Q4 2021 CommScope Holding Company Inc Earnings Call
Hello, Thank you for standing by and welcome to the Commscope fourth quarter 2021 results conference call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session asked a question. During the session you will need to press star one on your telephone please.
Be advised that today's conference maybe recorded if you require any further assistance. Please press star Zero I would now like hand, the conference over to your Speaker today, Russell Johnson, Vice President Investor Relations and Treasurer. Please go ahead.
Good morning, and thank you for joining us today to discuss Commscope in 2021 full year and fourth quarter results with me on today's call are Chuck <unk>, President and CEO and <unk> Executive Vice President and CFO you can find the slides that accompany this report on our Investor Relations website.
Please note that some of our comments today will contain forward looking statements based on our current view of our business and actual future results may differ materially. Please.
Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.
Before I turn the call over to Chuck I have a few housekeeping items to review.
Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials.
Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website.
All references during today's discussion will be to our adjusted results.
Our full year and quarterly growth rates described during today's presentation are on a year over year basis, unless otherwise noted.
I will now turn the call over to our President and CEO Chuck Treadway Chuck.
Thank you Russell and good morning, everyone.
Today I'd like to start with a review of our 2021 full year and fourth quarter business highlights.
I'll provide an update on our home network spinoff as well as Commscope next.
After these opening remarks, I'll turn the call over to Kyle <unk>, our CFO to provide more details regarding our annual and quarterly financial performance.
Finally, I'll conclude today's presentation with some additional insights on where Commscope is heading next.
I'm now on slide two.
Starting with annual highlights.
Full year 2021, consolidated net sales were $88 five 9 billion, a 2% increase over the prior year.
Holidayed adjusted EBITDA was $1, one 2 billion, an 8% decline over the prior year.
Core Commscope, which as a reminder, excludes our home network segment grew sales by 12% versus prior year to $6 74 billion.
We achieved this annual top line growth in our consolidated core business, despite significant supply chain related challenges adjust.
Adjusted EBITDA core Commscope grew about 1% to one 9 billion.
Turning to the quarterly highlights for the fourth quarter net sales for consolidated Commscope with $2 2 billion up 4% year over year, while adjusted EBITDA of $261 million declined 28%.
For core Commscope net sales in the quarter were $1 75 billion, an increase of almost 13%.
Fourth quarter core adjusted EBITDA of $254 million declined 21% compared to the prior year at supply chain challenges and input cost inflation significantly impacted profitability.
Our largest business segment broadband networks grew net through new sales and 1% quarter over quarter we.
We saw strong quarterly growth in our outdoor wireless networks segment up 27%.
Our venue and campus networks segment also had a positive quarter growing at 24%.
And then our home networks business, which has the most exposure to the ongoing disruption in semiconductor supplier sales declined 18% during the fourth quarter.
I want to emphasize that our entire business was pressured by supply chain disruptions and input cost inflation during 2021.
And these pressures remained high during the fourth quarter.
Shortages of semiconductor chips have been a major constraint on sales volume across commscope with the largest impacts both in home networks Ruckus and the active cable hardware product lines within our broadband segment.
We have also experienced significant inflation in commodity and freight cost, which worsened in the fourth quarter.
However, as I noted in our third quarter earnings call. We have responded to these inflationary pressures by undertaking a comprehensive set of price increases and we're making very good progress in this area.
Taking kurt input cost levels as a baseline we expect our pricing actions to recover all of the inflationary cost increases we've experienced by the end of 2022.
The P&L impact of raising prices should build gradually through 2022, and then accelerate in the second half of the year.
I'll now share my perspectives on some key factors and trends that drove our business segment performance during the quarter.
In our broadband network segment, we saw modest fourth quarter growth overall, but considerable diversity and business unit results.
The strongest performance came from our network cabling and connectivity business, which grew over 23%.
Within our network cabling and connectivity business, we continue to enjoy the strongest demand environment, we've seen in many years.
Major telco and cable operators are ramping up fiber expansion investments in order to achieve network efficiencies pass more homes and compete for customers with faster service.
This strong multiyear capex cycle is receiving additional support from U S and international government funding much of which is targeting underserved rural areas.
In this regard we were very encouraged to see a pickup of BARDA funding approvals during the fourth quarter. This is excellent news for Commscope, given our strong legacy customer relationships with many of the largest or the.
Are the funding winners.
It's all of the funds.
First and as government stimulus programs, such as American Rescue Act come online.
You should see strong order flow from tier two and tier three service provider markets during 'twenty, two and for many years to come.
During the fourth quarter. We also made significant progress to bring online new production capacity for fiber cabling and connectivity.
This new capacity provided some relief from capacity restraints, we've been experiencing.
We should continue to see significant relief as we commissioned more lines during Q1 and Q2 of 'twenty two.
By 2023, this new capacity will drive $350 million to $400 million of organic revenue growth and over $100 million in incremental adjusted EBITDA.
It should be noted that 2021, and 2022 or periods of investment for our connectivity and cable businesses.
During this period, we will experience higher operating cost as we prepare ourselves for significant growth over the forecast period.
This includes substantial expansion in Mexico, including new facilities.
Please note that our Capex investments, we're putting in place have rapid and high payback.
Within the active technology side of broadband segment, namely access technologies and converged network solutions sales were weaker in the fourth quarter. This was due to a combination of factors, including a difficult compare against a strong fourth quarter of 2020 shifting cable operators spend patterns and key component shortages.
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At Commscope, we continue to believe that active cable technology business has two primary advantages over our competitors.
First we have a very large installed hardware in active software code running.
On the HFC networks of a diverse mix of large and small cable operators and.
And second we have the extensive product line and industry, leading development capabilities needed to serve each of our customers regardless of the technology path they might choose.
And for telco and cable operators that we want to that one or more rapid transition to an all fiber network architecture, we're seeing strong interest in our new <unk> PON solutions.
The qualification for this technology have commenced during the first quarter of 2022 and by the second quarter, we expect early deployments and field trials to begin.
Turning now to outdoor wireless this segment had a strong quarter over quarter performance in part due to the comparison with a weak fourth quarter in 2020.
<unk> spectrum auctions slow U S wireless operator spending.
Nonetheless during the fourth quarter of 2021, our outdoor wireless segment achieved strong sales in North America, where we saw increased capex spending by the major operators as they move to deploy their <unk> networks nationwide.
This generated healthy demand for our.
Outdoor wireless product line again, demonstrating the strength of Commscope everything, but the radio strategy.
As we noted during our strategic transformation update in December we expect our outdoor wireless business to grow low mid low to mid single digits during 2022.
Note that our expectation does not assume a significant contribution during 2022 from an important new Tom.
Commscope antenna technology, our universal active passive antenna solution, our UA ta.
This innovative technology combines active and passive antennas in a unique space saving form factor and can help solve patchy deployment challenges such as crowding weight and wind loading at the top of the tower.
We're very excited about the prospects for <unk> and we have multiple U S and international trials with this product that are pending.
Now shifting to venue and campus networks all of the businesses within venue and campus saw robust demand and contributed to segment growth during the quarter we.
We saw particular strength in our inside plant copper business.
With sales up nearly 40%.
And then our das and small cell business unit, which grew 30%.
And our inside plant copper and fiber cabling product lines, we saw strength across the board its enterprise demand continue to grow and data center orders remained strong.
Revenues also benefited as we've raised prices to cover commodity cost inflation.
Our gas business saw a significant uptick in shipments in the fourth quarter.
Service provider and enterprise customers continue to value our industry, leading era das platform as an ideal distributed coverage solution for medium and large sized venues.
And our small cell business, which features our one cell indoor cellular technology.
We had a strong fourth quarter as well.
This innovative technology as an ideal <unk> or <unk> solution for both public and private networks.
We are actively investing in one self development and operator acceptance in order to take advantage of these growth opportunities as they materialize.
In the meantime, both our gas and once the business results will continue to reflect and mix of steady run rate business and more sporadic large projects.
And as we highlighted during our strategic transformation update in December we're very well positioned overall in the private network space.
Our unique portfolio of Ruckus Wi Fi.
<unk> and CBRE is LTE products.
Taken together these projects represent a powerful combination of unlicensed licensed and shared spectrum solutions.
And our roughest business component shortages for the fourth quarter continued to constrain our ability to ship products against the healthy market demand, we're seeing for Wi Fi access points and switches.
Despite these headwinds record sales in the quarter were up versus prior year.
<unk> benefited from a rebound in orders from service providers and on the software side of the business. We are highly encouraged by the continued rapid growth and record subscription related software sales.
While overall demand from Ruckus customers remains very strong our backlog in this business increased materially in the fourth quarter due to shortages of semiconductor chips.
I'll finish up my segment highlights with home networks.
In the fourth quarter home sales declined 18% from the prior year.
The biggest driver of this decline continues to be the acute shortage of semiconductor chips needed to produce essentially all of the segments product line.
With the impact being most significant broadband gateway products during the quarter.
I'll now turn to slide three.
Before I turn the call over to Carl to discuss our financial results in more detail.
To update you on our previously announced plans to spin off our home networks business during the second quarter of 2022.
Then I'll provide my thoughts on how our Commscope next transformation initiative is progressing.
Regarding home networks, our board of directors has determined that as it is in the best interest of both Commscope and the future independent home networks business that we delayed the execution of the spinoff.
This decision was not an easy one but.
It was taken after thorough consideration of the current supply chain environment and its negative impact on home networks business performance.
Although home networks into 2021 with a backlog in excess of $1 billion.
The business has been contending with an acute shortage of semiconductor chips and higher input costs that have resulted in revenue and adjusted EBITDA significantly below our expectations for 2021.
We now believe the chip shortage will persist throughout 2022.
Given these unique circumstances, we believe the most prudent course of action is to defer the spinoff of home networks from Commscope until we see a more normalized and predictable supply environment.
I want to emphasize that this delay has no impact whatsoever on our commitment to spinning off the home business.
Both commscope and home networks will be stronger and better positioned for success as a separate business as separate businesses.
We intend to execute the spin off as soon as market conditions allow.
Although we will monitor the situation on an ongoing basis. We currently do not have a firm timeline for restarting the homes spin off.
In the meantime, we will work to optimize homes operational and financial performance using principles from the Commscope next playbook.
And while home remains under Commscope ownership, we will continue to report the financial results for Commscope.
Separately from that of home networks.
I also want to share my thoughts on how Commscope next is progressing.
During our strategic transformation update in December we emphasize the Commscope next.
It's designed to drive profitable growth by focusing on three key pillars of change organic growth cost efficiency and portfolio optimization.
We also provide a detailed.
About the many Commscope next actions we have in flight to be get this change.
And we laid out long term revenue and adjusted EBITDA target ranges that quantify our plans and give you a scorecard to track our progress.
While we still have work to do I believe the Commscope next is off to a very solid start.
And it's clearly taking the company in the right direction.
On the organic growth side. The Commscope next we've invested in new fiber production capacity that is already driving revenue growth, we have implemented new pricing and quoting tools that allow us to better align our prices with the value of our products.
And which also provided the foundation for the extensive repricing actions, we've taken to offset inflation.
And we've expanded our sales force and create a key account managers. So that our sales organization is now well positioned as a growth engine.
While we are only getting started we already see signs of progress in 2021, such as 12% year over year sales growth and core Commscope in international growth that exceeded our north American growth.
On the cost efficiency side, we took quick action to reduce period overhead in early 2021.
We launched major initiatives around procurement excellence that are functioning well, despite the challenging supply chain environment.
And we are now focused on various ways to optimize our manufacturing processes and footprint.
These and other next cost actions that help has helped core commscope is year over year adjusted EBITDA to improve slightly despite.
Despite extraordinary supply disruptions.
And cost inflation during 2021.
And finally regarding portfolio optimization, we have implemented a general manager model to drive focus on accountability for results across our business.
We've taken the decision to spin off our home networks segment.
And as we announced in our press release. This morning, we have started to work. We started work on plans to re segment core Commscope that will make our core business easier for us to manage and clear for our investors to understand and value.
As these and other Commscope next actions gained traction we continue to uncover new ideas and add to our pipeline of improvement opportunities.
While today have given you an interim view of how things are progressing.
We plan to provide you with a more comprehensive readout on Commscope next during that third quarter earnings call in November .
This readout will include an assessment of what we have achieved.
More details around next steps and updated financial guideposts.
And with that I'll now turn the call over to Kyle to discuss 2021 full year and fourth quarter financial results in more detail.
Thank you Chuck and good morning, everyone.
With an overview of our full year 2021 financial results on slide four.
For the full year consolidated Commscope reported net sales of $8 $5 9 billion.
Up 2% from the prior year.
This performance was driven by solid revenue growth at each of the three segments of core Commscope.
Consolidated adjusted EBITDA of $1, one 2 billion was down 8% from prior year and driven primarily by challenges in our home networks segment.
Adjusted earnings per share of $1 39 was down 11% from the prior year.
Demand across our businesses remains strong and as a result consolidated Commscope ended 2021 with a book to Bill ratio of approximately one three versus $1 two at the end of 2020.
And our core Comscore Commscope portfolio 2021, net sales of 6.74 billion.
Grew approximately 12% from prior from the prior year.
Our adjusted EBITDA of $1 9 billion grew approximately 1% year.
Year over year, adjusted EBITDA performance across the three Commscope segments was mixed with 8% adjusted EBITDA growth in venue and campus networks, 1% growth in broadband networks.
A 4% decline in outdoor wireless networks.
Rising commodity and freight costs negatively impacted full year EBITDA in all three segments.
Core Commscope ended 2021 with a book to Bill ratio of approximately one four versus $1. One at the end of 2020.
Turning to our fourth quarter results on slide five.
For the fourth quarter consolidated Commscope reported net sales of $2 $2 billion.
An increase of over 4% from the prior year's fourth quarter driven by growth at the three core Commscope segments.
Adjusted EBITDA of $261 million declined 28% from the prior year.
Approximately half of this decline was attributable to our home network segment.
For core Commscope net sales of $1 $75 billion.
Increased nearly 13% from the prior year.
This sales increase would have been larger were it not for the continuing shortage of semiconductor chips.
Please remain on the line your conference will resume shortly.
And we are confident and be able to recover the inflationary cost impacts experienced today by the end of 2022.
As we've noted previously given our large backlog the continuing shortage of certain components and the structure of some of our sales contracts. We expect the impact of price increases on our P&L to be modest during the first half of the year and much more material in the second half of 2022.
Specifically, we will see continued pressure from rising input and freight costs in our adjusted EBITDA during the first quarter of 2022.
Turning to our segment results and starting with broadband networks on slide six.
Net sales of $782 million increased about 1% driven by Europe , Middle East and Africa regions.
From a business unit perspective, we saw significant growth in our network cabling and connectivity business, but this was offset by declines in all other broadband business units.
Adjusted EBITDA of $142 million.
Climbed 33% and <unk>.
Part of this decline was attributable to a difficult compare against the fourth quarter of 2020, when cable operators, but heavily on network upgrades.
But worsening pressures from input cost and freight inflation also impacted the broadband segment during the fourth quarter.
In addition, we continue to experience mixed shifts in our broadband segment that are impacting margins.
Overall within the segment, we are seeing the fastest growth come from fiber cable and connectivity products, which have lower margins than the active portion of the broadband portfolio.
And within the segments portfolio of active cable products, the fourth quarter saw lower sales of higher margin hardware such as <unk> units and then head end optics, but growth in sales of lower margin amplifiers.
Amplifier demand remained very strong during the quarter, but a significant portion of app orders in the quarter went into backlog due to shortages of semiconductor chips.
Finally, as previously noted we had larger than expected software license sales during the quarter, but these were largely time timing driven and not likely to repeat in the first quarter of 2022.
Going forward, we expect some cable operators to continue purchasing software license upgrades to augment network capacity. However, the timing and size of these orders will be difficult to predict.
Turning to venue and campus networks on slide seven.
Net sales of $591 million increased 24% driven by strength across nearly all regions and every business unit.
During the fourth quarter strong demand from enterprise customers drove solid growth in inside plant copper sales.
Inside plant fiber sales were particularly strong during the quarter with European data centers.
Our das and small cell business units had a good quarter in part due to a large one time project in our das portfolio.
As Chuck noted, we view, our das and small cell businesses very favorably given the critical importance of indoor coverage in a <unk> world.
However for the near future their results will vary from quarter to quarter, given the project oriented nature of sales in this area.
Finally, our ruckus business saw good growth during the quarter, both due to higher volume and early implementation of price increases with enterprise customers.
Ruckus growth could have been even stronger however, semiconductor shortages reduced shipments during the quarter.
Looking forward our visibility into Ruckus is chip supply remains somewhat limited I would also note that our ruckus in das and small cell business units continue to be Commscope is most R&D intensive areas.
Venue and campus adjusted EBITDA of $59 million increased 21% driven by higher sales volume as well as price increases, partially offset by rising input and freight costs and higher operating expenses.
Moving on to slide eight for outdoor wireless networks segment.
This segment saw its best revenue performance of the year in the fourth quarter as net sales of $374 million increased 27% with growth across all regions and business units.
This quarter over quarter growth benefited somewhat from the comparison to the fourth quarter of 2020 with telco operators spending was soft.
At present, we are seeing higher operator spend particularly in North America to upgrade cell sites for <unk> service.
This spend is generating increased demand for multiple outdoor wireless products, including both passive antennas and a variety of cell tower infrastructure solutions.
Despite this positive sales performance.
Outdoor wireless adjusted EBITDA declined 11% quarter over quarter to $54 million.
The primary driver of the decline was the high cost of commodities and freight which rose material throughout the second half of 2021.
Finishing with home networks on slide nine.
Net sales of $477 million declined 18% and across all regions with exception of the Asia Pacific.
While video product sales were up modestly from the prior year. This was more than offset by declining sales of broadband gateways.
And as we have previously noted.
Our home business continues to experience the largest negative impact from shortages of semiconductor chips.
But order entry and backlog remains substantial the impact of chip availability on sales continues to be very material.
Sure.
Adjusted EBITDA of $7 million declined eight 4% driven by higher input costs and decreased volume.
During the quarter home also had higher bad debt expense, which was driven by an $18 million charge to fully reserve the accounts receivable balance both value added reseller customer of home networks.
We are no longer doing business with this customer and do not expect any additional charges.
Note that the third quarter of 2021 also included a bad debt charge of $13 million related to the same customer.
Excluding the bad debt impact home networks, EBITDA was up $28 million sequentially versus the third quarter of 2021.
Now turning to our cash flow overview on slide 10.
For the fourth quarter cash flow from operations was a use of $12 million and adjusted free cash flow was a use of $27 million.
For the quarter inventories increased to $186 million and had a significant impact on overall working capital while increased sales are contributing to increased inventory levels continued supply chain disruptions were also a major factor.
We continue to experience extended shipping transit times for finished products.
Our work in progress inventory in some product lines is elevated due to shortages of key components.
And in other cases, we are holding higher stocks of key inputs as a means of managing supply volatility.
Overall, we expect our levels of inventory to remain higher than normal until supply chain conditions improve.
As we noted last quarter, given supply chain issues and rising input costs. We continue to expect cash flow generation to be lower than normal during the first half of 2022.
We are confident that the situation will improve during the second half of 2022 as our price increases take full effect.
In the meantime, we will continue to prudently manage cash flow and working capital.
Turning to slide 11 for an overview of our liquidity and capital structure.
Okay.
During the fourth quarter, our cash and liquidity remains strong we ended the quarter with over $360 million in cash.
Total available cash and liquidity to approximately $1 billion and no outstanding draws under our ABL revolver.
We made no debt repayments during the quarter beyond the required $8 million of term loan amortization.
The company ended the quarter with net leverage of seven eight times, an increase from seven one times at the end of the third quarter.
With pricing actions, taking full effect later in 2022, we remain committed to meeting our year end target of net leverage in the six eight times to seven two times range.
I'll now turning to slide 12, where I will conclude my prepared remarks with some commentary around expectations for 2022.
On the supply chain front, we are not yet seen evidence of improvement in either commodity or freight inflation or in the supply of semiconductor chips.
Given these realities, we believe supply chain pressures will remain high during 2022, and we will continue to impact both our revenues and margins.
We remain focused on offsetting the margin impact of inflation through broad based price increases and cost reduction actions and to date those efforts are progressing well.
We expect to see a gradual accumulation of P&L benefit from price increases during the first half of 2022 and a significant acceleration of this impact during the second half of the year as we work down backlog levels and ship more products under renegotiated prices.
Given current input cost levels as a baseline we will continue to believe.
That we will offset all inflationary impacts through price actions by the end of 2022.
In addition, we expect revenue and adjusted EBITDA in the first quarter of 2022 to be sequentially down from the fourth quarter of 2021.
The key driver of the sequential softness as input and freight inflation, which worsened in the fourth quarter and will impact first quarter results with only modest offset from price increases.
Also as we noted earlier the fourth quarter benefited benefited from approximately $50 million of software licensing revenue in our broadband network segment, which is not likely to repeat in the first quarter.
Nonetheless based on our current visibility into 2022, including pricing actions currently underway where we.
On track to deliver on our expectations.
Communicated during our strategic transformation update of $1.15 billion to $1 two $5 billion of core adjusted EBITDA for the full year 2022.
In general because of factors such as the timing of software license sales and the project oriented nature of some of Commscope product lines, we expect our quarter to quarter business results continue to be quite variable rather than sequentially linear.
We also believe that our annual targets and full year financial results are far better indicators of our underlying business performance and we encourage our investors to focus their attention accordingly.
And with that I'd like to give the floor back to Chuck for some closing remarks.
Thank you Kyle I'm now on slide 13, and I'd like to conclude our presentation today by describing one more aspect of Commscope ongoing business transformation.
As we shared with you before a key pillar of our Commscope next initiative is portfolio optimization.
Today I'd like to give you a preview of the next chapter in that optimization process, which is our plan to reorganize the operating and reporting structure a core commscope.
Whereas courthouse scope today consists of three broad business segments under a reorganization plan, we would transition our business into four better focused and more streamlined segments.
Total work on this re segmenting plan is already well underway.
We will be prepared to report our results. According to the new segment structure, beginning with our first quarter 2022 earnings call in May.
Under the new reporting structure, our fourth core business segments will be cut.
Activity in cable solutions.
Networking Intel intelligence cellular and security solutions access network solutions and outdoor wireless networks.
I'll be prepared to share the final business unit and product line composition of new segments in may, but what I can tell you today is that the new segments will largely follow the realigned view of our business that we previewed during our strategic transformation update in December .
More specifically the re segmentation will make the following high level changes.
First we will combine the inside plant cable and connectivity assets from our current venue and campus segment with our broadband segments outdoor cabling connectivity business to form a single connectivity and cable solutions segment.
This new segment will unify many industry, leading copper and fiber product lines under one roof.
And we will have market scale that few competitors can match.
Second we will create a more pure play networking intelligent cellular and security solutions segment that is dedicated to providing wireless communication solutions for indoor and then your applications.
This segment will have a strong focus on developing software and cloud based functionality and on capturing emerging growth trends in private wireless networking.
And finally, we will create a new access networked solutions segment to drive innovation and growth and active broadband cable and video technologies.
At the present time, we're not contemplating any material changes to outdoor wireless networks, which will be the fourth core Commscope segment.
We also do not plan to materially change.
We don't we also did not plan material changes to our home networks segment, which will remain outside of core Commscope and will continue to be reported separately.
Please note however that work on designing the new segments is still underway and we have not yet finalized the exact segment composition.
Overall, the new segment alignment will drive improved financial performance across Commscope by laying the foundation to accelerate growth and deliver greater operational efficiencies.
It will be an ideal fit with our new general manager model and will help us drive a culture of managerial focus and direct accountability for segment results.
I also believe that this simplified structure will increase the comparability of our settlements to common peers in the market.
This should make commscope easier for investors to understand that as a model and most importantly to value appropriately.
Thank you very much for your time today.
Interest in Commscope and with that I'll ask the operator to open up for Q&A.
Operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from George Notter with Jefferies. You May proceed with your question.
Hi, guys. Thanks, very much I guess I wanted to start with.
Some questions about the supply chain impacts I think in the past you guys have given us the amount of revenue that you were expecting to lose in 2021 due to supply chain impacts I think you said 600 million and then $340 million of that would be on the home segment is there an update to those numbers I'm just curious about where you wound up.
Okay.
Yes, I mean these are these are rough numbers, it's about $1 billion in total revenue half of that coming from.
Top of that coming from home business and half of it coming from the core business.
Got it okay. So then it sounds like on the core side of the business. The actual revenue impact was much more significant than you were expecting in Q4 is that is that fair to say $400 million incremental relative to what you thought.
Yes, I think it probably has to do with the mix of the business profile I mean, I think as we mentioned in the.
From our commentary, we're seeing a little bit more pressure on some of our businesses like ruckus as it relates to the chips.
Our access technology business and amplifiers.
Probably a little bit more heavily weighted towards that in the fourth quarter.
Got it Okay and then.
So wanted to ask about the pricing increases I think.
When we talked last there was some questions about how readily you could push higher pricing on to some of your service provider customers I realize that many of those contracts are.
On a one off customer by customer contracts can you talk about what kind of success you are having on the service provider side with with higher prices and then and also.
Any sense for what the magnitude of pricing looks like.
Or that Youre getting from customers right now both both service provider and enterprise. Thanks a lot.
Let's say I would say first of all we have as I shared with you before we have a decade long relationships and sometimes multiple decade long relationships with our customer base.
And our service providers as well as.
Our enterprise customers and we feel very good about where we are with pricing.
We've come to good agreements with everyone. We feel good about where we are and we're moving as we said to cover those costs that we believe.
If you look at our current cost.
Increases that we've seen up today, we'll be covering all of those cost increases by the end of 2022.
So we feel good about where we are there.
Yes.
Got it so the service provider pricing increases are going through it sounds like that's not an issue in the yen.
Let's say, it's not an issue.
But yet they have gone through and contracts would be being changed yet.
Super Thank you very much.
Yes.
Okay.
Thank you. Our next question comes from so many strategy with Jpmorgan you May proceed with your question.
Great. Thanks for taking my questions here.
I have a couple of questions. So just on the first one trying to think about the 100.
EBITDA improvement, but youll know reiterating but clinically to at the midpoint I'll say it if you can sort of help.
Help us think about the big buckets in there how much is growth related sort of profit growth how much is pricing versus cost efficiency, which you've been also focusing on.
As part of Commscope makes sense.
Whats really get allows you to get to the high end of your guide is it really just better pricing or is that more growth related sort of profit growth that allows you to get to the high end of the guide and I have a quick.
Hello, Thank you.
Yes, I think it is.
It's a combination of both.
As we have been.
Highlighted in the last couple of calls the impact in 'twenty one of the inflationary impact has been significant and I think as we.
Our signaling we've been aggressive on price increases so price increases are a big component of our improvement.
But we're also seeing.
Double digit growth in our cabling businesses and both in RBC on segment and in our network.
Connectivity and cable business. So I think it is.
A good mix of the price increases, but we're also seeing a fair amount of growth, particularly in that cable business.
Okay got it.
Quick follow up just on the cash flow I guess.
When we think about the magnitude of the EBITDA improvement from Glenn Glenn you want to go into going into in the core business.
I know you mentioned some of the capacity increases that you're planning as well how much of that EBITDA improvement should we generally be thinking about flowing through into improvement on the cash flow. Thank you.
Yes, a lot of it so.
The number one driver of the cash flow is going to be EBITDA.
And.
We're definitely.
The second half of the year is going to be much stronger than.
The first half of the year I think the other.
Piece of the cash flow is on working capital with inventory as.
As we talked about we were managing a little bit higher inventory than we would like to just because of the supply chain challenges that we have.
I think we see some improvement of that in our forecasting for the second half of the year.
As we put capacity online.
We start working through some of the supply chain side. So key driver is going to be the EBITDA improvement, which is second half weighted.
And.
We're also continuing to work on the working capital side, as well, which we feel like we'll get improvement on that through the year.
Got it okay. Thank you thanks for taking my questions.
Thank you. Our next question comes from Simon Leopold of Raymond James You May proceed with your question.
Great. Thanks for taking the question a couple of just quick ones first.
The capex in the quarter was a bit lighter than what we were expecting and I know you've talked about the investment.
I want to make sure I understand I'm guessing this is more of a timing issue.
Wanted to see if you could offer some thoughts on your capital spending outlook. That's the first one second.
Is the home networks was quite strong in this quarter.
Just wanted to see if we could level set because that was a surprise.
The last one is more of a trending question. Please.
Im happy to see the added disclosure detail on splitting broadband networks out.
And I want to get a little bit better understanding of your thinking there.
Because my guess is that access networks.
Challenges due to the architectural shift, whereas the connectivity in cabling is just really strong on all the build outs.
There is really a strength there that you are trying to highlight I want to make sure I understand the logic.
So I'll take the first one on the Capex.
The Capex in Q4 is more of a timing issue. There is nothing that we did.
Slowdown in capacity expansion projects I mean, we continue to spend on those projects.
We will continue to spend in 'twenty two.
Forecasting the the.
The Capex, we feel like that will be in line with with 'twenty one for 'twenty two.
Maybe up a little bit.
All of those projects that we're investing in.
Didn't have super paybacks to them in there.
Out of those are around cable and connectivity.
So we're seeing the double digit growth, we're investing there and.
That market continues to gain strength, we will continue to invest there and we will do that.
Against the backdrop of very strong payback projects. So forecasting wise, you know think about 'twenty, two maybe being up a little bit versus 'twenty, one and nothing to read into Q4.
In terms of the in terms of your comments about the re segmentation.
I think youre spot on in terms of connectivity and cable we do see that as a very significant business that we've just been able to not report on effectively because of the way we restructured. So that's the that's the main driver there I would say overall in general when you think about the general manager concept, what I was really shooting for what we were really shooting for as a team is to have.
Competitors to look at and compare against.
And I think to your point, what we're looking at active broadband I want to be I want to build the show everybody. What we're doing there I mean, we do have a very large installed base.
It's a lumpy business and yes, you are right. It is moving more to the edge, but I mean, there is a very large cut.
Customer base that we have out there whether that's smaller large players.
They have a different path.
Have different paths and where they want to go so our point here is to build a highlight that business. We understand it is lumpy, but we want to be able to put us ourselves against other people. So we can compare we think it would be easier for you to value and we think it'll be easier for us to manage so that was the drivers there.
Simon on your Middle question on home networks.
Yes.
I think the answer to the question is you have the Q4.
<unk>.
We definitely saw.
What was it $28 million sequential improvement in EBITDA.
That was sort of in line with our forecasts.
The challenges in that business I think still remain with the supply constraints.
We're actually starting to see.
The inflationary impacts impact that business, so as we move into.
And the 22.
I think the improvement in the there'll be improvement in the business, but.
Sure.
It's going to be it's going to be lumpy as we move through 'twenty two.
On supply as well as just the inflationary piece were just like we are in the core business, we're going after price there.
Thanks for taking all those questions I appreciate it.
Thank you.
Thank you. Our next question comes from Sami Badri with Credit Suisse. III proceed with your question.
Hi, great.
I wanted to just come back to pricing and when we talk to other companies about pricing. They introduced a pricing. There's a couple of months before that works its way into the backlog because there are supply constraints and then they really only see the translation of increased pricing on the income statement and it's taking anywhere from as little as three months to as long as nine.
Months for some companies.
What is the same conversion rate that you guys are seeing and it sounds like your conversion rate is much faster than other companies.
What's.
Difficult for us to understand when we hear this is that you have very big customers right with honored price sheets that have been issued so we just need to understand the translation time dynamic here and just the honor system in terms of how your customers had a pricing and how do you guys need to work with them could we just understand this complex a little bit better.
Yes, I'll start and Chuck can provide.
Some commentary.
Clearly how price gets in.
Change price there is a lag effect.
<unk>.
But that differs clearly by business we've got.
Lots of different types of business with different profiles different contracts.
And I'll talk about that in a second but I think it's important.
We continue to signal and explain this is going to be backend loaded so even though we will see some price changes in the in the.
In the first half.
Most of these are going to come in full effect in the second in the second half of the year.
With that said there are some businesses that we have that have lead time and backlogs in the three to four month range. So we will see those earlier than places where we have one we have much larger backlogs.
So again this is going to be very second half weighted.
I think the.
The last piece I would say is in some of our business units, we have actually been successful at repricing backlog.
So in the conversations that we've had which with.
Many of our large customers it is a.
<unk> with every single one of those customers about changing price and in those conversations we had conversations about pricing backlog and some of those conversations we were successful in repricing backlog. So.
It's not a one size fits all for us it's definitely second half loaded, but there are places where we're getting the price increases a little bit earlier, because we've repriced backlog or were talking about having.
Three or four months of backlog, which will start seeing an insult.
In full effect.
In the second quarter.
The thing I would add to your comments first on the enterprise side.
We were we were attacking this a lot earlier.
There's more flexibility there because a lot of these things are not necessarily contractual but more looking at discounts off list and such.
When you think about our service provider contracts.
We saw this hit us pretty hard in in the third quarter. I mean, we were endeavoring to get all these new contracts done so where they were signed in <unk>.
Online for January one.
So thats why we are therefore targeting most of them got completed by then.
Our targeted and started to come into effect in the beginning of January we got a little bit coming in February but majority, we got done already in place.
Got it.
One clarification and then one follow up and the clarification is are your price increases keeping up with the rate of cost increases right. Now like is there is there a peg that you guys are able to lock down or is there like a delay which is creating a bit of a drop off is this like as in right now real time.
Going into or going through <unk> and into 2022. This surgically happening and then the second thing is.
You talked about Mark sorry, you talked about new guide posts that are going to be introduced next quarter I'm sorry. If this was asked earlier, but maybe you could expand on that a little bit.
Yeah.
I guess I'll take your second question first and we're not going to give me back post the second quarter I mean, what we said we haven't got close for the year that we showed you in December and then in the third quarter of this year, we'll be able to say exactly how we're going to finish and gave you. The guide post for the next year. So that's what we're looking at.
Yeah.
In terms of.
The first question, which was.
Yeah.
Are you able to match cost increases with price increases are they are they pegged like surgically is that happening real time right now.
What we put in place what we put in place during our value process, our value pricing processes with Commscope, Max really allowed us to look at it on a scale of SKU level.
Year over year and then we're also looking at pricing.
In terms of input inflation. So we're combining those two things to work with our teams and.
We're addressing those as we see them. So we're really tight on what we're looking at in terms of inflation and be able to go back where we see these things continuing to go up or hopefully flattened out but yes. We are we are addressing them as they come up.
And we're watching them on a monthly basis.
Got it.
Yes.
Got it thank you.
Yeah.
Thank you. Our next question comes from Jim Suva with Citigroup you May proceed with your question.
Thank you nice job on the price increases I understand their raw materials components chip costs and such are they also inclusive.
Shipping costs or is that like a separate line item on the invoices to customers are hardly shipping cost work with your customer reaction interactions.
In general our our freight costs would be included in the price increases we are providing.
So we went out when we go out and change prices, we're changing our price not individual line items for.
The majority of our business. So when we talk about the inflationary impacts that would include what we've seen on the freight side as well as what we've seen on the raw material input side.
Great. Thank you so much for the clarifications.
Thank you. Our next question comes from Steven Fox with Fox Advisors. You May proceed with your question.
Hi, Good morning couple of questions first on international growth.
You highlighted you're going faster internationally, obviously part of that.
<unk>.
Part of it's circumstance I guess I'm, just trying to understand what specifically you did say in broadband to grow faster.
Europe Middle East Africa, like you mentioned and then on the inside plant side with European data Center. How much was that was sort of commscope directed versus market trends and then I had a quick follow up.
Well I'll start by saying.
Our growth internationally is coming from Japan, and Europe , and Middle East and Africa, as well as Latin America and the year.
It's tied to our key account management.
If you think about Japan, and we've got new customer.
Not name them, but that's an account that could be.
$50 million to $100 million count going forward and it's now already.
Plus million.
That's just one example, but we have now key accounts, we have key accounts in place.
As we provide solutions to the largest players around the world.
And we can we can look at those solutions and most people are having the same problems as we get in front of those customers were finding solutions solutions to their problems and.
We have references all over the world. So that's really helping us.
In a tremendous way, but getting that direct contact is critical and getting relationships at the highest level is also critical of course. There of course. There is also some opportunities that we wouldnt seen before with with Huawei getting moved out of places in Europe . It open the door for us to get in.
And these are things, obviously that are happening in our favor and I would say, that's the largest cable and connectivity on one of the largest cable and connectivity players.
In the World, we have opportunities that other people don't have and we're leveraging our position and capacity to take advantage of that and of course, a lot of that could be.
Macro driven.
Great that's helpful and then.
Just a clarification. So when you say you have confidence on your on pricing and freight costs being passed through to customers by year end have you incorporated like escalators and de escalators into these contracts so that if theres a change between now and then that it's reflected fairly in Europe .
And price to customers or is that has to be negotiated further thank you.
Yes, I would.
Some of our contracts have escalators.
I think how we should think about it as you know.
You should think about it is if we saw a dramatic increase.
The inflationary environment as we go through 'twenty, two we would have to go out and have continued in negotiation with many of our customers.
Understood. Thank you.
Thank you and our last question comes from meta Marshall with Morgan Stanley You May proceed with your question.
Great. Thanks, just a couple quick questions. One if you could just give a general or a rough split of.
The cost headwinds that you're seeing this quarter and what you would identify as more freight versus commodity costs and then second just whether there is any of the next initiatives you laid out in December that you feel like are being postponed kind of while.
You can kind of get through this supply chain environment are there any initiatives that are being delayed because of that.
That's it.
Yeah.
On the inflationary side, even though we've seen a lot too.
Movement in our freight costs I would you know.
Slightly more.
More driven by raw material and input on it is shipping but shipping is significant.
I think to answer your second question.
We have a balance of projects when Commscope next.
Our pipeline.
Have some overdrive in it so I think.
We have some room there what I would say on projects I think the only place that.
We would.
Say that the current environment is impacting us is around procurement.
This is not a fantastic time to be going out and taking.
Vantage of some of the procurement opportunities that we that we see medium term, but other than that I don't think theres really anything in Commscope next step is.
Being impacted by what we're seeing here from from a supply chain perspective.
Got it thanks.
Yes.
Thank you I would now like to turn the call back over to Chuck <unk> for any closing remarks.
Yes, I'd just like to say thank you again for your support Commscope and for your time today, and we look forward to talking to you soon thank you.
Okay.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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