HICKORY, N.C.-- CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported results for the quarter ended March 31, 2019.
The company reported first quarter sales of $1.10 billion, a decrease of 1.9% compared to $1.12 billion during the same period in the prior year. CommScope generated a net loss of $2.3 million, or $(0.01) per basic share, a decrease from the prior year period's net income of $33.7 million, or $0.17 per diluted share. Non-GAAP adjusted net income for the first quarter of 2019 was $93.0 million, or $0.48 per diluted share, versus $95.0 million, or $0.49 per diluted share, in the first quarter of 2018.
First quarter results do not include ARRIS, which CommScope acquired on April 4, 2019.
CommScope First Quarter 2019 Overview
Sales decreased 1.9% year over year as growth in the U.S. was more than offset by lower sales in the Europe, Middle East and Africa (EMEA) andAsia-Pacific regions. Sales benefited from the continued build out of 4G networks partially offset by a decline in Indoor Copper. Changes in foreign exchange rates unfavorably impacted net sales by approximately 2%.
GAAP operating income decreased 12.6% year over year to $90.7 million. Non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs and other special items, increased 1.1% year over year to $190.7 million, or 17.3% of net sales, an increase of 50 basis points. Both GAAP operating income and non-GAAP adjusted operating income benefited from higher North Americasales volumes, mix and lower material costs. These favorable trends more than offset the impact of reductions in certain selling prices. GAAP operating income was also negatively impacted by restructuring, integration and transaction costs, which are excluded from non-GAAP adjusted operating income.
First Quarter 2019 Segment Overviews (all comparisons are year-over-year)
- Segment sales of $646.1 million decreased 4.1% resulting from declines in EMEA and Asia-Pacific regions, partially offset by a slight increase in North America. Changes in foreign exchange rates negatively impacted segment net sales by approximately 3%.
- GAAP operating income of $29.9 million decreased 43.8%. Non-GAAP adjusted operating income decreased 12.1% to $95.5 million, or 14.8% of segment net sales, a 130 basis point decline from a year ago. GAAP operating income and non-GAAP adjusted operating income were negatively impacted by reductions in certain selling prices and the impact of unfavorable foreign exchange rates on costs. GAAP operating income was also negatively impacted by higher costs related to the ARRIS transaction and restructuring costs, which are excluded from non-GAAP adjusted operating income.
- Non-GAAP adjusted EBITDA decreased 12.2% to $107.7 million, or 16.7% of segment net sales, reflecting a 160 basis point decline from a year ago.
- Sales of $453.4 million increased 1.5% amid strong demand in North America and to a lesser extent the EMEA region, which more than offset a decline in the Asia-Pacific region. Changes in foreign exchange rates negatively impacted segment net sales by approximately 2%.
- GAAP operating income of $60.7 million increased 20.2%, and non-GAAP adjusted operating income increased 19.1% to $95.2 million, or 21.0% of segment net sales, a 310 basis point increase from a year ago. Both GAAP and non-GAAP adjusted operating income benefited from higher sales volumes, favorable geographic mix and favorable impacts from foreign exchange rate changes on costs, which more than offset the impact of reductions in certain selling prices. GAAP operating income was also negatively impacted by higher costs related to the ARRIS transaction and restructuring costs, which are excluded from non-GAAP adjusted operating income.
- Non-GAAP adjusted EBITDA increased 17.9% to $100.7 million, or 22.2% of net segment sales, a 310 basis point increase from the year ago period.
ARRIS Acquisition Update
On April 4, 2019, we completed the acquisition of ARRIS. The combination of the two companies is expected to drive profitable growth in new markets and shape the future of wired and wireless communications. With the acquisition, CommScope will be better positioned to capitalize on long-term industry growth trends, including network convergence, fiber and mobility everywhere, Internet of Things, demand for additional bandwidth, low latency and ultra-high reliability.
In addition to creating long-term growth opportunities, the acquisition is also expected to deliver near-term financial benefits including:
- 30%-plus accretion to adjusted EPS in the first full year following closing;
- Nearly $1 billion of cash flow from operations1 in the first full year;
- Annual cost synergies of at least $150 million within three years; and
- Revenue synergies.
ARRIS First Quarter 2019 Financial Performance
The company is providing ARRIS’ first quarter 2019 results in an effort to provide greater transparency into performance trends. All comparisons are year over year to ARRIS’s 2018 first quarter.
Total ARRIS revenue for the first quarter was $1.38 billion, reflecting a decrease of 12.4%, and operating loss for the first quarter was $45.9 million. ARRIS’s total non-GAAP adjusted operating income of $66.7 million decreased 64.2%, and non-GAAP adjusted EBITDA of $85.9 million decreased 58.9%.
Customer Premises Equipment (CPE):
- Revenue of $824.2 million decreased 5.8%;
- Operating loss of $23.8 million;
- Non-GAAP adjusted operating income of $28.8 million increased 57.4%; and
- Non-GAAP adjusted EBITDA of $35.8 million increased 32.6%.
Network and Cloud (N&C):
- Revenue of $440.2 million decreased 18.2%;
- Operating income of $32.4 million;
- Non-GAAP adjusted operating income of $70.6 million decreased 53.0%; and
- Non-GAAP adjusted EBITDA of $79.0 million decreased 50.7%.
Enterprise (including Ruckus):
- Revenue of $116.9 million decreased 28.8%;
- Operating loss of $54.5 million;
- Non-GAAP adjusted operating loss of $32.7 million decreased 285.8%; and
- Non-GAAP adjusted EBITDA loss of $29.0 million decreased 233.6%.