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CommScope Reports Fourth Quarter 2014 Results

Last update: 20/02/2015 6:00:00 am

HICKORY, N.C.--(BUSINESS WIRE)--February 20, 2015--

CommScope Holding Company, Inc. (NASDAQ: COMM):

-- Fourth Quarter Results Consistent with Most Recent Guidance

-- Sales of $828 million

-- Operating Income of $76 million and adjusted operating income of $139 million, or 17 percent of sales

-- Net income of $0.25 per diluted share, compared to a loss of $0.05 per sharein the prior year period

-- Adjusted net income grew 34 percent year over year to $73 million, resulting in adjusted earnings of $0.38 per diluted share

-- Solid fourth quarter adjusted free cash flow of $116 million

-- Outstanding Calendar Year 2014 Performance

-- Sales increased 10 percent year over year to $3.8 billion

-- Adjusted operating income rose 30 percent year over year to $808 million, or 21 percent of sales

-- Adjusted net income grew 63 percent year over year to $427 million, resulting in adjusted earnings of $2.23 per diluted share

-- Adjusted free cash flow of $346 million

CommScope Holding Company, Inc. (NASDAQ: COMM), a global provider of connectivity and essential infrastructure solutions for wireless, business enterprise and residential broadband networks, reported sales of $828 million and net income of $48 million, or $0.25 per diluted share for the quarter ended December 31, 2014. Non-GAAP adjusted net income for the fourth quarter was $73 million, or $0.38 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.

For the quarter ended December 31, 2013, CommScope reported sales of $847 million and a net loss of $9 million or a loss of $0.05 per diluted share. Non-GAAP adjusted net income for the fourth quarter of 2013 was $54 million, or $0.30 of adjusted earnings per diluted share.

"CommScope had an outstanding year by nearly all financial and operational measures," said President and Chief Executive Officer Eddie Edwards. "We're proud of our team's accomplishments in 2014, in which we delivered 10 percent sales growth, generated record gross and operating margins and increased adjusted earnings per share by 39 percent. Our track record and the numerous strategic initiatives underway give us confidence that CommScope remains well-positioned for sustainable growth and success over the long-term.

"We intend to build upon this success through the planned acquisition of TE Connectivity's Telecom, Enterprise and Wireless businesses. We believe this acquisition will broaden our position as a leading communications infrastructure provider and better position CommScope to meet the growing global demand for bandwidth in next generation networks."

Fourth Quarter 2014 Overview

Fourth quarter 2014 sales declined 2 percent year over year to $828 million. Growth in the Enterprise and Broadband segments were more than offset by lower North American wireless sales. Foreign exchange rate changes negatively affected sales by 2 percent in the quarter compared to the prior year period.

After substantial growth in the first nine months of 2014, Wireless segment sales in the fourth quarter declined 9 percent year over year to $485 million. The fourth quarter decline was primarily due to a slowdown in North America, which was somewhat offset by growth in the Asia Pacific region. Foreign exchange rate changes had a negative impact of approximately 2 percent on Wireless segment sales in the fourth quarter compared to the prior year. Wireless adjusted operating income was $84 million for the quarter, down 25 percent year over year due mainly to the lower sales volumes.

Fourth quarter Enterprise segment sales increased 4 percent year over year to $213 million. The increase was primarily driven by growth in the Asia Pacific region. Enterprise adjusted operating income for the quarter increased 31 percent year over year to $43 million, or 20 percent of sales.

Fourth quarter Broadband segment sales increased 20 percent year over year to $131 million. The growth was primarily driven by increased investment in North America as cable operators push fiber technology deeper into their networks and invest to enhance the quality of their video and broadband offerings. The Broadband team delivered on its objective to return to historic levels of profitability by improving adjusted operating income substantially year over year to $13 million, or 10 percent of sales. The increase was driven by higher volumes and the benefit realized from ongoing cost reduction initiatives.

Operating income in the fourth quarter grew 27 percent to $76 million, compared to $60 million in the same period last year. Adjusted operating income, which excludes amortization of purchased intangibles, restructuring costs and other special items, declined 1 percent year over year to $139 million.

GAAP net income rose substantially to $48 million, compared to a net loss of $9 million in the same period last year. Excluding amortization of purchased intangibles, restructuring costs and other special items, fourth quarter adjusted net income increased 34 percent year over year to $73 million. Adjusted earnings were $0.38 per diluted share, up 27 percent year over year.

Adjusted net income and earnings per share rose mainly due to lower interest expense and a lower adjusted effective tax rate in the quarter. The company reduced interest expense by redeeming debt with the net proceeds from its initial public offering in October 2013 and through other refinancing activities. The lower effective tax rate in the quarter primarily resulted from higher pre-tax earnings, benefits of certain international tax structuring initiatives and legislation extending the R&D tax credit.

Calendar Year 2014 Overview

For the full year, sales increased 10 percent to $3.8 billion, primarily due to growth in the Wireless segment. Wireless sales increased significantly in North America, Asia-Pacific and Europe as a result of 4G/LTE rollouts in developed markets and 3G coverage buildouts in emerging markets. Wireless adjusted operating income was $600 million for the year, up 34 percent year over year due mainly to higher sales volumes, benefits from a favorable mix of products sold and successful cost reduction activities.

For full year 2014, Enterprise segment sales increased 3 percent. Large enterprises continue to invest in global information technology, data centers and commercial buildings in order to meet the ongoing demands for bandwidth and intelligence in networks. Enterprise adjusted operating income for the year increased 7 percent year over year to $167 million, or 20 percent of sales.

Broadband segment sales in 2014 rose 5 percent to $511 million, as double-digit growth in North America was somewhat offset by lower sales in other geographic regions. Broadband adjusted operating income more than doubled year over year to $42 million, or 8 percent of sales.

GAAP operating income increased 75 percent to $577 million, while GAAP net income was $237 million, or $1.24 per diluted share. Excluding the amortization of purchased intangible assets and other special items, the company generated $808 million in adjusted operating income, an increase of $188 million or 30 percent compared to 2013. Adjusted net income rose to $427 million or $2.23 per diluted share, up 63 percent and 39 percent, respectively, year over year. This year-over-year improvement is due mainly to higher sales volumes, favorable change in the mix of products sold, benefit from ongoing cost savings initiatives, lower interest expense and a lower adjusted effective tax rate.

Proposed Transaction with TE Connectivity

On January 28, 2015, CommScope announced an agreement to acquire TE Connectivity's Telecom, Enterprise and Wireless businesses. TE Connectivity is a world leader in fiber optic connectivity for wireline and wireless networks, and the transaction is expected to be in excess of 20% accretive to CommScope's adjusted earnings per share by the end of the first full year after closing and on a pro forma basis, excluding purchase accounting charges, transition costs and other special items. CommScope continues to expect the transaction will close by the end of 2015.

Outlook

CommScope management provided the following first quarter and full year 2015 guidance, which excludes the impact of the planned acquisition, amortization of purchased intangibles, restructuring costs, transaction and transition costs and other special items. As previously outlined, the company's outlook reflects a temporary slowdown in North American wireless carrier spending, the negative impact of foreign exchange rate changes and on-going product line trimming in the Broadband segment.

First Quarter 2015 Guidance:
-- Revenue of $800 million -- $850 million

-- Adjusted operating income of $135 million -- $155 million

-- Adjusted earnings per diluted share of $0.33 -- $0.38, based on a share
count of 192 million weighted average diluted shares

Full Year 2015 Guidance:
-- Revenue of $3.65 billion -- $3.80 billion

-- Adjusted operating income of $725 million -- $775 million

-- Adjusted earnings per diluted share of $1.95 -- $2.05, based on a share count of 194 million weighted average diluted shares

-- Strong free cash flow

Conference Call, Webcast and Investor Presentation

As previously announced, CommScope will host a conference call 8:30 a.m. ET today in which management will discuss fourth quarter and full year 2014 results. The conference call also will be webcast over the Internet.

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February 20, 2015 06:00 ET (11:00 GMT)