Q4 2019 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Comscore fourth quarter and full year 2019 conference call. At this time all participants are not listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require substantial.

And the conference. Please press Star then zero under touched show telephone I would now I turn the conference over to your host Mr. Kevin powers.

Good morning. Thank you for joining me today to discuss Commscopes fourth quarter and full year 2019 result.

With me on the call or Eddie Edwards, President and CEO.

And Alex Pease Executive Vice President and CFO.

You can find the slides that accompany this review on our Investor Relations website.

Please note. This summer comment today will contain forward looking statements speeds in our current view of our business in actual future results may differ materially.

Please see our recent after she filings which are kinda funded principally rent that's certainly if that could affect future performance [laughter] before I turn the call over to Eddie just a few housekeeping items to review.

Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials.

Reconciliations of non-GAAP financial measures and others. So she disclosures are contained in our earnings materials and posted on our website.

References during today's discussion will beat your adjusted results also note.

Fourth quarter 2018 results include historical Aaron's results, reflecting certain classification changes to align to commscopes presentation.

Well clearly girlfriends described during today's presentation or in a year over year basis, unless otherwise noted.

I'll now turn the call over to our President and CEO Eddie Edwards Eddie.

Thanks, Karen and good morning, everyone. Today, we reported fourth quarter sales that were in line with their outlook and adjusted EBITDA High end of our outlook. We're also pleased to report adjusted earnings per share above the high Andrew regardless.

Right and over $300 million adjusted free cash flows.

Similar to the third quarter results for could should largely consistent with expectations. We expect exception of our network and cloud software sales they were expected to occur in the first quarter 2020.

Yeah, what remains a challenging environment our performance results.

Reflects our commitment to strengthen in the business and our solid track record of execution.

We are focused on taking action is actively managing the operations picture Commscope is well positioned for organic growth in the near and long term.

During the quarter, we maintained our focus on gotten cost an operational efficiencies to deliver shareholder value.

Turning to a specific business before I supposed to begin with connectivity solutions.

Despite a challenging copper enterprise market throughout 2019, reapproved acquisition in copper infrastructure extended our market leadership and continue to lead the way would solutions in service is focused on next generation application applications and intelligent infrastructure.

Here are some examples.

It's obvious connectivity moves from being in the walls to the ceiling Commscope is actively investing in category six eight capabilities and innovation to help customers manage the connectivity challenges of today and tomorrow.

These include solutions for increased bandwidth and power over Ethernet needs from devices, such as why for access points.

Camera internet of things and indoor small cells.

Our network headwind connectivity business remains solid as expected due to seasonal declines in fiber connectivity spending by international tier one carriers and slower hopper slot fiber to the held for its not north American carriers.

However, this was somewhat offset by modest recovery in fiber cable cool actually passing subscriber devices.

Tier one cable operators.

This trend is encouraging and demonstrates the additional capacity is being added to the networks tier two tier three cable operator spending continued to be strong the back of U.S.U.S. government Rural Broadband Fund initiative.

To assist our customers when these deployments during the quarter, we released the first family of products for Merck robots connectivity platform.

No not see features a new jail ceiling system, you identification technology and common construction betrayed products to allow for ease of use.

We're seeing good momentum with European operators, and I'll turn to network providers looking for games Gregor simplicity to kind of installers network managers and we're excited about its potential.

I guess I plan to assess was down modestly versus our prior year largely due to enterprise seasonal spending that continued weakness in China without current trading environment.

However, our Hyperscale and cloud data center business fraud during the quarter, it's hyperscale customers expand data center bills outside of North America.

We continue to improve our position with these large customers. Since we are fine focused resources to customize our portfolio into their needs.

Support this effort, we're investing in products and see the demand for higher fiber counts in greater density.

Our ability to rapidly the ability to deliver these customized solutions at scale around the world is a key differentiator for comes true.

[noise] and mobility solutions, we continue to shift the infrastructure for Fiveg rollouts to leading carriers, while also helping them densify virtualized networks in preparation for Fiveg.

For example, our base station antenna business, we're releasing new products and incorporated incorporate Fiveg spectrum part, we're taking the same physical footprint.

We have built a leadership position with North American operators, and we are leveraging our expertise to win new business in Europe and other international markets.

And our Metro cell business, which features fully integrated smartphones and street furniture for services such as urban. So you are why fly and I would see applications such as security cameras or traffic management, we continue to see growth in the U.S. for Fourg and Fiveg deployments.

Thank you is happening, though not only in larger areas, but also in tier two cities and municipalities, where they had recently obtained zoning approvals.

We're also supporting deployments outside the condom you asked from key projects in Alaska, and Puerto Rico.

As well as growing interest from Latin American markets.

You're not distributed antenna systems in indoor small cell business, we're making progress across all product lines.

Sarah our digital data solution with C ran architecture is quickly becoming popular with enterprise customers for revenues nearly double this year.

We expect continued growth in 2020.

Once sale our industry, leading indoor small cell platform received conditional approval from the major U.S. operator for our next generation a radio points that brings multi band and multi operators for it and our Fiveg ready.

We're also developing a fiveg millimeter wave Oh land, one still solution for another major U.S. operator.

Moving to our CP business into quarterly had successful field trials on self install LT fits wireless access gateways.

An important element of our plan for fixed wireless access devices.

We saw positive net promoter scores are DOCSIS three dot one gateway deployments in Europe, and we see growing demand for but not the set tops and DSL gateways in the Americas.

Lastly, we drove the sequential increase in gross margin adjusted EBITDA This business.

We finished the year with the best quarterly EBITDA performance, the 2019 with a nearly 50% increase versus last year.

Turning to network and cloud, we continued to broaden their virtualized and distributed access platform says operatorship steadily towards D.A. in virtual seems yes.

We completed a major release of our V core virtual Cmcs father, which will prepare us for operator deployments in early 2020.

We also completed deployment in development, our remote phy shelf product, which enables operators to place multiple RPV modules mid single chassis for data distribution for remote hubs.

Also we expanded our broad distributed access portfolio with the launch of our measure up to the one terminal much with.

Similar to the RPD modules are most co Ltd allows operators to flip back into new or existing distributed architecture knows.

This de module supports 10 gig Ethernet pond networks and provides operators with the ability to add passive optical networking to their broadband distribution networks. The product is currently in early fill deployments with a major operator, Japan and then trial with you this operators.

Turning to our Ruckus Wi Fi and switch portfolio, we exited the year with better than expected Wi Fi six as why five six order spiked on the heels of our or 750 introduction and we saw a nice growth in our cloud managed Wi Fi subscriptions.

In addition, we're very excited about the upcoming launch where our cloud based analytics platform that uses machine learning to detect network anomalies and provide an actionable insights.

Turning to our switching portfolio the Ruckus I see at 70, 850, which enables modern high performance hundred gig capable enterprise networks, one product to the year network category from CRT and this product completes commscopes offering of Ethernet switches.

In addition, we saw continued execution of cross selling to switches and access points together the successful adoption of both sets of products for our common customer base can be seen by the rapid growth and attachment rate of switches to a smartphone network controllers.

And finally, we are founding members of the CV Rs Alliance and we're excited to watch to see Vrs, LT portfolio, including access points and crowd services.

These new devices and services combined with our existing Hsas and environmental sensing capability.

Helps us maintain a leadership position in the enterprise market.

In conclusion about 2019 was certainly a challenging period for commscope, our industry at large and our investors when I reflect upon the accomplishments in the past year I'm incredibly proud of our Commscope team.

Our people show, Great Zig Hudson tenacity to transform our organization that made considerable progress positioning the company for future growth.

Now I'd like to turn the call over to Alex who will discuss our fourth quarter performance in more detail and our outlook for the first quarter and full year 2020, Alex.

Thanks, Andy.

Discuss details for the quarter I'll start with a brief review of 29 team.

For the full year net sales of 8.35 billion increased 82.7% year over year, primarily due to the contribution of $4.3 billion from the Arts acquisition.

As a combined company net sales declined 13.8% to $9.76 billion, which includes approximately 1% impact of unfavorable foreign exchange.

Full year sales were down across all geographic regions as we faced a significant reduction in cable operator spending geopolitical tensions on a temporary pause in spending due to the pending T mobile and spread merger.

For the full year, adjusted EBITDA increased 42% to 1.3 billion or 15.5% of sales.

I'm buying company adjusted EBITDA declined 20% to $1.37 billion or 14% of sales.

Adjusted net income for the year was $479.4 million or $2 in 15 cents per diluted share as compared to adjusted net income of $442.5 million for $2.27 per diluted share last year.

Included in these adjustments to net income as a $376.1 million non cash goodwill impairment charge that we took in the fourth quarter related to our Eris reporting units as a result of our annual goodwill impairment tests.

Since the closing of their these reporting units have experienced challenges that impacted our performance, including declines in spending by cable operator customers that resulted in declines in net sales and operating income.

Well the loss of key leaders following the acquisition.

We initially anticipated recovery and spending by certain customers starting in 2020, however, during our annual strategic planning process in the fourth quarter, a number of specific factors arose, including an assessment of historical and future operating results key customer inputs, new assessments of market trends anticipated costs.

Required to support the changing market dynamics dynamics, which affected each one of these reporting units.

As a result of these factors, we expect a more prolonged recovery and we concluded that the fair value of each of the air supporting units was less than at the carrying value, resulting in the non cash goodwill impairment charge.

Moving to slide seven I'll cover our fourth quarter consolidated results.

In the fourth quarter net sales increased to $2.3 billion, primarily driven by the benefit from the acquisition, which contributed $1.33 billion.

Eric sales in the fourth quarter include a 13.2 million dollar reduction of revenue related to deferred revenue purchase accounting adjustments.

Combined company net sales declined 19%, which includes a less than one per cent impact of unfavorable foreign exchange.

Fourth quarter sales were down largely due to the same factors that impacted our full year results.

Consolidated orders for the quarter were nearly $2.5 billion, providing a book to bill ratio of 1.08.

For the fourth quarter, adjusted EBITDA increased 64.6% to $323.6 million or 14.1% sales.

Combined company adjusted EBITDA declined, 18.4%, however, EBITDA margins get improved 20 basis points to 14%.

The adjusted EBITDA results were primarily driven by lower volumes, particularly in network and cloud and connectivity solutions.

We partially offset the softness with favorable commodity in raw material pricing as well as lower operating expenses as a result of the aggressive actions we've taken to preserve profitability as we manage the difficult operating environment.

To that end, our synergy and cost saving actions for the year continue to track ahead of plan.

We continue to expect to exceed our stated goal of an annual run rate cost saving synergies of $150 million ahead of the third anniversary of the close the transaction.

Finishing up the piano.

But net interest expense was $153.6 million.

Excluding the amortization of debt issuance costs, and then I'd, a $7.9 million cash interest expense was $145.7 million.

The adjusted effective tax rate in the quarter was 20.7% versus our expected range of 27% to 28% favorability in the fourth quarter was the result of lower than expected U.S.U.S. tax costs on foreign earnings.

Adjusted net income in the quarter with $106.6 million or 46 cents per diluted share as compared to adjusted net income of $99.8 million or 51 cents per diluted share last year.

Moving onto our segment results.

Connectivity solutions segment sales for the fourth quarter decreased 9% year over year to $606 million.

Sales were soft across all geographic regions, most significantly in the Asiapac region as well as in Latin America.

As expected results were negatively impacted by softness in the network cable and connectivity business. This was driven by spending declines by international cable operators and the continued trend of capital spending reductions on major projects by large north American carriers.

This trend was partially offset by continued strengthening within the North America cable operators in tier two and three carriers.

Within enterprise sales decline most significantly in copper markets, particularly in China as local brands continue to take preference as a result geopolitical tension.

Despite this decline within the overall segment, our Hyperscale business continued its momentum with double digit growth as we deliver key wins with major customer and the global data Center Buildout.

Turning to profitability.

Adjusted EBITDA was down about 32% year over year to $91 million with adjusted EBITDA margins of 15.1%.

The decline was primarily due to unfavorable mix with lower sales and a higher margin fiber connectivity portfolio and lower volumes given the high fixed cost nature of our connectivity supply chain.

Moving onto mobility solutions segment sales for the fourth quarter decreased 6% to $366 million, primarily impacted by positive spending related to the T mobile and sprint merger.

This order delay impacted fourth quarter mobility sales by over 7%.

While macro tower sales declined primarily due to that merger uncertainty and our decision to continue exiting unprofitable business in India. We delivered continued growth in our das and Metro South as operators continue to focus spend on densifying their networks and this led to triple digit growth in metro cell deployments in the fourth quarter.

We've now deployed more than 10000 Metro cell solutions in the U.S. and expect to continue building on our momentum in the next decade.

In the quarter mobility, adjusted EBITDA decreased over 11% $55 million or 15.2% sales adjusted EBITDA declines were primarily driven by lower pricing and volume, partially offset by favorable geographic mix and manufacturing cost reductions.

Turning to slide nine.

C D E fourth quarter net sales were $824 million, a decrease of 25% from prior year.

Well revenue declined year over year, adjusted EBITDA increased 48% $72 million, resulting an EBITDA margin expansion or 430 basis points to 8.7% of sales.

The margin expansion was the result of continued lower material costs and aggressive actions to contain costs, while sales volumes are pressured.

CE revenues were impacted by increasingly weak demand from both tier one carriers in tier one cable operators.

For networking cloud fourth quarter net sales were $366 million, a decrease of 32% year over year.

Adjusted EBITDA was $97 million, a decrease of 36%, while adjusted EBITDA margin declined to 26% to 26.5% sales.

The networking cloud sales continue to be.

Maybe to the lower levels of cable operators spending as the demand for bandwidth in both the uplink and downlink continues to grow at a 30% to 50% rate recent operated commentary confirms that they're shifting capital expenditures will start to migrate back to network infrastructure investments going forward.

We remain confident that network in sale networking cloud sales bottomed in 2019.

With underlying consumer bandwidth demand continuing to grow coupled with our investments and Virtualized and distributed access architecture platforms. We remain in a strong position to guide operators through the TMG network infrastructure investments that they will.

Deploy them coming decades.

Moving onto a rockets.

Fourth quarter net sales were $138 million, a decrease of 9% from year ago.

Adjusted EBITDA was $8 million, an increase of approximately $9 million from the prior year.

Despite lower sales volume and what's been historically.

Very high fixed cost business adjusted EBITDA margins of 5.8% improved over 600 basis points from the prior year.

From favorable mix as well as cost savings and efficiency plans that we've executed over the year.

We expect trends such as the introduction of Wi Fi six and cloud based architectures to positively impact the business in 2020 and beyond.

Returning to our consolidated results our dress our cash flow on slide 10.

For the full year 2019, we generated $596 million and cash flow from operations in $793 million and adjusted free cash flow.

During the fourth quarter cash flow from operations was $336 million and adjusted free cash flow was $323 million.

These amounts exclude cash paid for transaction and integration and restructuring costs.

Adjusted free cash flow also reflects the $78 million benefit from certain payments that would normally have occurred in the fourth quarter 2019, but were made in the first quarter 2020, because of the timing of the holiday.

Despite our sales headwinds.

Teams done a remarkable job delivering significant cash flow above our original expectations, while a portion of the cash flow benefit is associated with one time working capital improvements that we don't expect to repeat.

Driving working capital primarily through inventory management will be a continue I've continued critical focus throughout 2020.

Given the significant cash generation in the second half the year, we redeemed over $500 million of long term debt since the close of Drs acquisition, which has resulted in annualized interest savings of over $25 million as we continue to aggressively pay down debt EPS accretion from the reduced interest burden will only continue to grow.

Become more meaningful overtime.

Now, let's dig a little bit deeper into our capital structure.

As we closed the quarter with a net leverage up 6.3 times combined company adjusted EBITDA.

For this purpose adjusted EBITDA includes $113 million as synergies and other cost actions that we expect to realize over the next two years.

Because of the significant cash flow generation during the fourth quarter, we redeemed $300 million over 5% senior secured notes due in 2021 throughout the quarter as well as a mandatory $8 million principal payment on our term loan in late December.

In addition.

Went to the end of the fourth quarter, we redeemed an additional $100 million with the 2021 notes, leaving a balance of $50 million outstanding, which we expect to fully redeemed over the first half of 2020.

Original expectation what the debt repayments in 2020 wouldn't begin until the second quarter and we're pleased to be ahead of that schedule.

With that I'll provide some perspective on our 2020 qualitative outlook.

Before I began as a reminder, we announced a new operating model, where we condensed our five previous segments into for this new operating model went into effect on January Onest of 2020. These four new segments, our broadband networks venue on campus networks outdoor wireless networks and home networks, which will.

As previously called E.

On slide 12, you'll find the underlying business units that comprise each of these four segments.

You can find 2019 pro forma isn't our needs for our new segment structure in the appendix of our earnings presentation found on our Investor Relations website.

Now turning to our full year assumptions.

For broadband networks, we expect modest growth in 2020.

We expect growth in the major geographic regions.

Most pronounced in North America, and euro within the underlying business, we expect growth across most business units as operators pick up their network investments in 2020.

While we don't expect any snap back to the 2018 levels of spend we are encouraged by this growth kind as operators begin to chew through the overcapacity that was built out in 2018.

Given these factors, we expect to grow broadband networks EBITDA driven by the volume shift associated with an increased focus and network capital spending by operators as well as efficient execution of our cost reduction initiatives.

For outdoor wireless networks as we've previously stated we expect the operator short term focus to be concentrated on densification efforts, which will that that our metro cell solutions significantly.

This will proceed the more intensive efforts of upgrading the macro cell towers as more spectrum is released them. The upgrade refresh cycles begin to play out in 2021 and beyond.

As a result, this dynamic we expect outdoor wireless sales be modestly down for the year as the growth in Densifying the metro layer doesn't offset the cyclical shift from the macro sites for 2020.

In addition, we now expect first net orders come to moderate more than originally expected given the program is expected to be completed early.

That being said the earlier this the Timo sprint merger closes the more potential upside it could provided 2020, given the network investments required to deploy this the sprint spectrum.

Lastly, we also expect returned to more normal seasonal trends within the year as 2020 will be less first half weighted than 2019.

From a profitability perspective, we expect to offset a significant portion of the volume mix and pricing impact of the macro cell.

Tower to metro cell shift through our profit improvement plan.

These will be particularly focused on optimizing margin and production processes of our highest growth areas in the metro cell and other fiber products.

However, when factoring in operating expense headwinds. This will result in an overall EBITDA decline for the segment.

Regardless, we remain very excited about the opportunities ahead as carriers prepare their network and launched their competitive campaigns to build out Fiveg services.

The early 2000, Twentys will provide for deeper engagement in partnership with Oems.

Familiar tier one carriers as well as some aggressive new bases in the quest to build out the greatest network infrastructure as the world has ever seen.

Our venue on campus network segment segment has bolstered by the growth pillars of Hyperscale datacenter build era distributed antenna systems oneself small cells and Ruckus Wi Fi in switching.

With 80% of data consumption, taking place and doors are venue on campus business will provide licensed and unlicensed solution solutions and the required tabling conductivity access point and switches essentially a one stop shop for stadiums office buildings hospitals college campuses and other enterprise applications.

Therefore, we expect sales to grow in the mid single digits for 2020.

This growth potential required us to concentrate not only on the current year, but more importantly, investing for the future.

We expect the sales growth to be outpaced by the R&D R&D investment costs, resulting in an overall EBIT EBITDA declined for the segment for the year.

Now to our home networks.

Networks faces a significant challenge this year as operators.

And carriers continue to deal with material subscriber losses.

While we're optimistic at the eventual offset and shift of growth to broadband gateways modems, we realize that DOCSIS three dot one DOCSIS, Florida, though and PON growth drivers won't begin to drive improvements until the second half of 2020 and beyond.

Given these dynamics, we expect home network sales to be down about 20%. This year, which is a larger decline that our initial expectations.

At home network topline trends are challenged the team is taking every available actions to maintain profitability.

While EBITDA margins are expected to be relatively flat over the year, considering the anticipated topline declined we expect home network EBITDA dollars decline this year.

Taking all of these segment assumptions into account for 2020, we expect total sales to modestly declined on a consolidated basis.

Consolidated gross margins are expected to expand due to performance results within each of the segments and from the favorable mix impacts that.

That results from lower home network sales.

In addition to gross margin expansion, we expect operating expenses to benefit from cost synergies and cost reduction actions.

However in 2020, we expect to make additional investments in high growth areas at the portfolio that will better position the company to capitalize on future market opportunities.

These strategic investments combined with natural expense inflation will result in operating expense growth year over year.

Bringing it all together from a profitability perspective, we expect total EBITDA margins to expand and we expect EBITDA dollars to be consistent with last year on a combined company basis.

That being said the company is working with our need sense of urgency to accelerate cost savings and deal synergies where appropriate with the goal of maximizing profitability across the organization.

In 2020, we expect adjusted free cash flow of around $400 million and debt pay down of around $450 million. As reminder, our fourth quarter cash flow is better than expected and also benefited by $78 million.

From a payment that would normally have occurred in the fourth quarter 2019, but for the timing of the holiday.

Finally, a few additional assumptions to help you model for the year and 2020, we expect an adjusted effective tax rate of 26% to 27%.

Fully diluted share count of approximately 237 million shares.

Capital expenditures between 110 and $130 million.

Cash interest expense between 570 and $580 million.

Cash taxes between 130, and $150 million and integration transaction restructuring cash expense in the range of $60 million to $70 million.

Moving onto our guidance for the first quarter 2020.

From segments standpoint, the first quarter, we expect broadband network sales to sequentially declined in the upper single digits in line with norm normal networking cloud seasonality, but with a mix of more hardware and software.

Venue on campus network sales.

Will modestly declined quarter over quarter.

Outdoor wireless network sales.

We'll increase sequentially around 20%.

And how network sales will decline quarter over quarter between 20, 530%, while home network sales normally seasonally decline in the first quarter. This pressure is continuing to be exacerbated by spending declines at a large north American carrier.

In addition to in addition in reference to our guidance range.

Given the substantial uncertainty regarding the corona virus situation, where providing a wider than normal guidance range in the first quarter.

Today, we're operating about 40% to 50% capacity and more slowly ramping back to more normal staffing levels, we anticipate volumes to recover as we move throughout the year.

Given the fact that a portion of our raw materials and products are sourced directly from mainland China and a significant piece of our international shipments also manufacturer in China. We're factoring in an approximately $60 million adjusted EBITDA negative impact from the Corona virus in the first quarter.

We would expect to recover the majority of this impact as the year progresses.

Based on these assumptions for the first quarter, we expect revenue, but tween $1.9 billion in $2.1 billion.

Non-GAAP adjusted EBITDA between $180 million to $250 million and non-GAAP adjusted earnings per share between three cents, an 18 cents.

Additional assumptions include at adjusted effective tax rate between 25, and 27% and a weighted average diluted share count of approximately 236 million shares.

And with that I'll turn the call back over to Eddie for some final remarks.

Thanks, Alex the upcoming here will be a mix of challenges and opportunities impacting our business that being said, we're focusing making improvements across the business to strengthen the organization or go to market strategy and our product portfolio.

We have repositioned our portfolio to capitalize on key shifts in the marketplace, including Wi Fi six the ongoing shift to Fiveg.

Focusing on our customer needs, we develop unique and innovative products further differentiate commscope from our competitors the armed our go to market team with powerful solutions.

As we look to get to 2020 will create the same approach to addressing capitalize when the market dynamics remain committed to aggressively cutting costs, while not sacrificing investment into business.

Importantly, we are ahead of schedule, our cost reduction targets in debt repayments. They expect to continue paying down debt in 2020, given our free cash flow generation.

With a dedicated and talented team the portfolio of innovative products and a clear roadmap in place, we're well positioned to lead to next phase of communications connectivity and with that I'll turn the floor open for questions.

Ladies and gentlemen, if you have a question at this time. Please press star and then number one on your Touchstone telephone. If your question has been answered are you wish to remove yourself from the Keith Please press the pound key.

Your first question comes from Simon Leopold with Raymond James.

Great. Thanks for taking my question I appreciate all the detail you you've offered wondering if maybe we could drill down a little bit in helping us understand some of the patterns for Fred the biggest north American operators, particularly.

18, Tees Capex tends to have a lot of moving parts and vendor financing and interest expense and and Firstnet and you're obviously.

Relatively small part of that overall spending so if you could help us understand the trend there as well as your comments and maybe your thinking on the T mobile sprint what you're assuming in terms of how that combination effects. Your your business through the year. Thank you.

Thanks Simon.

Well, we are a small part.

Bill that it is important customer to us and we sell them product throughout the portfolio.

Impacted by what happens at Directv from standpoint of our Eris business. So that's not a positive indication from a from that standpoint. We also are a primary antenna supplier to them.

Both in Firstnet as well as there are there their network is a hole in a rapidly when we talk first started talking about first there maybe four years ago. We said this is going be a three to four year project I think I think we're in that range and going towards the end of that we still see revenue for the server.

The first part of the year, but but declining now I think I've said on so these calls before it's hard for us in many cases to know we're selling they firstnet deployable antenna or one four for their traditional network because the incentives are extremely similar so we expect.

Tenured.

Presence in that marketplace, and ready to deploy new and upcoming antennas and I think as I said in my remarks earlier, the ability to put more.

Frequencies inside a.

Great all of the same size is hard to do think we have unique skill and doing that and so we look we look to continued.

Improvement in that relationship than that I think to relationship with them is extremely good.

We see.

It's great opportunities with.

Oneself is fully approved at eight TNT, we've had a.

Signet the trial of 2 million square foot employment, so that's especially large drop will start with than we have a lot of possibilities in the queue right now we're working on.

As they see and we believe that this is unique game changer into in building environment.

As well as us while venues and so that's something that we think will be good part of the business. During the course of this year.

So we.

We are well positioned of throughout the.

The entirety of the of the 18 TV network.

As it relates to T mobile and spread upgrade but what we've said is that we sort of.

Put this thing sort of down the middle of the fairway is too as to what this year would be.

Not knowing when approval, we anticipated approval, but not doing when it would happen there we're getting closer but.

If it starts.

In the early months or early quarters. This this could be an upside for us.

As we are we just assume sort of the middle the road.

Physician.

We are.

As as with the other US carriers, we are major supplier to them for not just antennas, but but other products in their network. Our position is is well established.

I think relationships excellent we've been working with them.

You antenna designs.

Anticipating this this merger happens and so I think has a comps were ready.

It was.

Negative.

Indicator in into into the year as they stop spending awaiting the merger so nearly as soon as it happens we would expect some pickup there.

Great. Thank you very much okay.

Your next question comes from Sammy boundaries with credit Suisse.

Hi, Thank you.

There has been a lot of industry discussion around Crs and you were a founding member of the CVR cell lines, but what are some of the implications of Crs growth and the rest of your product portfolio. As this product group begins to ramp and hearing a lot of CVR partners starting to come up and emerge just trying to understand what are some of the implication something or other product lines as this segment.

Just a ramp up.

Right.

First just being a product supplier, we operate a SaaS and so we will be one of the.

The.

Companies that maintain the integration of the network and how it flows the information flows and how how each of the participants in the in the network are able to access network working working with the government and so we were ready ready for that we are a major.

Provider for the capability of private networks, which no for Crs will be.

Game changer, and so I think from from hardware standpoint, we're well positioned.

From from the operation of the Hsas and understanding what is happening in the network I think we're well positioned as well. So I think we have the full complement of being a provider of service as well as a provider products.

Thank you and then just on debt pay down cadence through 2020 could you give us any kind of color. Maybe this is a question better for alisch any kind of color on cadence throughout the year should we should we think of this is a similar path to 2019 or is going to look a little bit different 2020.

Yes, so a couple of.

Comments on both 2019 and 2020 as it relates to cash generation and debt pay down 29 team.

We work the balance sheet extremely hard.

We took a lot inventory out of its system and then we really tightened up market fund around working capital will continue as we get into 2020 to continue to.

Deploy all of our tools managing inventory very.

Very tightly but obviously.

Ultimately cash generation requires EBITDA EBITDA growth and start to the extent were looking at a relatively flat year over year comparison from EBITDA growth.

We would not anticipate the same working capital.

Benefits in terms of cadence through the year, it's pretty back half weighted we typically see a seasonally weak first quarter and then it strengthened as we go through the year.

And we would anticipate that trend.

This year as well the only real exception as that there's some significant growth. If you look at that sort of quarterly cadence of earning.

We expect that the year over year growth to accelerate as we get into Q3 in Q4, which will require some additions to working capital. So you likely won't see as strong fourth quarter.

As you as you get this year so.

Put all that together you say, okay weak Q1 from a cash flow generation standpoint.

Strengthening in Q2 digging in Q3, and then probably weakened Q4.

Got it. Thank you and then my last question has to do it the ruckus business in campus and even the launch and release of Wi Fi six products, how is that materializing our customers.

Taking in Wi Fi six are they testing it is it starting to shift in mass like maybe could just give us any real color on traction for specifically the wife Isix standard and on the box that recently released.

Well I think we're pleased that what we're saying I think we were the first.

Lies introduction of lifetime, Oh, I thought six product.

In the marketplace I think the acceptance rate is good.

And we're we have the capability, providing the the connectivity, though for these access points is that going to market because that they need.

The need to put it at a different pace and so I think we're pleased.

As the start of this is a boy Roland.

Earlier, both both here in the U.S. and and international markets. The only thing I'd add Sammy to eddies comments, which isn't necessarily wide by six specific comment, but I think it's important to you to recognizes that we're now in the market with the cloud.

Flows into manage all of the access points and all of the architecture in the network. This is.

Extremely exciting because thats really where the markets heading and so being able to offer.

Highly competitive highly differentiated cloud solution with all the analytics and machine learning capability embedded in that it's something that really provides a strong growth tailwind for us for 2020 and beyond.

Got it. Thank you. Thank you for the color.

Your next question comes from amid Duany with Evercore.

Yeah. Thanks, a lot guys do my question to me as well I guess first of all the March why the guy that the implying still down about 13% sequentially up that seems more severe I think than what core commscope or even as recently historically up could you just touched on what's driving that and how much of what had been on the revenue side are you embedding from Corona waters implications.

Yes so.

So I guess first point on the weakness for for Q1 is really related to the decline in spending from one of the large north American operators that Eddie was referring to earlier so.

It really predominantly focused in the home networks side of the business. We do have just some normal seasonal softness Q1 tends to be one of our software are softer quarter sequentially, particularly in the networking cloud business is a lot of.

Sort of capital flush happens at year end. So you see that phenomena as well then we we really have the corona virus impact.

Is.

Very fluid at the moment I would say so we're modeling into our guidance by 100 million dollar topline.

Impact.

The factory as I mentioned in my remarks is operating somewhere between 40 and 50%.

As people come back to work it to the extent, we can get that to more normal capacity levels. We expect we can recover all of that lost revenue and margin over the balance of the year, but.

But China is a significant piece of our manufacturing footprint, that's where we basically manufacture all of our products for non north American markets and.

Roughly a third of our our cost of goods sold is represented there. So it is.

It is a material material market for us and we're.

Trying to factor that into our guidance as best as we can given given what we noted that we follow what's happening there every other day basis than the basically.

Representatives from throughout the company Alex now.

Those calls we want to Mark health and safety of our workers.

As well as the health and safety of our suppliers and customers. So its just.

It's something that.

We certainly haven't planned for and then we will address it as best we can and which would have to if we have to make shifts to.

To.

Anticipate happenings there we will so.

Thats it.

Tragic type thing.

No that's extremely helpful and they put it just follow up when I think about to calendar 20 statements, especially on EBITDA dollars being slotted in year over year.

Can you just help me understand possibly quantify a how much are you thinking in terms of growth that you talked about and investments you're making until the areas up so what's the growth dollar number looked like it where are you invest and there's always ready to then secondly, how should we think about the restructuring savings than expected in kind of 20, if you could quantify that as well.

Yes, so so in terms of investments that we're making.

The one of the places that we're most excited about is really all of the intelligent enterprise.

Intelligent enterprise space and so this is all the venue campus in building.

Opportunities that we out that we have so these are products like one south where we're actively investing and.

Making that.

Fiveg ready and compatible with millimeter wave type deployments, we're making investments in the metro cell layer, where a lot of the densification work is going to happen we're making.

Investments with some of the Oems on active antennas, which are going to be extremely relevant as we get into the higher frequencies. So so those are just a couple of example, it gets switch if you said those would all be embedded within a combination of the outdoor wireless portion of the business as well as the venue on campus portion of it.

Business within.

Within rockets, we're continuing to invest in these advanced analytics and cloud platforms, we're investing in Crs, which was one of the questions earlier.

All of these are multi year investments that will position the company for very strong growth as Fiveg gets deployed in total.

Those investments are in the order of call it $50 million to $60 million.

On incremental and so thats one of the reasons why you see.

You see some of the flat trends despite growth in some of our higher margin businesses, we think.

Thats the right thing, we're positioning the company for longer term growth and Thats really that the right things today.

Perfect. Thanks, guys.

Thank you.

Your next question comes from Gaskell with Nomura Instinet.

Yes. Thank you gentlemen, let me ask a question and then a follow up.

A question is we've heard some more encouraging things out of the U.S. cable community as you referenced on the call how much of that have you included into your outlook for that particular figures segment and is that something that happens really more beyond the first quarter.

And into the second and then the back half of the year.

Yes so.

It is I would say that.

Spending at the large operators, we anticipate to be stable year over year and I think if you look at most of the public commentaries in aggregate.

On their capex outlook it would look.

Look that way.

We are anticipating growth in our predominantly the former not networking cloud business as operators are beginning to invest in capacity in their networks and.

Kind of coming back to more normalized spending we don't anticipate that really bringing back to 2018 levels.

In 2020, we do anticipate the growth rates accelerating as we get through the year predominantly kind of Q3 and Q4, but we do anticipate that business returning to growth. There is there are some headwinds against that which you'll see kind of in the consolidated results and those are really relate.

To a large north American telecommunications, operator, that's essentially completed the build out of one of their their network strategies and Thats. Another.

Telecommunications, operator, who is who is really not continuing to drive.

Not fiber obligated to homes. So those factors will offset that it but in aggregate, we do anticipate call. It low single digit growth from that the operator spending this year.

Okay.

Then secondly, as we.

Clarify the sprint.

T mobile.

Pickup I wasn't clear if you were expecting a pick up right. After closing that theoretically could even be as soon as the beginning of the second quarter.

And then sort of more deeply on that to what extent youre sheer position should benefit.

From.

From the merger.

As they.

The year very solid I think we talked about data thinker. The last call is as to what we saw coming.

They entered the year likewise, but we expect to now with.

With the approvals basically being done that.

We will start to pick up as we get closer.

Our of our position is very strong at T mobile.

We had a position is that sprint as well, though they spent a lot less.

Our position that T. Mobile is is very strong designing.

Antennas specific before their networks for for the bulk of the year in anticipation of there so.

With that if it's early known as I said before that so that's a positive thing for us because we anticipated this sort of been down the middle.

No no huge increase in the projections that we put together.

Okay.

Thank you both very much.

Uh huh.

Your next question comes from Mehta, Moshe Marshall with Morgan Stanley.

Great. Thanks, I mean, just trying to kind of put of wrapper around kind of what downtick from your expectations around from last quarter is that really firstnet, finishing quicker than expected or Directv kind of spending being net incrementally down just trying to kind of.

From where you were expecting last quarter what changed.

And then maybe just a second question just on the Hyperscale penetration is that something where you really feel like your share could continue to grow this year or just kind of expectations for what what you're seeing as far as you've improved your position, but cut that improve further.

Yes, let me I'll take a couple of your questions then I'll turn it over to Eddie and some of the other issue. So in terms of what changed in our expectation.

Biggest thing is obviously the corona virus.

That I think nobody could have anticipated the threat of up.

Global pandemic impacting the supply chain that severely as it as that potentially could and so that obviously.

Something that we're trying to factor into our outlook and we're actively developing contingency plans to mitigate that I think the other.

Big piece as.

Within the home.

Hum networks side of the business so.

No.

There is pretty significant decline in one of the major tier one.

Telecommunications players in terms of that the.

The CE that they're deploying and I think also the.

Subscriber video subscriber losses across all the tier one operators is is pretty severe and so I think thats.

Really a headwind thats, probably a bigger than than what we anticipated we do we do have.

Areas that I think are developing much better than we anticipated so I would point to the metro cell.

That's true.

Triple digit growth or double digit growth and that the hyper scale.

Business and I think all of the areas that we're positioning the company for Fiveg are actually on track to exceeding our expectations, but really just haven't gain the full momentum.

Quite yet, but I'll, let any comment more on that specific hyperscale dynamic hunger skill that what we've talked about and open the I think.

Where we are we're in the market. We were are still not the leader in that market.

We were late market because of portfolio, we had to develop.

We had to develop a portfolio that was sellable to this larger customers are the large base of a big customers I think we've done a great job in doing that we've we've put a lot of emphasis on taking care of the customer their needs as I talked about early in the prepare prepared remarks, and so we are gain.

In position.

Relative to the market. We believe we we think our footprint our geographic footprint and now the.

Portfolio that we have a products or what the customers wall.

And so I think vis-a-vis others in the market I think our position is growing.

And I think we'll see that during the course of this year in strongly and I think we will we will.

We will continue to to a point as we become more relevant player in the market. So we're excited about it that as as well as the multi tenant customer base.

She has been a long term customer of ours is very similar architectures in many cases so.

We think it is going to be a continuing growing market and we're happy for our international presence that.

The gives a strengthening.

Okay. Thanks.

Your next question comes from cement Chatterji with Jpmorgan.

Hey, Thanks for taking the question.

If I can just follow closely on decriminalize guidance that you have for the fourth quarter.

How are you thinking about the spillover effects of the supply chain disruptions going into Q and I think last quarter, you had mentioned that buy into fourq to most of your production would be out of China. So I'm just curious with segment should we think this impacts the impact is more pronounced and in one Q.

Yes. It is out said is more international business than it is domestic.

We shifted because of.

Yes, our issue of last year was the trade and tariffs we shifted much of the us production of certainly of antennas.

The India.

So John as used primarily for other places.

As as we we don't want to absorb the tariffs which are still in place.

We what Alex said is that impacting a profit sided first quarters about $60 million that that equates to something greater than $100 million in revenue.

Based upon what we see today and and some estimations of when work gets back in place.

A lingering concerns that I would have is.

Is.

We know where our factories are and they're not in the today, they're not in the.

The problem areas, but we have a supply chain that is very strong in China. The supports lot of our businesses that.

It is all over the country no different than anybody else that that buys things and makes things today.

And we what we'd like to see some stability of the viruses as it spreads are matches out or whatever is too is how that the impact from going forward. So is this is not a good thing for business because of the importance of that supply chain.

I think that were no we're no different than any other player in the market. So.

All right that's been just follow up on your end denim business.

Autumn, Egypt in North America.

How's the whos, the let's suppose market position in Europe, and are you thinking or kind of courts situation on the ground as you compete with while we do and given some of the reason scoop anyway, what does the opportunity that you're seeing the.

I think we've seen some improvement in Europe.

Some of the new designs that we have and.

Outside of.

North America in Europe, Rahway is more of a competitor.

And that's the challenge at.

The answer the business that we use the due in.

A lot of Asia is smaller and I think we still have a good presence and in the calorie, Jim and would expect that to continue.

North America, certainly is our strongest.

Region is we have significant positions with.

The.

The four carriers today, turning to three and then probably back to four.

And.

I will will still maintain that but.

Europe euros, becoming more important market I think the consolidations that we've seen there have helped us and we're working with some of the Oems too.

Partner with some new designs that I think for the long term will help us.

Great. Thank you thanks for taking my questions.

Your last question comes from Jim Suva with Citigroup.

Thank you.

I have two questions PSMC can take them in any or the first is can you comment on pricing has it been kind of more historical normal a little bit better or little bit worse in the history of Commscope. There's been a lot of periods of normal and then there's been some pretty big hiccups sometime so can you just talked about the pricing environment.

Then my second question is you mentioned.

Goodwill impairment on era. It seems like last year a lot of your commentary was the integration is going well, it's going well, it's going well and now we get a big write down so help us understand and bridge the comments of going well to now be a big write down. Thank you.

Sure so.

On pricing.

It's definitely within the range of what we would expect normally I think we've built into the plan call. It one and a half 2% pricing factor, we generally offset that.

With that mix combination of new product introductions as well as.

Productivity improvement and I think.

If you were to look at the results in terms of margin expansion you certainly see that we've more than delivered on on our commitments to preserve margins.

Even when you see.

Just kind of a natural pricing dynamics. So we don't don't see anything different from what Weve, historically communicated and historically experienced regarding the impairment.

Yes.

I think this is probably obvious to most people on the call, but just to make explicit when when you close the deal.

You had zero headroom in terms of.

Of the value that you're carrying that business on the books and then as as you get farther away from the close date, you start to build up headroom over time, but because of that sort of phenomena, where you had zero head room at the time, you close the deal any any softness and outlook versus versus the X.

That patients that you underwrote the transaction on what we'll call into question the carrying value and obviously the decline in major North American operator spending.

That we've experienced over the course of 2019 has created a headwind in those reporting units, particularly all three of those reporting units and I think we've been pretty explicit that debt.

The the progression of the business out of the gate is certainly not what we anticipated that being said, we continue to believe and the strength of the long term strategy. So there's there's nothing in.

And our long range plan that would indicate anything different than what we've communicated we're extremely well positioned to take advantage of the fiveg trends that are beginning to develop for extremely well positioned to take advantage of the intelligent enterprise space. We believed that the intersection of the license and the.

Unlicensed spectrum gives us a product portfolio that nobody else in the world as we think the ability to serve the cable operators with an end to end.

Optimized network solution as they move to DOCSIS for auto and.

PON is extremely competitive so.

This is really.

Largely an accounting exercise that's.

You are required to do at yearend, but really doesn't reflect the long term prospects and then I get the last point I'll make.

On not kind of progress of the integration as we are in fact on track to over deliver on the commitments. We've made what we said originally was we deliver a $150 million in synergies by the end of the third year anniversary. We've not said, we'll deliver greater than 150 million in advance of the third year anniversary.

And I think.

And I, both feel extremely good about how we're doing.

On the up the cost side of the equation and if you were to talk to Morgan and the R&D in the technical team I think what you would would here is that we've identified much greater than anticipated revenue synergies as we bring these technologies together and make some of the investments that I described earlier so.

So I think this is largely an accounting exercise the noncash issue, but it is something that we have to do given the softness we've experienced right out of the gate Eddie with yet any things nothing that I think that covers. It. We are we are pleased and Philips fill supportive of the thesis of doing this over the long term.

And certainly we're not happy as the as to how the started out but we we have full focus and commitment of our people.

And Thats what it takes two to win so I have no concerns about.

Okay.

Thank you so much for the details.

Thank you and we think we thank each opted for your interest in Commscope and you're you're good questions. This morning, we look forward to talking to you next quarter and good day.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.