Q1 2022 CommScope Holding Company Inc Earnings Call

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Good day and thank you for standing by welcome to the Commscope first quarter 2022 results conference call.

All participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero and now <unk>.

You have to hand, the conference over to your first speaker today, Mike Mccloskey head of Investor Relations. Thank you. Please go ahead.

Good morning, and thank you for joining us today to discuss Commscope 2020 to first quarter results.

I'm Mick Mccloskey head of Investor Relations for Commscope and with me on today's call are Chuck Treadway, President and CEO and Kyle Laurentian 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.

These statements are 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.

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

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 result, all 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.

Thank you Mick and good morning, everyone I'll begin our.

On slide two.

I am pleased to share that we delivered core net sales of $1 73 billion.

Core adjusted EBITDA of $230 million for the first quarter of 2022.

I am encouraged by the strong topline performance delivered by by core Commscope growing net sales, 10% from the prior year.

Our focus on capacity expansion and organic growth is clearly paying dividends as.

As discussed in our February or February release, our margins remained under pressure in the first quarter as we continue to work price increases through our backlog.

We've made strong progress on our pricing initiatives and expect to see margin improvement for the core portfolio in the second half of the year.

Although the environment remains challenged including Covid challenges in China.

Based on current visibility, we maintain the expectation to deliver core adjusted EBITDA in the range of 1.15 to $1 25 billion for the full year in 2022.

For consolidated Commscope, which includes our home networks business, we reported net sales of 223 billion.

Up 8% and adjusted EBITDA of $253 million down 13%.

Now turning to slide three.

Before I discuss some of the business highlights behind the first quarter I would like to remind you about our new business segments. We mentioned on our last earnings call in February .

Portfolio optimization is a key pillar to our Commscope next transformation and as such we believe that our new segmentation will create more focused and streamlined businesses.

This will allow us to better serve our customers and drive accountability and efficiency deeper into the organization.

Under our new reporting structure, our four core business segments are as follows connectivity and cable solutions outdoor wireless networks.

Networking intelligence cellular and security solutions and access network solutions.

Our largest segment is connectivity and cable solutions or Ccs and is led by Rick Johnson.

Ccs combines all of our connectivity in cabling assets as well as our PON technologies.

After a thorough evaluation of our entire portfolio. It became very clear that this is crucial to manage the entirety of our connector and cable operations under one single segment.

This will cement Ccs as one of the largest of its kind in the marketplace leveraging a tremendous portfolio of scale in intellectual property.

Locking true global leadership in connectivity in cabling that few others can match.

Our next segment outdoor wireless networks, our OWS is led by <unk>.

One remains largely the same provider of everything but the radio at.

At the macro site in addition to consumer solutions and the metro layer to densify mobility networks.

Moving to our next segment networking intelligence cellular and security solutions are Nyx is led by markets <unk> <unk>.

<unk> has combined Ruckus das small cell and security identity solutions to create a pure play business focused on intelligent connectivity applications.

<unk> will provide industry, leading vertical solutions enabled through software and cloud capturing emerging growth trends in security Iot analytics public and private networks.

Access network solutions, our E&S is led by guys to search.

And is it takes the active product portfolio that was formerly in broadband networks and establishes a more streamlined and focused segment.

<unk> offer service provider solutions from the head end to the edge of their networks and will continue to leverage this large installed base and product offering in software <unk>.

Head and optics nodes and amplifiers to service its customers.

And before turning to our business highlights for the quarter I would also add that home networks remains entirely unchanged.

Now turning to slide four for a review of our first quarter.

As mentioned in my opening remarks core and consolidated Commscope delivered strong topline growth during the first quarter.

On activity and cabling solutions led the way with net sales of $838 million, an increase of 24% from the prior year and most notably in our fiber product lines, which grew 38%.

We are continuing to see significant strength across all of our end markets. Our investments in capacity continues to ramp helping fuel the impressive year on year growth.

Gross margins remained under pressure as a result of the timing of our price increases and startup costs relating to our new capacity expansions.

As mentioned on our previous call. We continue to work price increases through our backlog and expect margin percentages to improve sequentially throughout the year.

Outdoor wireless networks also drove strong top line performance with net sales of $390 million growing 20% from the prior year.

Carriers continue to invest in their <unk> networks worldwide and <unk> everything, but the radio portfolio saw growth across all its business units.

However, while the topline performance was very strong margins remain challenged as inflation continues to impact our key input and logistics costs.

Networking intelligence cellular and security solutions delivered net sales of $188 million a.

A 2% decline from the prior year.

Our das and small cell business performed well in the quarter and while demand was strong and ruckus there were constrained by chip availability.

Ruckus backlog continued to increase and ended the quarter at $583 million with a book to Bill of one eight times.

<unk> has built a healthy and growing backlog in excess of $100 million.

In one cell is continuing to progress through the qualification process needed to be approved in all three major U S carriers.

In this segment, we continue to invest in future growth, we continue to make significant investments in ruckus in one cell and are encouraged by market interest in our capabilities.

Our investment in <unk> will continue to have a negative impact on our EBITDA for the remainder of 2022.

However, as we continue to manage our chip supply challenges input costs and pricing, we expect the overall segment's adjusted EBITDA performance to improve throughout the year.

Active network solutions generated net sales of $317 million, a 16% decline from the prior year.

As we've mentioned before the performance in this business is heavily influenced by the timing of deals, especially software license sales and can vary significantly from quarter to quarter.

During the quarter <unk> was also substantially impacted by chip and other supply constraints.

In addition, we continue to expect the margin shift in this business as operator investment focus moves further to the edge of their networks to accommodate distributed access architecture and amplify our replacements.

And to round out consolidated Commscope home network net sales of $496 million were essentially flat to the prior year and adjusted EBITDA improved 20% or by $4 million.

Home benefited from driving price increases to offset inflationary pressures at the beginning of this year.

However, in the second quarter home expected to be more heavily impacted from chip supplier decommit and overall visibility in their chip supply remains uncertain.

Said, we continue to work with our supply base to improve chip availability and introduce substitutes where possible.

As a result of our limited visibility to chip supply and our near term performance our efforts to spinoff the home business remains on hold.

Now turning to slide five to provide an update on Commscope next.

One of our major priorities for Commscope next is organic growth.

As I referenced earlier earlier, our capacity investments are paying significant dividends as evidenced by the 24% year over year growth in Ccs.

We brought capacity online in the fourth quarter and the first quarter and there will be additional capacity continuing to come online throughout 2022.

In addition, we are evaluating our next round of capacity expansions in the Ccs business.

As part of our Commscope next organic growth initiative is continued innovation.

We continue to increase our investment in technologies that will fuel growth for commscope for years to come.

In 2022 of the core businesses will invest approximately $600 million in R&D.

And new product introductions.

And recently, we've had several significant innovation advancements I'd like to share.

During the first quarter Ccs further expanded the release of our notebooks connectivity product line.

Our notebooks fiber connectivity range allows operators to maximize their network and respond quickly to changing market conditions and high volume demand.

These solutions deliver unprecedented ease of installation today with the flexibility to ensure that the network meets tomorrow's needs.

Earlier this week, we announced our next generation <unk> PON solutions suite.

From which we expect meaningful revenues starting in 2023.

Commscope is in a unique position to offer this solution as a pioneer in pond based broadband access solutions.

The new site, the new suite of <unk> PON product will provide.

Will power access networks with 10 gigabit and beyond for future application of broadband services and is capable of supporting <unk> and next generations of wireless network deployments.

Just a few weeks ago, one announced mosaic are active passive antenna platform that will drastically reduce the footprint at the top of the tower conserving space by combining active and passive <unk> technologies into single presence.

We have multiple trials in mosaiq in the planning stages and expect them to be completed starting in Q2.

As I mentioned and mix, we continued to invest heavily in our small cell technologies through our one cell brand.

<unk> has already progressed through qualifications at two of the major U S carriers and we are working on approval with the final major U S carrier.

Once approved one sell with this four radio modules can provide both public and private networks.

In a single radio point.

The ability to carry all three major U S carriers. In addition to <unk> and a single radio point is a truly unmatched capability dramatically simplifying indoor networking.

During the quarter, our progress to deploy one cell for <unk> continued in addition during the quarter. We received our first approval from a major U S carrier to begin deployments for <unk>.

Finally, as we look to the next evolution of HFC networks. Our E&S segment will have an important role to play in the advancement from DOCSIS three one DOCSIS fluoro.

We are close to finalizing agreement with the leading service provider on a joint development partnership for DOCSIS four <unk>.

Our refocused <unk> investment in technology and capacity expansions, coupled with the strong demand environment, and our pricing initiatives positions commscope well for growth and improved profitability in the upcoming quarters.

And with that I'd like to turn things over to Carl to talk more about our first quarter results.

Thank you Chuck and good morning, everyone.

I'll start with an overview of our first quarter 2022 results on slide six.

For the first quarter consolidated Commscope reported net sales of $2 to $3 billion, an increase of 8% from the prior year driven by growth in our Ccs and OWS segments.

Adjusted EBITDA of $253 million declined nearly 13% as a result of input cost inflation more than offsetting the strong topline growth.

Adjusted EPS was <unk> 26 per share declining 28% from prior year.

For core Commscope net sales of $1 $73 billion.

Grew over 10% from the prior year and adjusted EBITDA of $230 million declined 15%.

As mentioned the decline in adjusted EBITDA against the backdrop of rising sales was attributable mainly to inflationary cost pressures.

As implemented price increases work through our backlog, we expect to recover margins, but this will be weighted heavier in the second half of the year.

Core Commscope backlog continue to increase and ended the quarter at $3 6 billion.

An increase of 21% versus the end of last year.

Core book to Bill for the quarter was one four.

As Chuck mentioned previously our demand environment remains healthy, particularly in our Ccs business.

Turning now to our segment highlights on slide seven.

Starting with Ccs net sales of $838 million increased 24% from the prior year with particular strength in network cabling and connectivity.

Based on our strong demand more capacity coming online and price increases we expect continued growth in Ccs.

Ccs adjusted EBITDA of $99 million declined 7% from the prior year, primarily driven by cost inflation.

As mentioned, we have implemented price increases in Ccs that will improve margins throughout the year as we work through our backlog.

Margins will also benefit from operational leverage in our manufacturing plants as the business grows.

Outdoor wireless networks net sales of $390 million increased 20% from the prior year and across all business units.

<unk> adjusted EBITDA of $71 million declined 4% from the prior year as commodity and freight inflation more than offset increased volume and operating expense reductions.

Although we've had success in achieving price increases in this segment <unk> margins will remain under pressure as we continue to work with service providers to fully offset input cost increases.

Networking and intelligent cellular and security solutions net sales of $188 million declined approximately 2%.

From a business unit perspective growth in both das and small cell was offset by a decline in rochus.

While demand in rockets remains strong the first quarter was challenging due to chip supply constraints.

Although we have line of sight for improved Ruckus chip supply throughout through the remainder of the year, we expect continued volatility.

Next adjusted EBITDA of negative $14 million improved $3 $6 million from the prior year, primarily driven by stronger gross margins are.

Our improved margins as a result of favorable mix and continued efficiencies.

Additionally, it is important to remind you that mix was our most in R&D intensive business, we are making significant investments today in products, such as one cell and raucous our investment in Walden sale. During the first quarter was on an annual run rate of $48 million.

Demand remains very strong and mix as we ended the first quarter with a backlog of $675 million, an increase of 22% from the end of last year.

Access network solutions net sales of $317 million decreased 16% from the prior year and across all business units.

And as adjusted EBITDA of $74 million declined, 31%, primarily driven by the mix and timing factors Chuck discussed earlier, which essentially represent a shift in our customer spending towards more hardware centric and lower margin products like our nodes and amplifier.

Yes.

Finishing up the segments with home networks.

Home net sales of $496 million were essentially flat from the prior year.

From a business unit perspective growth in the broadband gateway business was offset by declines in video.

Home adjusted EBITDA of $23 million improved over 20% or $4 million driven by margin improvement and reduced operating costs.

While the home business maintained over $1 billion in backlog their ability to deliver on those orders remains constrained and the current chip supply environment.

Based on current on our current visibility the supply environment will continue to be volatile through the year, which will have a direct correlation on homes results.

We expect the second quarter to be a more difficult quarter for chip availability. Therefore, we would expect sequential net sales and EBITDA declines from the first quarter to the second quarter.

Due to the continued uncertainty and depressed adjusted EBITDA, our plan to conduct a spinoff of home remains on hold.

Turning to slide eight for an update on cash flow.

For the first quarter cash flow from operations was a use of $15 million and adjusted free cash flow was a use of $24 million.

During the quarter, our working capital usage was driven by our growth in top line.

<unk> and an inventory increase of $74 million and an accounts receivable build of $61 million.

As mentioned on our previous call. We continue to expect inventory levels to remain higher than normal until supply chain conditions improve.

Additionally, we expect cash flow generation to improve in the second half of the year consistent with our EBITDA improvement.

Turning to slide nine for an update on our liquidity and capital structure.

During the first quarter, our cash and liquidity remains strong we ended the quarter with $315 million in global cash.

Total available cash and liquidity of over $1 billion and no outstanding draws under our ABL revolver.

We made no incremental debt repayments during the quarter beyond the required $8 million of term loan amortization.

The company ended the quarter with net leverage of eight two times and increased from seven eight times at the end of the fourth quarter.

With the previously mentioned pricing actions, taking full effect later in 2022, we remain committed to meeting our year end target of net leverage in the six eight to seven two times range.

I'm now turning to slide 10, where I will conclude my prepared remarks with some commentary around our expectations for the remainder of 2022.

Although our external environment remains challenged with issues such as chip supply.

Inflation and Covid Lockdowns in China, we maintain our expectation for the core business to deliver 2022 adjusted EBITDA in the range of one five to $1 $25 billion.

We expect modest sequential improvement of core net sales and adjusted EBITDA in the second quarter and much stronger improvement in the second half as we see the full impact of our price increases project related orders improved supply position and capacity expansions.

As we continue to stress as a result of project timing and mix our business should be viewed on an annual performance basis rather than quarterly.

With that I'd like to give the floor back to Chuck for some closing remarks.

Cost.

As we shared with you during our December transformation update in on this morning's call despite challenges and supply constraints and inflation, we maintain our expectation to deliver on full year 2022, adjusted EBITDA targets and margin improvement as we progress towards our overall Commscope next transformation goal exiting the end of <unk>.

23 at a run rate of $1 6 billion.

Of core adjusted EBITDA.

This goal is supported by our three key pillars of driving organic growth operational efficiency and portfolio optimization.

We're investing in capacity expansion innovation, and new product introductions to drive organic growth.

Our recently implemented general management model and new segmentation are better aligned what was a complex legacy matrix organization.

We believe that this decentralized operating model will enhance overall efficiencies and drive greater accountability visibility and a performance driven culture throughout the entire organization.

With the health and our end markets and tremendous backlog our success through Commscope next has positioned us for significant EBITDA improvement in the remainder of 2022 and solid progress towards our goals in 2023.

We continue to appreciate your interest and support and I'll now turn it back to our operator to start Q&A.

Thank you Sir.

We will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad again star one on your telephone keypad.

Please standby, while we compile the Q&A roster.

Your first question is from George Notter with Jefferies. Please go ahead.

Hi, guys. Thanks, very much I guess I wanted to start out by.

Talking about our pricing a bit it seems like pricing is certainly the safety valve in the business at this point, but.

If I go back you guys were raising pricing in December .

Obviously the war in Ukraine broke out subsequent to that I think you guys were going back to raise pricing again, but can you talk about that have you raised pricing again subsequent to that situation and then how much are those pricing increases and then also are you able to reprice backlog in.

Maybe talk about kind of the picture around pricing.

Sure.

Thanks for your question, Georgia, and what I would say is as we said at the beginning what we our goal is to offset inflation with price.

Our tools and processes are improving.

We've had solid relationships with our customers and partners and are working with us through this.

And we continue to expect to offset offset the.

Cost increases.

With price.

And we are continually working with our customers.

<unk>.

I said, our tools and processes are improving and helped us give a lot more visibility as we go through it.

Got it any sense for magnitude on pricing and then also timing.

Yes, I think.

The way the way.

Okay.

It was on it and feel comfortable with is that.

We will see all of our pricing get through in Q4.

Second half of the year, and we will see the margin improvement sort of in the second half as we sort of get back to the historical levels on margins.

Got it okay.

And then customer receptivity.

Obviously, no one likes pricing going up I think I would imagine customers understand given the environment, we're in but.

Are there places where you are finding it more difficult to raise price.

Look I'd say everything is special and unique depending on the customer, but I would say in general I mean, we have very solid relationships, where a key service provider for them or key let's say component supplier for them.

And I think that.

They've been very supportive of us so far.

Okay, Okay I'll pass it along thank you very much.

Thank you.

Your next question is from Steven Fox with Fox Advisors. Please go ahead.

Hi, Good morning couple of questions from me just first of all just can you level set US where you think you are on the connectivity.

And cable solutions margins relative to the potential obviously.

Like you mentioned you guys are a leader, but I'm just curious how much opportunity from where you are now and how you drive it maybe just near term and maybe over the longer term and then I had a follow up.

Yes.

As I just mentioned I think the plan that is with the growth in that business with our price increases we feel like we're going to get back to the historical levels.

Theres a fair amount of.

<unk> continued room to move those margins up as we move through 2022.

<unk>.

The other component that will help our margins as we move forward is just the operational leverage that we will get.

As we grow the business.

Take advantage of our.

Our cost and the leverage that we get as we grow the business. So.

I think theres, a fair amount of room for us to.

Continue to work off of our margins from the from a Q1 basis as we get the capacity we get the growth we get our price increases and we get the operational leverage.

Right I understand all that conceptually I was trying to get to put some numbers around it like from an EBITDA margin basis.

Yes, I mean, either way that I would look at it is I will go back and look at historically, where we were.

And I think we can get back to those levels that we saw back in 2020.

Okay. That's helpful and then just in terms of.

How are you managing through some of the chip shortages, obviously theres been decommit along the lines over the last year, but you also mentioned that you are a little more optimistic about ruckus, because you expect to get better chip supply can you just sort of talk about your confidence level around that and then how it sort.

Sort of works through in terms of like accelerating the growth in terms of working down that backlog you mentioned thank you.

Sure I'll start by saying.

We've spent a lot of time redesigning parts that are hard to get right now and making sure we have the right.

Our footprint in terms of the semiconductor side.

And what I would say related to ruckus, the big push that we are seeing I mean, the big benefits are what we're seeing there is commitments from our large suppliers the broadcom and Qualcomm.

Commitments there that we were not seeing in the past, we're seeing those now and and we're as we're working through the rest it's more ancillary parts and we feel more confident in being able to work around those.

And in terms of how it plays into working down the backlog.

Well I mean, our goal here is to.

Continue to push.

And get out put out the door I mean, we're expecting increases in the second half.

Just similar to what <unk> talked about I mean, we expect the second half to be better in those businesses as well compared to the first half.

Understood. Thank you.

Once again, ladies and gentlemen, if you have a question. Please press star one on your telephone.

Again star one on your telephone keypad.

Your next question is from Rod Hall with Goldman Sachs. Please go ahead.

Yes, thanks for the question.

Chuck I wanted to come back to your comment on the pricing process you talked about.

Changing and improving that process I wonder could you go into a little bit more detail on what you've changed there just curious how the process work.

And.

And how it manages through some of this and then I've got a follow up.

Sure I'll start by saying, we now have a detailed.

Level of comparable at a <unk> level that we're exposing to our whole team and showing our whole team to see where we were and where we need to be we also are looking at inflationary inputs and looking at all of our purchases on a monthly basis to look at where we are where it is what are we trending to get expectations and to be able to give that to our <unk>.

Team as tools to help them work through.

There are processes for price increases in their plans. So I would say, it's much more methodical and we have a really good way of measuring it at a SKU level of what we're getting compared to 2020 basis.

And we will be able to use that to speak with the team, whether that's a weekly basis or biweekly basis.

And we have very detailed monthly reviews on that.

And then on the inflationary inputs to the teams are.

You're just providing them the real time data or do you provide them kind of your views.

Commodities and things are going in the future.

We're doing we're doing both I mean, we get fee at the end of the month, we see what we were actually impacted by and then at the same time, we have a commodity managers present to each of the business segments, what they're seeing in terms of trends and what the.

What the commodities are looking like.

Great. Okay. Okay. Thanks, a lot I appreciate that.

Okay.

Your next question is from Sami Badri with credit Suisse. Please go ahead.

Thank you.

Can you give us an idea on how much benefit you are getting from Argos or any federal ARPA funds.

Or are we starting to see those revenues or are they going into your backlog and then the second question I have is what does your 2022 expectation for free cash flow.

And any kind of debt paydown plans for 2022.

Okay. So.

The art off front I mean, we sell through.

A lot of distribution partners as well as direct.

We are seeing we are seeing pickup in <unk> I don't have that exact number in terms of where we are I'm sure Mick can get back with you later on.

What we're seeing in art off, but we are seeing it pick up.

As Youre aware charter one significant amount of large health business, we're seeing that.

And we're seeing across the board smaller players as well selling through our distribution partners I'll, let Karl take the.

Cash flow so, yes, so I think on the cash flow.

As we work through the next couple of quarters.

I think theres two things, we are clearly improving our EBITDA over that time, which will link to improve cash flow.

Piece of this is we're in a business thats growing which is going to require some working capital.

So based on where we are from a growth standpoint.

And the EBITDA improvement, we'll evaluate.

Debt paydowns towards the end of the year as.

As we look at all of those variables and figure out what makes sense as we work through the year.

Got it. Thank you and then maybe just on federal ARPA funds, which is.

As a category.

There are a lot of explicit fiber and broadband initiatives that are going into auto federal.

Policies in accident anything beyond <unk> that you guys are seeing a benefit from.

I would say is we are seeing huge increase demand in our backlog is growing at a tremendous rate. So I'm certain there is a lot of that in there I just I just don't know exactly the numbers of that.

The one comment that I would make on just the Ccs.

And that business with the with fiber.

Still think we're in sort of early innings relative to their <unk> on the infrastructure spending.

So we feel like there's a fair amount of runway here.

Alright, thank you.

Your next question is from meta Marshall with.

Morgan Stanley . Please go ahead.

Great couple of questions for me one on one.

You noted.

Qualification with two of the major carriers are kind of waiting for that third just wanted to get a sense of.

What you think the tie.

Demand for some of those deployments are critical.

To kind of get all three approvals before deployments really start or just kind of how you see the one cell business.

Aggressive through this year and the next couple of years.

And then Greg.

Just any if you wanted to call any kind of more specific Russia, Ukraine impact or does kind of inventory stock at China ports with things that are maybe a little bit.

Isolated from just kind of overall chip shortages.

Yes.

On the one sell side.

We are already approved by two major carriers and they already have our product on their website and are able to sell it as it is in their enterprise teams are going after that that business and we're supporting them with that so we are starting to see revenue in one sell already.

What gets us the benefit of getting the third carrier is that can be pretty much deployed everywhere. Because you would have access to everything we have customers actually reaching out to the third carrier to expedite that because of the benefits of what they're seeing with our product I think great use case.

For hospital is where you can have in one box you'd have all three carriers in neon the CBR Essen that box as well, which allows us to.

Really look at all the instrumentation they have in the hospital at the same time as Bill will provide the three carrier services all in one radio points. So I think.

On one box. So I think everybody is very encouraged by what they're seeing.

And that technology is really really taken on.

A lot of interest in <unk>.

The timing of it and I wish I could call that but I expect 2023 to start picking up.

In terms of Russia and Ukraine.

I would say.

It's a minimal exposure to us I mean, it's we did $20 million in revenue there.

So obviously, we can't do that and we're calling that out.

When we add some employees there.

We no longer do.

I would just say that.

That's it.

It's also affected a little bit with some shipping lane stuff, where we used to take rail across China, we can't do that anymore.

Across Russia, obviously, we can't do that anymore.

So I would say minimal impact to us from the from the Russia, Ukraine side.

Sure. She had one more question, yes, I think so.

On the China.

Hum.

Okay.

Yes, I mean, our factories in China have not been impacted but we have just like everybody we've had.

Some impact, it's something that sort of evolving on a day to day basis at this point.

There's been some some challenges that we have we're sort of working through those.

But again I think we.

We're starting to see the beginning of this and are sort of evaluating it at this point in time.

We don't have any major issues, but there is clearly.

Some challenges there for us to work through just like everybody else is dealing with.

Got it alright I appreciate it thanks guys.

Okay.

Your next question is from Matt nickname.

Bank. Please go ahead.

Hey, guys. Thank you for taking the question.

Just had two on your core adjusted EBITDA target. So first the low end of the guide.

Core adjusted EBITDA still implies a fairly steep uphill path versus the $230 million. This quarter. So I'm wondering maybe you can shed some more light on how to think about the cadence of the ramp and maybe what you would need to see to hit the upper half of that range and then maybe secondary to that can you help us think about what's embedded in the guide.

In terms of expectations around raw materials freight and shipping costs and really just trying to get a sense of whether you're embedding any relief on the cost side or are you sort of run rating what youre seeing right now thanks.

Yes, so I think as we've been talking about on the last two calls we see.

We call that we were going to have a softer first quarter as a result of the inflation and the timing of our price increases on our capacity expansions coming online throughout 2022, So yes, we expect to see.

A ramp, particularly weighted towards the second half of the year.

So yes, your math is correct on yes, we expect some.

Pretty strong quarters in the second half.

I think as we think about the assumptions that are going into that.

We built some incremental inflation in there as.

As we've talked about we feel like we have the processes and the.

The systems to go after incremental inflation, what's not built in there is any.

Very significant change in the raw material markets and the commodity prices.

Hey, Kyle that's relative to what Youre seeing sort of right now maybe exiting <unk> in terms of the cost inflation.

Correct Okay.

Great great. Thank you.

Okay.

Your next question is from Simon Leopold with Raymond James. Please go ahead.

Thanks for taking the question.

Got two the first one may be tricky to answer.

I wanted to see if you could shed some light on building a bridge to the March quarterly gross margin.

And really what I'm getting at here is the mix was a bit different with with the home being bigger than expected and.

My view that that's the lowest gross margin business I am trying to understand how much of.

The effect is due to mix and how much is really the input cost.

Issues and then my second question is.

Just any any perspective, you can offer on the joint venture that charter and Comcast announced around the home networks and charter embracing the flex streaming.

Unit.

That that comes from Comcast, how does that affect your home networks business. Thank you.

I'll take I guess I'll take the second one first.

We don't we don't see that really affecting our <unk>.

Our Comcast foam business.

So I'll just stop there.

I guess its charter that's embracing the Comcast architecture, so I'm trying to understand how it affects what charters buying from you.

Yes, yes.

Yes.

I would say with charter.

We're not they're not that big of a client for us at this point, so I don't see that as a big effect.

Related to the home business.

And on the gross margin question.

So on the gross margin question.

Without.

Giving super precise answers our view is the.

The majority of the impact is.

The raw material versus the pricing timing I.

I would say the one business that.

There are some mixed driven than there is in our E&S business.

Which based on projects.

Software licenses.

Business will have a little bit of mix them back because you go from quarter to quarter. So if you think about where we are on a margin basis.

The large majority of that margin challenges that we've had in Q1 are driven by the raw material components.

Sure.

Thank you.

Thank you.

Your next question is from Amit <unk> with Evercore. Please go ahead.

I have two as well the first one I think just going back to this EBIT dollar math I think in the first half you should do around $500 million EBITDA in the back half of the guide would imply you're going to do $700 million, maybe just walk through the acceleration in the back half how much of that is driven by a expectation.

For revenue uplift, where it says self.

Self help levers from Commscope next example.

Bridged the gap in terms of how much of this do you need more revenues for worse that you could accomplish it even if you don't have the revenue acceleration.

Yes, I mean, we definitely have revenue growth built in to the second half of the year.

That's coming from I would say two major components.

And this is I'm talking about just the volume perspective of it we have capacity coming online in Ccs with a massive backlog. So we feel like there's a fair amount of growth that we're going to get in that business as we take in the demand side of that of that of that business as well as the capacity coming online.

We started up a new plant in Mexico for example, during first quarter.

The second component of that is in a few of our businesses, we feel like as Chuck mentioned earlier, we feel like we've got some better visibility to.

Chip supply.

And that should free up some revenue.

And then in addition to that as we've been talking about now for a couple of quarters as our pricing, we will ramp up as we move through the second quarter and into the second half.

So yes.

In that projection in the second half.

We do have a fair amount of revenue ramp.

We believe is supported by the significant backlog that we have.

Got it.

Hoping you could talk a bit more about walk us up to start with one of the places where you had more of a supply chain pinpoint where it does not but.

Maybe talk about what does the backlog global revenue trajectory looked like rockets as you go forward.

And then if you could specify what the supply chain issue as well on the chip side that would be helpful as well.

Yes, so on the Ruckus backlog we have.

Over $500 million of backlog and rockets.

We have a significant backlog.

Backlog is growing on sort of a day to day basis.

I think the challenges that we have on on chips as Chuck had mentioned is.

We have some major major suppliers on chips.

Some of those we've seen some <unk>.

Better visibility in the second half and then on our sort of an ancillary chip suppliers.

Dealing with those issues as well so.

I would say Q1 for us from a raucous standpoint, we feel.

It was not a great quarter for us from getting supply.

And as we work through the issues and we.

Change out chips on on hardware.

We continue to have conversations with our key suppliers, we feel like.

<unk>.

We'll see more availability in the second half, which should drive our revenues up in Rochester in the second half.

Perfect. Thank you.

And our final question is from Jim Suva with Citigroup. Please go ahead.

Thank you so much for all the details thus far so my question is probably easier when you mentioned about working on pricing in the backlog just to clarify is that kind of four new orders that are coming into the funnel and backlog or are you going back into that backlog and talking with you.

Customers about the terms that were previously agreed whether they be shifting or component costs.

Yes, when we talk about the backlog, we're talking about going back into our backlog and repricing backlog based on.

Commodity of our component price changes that we've had since we've taken the order.

Okay got you. Thank you so much for the details.

Thank you.

So thank you all for your support.

Go ahead, Sir thank you.

I was just saying thank you all for your support and interest in Commscope.

Have a great rest of your week.

Ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect stay safe and well.

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