $556 million decreased 42% from the prior year. CCS adjusted EBITDA of $84 million was a decrease of 55% from the prior year, driven primarily by the drop in revenue. We saw some slight increases in order rates during the quarter. However, these orders rates still remain low relative to historical levels. Although CCS customer conversations remain bullish on medium and long-term growth, the short-term demand profile remains very uncertain. Based on current visibility, we expect to see lower CCS EBITDA in the first quarter of 2024 than we realized in the fourth quarter of 2023. Nick's net sales of $217 million decreased by 25% versus the fourth quarter of 2022. From a business unit perspective, Ruckus led the way, decreasing 35% and ICN decreased 6%. Nick's adjusted EBITDA of $29 million decreased 48% from the prior year, a $27 million change, primarily driven by a decline in Ruckus revenue. The Nick's segment full year 2023 adjusted EBITDA is $225 million, an improvement of $173 million versus prior year. In Ruckus, as we have worked through supply chain constraints and released product out of backlog, order rates have declined as channel partners digest inventory. This is a temporary situation, and we expect order rates to return in the second half of 2024. All of our other leading indicators point to continued strong demand for our products. However, customers are pushing demand out. Based on latest market information, the Ruckus market will decline in 2024. We are excited about our continued product development, specifically our Ruckus 1 and Wi-Fi 7 products. We feel that we are well positioned to continue to take market share in the medium and long term. Overall in Nick's, we expect significant pressure on adjusted EBITDA in the first quarter of 2024 versus the fourth quarter of 2023. However, we are expecting recovery in the second half of 2024 as the market digest inventory built in the second and third quarters of 2023. OWN net sales of $183 million decreased 40% from the prior year and across the majority of the business units. Similar to CCS, customers indicated a stronger second half that did not materialize. Demand in this segment remains soft with limited visibility. Customers continue to limit new builds and are working down inflated inventories. Although we have aggressively managed costs, OWN adjusted EBITDA of $31 million declined 24% from the prior year. Recall in the fourth quarter of 2022, we had a $21 million bad debt charge related to one specific OWN customer. In early 2024, we have seen some pickup in OWN order rates. We expect first quarter revenue and adjusted EBITDA to be in line with fourth quarter 2023. ANS net sales of $231 million decreased 38% from the prior year due to customer inventory adjustment and project delays. ANS adjusted EBITDA of $54 million was down $41 million or 43% from the prior year driven by lower revenue. As mentioned on previous calls, several of our large customers approached us about lowering order rates as they dealt with higher inventory levels and delayed timing on upgrades. This had an impact on our fourth quarter revenues. Also, we expect these adjustments to have a significant impact on the first half of 2024. Despite the short term challenges, ANS continues to position itself to take advantage of the DOCSIS 4.0 upgrade cycle. We are the only supplier that can supply all the products from amplifiers, nodes, modules, and CMTS, including virtual CMTS. Finally, during the quarter, we made progress on the divestiture of our home business to Vantiva that finalized in early January 2024. We feel this combination best positions the business for success in a challenging market. We feel this is the best outcome for our customers and shareholders. Our ownership position in Vantiva will allow us to take advantage of the combined scale of the two businesses, as well as the substantial synergies the combination will deliver. Home net sales were $294 million, declining 25% from the prior year, essentially across all business units driven by customer inventory adjustments and lower demand. Home adjusted EBITDA of negative $46 million decreased from negative $5 million versus prior year as a result of a one time charge related to the sale. Turning to slide six for an update on cash flow. During the quarter, we generated cash from operations of $60 million. We continue to reduce inventory. As previously discussed, we are still holding excess inventory driven by the supply chain constraints in 2021 and 2022. As revenue declines, it delays our ability to monetize this excess inventory. Despite the revenue and EBITDA challenges, we delivered 2023 adjusted free cash flow of $382 million, which was above the $300 to $350 million range provided on the third quarter earnings call. Based on the lack of visibility, we are not providing cash flow guideposts. I would highlight that historically, first quarter is a quarter with significant use of cash driven by a high cash interest payment quarter and incentive payouts. This coupled with our lower EBITDA is going to result in a significant use of cash in the first quarter. Turning to slide seven for an update on our liquidity and capital structure. During the fourth quarter, our cash and liquidity remains strong. We ended the quarter with $544 million in global cash and total available cash and liquidity of over $1.2 billion. During the quarter, we increased our cash balance by $25 million. We did not draw on our ABL revolver during the fourth quarter and therefore ended the quarter with no outstanding balance. Should be noted that we lost approximately $125 million of liquidity on our ABL with the home divestiture in early 2024. In the fourth quarter, we continue to execute our debt five back program and repurchase the $106 million of our long term debt for cash considerations of $51 million. To add more detail, we repurchase $52 million of the .25% senior notes due to 2027 and $54 million of the .125% senior notes due to 2028. Since the beginning of 2023, we have repurchased $217 million of debt. During the quarter, we also paid the required $8 million of term loan amortization. The company ended the quarter with net leverage ratio of 8.0. Going forward, we intend to use cash opportunistically to buy back securities across the breadth of our capital structure. I'm now turning to slide eight where I will conclude my prepared remarks with some commentary around our expectations for 2024. Based on the lack of visibility to a market recovery, we are not providing updated annual guideposts. Our current order rates remain historically low as we are dealing with lower market demand. Visibility to the first quarter indicates a very difficult quarter from a revenue adjusted EBITDA and cash perspective. ANS continues to be challenged as many of our large customers are adjusting inventory and delaying upgrades. Nick saw a significant reset of demand from our channel partners as we released backlog in the middle of 2023. Although we expect some impact of the ruckus backlog release, the magnitude and length of this adjustment was unexpected. Our leading indicators continue to point to strong demand for ruckus products. However, customers are pushing out this demand more aggressively than we have seen in the past. All of our businesses are dealing with depressed demand. As a result of these challenges, our first quarter adjusted EBITDA will be in the $100-125 million range. Based on conversations with customers, we expect to see a revenue pick up in the second half of the year. We have seen some increase in CCS and OWN order rates. Although it is too early to determine the staying power of these increases, it does provide some indication that demand may be returning. To state the obvious, however, if we don't see a meaningful recovery in the second half, we should be prepared for 2024 adjusted EBITDA and cash flow to be significantly lower than 2023 adjusted EBITDA and cash flow. In summary, we are in a passive telecom cable and hardware recession. As mentioned previously, the challenge with the current position is the lack of visibility. Even despite some visibility into customer inventories, customer short-term build plans remain uncertain. The market will recover. The question remains when and at what level. We are still bullish on medium and long-term growth. However, short-term challenges are significant. We continue to control what we can control, including implementing the $100 million annual cost reductions discussed on our prior call. With this cost action and the cost actions we have already taken, upon recovery of the demand, we should be well positioned to drive strong profitability. Finally, I would like to address our capital structure and specifically our upcoming maturities. We continue to evaluate alternatives, including asset sales, to address the 2025 maturity. In previous calls, we have discussed divestitures as potential elements of our plans to address our capital structure. We formulated those plans before it became apparent how deep the industry recession was going to be. Not surprisingly, given the negative market implications on near-term revenue and profit of our potential divestiture candidates, as well as the negative financial impacts on certain potential strategic buyers, we have not thus far been successful in achieving valuations that make sense to us. While there are some continuing divestiture discussions, there is no guarantee that we can transact at values that make sense. Our businesses have strong market positions. We do not intend to sell assets on the cheap. Our credit agreement documents are very flexible. We will use this flexibility to optimize our capital structure, including dealing with the 2025 maturity. For today's call, we will not be making further comment with respect to our capital structure. However, we will provide updates as appropriate. And with that, I'd like to give the floor back to Chuck for some closing remarks.
spk09: Thank you, Kyle. As mentioned, we are faced with significant challenges as all of our markets have not cooperated and the visibility to the timing of the recovery is limited. We are not alone as the entire industry is facing similar challenges. Although we continue to manage what we can control and aggressively manage costs, it is not enough to fully offset the market challenges we are experiencing. Although we are bullish on a recovery, it is a matter of when and how much. We are well positioned for the expected recovery as we are a leader in most of our businesses and have invested in future growth with capacity and new products. However, the longer the demand remains low, the more challenges we face. We have optimism that the second half of 2024 will show some meaningful recovery. The uptick in the CCS and OWN order rates early in 2024 is a positive trend toward that recovery. With that said, we just can't predict with any confidence when a recovery will occur. In addition to managing the businesses, we are acutely aware of our capital structure and liquidity. We will continue to work on managing these aggressively. We appreciate your continued support and patience. And with that, we'll now open the line for questions.
spk08: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Sam McChatterjee with JP Morgan. Your line is open.
spk01: Hi guys, thank you for taking my question. This is MP on for Sam McChatterjee. Can you please dig deep into the issues that you are seeing in next business, particularly like other delaying purchasing decisions being delayed, are relative to some key customers or it's a broad-based trend across all the customers? And what leads you to believe in recovery in second half of the year? Thank you. And I have a follow-up.
spk09: Yeah, I would say it's broad-based. And when you talk about the NICS business overall, it's just a little bit of color. Although we don't like the way the year finished, even with the challenges we had over the last two years, the NICS EBITDA has grown from negative 15 million to plus 240 million, and we believe we've gained share over this time. And we believe we're well positioned to continue to gain share in the future. I think what really happened is we underestimated the impact of the channel inventories. And again, to be specific to your question, I think it was across the board. And this coupled with, I would say, macro uncertainty is really when the supply chain constraints reversed. We were able to ship out all of our – we were shipped out a major part of our backlog. And I think that inventory buildup in the channel is what's affecting us right now. When we look at our leading indicators, like our funnel, they remain strong. But we do see that orders are being pushed out, if we think two to three quarters. And I would say that we do expect the second half bounce because of what we are seeing in our funnel, as well as indications from our customers
spk06: with channel inventory.
spk01: Thank you. My follow-up is regarding BED funding. So can you please let us know, like, for any government programs like BED, how much of the percentage of spending is – awards are like spent towards the equipments or product categories that you serve, and how material can it be in terms of recovery that you guys expect? Thank you.
spk09: Yep. Well, I'd start with what's going on with BEDs is the states are starting to award money. We are expecting to see spending start late in 2024, but a significant pickup in 2025. I think it's important to note that we will be compliant with all of the BABA rules when that turns back on. And we think about a total available market for us. We're calling it, like, about $4 billion. And I'd say that's over, like, a four- to five-year period.
spk06: Thank you. One moment for our next question. Our next question comes from George Natter with Jefferies.
spk08: Your line is open.
spk11: Hi, guys. Thanks very much. I wanted to ask about the ANS business. I think in the monologue you mentioned that, you know, some significant customers had come forward and, you know, I think either pushed orders or demonstrated, you know, softness in terms of their pacing of network upgrades. Is that something that's new from you guys in the last few months, or is that something that you were already seeing, you know, say, in Q3 or the early part of Q4?
spk09: I would say we got real indications of that, and we got the orders pushed out in the fourth quarter of last year. So that's when it really started happening. We had, as Kyle mentioned, I think in his remarks, that, you know, we got contacted by customers that said they wanted to push out. You know, obviously for us, that business is dependent on upgrades. And what we can see is that the customers are leaning forward with upgrades, but it's just they're expecting to start getting more product from us in the second half of the year, is what they're talking about to us. And one of the positive pieces for us in that business is the FDX product line that we expect to start seeing, you know, significant shipments in the second half of this year.
spk11: Got it. Okay. And then anything you can say about the V-Core products progress there with customers trials, anything to report?
spk09: We have several trials going on with our virtual CMTS product. Hopefully, we'll have some more positive news in our next earnings call on that.
spk11: Okay. And then the last question was just on input costs. You know, if you look at the business on balances there, are you seeing any benefits on input costs, any kind of incremental benefits that would be great?
spk10: Yeah, I think just in general, you know, as you can imagine, things go up and down and we buy lots of material and inputs. I think, you know, generally across the board, we haven't, you know, we haven't seen either, you know, significant increase or any reduction, you know, since we saw the, you know, sort of the big spike as we went through 2022. You know, I think we've mentioned on previous calls, you know, the one input cost that's come down since then is great a little bit. But, you know, I think generally other than that, you know, most of the materials are, you know, on a net base is probably pretty neutral.
spk11: Okay, great. I'll pass it on. Thanks, guys.
spk08: Thank you. Thank you. One moment for our next question. Our next question comes from Simon Leopold with Raymond James. Your line is open.
spk12: Hey, guys, this is Victor Chui for Simon Leopold. I wanted to follow up on the NICS results this quarter. Just, you know, maybe can you help us understand how we should think about normalized growth when we kind of look past the inventory of the gestion, you know, this growth come back to 2022, 2023 levels. And, you know, given the deterioration in your visibility and your indicators here, what kind of gives you confidence that the structural kind of demand remains intact here?
spk09: Yeah, I'll start with our structural demand and why we believe that stays intact. And that's because of our funnel. And, you know, we have a lot of projects there. We have a closed one list that we keep track of. We continue to win projects. We feel good about that. If you look at the Dell Oro report, I think they're calling out for a lower 2024. But if you think back going forward, if you look at that report going forward, they're talking about like a 5% CAGR over the, you know, the next five years or so after this. So I do think we're going to have a couple of bumpy quarters, as you've heard from many of our competitors kind of said the same thing. But we think the second half will come back. And I think that's a combination of the inventory adjustments, you know, people shipping out what we have, plus the funnel that we have for the bounce. That'll help us with our bounce back.
spk12: Okay, great. That's helpful. And just on the OWN segment, can you help us think about, you know, the shift to Open RAN in the US and Europe? You know, have you guys considered how that affects the OWN segment if you've kind of built any of that into your assumptions?
spk09: I would say related to Open RAN, we are supportive of our customer base wherever they want to work with that technology. We're working together with them. But I would say, you know, we're not seeing that much in terms of our plans. We're looking at more passive antennas, our Mosaic product, the refresh that they have going on in their networks, and how we support the lower frequencies. We are positive about what's going to happen in the rural areas. We think that there's a larger chance for us to do with ATAR, which would be also positive for us versus a massive MIMO everywhere. So that's also a positive thing
spk12: for us. Great. That's helpful. I'll get back into the queue. Thank you.
spk08: One moment for our next question.
spk06: Our next question comes from Stephen Fox with Fox Advisors. Your line is
spk08: open.
spk02: Hi. Good morning. A couple questions from me if I could. First off, Chuck, given the recessionary environment you're describing, can you talk about competition, how it's impacting pricing, and maybe smaller competitors that may be struggling to make it to the other side of this downturn?
spk09: Yeah, I would say up to this point, I think we're all looking at the situation as you just heard one of the questions we got asked, what's going on with incoming material costs. And those are flat. I think our customers understand our volume situation, so we're not getting that much on pricing pressure. I think what I would hope is that we all work together through this downtime and behave appropriately. I would say we need to work together. I say small firms out there right now, I think they're going to be in a much deeper and more challenging situation than us. But I think what we all have to do is hold together right now and get through this.
spk02: That's helpful. And then just in terms of the cash flows going forward, I know you're not providing guidance, but anything else you can add from a color standpoint, depending on what we all come up with, what else you think you can do to just sort of generate cash flows from a working capital standpoint and also from an active production standpoint, any more mothballing of that.
spk10: I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think that's helpful. I think there's no ear for fined to monetize that but I think as we think about areas of opportunity, I think inventory is a place that we feel like there's some opportunity. You know, so I think that's definitely an area. I think as we think about the cost side of our business, we were talking about implementing this $100 million plan. You know, I think that sort of goes across the organization as to where we're going to get that 100 million from. And you know, as you would expect, not just because of our current situation and the demand profile, but just ongoing. I mean, I think we're always looking for opportunities to optimize. And you know, that's just, you know, that's across all of our functional areas, including operations.
spk13: That's helpful. Thank you.
spk06: One moment for our next question. Our next question comes from Meadow Marshall with Morgan Stanley.
spk08: Your line is open.
spk04: Great, thanks. I know the question has been asked in a variety of different ways, but you guys have just kind of undergone a pretty decent overhaul of the portfolio, you know, whether it be Mosaic or some of the work that you guys have done on Ruckus and the ANS portfolio. So just, you know, where do you feel like the share gain opportunities are the greatest, you know, as demand comes back? And then just maybe a second question, just in terms of, you know, what, you know, understanding kind of how you've laid out about OWN and ANS looking or seeing, or CCS seeing some signs of kind of demand improvement or early signs of demand improvement. But just any context in terms of, you know, is that largely at the edge or just like where within the network you're seeing that kind of uptick within those business areas? Thanks.
spk09: Thanks, Meadow. Where I think we have the most opportunity for share gain, I would say, would be with our NICS business. I mean, we came back with the Wi-Fi, we just launched our Wi-Fi 7. We're the first to market with that product. And I think that's going to be very well received. Already is. We've already won orders in that space. And I think when markets come back, I think that's going to be very positive for us. As you mentioned, the second one, I would say, is ANS, where we, you know, we have revamped, as you mentioned, we have revamped our product family to be, you know, one of the leaders on the edge or the leader at the edge of the networks. And I do believe our customers are leaning forward with upgrades and we have the products for them. And so I think that's going to be a nice opportunity for us, especially products like FDX. And our virtual CMTS, as we talked about before. You know, with CCS, I believe what happened there is we were ahead of the curve. We put the capacity in place in 2021 and 2022. And I believe we have gained share in that space. I think we have given some back. But I don't believe we've lost any share there. But I do think that, you know, when the markets come back, all the capacity we put in place, we're going to be very well positioned for that. And also in our BDCC business, which is our structured cable business, you know, we've revamped Systemax. We now have our Systemax 2.0. We're going to be launching a product every quarter. And we're seeing really positive feedback from our customer based on that. And of course, what's going on with hyperscalers and Gen. AI, our product families there are also very positively being very positively received in the marketplace. So, you know, when you think about OWN, I think we have pretty strong market share positions in North America already. I think our opportunity there is what can we do outside of North America? And then we also are seeing some pretty good traction on people looking at our Mosaic product line. So that would be, those would be the things that I see to
spk06: kind of address your question.
spk05: Great. Thank you.
spk08: And I'm not showing any further questions this time. I'd like to turn the call back over to Chuck Treadway for any closing remarks.
spk09: Yeah, I'd like to thank you for your time today and for your support of CommScope. I'd like you to have a great rest of your week. Thank you very much.
spk08: Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.
spk00: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
spk08: Thank you. Thank you. Thank you. Thank you. Thank you. Good day and thank you for standing by. Welcome to CommScope's 2023 full year and fourth quarter results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message device and your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Massimo Di Sabato, Vice President of Investor Relations. Please go ahead.
spk07: Good morning and thank you for joining us today to discuss CommScope's 2023 full year and fourth 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 Loremson, 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 the 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 and 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 full-year and quarterly growth rates described during today's presentation are on a -over-year basis unless otherwise noted. I'll now turn the call over to our President and CEO, Chuck Treadway.
spk09: Thank you, Massimo. Good morning, everyone. I'll be beginning on slide two. Before getting into the details of our quarter, I want to address the current state of our business and changes since our last call. The business continues to be under significant pressure as demand remains low. We continue to have minimal visibility to when a recovery will occur. During the quarter, we also experienced unexpected significant downward pressure in our NICs and ANS businesses. We are now in a position where all of our segments are dealing with market demand challenges. Although we have seen some slight uptick in demand in our OWN and CCS segments, we expect a very difficult first half and specifically first quarter. We expect the first quarter revenue in adjusted EBITDA to be substantially lower than the fourth quarter of 2023. Starting with the annual results, Core CommScope delivered net sales of $5.79 billion, decreasing 23% from the prior year. The decline in revenue resulted in Core-adjusted EBITDA of $1.02 billion, a decrease of 18% from the prior year, meaning our previously provided $1.05 billion Core-adjusted EBITDA range provided on our last call. Shifting to the fourth quarter, CommScope delivered Core net sales of $1.186 billion and Core-adjusted EBITDA of $199 million for the fourth quarter of 2023. Our fourth quarter continued to be impacted by lower customer orders driven by lower market demand and larger than expected customer inventory buildup. As I mentioned in past calls, we continue to control what we can control. We are the market leader in most of our businesses with capacity in place to meet expected future demand. This capacity as well as our new product offerings positions us well for when the demand does recover. In addition, as referenced on our third quarter call, we are managing our cost structure, including a plan to take out $100 million of annual costs. Now I'd like to give you an update on each of our businesses. As we indicated in previous calls, CCS has strong long-term market tailwinds, including significant spending commitments expected to start late in 2024 and into 2025, driven by continued buildout of fiber networks and data centers. We have seen some small but inconsistent upticks in order rates in some product lines as customers are reaching normalized inventory levels. I don't think we're ready to declare this as the beginning of a recovery, but these small indicators give us some evidence of a potentially stronger second half of 2024 and return to growth. As we turn our focus to helping our customers meet the objectives of connecting the United States with reliable broadband connectivity, we have developed a series of products and solutions focused on rural broadband architectures meeting the needs of build America by America requirements or otherwise known as BABA. Outside of the broadband investments, we are also encouraged by developments in our building and data center portion of our CCS business, supporting our enterprise customers. As you are aware, significant momentum is occurring on the cloud and AI side of data centers. We have also seen a boost in our hyperscale and cloud business as a result, supporting investments in gen AI projects with key customers. As we invest in new products and technologies, we are well positioned to take advantage of growth in this market. We have also found some new momentum with our innovation of our Systemax 2.0 structured cable solutions, offering new products for in-building solutions. In CCS, we continue to be aggressive with our cost structure. We are looking at additional opportunities to drive efficiency. There is still value that we can drive on the cost side. We remain bullish on CCS as a result of the long-term market tailwinds and our strong position in this market. CCS will recover, it is just a matter of timing and degree. Turning to NICS, the business had a standout year even after the slower than predicted fourth quarter. The team worked extremely hard to introduce new products and solutions to the market. The Ruckus team was one of the first to market the new Wi-Fi 7 Enterprise Grade access point and nearly doubled the attached rate of our Ruckus 1 and Ruckus AI solutions. Our full year 2023 adjusted EBITDA and NICS of $225 million is up $173 million over prior year. Our CommScope Next initiatives program has supported the improvement in this business. We are not done as we continue to evaluate every aspect of this business for incremental opportunities including investing in the next generation of product solutions and SaaS. Our Ruckus 1 suite and Wi-Fi 7 Enterprise Class access point products are also contributing to the new technology refresh that is in the early phases. Our NICS business was also supported by the strong ICM performance led by the DAS business providing in-building 5G connectivity. With that said, our NICS segment and specifically Ruckus is under substantial short-term pressure as demand significantly declined in the last quarter driven by too much inventory in the system and slower demand. The level of this demand adjustment is much more severe than what we had expected and our leading indicators identified. Although our funnel remains strong, purchasing decisions are being pushed to future periods. We expect the lower demand will continue throughout the first half of this year as inventory is digested and demand drivers reset. The results of the reduced demand for Ruckus product will be a key contributor to our overall sequential decline from the fourth quarter of 2023 to the first quarter of 2024. In OWN, as we mentioned in previous calls, 2023 saw a decline in US carrier capital spend. As with CCS, visibility remains limited. During the fourth quarter and early in the first quarter, we have seen some slight recovery in order rates. We are not calling this a recovery, but it is a start. Based on our conversations with customers, 2024 will continue to be a challenging year. We would expect that 2024 will look similar to what we saw in 2023, but with a stronger second half of the year. Again, as previously stated, we continue to focus on what we can control and will be ready to support our customers when they are ready. In addition, we continue to develop and commercialize new products. We have discussed the Mosaic antenna solution in the past and are seeing increased traction around the world. We have also introduced our new SEED base station antenna solution aimed at delivering 15% greater efficiency at a fixed power level. Again, like we are in CCS, we are well positioned in the market and feel like we will benefit when the market recovers. Finishing with ANS, as we have discussed, in 2023, the segment has made a successful transition to a leading supplier of edge-related products including nodes, amplifiers, RPD and R&D modules, and remote OLTs for node pawn. We have done this while continuing to support our large install base of CMTS products across multiple architectures. We introduced the first FDX amplifier, made headway with our virtual CMTS solution, and paved the transitional path to DOCSIS 4.0 architecture. We also launched our DOCSIS 3.1 Enhanced solution, enabling operators to offer services between 5 and 8 gigabits per second through the use of new in-home DOCSIS CPE along with enhanced E6000 software. We are bullish on DOCSIS 4.0 upgrades and we will likely see increased momentum in the latter part of 2024. On both DOCSIS 3.1e and virtual CMTS, we have trials underway with major MSOs. However, in the quarter, as expected, our customers were faced with larger than expected inventory and adjusted shipments to right size their inventory. In addition, some of our customers have announced slower than expected ramps on their DOCSIS 4.0 upgrade projects. As a result of these two issues, order rates and revenues will be negatively impacted in the first few quarters. This impact will be a key contributor to our overall sequential decline from the fourth quarter of 2023 to the first quarter of 2024. We understand that our message is not ideal as we navigate through the challenging market conditions and capital structure. We are well positioned for a market recovery and a recovery will occur. The timing and intensity of that recovery continues to be uncertain. Although we are in regular dialogue with our customers and evaluate market data and projections, understanding demand drivers has been difficult for us and our competitors. In most cases, projections have been incorrect. The uncertainty is not optimal as we continue to manage cash and capital structure. And we will continue to control what we can. And with that, I'd like to turn things over to Kyle to talk more about our fourth quarter results.
spk10: Thank you, Chuck, and good morning, everyone. I'll start with an overview of our full year 2023 results on slide three. For the full year, Consolidated CommScope reported net sales of $5.79 billion, a decrease of 23% from the prior year. This performance was driven by a decline in all businesses, with the exception of NICS. It should be noted that due to the home transaction, home is now being reported as discontinued operations. Consolidated Adjusted EBITDA of $999 million, decreased 18% from the prior year. Adjusted EBITDA declined for the full year across all segments, with exception of NICS. Adjusted earnings per share of 64 cents, decreased by 61% from the prior year. As a result of our annual Goodwill impairment testing, we recorded a $145.4 million impairment charge during the fourth quarter, which is excluded from the adjusted earnings per share calculation. For the full year, Core CommScope reported net sales of $5.79 billion, a decrease of 23% from the prior year. The net sales decline was led by a significant -over-year decrease in CCS, followed by OWN and ANS, while partially offset by growth index. Core Adjusted EBITDA for the full year was $1.02 billion, a decrease of 18% from the prior year, and with our expected range for the full year 2023 that we provided in our third quarter call. Similar to net sales, Core Adjusted EBITDA decline was driven by decreases in CCS, OWN, and ANS, while being partially offset by an increase in NICS. Now turning to slide four. For the fourth quarter, Consolidated CommScope reported net sales of $1.186 billion, a decrease of 38% from the prior year, driven by declines in all segments. Adjusted EBITDA of $191 million, decreased by 49%. Adjusted EPS was negative two cents per share. We experienced lower revenue driven by our customers continuing to manage inventory and overall lower market demand. Customers continue to manage their capital spend, including pushing out some network upgrades. For Core CommScope, net sales of $1.186 billion, declined 38% from the prior year, and Adjusted EBITDA of $199 million, decreased 48%. As we have experienced lower orders, Core CommScope backlog continued to decrease in the end of the quarter at $1.152 billion, a decrease of 26% towards the end of the third quarter. In all of our businesses, we're back to normalized backlog levels. As a result of the normalized backlogs, order rates are going to be the direct driver of revenue as we move into 2024. Turning now to our fourth quarter segment highlights on slide five. Starting with CCS, net sales of $556 million, decreased 42% from the prior year. CCS Adjusted EBITDA of $84 million was a decrease of 55% from the prior year, driven primarily by the drop in revenue. We saw some slight increases in order rates during the quarter. However, these orders rates still remain low relative to historical levels. Although CCS customer conversations remain bullish on medium and long-term growth, the market is still very uncertain. Based on current visibility, we expect to see lower CCS EBITDA in the first quarter of 2024 than we realized in the fourth quarter of 2023. Next net sales of $217 million, decreased by 25% versus the fourth quarter of 2022. From a business unit perspective, RUCAS led the way, decreasing 35% and ICN decreased 6%. NICS Adjusted EBITDA of $29 million, decreased 48% from the prior year, a $27 million change, primarily driven by decline in RUCAS revenue. The NICS segment full year 2023 Adjusted EBITDA is $225 million. An improvement of $173 million versus prior year. In RUCAS, as we have worked through supply chain constraints and released product out of backlog, order rates have declined as channel partners digest inventory. This is a temporary situation, and we expect order rates to return in the second half of 2024. All of our other leading indicators point to continued strong demand for our products. However, customers are pushing demand out. Based on latest market information, the RUCAS market will decline in 2024. We are excited about our continued product development, specifically our RUCAS 1 and Wi-Fi 7 products. We feel that we are well positioned to continue to take market share in the medium and long term. Overall in NICS, we expect significant pressure on Adjusted EBITDA in the first quarter of 2024 versus the fourth quarter of 2023. However, we are expecting recovery in the second half of 2024 as the market digest inventory built in the second and third quarters of 2023. OWN net sales of $183 million decreased 40% from the prior year and across the majority of the business units. Similar to CCS, customers indicated a stronger second half that did not materialize. Demand in this segment remains soft with limited visibility. Customers continue to limit new builds and are working down inflated inventories. Although we have aggressively managed costs, OWN Adjusted EBITDA of $31 million declined 24% from the prior year. Recall in the fourth quarter of 2022, we had a $21 million bad debt charge related to one specific OWN customer. In early 2024, we have seen some pickup in OWN order rates. We expect first quarter revenue in Adjusted EBITDA to be in line with fourth quarter 2023. ANS net sales of $231 million decreased 38% from the prior year due to customer inventory adjustment and project delays. ANS Adjusted EBITDA of $54 million was down $41 million or 43% from the prior year driven by lower revenue. As mentioned on previous calls, several of our large customers approached us about lowering order rates as they dealt with higher inventory levels and delayed timing on upgrades. This had an impact on our fourth quarter revenues. Also, we expect these adjustments to have a significant impact on the first half of 2024. Despite the short-term challenges, ANS continues to position itself to take advantage of the DOCSIS 4.0 upgrade cycle. We are the only supplier that can supply all the products from amplifiers, nodes, modules, and CMTS, including virtual CMTS. Finally, during the quarter, we made progress on the divestiture of our home business to Vantiva that finalized in early January 2024. We feel this combination best positions the business for success in a challenging market. We feel this is the best outcome for our customers and shareholders. Our ownership position in Vantiva will allow us to take advantage of the combined scale of the two businesses as well as the substantial synergies the combination will deliver. Home net sales were $294 million, declining 25% from the prior year, essentially across all business units driven by customer inventory adjustments and lower demand. Home adjusted EBITDA of negative $46 million decreased from negative $5 million versus prior year as a result of a one-time charge related to the sale. Turning to slide six for an update on cash flow. During the quarter, we generated cash from operations of $60 million. We continue to reduce inventory. As previously discussed, we are still holding excess inventory driven by the same cash flow supply chain constraints in 2021 and 2022. As revenue declines, it delays our ability to monetize this excess inventory. Despite the revenue and EBITDA challenges, we delivered 2023 adjusted free cash flow of $382 million, which was above the $350 million range provided on the third quarter earnings call. Based on the lack of visibility, we are not providing cash flow guideposts. I would highlight that historically, first quarter is a quarter with significant use of cash driven by a high cash interest payment quarter and incentive payouts. This coupled with our lower EBITDA is going to result in a significant use of cash in the first quarter. Turning to slide seven for an update on our liquidity and capital structure. During the fourth quarter, our cash and liquidity remained strong. We ended the quarter with $544 million in global cash and total available cash and liquidity of over $1.2 billion. During the quarter, we increased our cash balance by $25 million. We did not draw on our ABL revolver during the fourth quarter, and therefore, end of the quarter with no outstanding balance. It should be noted that we lost approximately $125 million of liquidity on our ABL with the home divestiture in early 2024. In the fourth quarter, we continued to execute our debt buyback program and repurchased $106 million of our long-term debt for cash considerations of $51 million. To add more detail, we repurchased $52 million of the .25% senior notes due to 2027, and $54 million of the .125% senior notes due to 2028. Since the beginning of 2023, we have repurchased $217 million of debt. During the quarter, we also paid the required $8 million of term loan amortization. The company ended the quarter with net leverage ratio of 8.0. Going forward, we intend to use cash opportunistically to buy back securities across the breadth of our capital structure. I'm now turning to slide 8, where I will conclude my prepared remarks with some commentary around our expectations for 2024. Based on the lack of visibility to a market recovery, we are not providing updated annual guideposts. Our current order rates remain historically low as we are dealing with lower market demand. Visibility to the first quarter indicates a very difficult quarter from a revenue adjusted EBITDA and cash perspective. ANS continues to be challenged as many of our large customers are adjusting inventory and delaying upgrades. Nick saw a significant reset of from our channel partners as we released backlog in the middle of 2023. Although we expect some impact of the ruckus backlog release, the magnitude and length of this adjustment was unexpected. Our leading indicators continue to point to strong demand for ruckus products. However, customers are pushing out this demand more aggressively than we have seen in the past. All of our businesses are dealing with depressed demand. As a result of challenges, our first quarter adjusted EBITDA will be in the $100-125 million range. Based on conversations with customers, we expect to see a revenue pick up in the second half of the year. We have seen some increase in CCS and OWN order rates. Although it is too early to determine the staying power of these increases, it does provide some indication that demand may return. To state the obvious, however, if we don't see a meaningful recovery in the second half, we should be prepared for 2024 adjusted EBITDA and cash flow to be significantly lower than 2023 adjusted EBITDA and cash flow. In summary, we are in a passive telecom cable and hardware recession. As mentioned previously, the challenge with the current position is the lack of visibility. Even despite some visibility into customer inventories, customer short-term build plans remain uncertain. The market will recover. The question remains when and at what level. We are still bullish on medium and long-term growth. However, short-term challenges are significant. We continue to control what we can control, including implementing the $100 million annual cost reductions discussed on our prior call. With this cost action and the cost actions we have already taken, upon recovery of the demand, we should be well positioned to drive strong profitability. Finally, I would like to address our capital structure and specifically our upcoming maturities. We continue to evaluate alternatives, including asset sales, to address the 2025 maturity. Previous calls, we have discussed divestitures as potential elements of our plans to address our capital structure. We formulated those plans before it became apparent how deep the industry recession was going to be. Not surprisingly, given the negative market implications on near-term revenue and profit of our potential divestiture candidates, as well as the negative financial impacts on certain potential strategic buyers, we have not thus far been successful in achieving valuations that make sense to us. While there are some continuing divestiture discussions, there is no guarantee that we can transact at values that make sense. Our businesses have strong market positions. We do not intend to sell assets on the cheap. Our credit agreement documents are very flexible. We will use this flexibility to optimize our capital structure, including dealing with the 2025 maturity. For today's call, we will not be taking further comment with respect to our capital structure. However, we will provide updates as appropriate. And with that, I'd like to give the floor back to Chuck for some closing remarks.
spk09: Thank you, Kyle. As mentioned, we are faced with significant challenges as all of our markets have not cooperated and the visibility to the timing of the recovery is limited. We are not alone as the industry is facing similar challenges. Although we continue to manage what we can control and aggressively manage costs, it is not enough to fully offset the market challenges we are experiencing. Although we are bullish on a recovery, it is a matter of when and how much. We are well positioned for the expected recovery as we are a leader in most of our businesses and have invested in future growth with capacity and new products. However, the longer the demand remains low, the more challenges we face. We have optimism that the second half of 2024 will show some meaningful recovery. The uptick in the CCS and OWN order rates early in 2024 is a positive trend toward that recovery. With that said, we just can't predict with any confidence when a recovery will occur. In addition to managing the businesses, we are acutely aware of our capital structure and liquidity. We will continue to work on managing these aggressively. We appreciate your continued support and patience. And with that, we'll now open the line for questions.
spk08: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we follow our Q&A roster. Our first question comes from Sam McChatterjee with JP Morgan. Your line is open.
spk01: Hi, guys. Thank you for taking my question. This is MP on for Sam McChatterjee. Can you please dig deep into the issues that you are seeing in next business, particularly like are the delaying purchasing decisions being delayed are relative to some key customers or it's broad-based trend across all the customers and what leads you to believe in recovery in second half of the year? Thank you. And I have a follow-up.
spk09: Yeah, I would say it's broad-based. And when you talk about the next business overall, just a little bit of color. Although we don't like the way the year finished, even with the challenges we had over the last two years, the next EBITDA has grown from negative 15 million to plus 240 million and we believe we've gained share over this time and we believe we're well positioned to continue to gain share in the future. I think what really happened is we underestimated the impact of the channel inventories and again, to be specific to your question, I think it was across the board. And this coupled with, I would say macro uncertainty is really when the supply chain constraints reversed. We were able to ship out a major part of our backlog and I think that inventory buildup in the channel is what's affecting us right now. When we look at our leading indicators, like our funnel, they remain strong but we do see that orders are being pushed out, we think two to three quarters. And I would say that we do expect the second half bounce because of what we are seeing in our funnel as well as indications from our
spk06: customers with channel inventory.
spk01: Thank you. My follow-up is regarding BID funding. So can you please let us know for any government programs like BID, how much of the percentage of spending is awards are spent towards the equipments or product categories that you serve and how material can it be in terms of recovery that you guys expect? Thank you.
spk09: Yep. Well, I'd start with what's going on with BIDs is the states are starting to award money. We are expecting to see spending start late in 2024 but a significant pickup in 2025. I think it's important to note that we will be compliant with the BABA rules when that turns back on. And we think about a total available market for us. We are calling it like about $4 billion and I would say that's over like a four to five year period.
spk06: Thank you. One moment for our next question. Our next question comes from George Nader with
spk08: Jeffries. Your line is open.
spk11: Hi guys. Thanks very much. I wanted to ask about the ANS business. I think in the monologue you mentioned that some significant customers should come forward and I think either push to orders or demonstrated softness in terms of their pacing of network upgrades. Is that something that's new from you guys in the last few months or is that something that you were already seeing you know say in Q3 or the early part of Q4?
spk09: I would say we got real indications of that and we got the orders pushed out in the fourth quarter of last year. So that's when it really started happening. We had as Kyle mentioned I think in his remarks that you know we got contacted by customers that said they wanted to push out. You know obviously for us that business is dependent on upgrades and what we can see is that the customers are leaning forward with upgrades but it's just they're expecting to start getting more product from us in the second half of the year is what they're talking about to us and one of the positive pieces for us in that business is the FDX product line that we expect to start seeing you know significant shipments in the second half of this year.
spk11: Got it okay and then anything you can say about the V-Core products progress there with customers trials and anything to report?
spk09: We have several trials going on with our virtual CMTS product. Hopefully we'll have some more positive news in our next earnings call on that.
spk11: Got it okay and then the last question was just on input costs. You know if you look at the business balances there are you seeing any benefits on input costs any you know any kind of incremental benefits that would be great?
spk10: Yeah I think just in general you know as you can imagine things are you know things go up and down and we buy lots of material and inputs. I think you know generally across the board we haven't you know we haven't seen either you know significant increase or any reduction you know since we saw the you know sort of the big spike as we went through 2022 you know I think we've mentioned on previous calls you know the one input cost that's come down since then is great a little bit but you know I think generally other than that you know most of the materials are you know on a net base is probably pretty neutral.
spk11: Okay great I'll pass it on thanks guys.
spk08: Thank you. Thank you. One moment for our next question. Our next question comes from Simon Leopold with Raymond James. Your line is open.
spk12: Hey guys this is Victor Chui for Simon Leopold. I wanted to follow up on the NICS results this quarter just you know maybe can you help us understand how we should think about normalized growth when we kind of look past the inventory digestion you know this growth come back 2022-2023 levels you know and you know given the deterioration in your visibility and your indicators here what you know kind of what gives you confidence that the structural kind of demand remains intact here?
spk09: Yeah I would start with our structural demand and why we believe that stays intact and that's because of our funnel and you know we we have a lot of projects there we have a closed one list that we keep track of. We continue to win projects so we feel good about that. If you look at the Dell Oro report I think they're calling out for a lower 2024 but if you think back going forward if you look at that report going forward they're talking about like a 5% CAGR over the you know the next five years or so after this. So I do think we're going to have a couple of bumpy quarters as you've heard from many of our competitors kind of said the same thing but we think the second half will come back and and I think that's a combination of the inventory adjustments you know people shipping out what we have plus the funnel that we have for the bounce that'll help us with our bounce back.
spk12: Okay great that's helpful and and just on the the OWN segment can you help us think about you know did the shift to open ran in the US and Europe? You know have you guys considered how that affects the OWN segment if you've kind of built any of your assumptions?
spk09: I would say related to open ran we are we are supportive of our customer base wherever they want to work with in that with that technology we're working together with them but I would say you know we're not seeing that much in terms of our plans. We're looking at more passive antennas our mosaic product the refresh that they have going on in their networks and how we support the lower frequencies. We are positive about what's going to happen in the rural areas we think that there's a larger chance for us to do with ATAR which would be also positive for us versus a massive MIMO everywhere so that's also a positive thing
spk12: for us. Great that's helpful I'll get back into the queue thank you.
spk08: One moment for our next
spk06: question. Our next question comes from Stephen Fox with Fox Advisors your
spk08: line is open.
spk02: Hi good morning a couple questions from me if I could first off Chuck given the recessionary environment you're describing can you talk about competition how it's impacting pricing and maybe smaller competitors that may have may be struggling to make it to the other side of this downturn?
spk09: Yeah I would say up to this point I think we're all looking at the situation as we as you just heard one of the questions we got asked what's going on with inventory you know incoming material cost and and those are flat. I think our customers understand our volume situation so we're not getting that much on on pricing pressure. I think you know what I would hope is that we all work together through this downtime and behave appropriately. I would say we need to work together I say small you know small firms out there right now I think they're going to be in a much deeper situation much deeper and much more challenging situation than us but you know I think what we all have to do is hold together right now and get through this.
spk02: That's helpful and then in terms of the cash flows going forward I know you're not providing guidance but like anything else you can add from a color standpoint depending on what we all come up with EBITDA what else you think you can do to just sort of generate cash flows from a working capital standpoint and also from an active production standpoint any more mothballing of facilities for a time being things that could lay off etc anything else that you would consider doing just sort of preserve the balance sheet. Thanks.
spk10: Yeah I think on the cash side you know we've talked a little bit about the fact that we you know as a result of some of the challenges we've got at 22 with supply you know we're holding a little bit more inventory that we would like to although you know with the with the demand you know continuing to sort of push out it's a little bit harder to monetize that but I think you know as we think about areas of opportunity I think inventory is a place that you know we feel like there's some opportunity you know so I think that's you know that's definitely an area I think as we think about the cost side of our business you know we're talking about implementing this hundred million dollar plan you know I think that sort of goes across the organization as to where we're going to get that hundred million from and you know as you would expect not just in the just not just because of our current situation and the demand profile but just ongoing I mean I think we're always looking for opportunities to optimize and you know that's just you know that's across all of our functional areas including them including operations.
spk13: That's helpful thank you.
spk06: One moment for our next question. Our next question comes from Meadow Marshall with Morgan Stanley your line is open.
spk04: Great thanks I know the question has been asked in a variety of different ways but you guys have just kind of undergone a pretty decent overhaul of the portfolio you know whether it be Mosaic or some of the work that you guys have done on Ruckus and the ANS portfolio so just you know where do you feel like the share gain opportunities are the greatest you know as demand comes back and then just maybe a second question just in terms of you know what you know understanding kind of how you've laid out about OWN and ANS looking or seeing or CCS seeing some signs of kind of demand improvement or early signs of demand improvement but just any context in terms of you know is that largely at the edge or just like where within the network you're seeing that kind of uptick within those business areas.
spk09: Thanks. Thanks where I think we have the most opportunity for share gain I would say would be with our next business I mean we came back with the wipe we just launched our wi-fi 7 we're the first to market with that product and I think that's going to be very well received already is we've already won orders in that space and I think when markets come back I think that's going to be very positive for us as you mentioned the second one the second one I would say is ANS where we you have revamped as you mentioned we have revamped our product family to be you know one of the leaders on the edge or the leader at the edge of the networks and I do believe our customers are leaning forward with upgrades and we have the products for them and so I think that's that's going to be a nice opportunity for us especially products like FDX and our virtual CMTS as we talked about before you know with CCS I believe what happened there is we were ahead of the curve we put the capacity in place in 2021 and 2022 and I believe we have gained share in that space I think we have given some back but I don't believe we've lost any share there but I do think that you know when the markets come back all the capacity we put in place we're going to be very positioned for that and also in our BDCC business which is our structured cable business you know we've revamped Systemax we now have our Systemax 2.0 we're going to be launching a product every quarter and we're seeing really positive feedback from our customer based on that and of course what's going on with hyperscalers and gen.ai our product families there are also very positively being very positively received in the marketplace so you know when you think about OWN I think we have pretty strong market share positions in North America already I think our opportunity there is what can we do outside of North America and then we also are seeing some pretty good traction on people looking at our mosaic product line so that would be those be the things that I see to
spk06: kind of address your question.
spk05: Great thank you.
spk08: And I'm not showing any further questions this time I'd like to turn the call back over to Chuck Treadway for any closing remarks.
spk09: Yeah I'd like to thank you for your time today and for your support of CommScope I'd like you to have a great rest of your week thank you very much.
spk08: Ladies and gentlemen this concludes today's presentation you may now disconnect and have a wonderful day.
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