Q4 2022 CommScope Holding Company Inc Earnings Call

February 23, 2023

Good morning, ladies and gentlemen, and welcome to the comes called spot quarter 20 twenty-two earnings conference call. At this time, all participants on a listen only mode.

After the speaker's presentation that'll be a question and answer session to ask a question. During the session. You wanted to press Star one one on your telephone.

People with any an automatic message advising yohan this race.

He smelled that today's conference is being recorded.

Oh, well now I have the confidence of what you speak of house.

Mccloskey head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to discuss Commscope 2022 full year in fourth quarter results.

With me on today's call our truck Treadway, President and CEO , <unk> Executive Vice President and CFO you.

You can find the flaws 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 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 reveal 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 material.

And posted on our web site all references during today's discussion will be two are adjusted results all full year and quarterly growth rates described during today's presentation or on a year over year basis, unless otherwise noted.

Now turn the call over to our President and CEO Chuck Treadway.

Thank you and good morning, everyone.

Get on slide too.

2022 was a solid year of execution against our Commscope next plan that we shared with you in December 2021.

That plan outlined a comprehensive set of actions to streamline our business and investment profitable growth.

Despite the many challenges throughout the year.

Fast food supply chain shortages and high inflation across many of our input costs.

I'm very proud of our strong execution across our our team to deliver against our Commscope next targets.

Our ability to adapt to these challenges speaks to the success of our implemented general manager model and helped returned core commscope to a growth trajectory and restore margins to be more in line with historical levels.

From a financial perspective for the full year 2022, consolidated Commscope net sales of $9 to $3 billion increased 7% and adjusted EBITDA of $128 billion increased 14% from the prior year.

Core Commscope delivered net sales of 752 billion, increasing 12% from the prior year.

Strong revenue and aggressive execution on our cost programs resulted in cooler adjusted EBITDA of $1 billion to $5 billion, an increase of 15% from the prior year.

Importantly, we met the high end of our Commscope next Geicos of 1152 $125 billion of core adjusted EBITDA.

Additionally, we reduced our net leverage ratio to six nine times nearly a full term of improvement from where we began the year and within the lower end of our targeted range.

Shifting to the fourth quarter consolidated net sales of $2.32 billion increase 4% and adjusted EBITDA of $376 million increased 44% from the prior year.

The court Commscope fourth quarter net sales of $193 billion increased 10% and adjusted EBITDA $381 million increased 50% from the prior year.

Core adjusted EBITDA margin for the quarter was a healthy 20%.

And as expected our second half EBITDA led to a meaningful improvement in our cash generation as we generated $364 million in free cash flow during the fourth quarter.

Our record core adjusted EBITDA performance in the fourth quarter is a testament to our continued execution of our Commscope next transformation initiatives across our core portfolio, including our efforts to recover inflationary pressures through pricing initiatives and the back half of the year.

Specifically, we view the substantial growth contributed by our Ccs and mix segments as the foundation for Commscope feature.

As expected are booked to build declined in the fourth quarter. However.

However, we are in constant dialogue with our customers and expect this path to last a couple of quarters as medium and long term fundamentals remains strong.

We believe the short term adjustment will give way to strong long term demand as the network fiber Buildout isn't early earnings.

We feel to strengthen our business continues to be evidenced in our backlog, which for the core business ended the year at <unk> at over $2.9 billion.

For additional context over the last two years, our core backlog has grown 110%.

Our book to Bill over that time was 111 and a 2022, we delivered a full year book to Bill of 1.0.

Suffice to say our business isn't a significantly better position than we were two years ago.

With this putting in mind as we look to 2023, we were once again reaffirming our core adjusted EBITDA Guide coast of 13521 $5 billion.

As indicated in our third quarter call. Our full year 2023, adjusted EBITDA range considered the potential for flat too low top line growth for the year.

And regarding pacing throughout 2023, we expect to see a stronger second half in the first half.

In addition, we expect typical seasonality project timing and customer inventory adjustments to negatively impact our first quarter of the year.

Before turning the call to Kyle I would like to talk about our business position to start the new year.

As we've indicated throughout last year, we believe Ccs has strong market tailwinds and that we were at the beginning of a multiyear build out of fiber cable and connectivity.

Over the past 18 months, we've aggressively invested in our internal capacity to enable commscope to take full advantage of carrier footprint expansion driving fiber deeper.

In addition, we're all well positioned to serve demand for billions of dollars and expected government subsidies to help close the digital divide.

And our innovation engine is fully engaged to deploy the products that will enable all of this to come to fruition spit.

Specifically designed to reduce installation complexity save time and trained the labor force faster.

We continue to design, our connectivity and cabling portfolio with these things in mind.

And we believe our innovations are driving strategic wins in the market.

And more recently, we've continued to demonstrate our innovation and technology leadership in the market with key participants and programs like the world Digital opportunity fund.

All set in the years to come we view, our continued technology innovations capacity investments and customer demand will drive incremental opportunity for Ccs growth.

Turning to mix, we eclipsed an important milestone in the third quarter of 2022.

Driving the business to significant improvement and anchoring on a trend of profitability that we expect to continue going forward.

Again, evidenced in the $56 million of adjusted EBITDA delivered in the fourth quarter.

While chips supply constraints remain we continue to see signs of loosening in the market and expect gradual release throughout 2023.

Additionally, mixed ended the year with over $777 million backlog already representing over 80% of the revenue produced in 2022.

We also continued to invest in services and recurring software as part of the segments transformational growth initiatives.

For the remaining core Commscope businesses.

<unk> and <unk>, while they're overall growth potential they may be more muted or innovation engine isn't slowing down.

And <unk> as we mentioned in the latter part of 2022, we fully contemplated a decline in the U S carrier capital spending into our overall Corps Commscope Geico's.

While this may present headwinds for 2023 revenue and EBITDA performance in the business, we expect some level of offset driven by share gains from our new technologies.

Includes the mosaic antenna solution as well as opportunities to deliver lower powered passive antennas and energy cost conscious regions such as Europe .

Finishing with an S. We've discussed throughout 2022, the profitability headwinds segment continues to face is a higher concentration of our product revenue shifts to the edge of networks.

Yes, our strong installed base and leading technologies continue to position us as a market leader.

Another example of our leadership was highlighted recently in our press release announcing a significant milestone of building and shipping more than 1 billion amplifiers to top cable operators in 2022.

With that I will now turn the call over to Kyle to talk more about the year in the quarter.

Thank you Chuck and good morning, everyone.

Start with an overview of our full year 2022 financial results on slide three.

For the full year consolidated Commscope reported net sales of $923 billion, an increase of 7% from the prior year.

This performance was driven by growth in all core businesses with the exception of an S.

Was also offset by the decline in home.

Growth in top line includes a headwind of approximately $150 million or 2% associated with the euro over year change and <unk> right.

Excluding this impasse net sales grew over 9% organically.

Consolidated adjusted EBITDA $128 billion increased 14% from the prior year.

Adjusted EBITDA growth for the full year occurred across all segments with the exception of a N S.

Adjusted earnings per share of $1 66 increased by 19% from the prior year.

As a result of our annual goodwill impairment testing, we recorded a 112 billion dollar impairment charge during the fourth quarter, which is excluded from the adjusted earnings per share calculation.

For the full year core Commscope reported net sales of $752 billion, an increase of 12% from the prior year.

Net sales growth was led by a significant year over year increase in Ccs, followed by mix and O. W. N, while partially offset by a decline in a N S.

Gore adjusted EBITDA for the full year was $1.25 billion, an increase of 15% from the prior year and at the high end of our expected range for the full year of 2022.

Similar to net sales core adjusted EBITDA growth was driven by increases in Ccs.

<unk> and O W N, while being partially offset by a decline in a N S.

Turning to our fourth quarter results on slide four.

For the fourth quarter consolidated Commscope reported net sales of $2.32 billion, an increase of 4% from the prior year net.

Net sales growth was driven by our Ccs next and <unk> businesses, partially offset by declines in O W N and home.

For the quarter, a year over year change and have X rayed negatively impacted net sales by $44 million or 2%.

Excluding this impact fourth quarter net sales grew 6% organically.

Adjusted EBITDA of $376 million increase approximately 44% from the prior year driven by the growth and Ccs and next.

Fourth quarter adjusted earnings per share of 49 <unk>.

Increased by 58% from the prior year.

Core Commscope net sales of $1.93 billion increased 10% from the prior year, driven by strength and Ccs mix and a M S.

Cora adjusted EBITDA of $381 million increased 50% from prior year, driven by the strong performance and Ccf's a mix.

As expected and indicated throughout the second half of 2022, we continue to work through our backlog to more manageable levels as supply chain conditions have begun to stabilise and our capacity.

Incidents have significantly reduced lead times.

In addition to supply chain and lead time is Chuck mentioned earlier, we saw a meaningful reduction in order input at the end of the third quarter and again during the fourth quarter.

Primarily related to customers adjusting inventory levels.

We expect us to possess into the early parts of 2023.

Are short term visibility remains limited in certain products.

Our optimism for strength in the second half of 2023 and beyond is driven by constant dialogue with our customer base.

Or commscope ended the quarter with $2.9 billion in backlog of 110% above where it began 2021.

And our fastest growing businesses Ccf's index are combined ending backlog for the year was $2.1 billion up 190% over the last two years. However.

However, as expected the slowdown in orders during the fourth quarter yielded a fourth quarter book to Bill.

634 core Commscope.

As previously mentioned these lower order rates have been incorporated into our expectation to deliver full year 2023 core adjusted EBITDA within the range of $135 billion to $1.5 billion.

Look into the first quarter, we expect sequential net sales and adjusted EBITDA to be down more than the typical seasonal decline in the core business.

Despite the sequential decline however on a year over year basis, we would expect a significant improvement in core adjusted EBITDA performance and.

Similar to 2022, we would expect to see a strong improvements sequentially from the first half to the second half of 2023.

Turning to our fourth quarter segment highlights on slide five.

Starting with Ccs net sales of $957 million increased 19% from the prior year.

Fourth quarter.

Growth and fiber once again drove the segment performance, increasing 40% across the entire fiber portfolio and for the full year 2022 cyber products grew 41%.

As indicated on our third quarter call, we saw weakness in our structure copper cable business on a year over year basis and sequential basis.

Mainly attributable to inventory bills with it within distributor channels and project delays.

D C S. Adjusted EBITDA of $188 million grew 93% as the segment benefited from increased volume price and operational efficiencies.

Looking forward into 2023, we expect the business to improve on a year over year basis, driven by continued market growth and a full year impact of the inflation related pricing.

Sequentially in the first quarter, we expect <unk> to be down given typical seasonality. In addition to continued inventory adjustments and the channel.

However, as mentioned earlier ccf's customer conversations remain bullish on medium and long term growth.

Despite chip constraints next net sales of $289 million grew 20% from the prior year driven by volume and price.

Next growth was once again led by rothes growing significantly year on year as well as sequentially delivering another record quarter revenue.

And is Chuck mentioned, we are exiting the year with $777 billion, a backlog and mix.

Although improving semiconductor chip constraints will continue to impact the business in 2000 2003.

Next adjusted EBITDA $56 million increased by $50 million from the prior year.

Strong performance is representative of the teams successful execution and the challenging chips supply environment.

All the while continuing to invest in future product offerings.

Additionally, the fourth quarter performance included one time benefits the profitability that we do not expect to occur going forward.

In addition to chip availability impacting EBITDA, we also expect to maintain a healthy level of investment and R&D.

O W. N net sales of $305 million declined 19% from the prior year.

Oh W. N adjusted EBITDA of $41 million declined 23% from prior year, primarily driven by the decline in volume. In addition to 21 million dollar bad that charge related to one specific Oh wm customer.

As previously indicated we view the long term opportunity for O WN as having low single digit growth.

2023 presents anticipated headwinds that will position O W and top line to decline in the year.

This is primarily driven by the expected reduction in North American operator capital expenditures.

Offset to some extent with new product innovations discussed throughout the last few quarters, such as our mosaic antenna solution.

It's also important to highlight that this potential outcome has been previously contemplated that our full year 2000 twenty-three core adjusted EBITDA guide posts.

And our annex business net sales of $375 million increased 15% from the prior year, primarily driven by growth and access technologies.

Adjusted EBITDA of $95 million declined approximately 2% from the prior year driven by the negative mixed impact of operator spend shifting to the edge discussed at length in previous calls.

However, as expected the fourth quarter performance represent better mix sequentially from the third quarter, given the timing of certain projects and software license purchases at the end of the quarter.

For <unk>, we would expect 2023 adjusted EBITDA margins to be in line with full year 2022, EBITDA margins, reflecting a higher concentration of lower margin edge products, such as nodes amplifiers and taps.

In addition on a sequential basis, we would not expect the same impact the project timing and higher margin product mix to benefit the segment during the first quarter.

Finishing up our segment highlights with home networks.

Net sales of $392 million declined 18% from the prior year and across both video and broadband businesses given weak demand.

Adjusted EBITDA of negative $5 million declined 12 $12 million from the prior year, primarily driven by lower volume.

While we expect home networks to be profitable for the full year of 2023 performance improvements will be significantly waited to the second half of the year.

Home will likely remain challenge with profitability during the first quarter.

Given the expectation of weak demand and customer inventory adjustments.

You maintain the belief in the strategic rationale to separate home from core Commscope. However, we continue to focus on implementing transformation initiatives to improve their current performance, which will take multiple quarters.

Turning to slide six for an update on cash flow.

As indicated on our prior call the fourth quarter delivered a substantial improvement in our cash flow generation.

Cash flow during the fourth quarter was driven by strong EBITDA and improving supply chain conditions that allowed us to moderate inventory growth.

We generated approximately $387 billion in cash from operations.

Free cash flow of $364 million and adjusted free cash flow of $403 million during the fourth quarter.

As a result also indicated on prior earnings call.

This significant cash generation drove our full year.

Positive with cash from operations free cash flow and adjusted free cash flow to $190 million $89 million and $198 million respectively.

Looking forward, while we expect to generate meaningful improved free cash flow for the full year 2023, how to remind you that the first quarter is historically a significant use of cash to start the year.

Specifically because it is our second highest interest paying quarter and the timing of our annual incentive payouts.

As we indicated during the fourth quarter, we would expect the midpoint of our EBITDA guideposts for 2023 to deliver $4 million to $500 million or free cash flow for the year.

This contemplates a more normalized conversion of EBITDA to cash.

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

During the fourth quarter strong cash generation, notably improved our overall liquidity position, we ended the quarter with $398 million in global cash total.

Total cash and liquidity for the quarter was $131 billion, a 41% improvement from the prior quarter.

As previously disclosed during our third quarter release. This cash position reflects a full repayment of the $105 million drawn on the ABL at the end of the prior quarter, which was made in late October .

Other than the full ABL revolver repayment, we made no incremental depth prepayments outside of our required $8 million a term loan amortization.

The company ended the quarter with net leverage of six nine times nearly a full turn improvement from the prior quarter and and prior year end of seven eight times.

Also within the lower end of our previous provided range of $6 eight times to seven two times for the full year 2022.

I will now turn it over to <unk> to provide some closing remarks and perspective on 202003.

Thank you cause I am now on slide eight.

Throughout 2022, Commscope has demonstrated strong execution and an extremely dynamic environment and delivered on our previous commitments to grow our core profitability reduced our net leverage ratio and put us on the right path to enhance shareholder value creation.

The current economic environment that we operate in today is highly uncertain hell.

However, based on conversations with our customers about 2023, and our backlog position, we are reaffirming our expectations to deliver all year 2023 cooler adjusted EBITDA in the range of 13521 $5 billion.

The mid point of this range assumes relatively flat year on year top line growth.

Despite the uncertain near term economic environment is.

Colorado mentioned during our prepared remarks this morning.

We believe that are significant backlog to start the year and Commscope next initiatives provide a strong foundation for the company to continue to grow and create value.

We've invested in driving organic growth, including capacity expansion restored our core margins in line with historical levels.

Implemented a general manager model to enhance our accountability and visibility.

Capture deficiencies throughout the organization and continue to invest in growth and innovation to fuel our future.

Ccs mix are a testament to the progress we've made in 2022, given their combined 21% year over year net sales growth and combine adjusted EBITDA improvement of $262 million.

I'd like to thank you for your interest in supporting Costco and belief in our ability to continue to drive transformative change.

Which we believe will continue to unlock significant value for our shareholders.

And with that will now open the lines for questions.

Thank you, ladies and gentlemen to ask questions you want me to pass.

And wait for your name to be announced to a giant question. Please.

One one again please.

Okay.

Now first question coming from the line.

Bank of America.

Okay.

Hi, this morning.

Good question.

The first is can you go over kind of your plans for debt reduction you gave guidance about a year ago and.

Speak about your plan and where are you on this plan.

The second is we know Capex is slowing for <unk> a for a set of survivors, which is the majority of your your target market and they are also seeing your comments about the orders what gives you the confidence that second half, it's gotta be better than the first half.

Thanks.

Okay I'll take the I'll take the first question and shopping got the second one.

You know just just as we as we start generating cash you know.

You know dealing with our debt.

We continue to be focused on delevering.

You know I think because we made as well as he sat in our prepared remarks.

Q1 is the use of cash.

As we think about the payment of our inside of plans and and the the higher interest quarter.

I think as we move through the air.

We'll finalize a tactical plan as as we start moving on to the second quarter and we continue to be committed to.

Using the cash to Delever, we don't have it unnecessarily detailed plan now, but the intent is just to continue to delevers, we generate the cash.

So I'll I'll take your second question and our confidence to to achieve.

The point you know the 13521 5 billion.

And our strength.

Saying the second half would be stronger than the first I would start by saying.

You know confidence in the 13515 is that we built in a low growth into our model.

Second thing is we have $2.9 billion a backlog.

And significant progress with comps go up next.

We have initiatives that are already and.

In place that will see the full run rate of those initiatives flowing through and twenty-three as well as new initiatives that are coming in and twenty-three and I'd close by just saying we have.

Constant conversations with our customers.

And everyone seems to be bullish medium long term they do have to get through this <unk>.

Project delays in inventory adjustments, but everybody remains bullish longer term.

Yeah, the only thing that I would comment on that as well as when we think about our guide post on EBITDA. The 135 for the one $5 billion.

We as Chuck mentioned, we we have you know sort of flattish too very little growth built into that model and in that model. We're assuming that our book to bill is going to be less than one for the year.

Actually do achieve sort of in the mid point of that range we could.

<unk> could be 0.8, and we feel comfortable that would that would still get us with him a guy posts.

Great. Thank you.

Thank you one moment.

Question.

And our next question coming from the line.

Shannon costly credit Suisse. The on line is now.

Thank you very much for taking my question Uhm get to speak with you I'm wondering you know relatives to maybe a quarter or two ago. How old are your thoughts progressing regarding all of the government funding. That's coming you know as you as you talk to some of your partners.

Do you feel like the timing is is that where you thought it would be or maybe pushed out a little bit and then I have a follow up thank you.

I would say the timing is still where we thought it would be I would I would say that we are still in the early innings, but but where it.

Constant dialogue, both at the state level and the federal level.

As bonds are starting to be allocated are already flowing.

So we think that that's actually in pretty good shape.

Okay, Great and then this with regards to working capital as do you think about cash generation this year and and maybe Ikea looks forward.

Inventory still a significant generator of working capital How're you thinking about it given the ongoing supply constraints N and timing of that coming through.

Yeah, I think he mentioned in the past clearly the supply.

Strange, particularly on the chip side <unk>.

Have resulted in our inventory levels for us.

We think about 2023.

Although we think it will be a little bit improved we feel like the <unk>.

Chip environment, there's still going to be challenged and we don't really expect to see a lot of.

Cash flow coming from a reduction in inventory I think we are.

We're not there yet based on what we're seeing from a continued supply challenges and chips, although as I said better.

Still still a bit challenged.

Okay. Thank you have a pretty conservative outlet to twenty-three given what you've done in 2002.

So I would comment on that I mean, our model is [laughter].

Thank you.

One moment. Please find next question.

And our next question coming from the lineup Steven Password Fox advisers to your line is now.

Hi, Good morning, I had two questions first of all Chuck I know you mentioned with the guidance that there's a lot of projects underway that you get the full benefit of and then new initiatives I'm. Just wondering how much further you think you could control your destiny in 2023, you should sales may be slightly disappoint.

Sort of this flattish outlook.

Given that you would also have projects that would help you in years beyond this year and then I have a follow up.

Yeah.

Feel good where we are seeing as how just mentioned you know that that 0.8, if we get the 0.8 book to Bill, which we feel pretty confident in.

Then we'll have enough backlog to kind of cover a genius adjustment period, and then as I mentioned, you know everybody pills.

Maine bullish mid to long term.

In terms of Commscope initiatives I mean, this is something we put in place you know we've been running this program now for more than a year and we're seeing the teams really starting taking.

Not to use initiatives again, but they're taken initiatives here to to find opportunities to save money to cut waste just find opportunities for growth.

And I'm really proud of where the team is and what we've dealt with this year.

I remain confident in the 135215, frankly, I thought we'd be a lot further ahead a bit.

It's just we had just a lot of disruptions.

Okay. That's helpful. And then just in terms of your own fiber cable expansion plans can you just sort of update us on where you're at has anything changed and.

And how we look at that seizes a year largest competitor in terms of impacting lead times and stuff like that.

Yeah.

I appreciate that question because I believe that the capacity that we installed and we installed earlier than everyone else allowed us to grow faster than the market I think that also has an.

Impact on book to Bill because I believe we were able to ship out a lot more of a backlog than others and and our growth.

Higher than the market and many.

And those segments.

And so.

Again, I feel good about I feel good about our diet posted and where we are.

Great. Thank you.

Thank you one moment my next question.

Next question coming from the lineup, Simon Landfalls, which payment James.

<unk>.

Thanks for taking the question I I I imagine this might be a bit sensitive, but luckily charter at announced a large network upgrade strategy back.

Back in December and I'm trying to get a good sense of how you view the opportunities and the implications and if you want to speak generically about cable trends, that's great, but loved to really gain insight on the charter impact for you guys and then I've got a quick follow up.

Yeah.

I look at as you would expect dummy wearing positive dialogue with our customers about new opportunities and new products. Obviously, we're not going to go and mentioned specific customers of products, but I would I would I would comment that as the leader in this space.

We're involved in most if not all bids.

And as the network moves more to the edge.

We're focused on maintaining our market leading position with those products.

And you think about the amplifiers in the notes the hardware as well as you are aware, we announced that we're going to support our customers whichever path. They go whether that's with remote Mac by remote five with virtual CMT S. R. E core R. E 6000, we're here to support them, which whichever way they go so.

That's all I needed.

Okay, and then I just wanted to follow up on the the performance for gross margin in December .

When you discuss segments. There are a number of segments. You you mentioned that some outperformance that may not be sustainable, but I guess, what I'm really trying to get a better sense of which of the segments really drove the sequential improvement and your gross margin for the fourth quarter versus September .

It it does look like something or some elements must have taken some pretty big jumps and I want to make sure I'm quantifying us. Thank you.

Yeah, So clearly as we.

We went through 2022 <unk>.

Quarter sequentially as we implemented our price changes to offset inflation.

And many of the businesses and improvement in EBITDA sequentially through the year.

As we think about the fourth quarter.

Performance in the next business.

Hasn't been helpful to us as that is Ah on.

Gross margin basis, that's one of our higher gross.

Gross margin.

<unk>, So I mean I think it's.

A trend of you know sort of all the businesses generating improvement through the price increases and then we clearly had a strong result in our next business, which again.

Just from a margin standpoint.

Thank you.

Thank you and our next question coming from the line.

Don't you think your line or something.

Hey, guys. Thank you for taking the questions I want to go back to backlog by my math that looks like a total backlog for the <unk> for the Corp.

It was down roughly a billion this quarter I'm just wondering if there's any additional color or you can share here just in terms of orders and backlog.

Especially for the core business and then on O WN, just curious how long you'd anticipate these depressed trends continuing and if the revenue trend here continues how would margins trends for this segment and twenty-three. Thanks.

Yes, yeah, so on the backlog side clear.

Clearly we have indicated.

The Bill was and I think as we've made comments and.

Previous calls.

We we expected.

Our backlog to come down right as we brought capacity on.

So I don't I don't I think the backlog reduction that we've seen is not something that is surprising to us and to be honest with you.

I think we would expect that to continue to come down to more normalised levels as supply chain to get better and as our capacity comes on line and our lead times improve cause.

Customers just you know they don't need to go out and get in line because our lead times are now.

Weeks, whereas.

Earlier in 2022, we were talking about multi monthly times, so I think.

That's on the backlog question. That's that's our answer there I think on the on the O. W. N side clearly, we're seeing a reduction in the in the North American carriers and that has an impact on us.

We will see that in 2003, and we will continue to monitor that as they move into 24, I think offsetting that as I think we made comments on the prepared remarks, we're aggressively going after <unk>.

New products to offset some of that as we think about.

Opportunities to increase our market share with our mosaic antenna.

Working on antenna solutions that are more energy efficient so I think even though we see some reduction in the carrier spend in North America. We also are combating that with some of the new products that we're watching.

Got it if I could just follow up real quick on sort of a normalized backlog. We obviously can follow a sort of a total corporate numbers you provided mckay, but is that sort of assumed to be like a 2 billion ish number that you were at.

At the end of 2020 before a lot of the supply chain issues began to really pick up.

At the end of 2020 are backlogs.

Was about $1.4 billion.

Just to kind of do that work for them.

That's the core business <unk>.

Okay, Great I appreciate it thank you.

Thank you one moment. Please find next question.

And then next question coming from the line up.

Marcia with Morgan Stanley .

<unk>.

Hi. Thank you. This is <unk> you have a car on for me to thank you for that question. So I just wanted to touch on the next.

Next segment, just I just wanted to get an idea of how supply chain.

Is resolving there and has it come closer to resolution and generally I appreciate sort of your good man commentary there may be a little bit of slowdown, but generally how's the pipeline looking bear and sort of how how do you expect the pipeline.

Trent across here and then I have a quick follow up thank you.

Yeah. So.

In terms of supply chain I would say that.

Things are loosening up there still the.

The one ship in some cases that were waiting for looking for but I'm very proud of our teams specifically in engineering and product management and procurement to just get ahead of the curve and just be extra quick on substitution testing.

And redesign the designer and parts that are available I would say the most encouraging piece for me and for you would be the backlog of of of mix, which is $777 million, which were really really happy about.

About and when we get parts I mean, this thing could go really well we're not seeing.

Demand of slowdown in fact in many of the places we are I mean, there's there's still.

Very strong interest in getting parts early if we have them in and tried to help them do more with with the projects. They have ongoing right now so we feel good about that that business.

Okay got it. Thank you and then just a follow up on the price increases I know just generally do some of the commodity prices have come in so are there any are you getting any pushback or a price increase is still a whole big into some of those prices have come in or any thoughts or I'm price increases.

Yeah.

In terms of price I would say let's.

Let's just talk about costs for a minute I would say our costs are pretty constant in terms of where we are I mean, we have some costs that actually have gone down we have some costs have gone up but I'd say overall, we're more more flat in terms of price.

You know we're hearing about that.

They're still price increase is going on.

Marketplace.

And we feel good about where we are with our pricing.

I don't know, if you're adding into that car.

No.

Just point I think that.

As we think about as we rode up the inflation curve, even though there are some things that are down. There is also other things that are up and I think we're still feel like a.

The level of our input costs are high and we haven't seen on a net net basis a significant change in that.

So I think are we feel like our pricing is in line with where their input costs continue to bit.

Okay got it that's helpful. Thank you from a quarter.

Thank you.

Thank you one moment. Please my next question.

Next question coming from the lineup Tim.

Capital markets your line is shopping.

Hi, Good morning, I, just wanted to add more to follow up on Simon's question a little bit.

On the <unk> front.

And without commenting specifically on.

Very large upgrade opportunities I think you mentioned an expectation for flat EBITDA margins and heinous in the year I don't know if you.

Discussed growth potential you grew double digits in Q4 cannot continue into next year, we're kind of overall growth expectations, which would give us for me. Thanks.

Yeah. Thanks, as we as we talk going back to Investor day in that business.

There's a lot of moving parts and the and the businesses that goes from head onto the edge I mean I think.

We still think that that business is you know.

A lower growth business relative to you know maybe ccf's a mix.

So I mean, we.

We don't expect.

A lot of top line growth.

And twenty-three in that business I mean, I think we feel like it probably be.

In line with.

All guys, suppose which is flat to low growth.

Thanks very much.

Thank you my Mommy since my next question.

And our next question coming from the lineup.

From I have a class.

[laughter].

Yep Thanksgiving my.

Afterwards, while.

I was hoping you could maybe spend a little bit more time talking about how you can sleep cash flow would stop and 23.

Worst of the 200 million number on 22, I think they're out of EBITDA going up by about 125 million. So do you think a lot of battles maybe you can tell it what you think influence both free cash flow number to any leads you could give him 2000 since we got so it would be really helpful. And then I hold you in queue, one being negative for all the way you outline last year that I recall that in Q2 was also.

So should we think of free cash will be more H, one negative H two positive.

And then there's any way you could quantify the numbers of 23 would be really helpful. Yeah. So on our prepared remarks, we talked about our free cash flow projection for 2003 of them before to 500 million dollar range.

You know.

Q1 will be a lower number than you know Q2, Q3, and Q4 which is.

Normal.

It's the normal trends.

Last year as we've talked about was impacted.

From some of the inventory adults driven by.

The supply chain.

Issues that we have particularly in the semiconductor chips.

Got it.

Stopped disclosure from county.

Think about the 23 EBITDA numbers that we're talking about right I think the 125, let me help uplift EBITDA over here is there a way to think about how much of that is driven by just you know.

From a segment of mixed perspective versus benefit from Commscope next I'm trying to get a sense of how much of this of self-help levels were says maybe you know.

One of the segments, which is higher module like makes me want to grow up with you is there any color on kind of self-help versus revenue driven.

Always four EBITDA growth and 22 it would be helpful.

Yeah, and I was thinking like anything it's a it's.

Okay. So it's a blend of commscope match the options that we.

Under undertaken and it's not just the ones that we're gonna do and twenty-three. It's the full year run rate of the things that we did in 22, and then I think in our Geico's we've talked about.

The fact that we've built into those guideposts from 22 to 23.

Flattish the low growth revenue within the within the within that band and.

And I think when you think about that.

Provided some contests on the call about.

R O W. N segment, there's going to be impacted by some of the carriers fan and I think we feel like some.

Some of the other businesses have better growth opportunity. So net net it's flat, but there's gonna be some businesses that are down and some that are up.

And I think when you think about.

What's being driven by Commscope match.

There's not a specific number but we should think about some of them you know some of the actions that were taken in 2000 to have taken a 22.

We are now starting to get the full impact of that which was helping the overall EBITDA number improved from 22 to 23.

Great. Thank you.

Thank you I will now turn the call back over to Mister <unk> for any closing remarks.

Well, we'd like to thank everyone for your <unk>.

Support and interest in Commscope, and Ah and I hope everyone has a great rest of the week. Thank you.

Thank you same gentleman that that can call conference for today. Thank you for your participation you may now disconnect.

The conference will begin shortly to raise and lower Yohan Julian Q&A you can dial 911.

[music], Okay [music].

The conference will begin shortly to raise and lower Yohan Julian Q&A you can dial 911.

[music].

Good morning, ladies and gentlemen, and welcome to the <unk> quarter of 2022 earnings Conference call at this time all participants.

After the speaker's presentation that will be a question and answer session to ask a question during the session.

I saw one line on your telephone.

Any an automatic message advice in your hand.

Please note that today's conference is being recorded.

I will now hand, the confidence I'll, let you speak a house.

Mcclaskey head of investigation. Please go ahead.

Good morning, and thank you for joining us today to discuss Commscope 2022 full year in fourth quarter results.

With me on today's call or Chuck Treadway, President and CEO , and <unk> Executive Vice President and CFL 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.

And posted on our website all references during today's discussion will be two are adjusted results all full year and quarterly growth rates described during today's presentation or 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 and good morning, everyone.

I will begin on slide too.

2022 was a solid year of execution against our Commscope next plan that we shared with you in December of 2021.

Plan outlined a comprehensive set of actions to streamline our business and investment profitable growth.

Despite the many challenges throughout the year substantial supply chain shortages and high inflation across many of our input costs I'm.

I'm very proud of our strong execution across our our team to deliver against our Commscope next targets.

Our ability to adapt to these challenges speaks to the success of our implemented general manager model.

And health returned core commscope to a growth trajectory and restore margins to be more in line with historical levels.

From a financial perspective for the full year 2022, consolidated Commscope net sales of $9 to $3 billion increased 7% and adjusted EBITDA of $128 billion increased 14% from the prior year.

Core Commscope delivered net sales of 752 billion, increasing 12% from the prior year.

The strong revenue and aggressive execution on our cost programs resulted in cooler adjusted EBITDA of $1 billion to $5 billion, an increase of 15% from the prior year.

Importantly, we met the high end of our Commscope next Geicos of 1152 $125 billion of core adjusted EBITDA.

Additionally, we reduced our net leverage ratio to six nine times nearly a full term of improvement from where we began the year and within the lower end of our targeted range.

Shifting to the fourth quarter consolidated net sales of $2.32 billion increased 4% and adjusted EBITDA of $376 million increased 44% from the prior year.

For court Commscope fourth quarter net sales of $193 billion increased 10% and adjusted EBITDA $381 million increased 50% from the prior year.

<unk>, just the EBITDA margin for the quarter with a healthy 20%.

And as expected our second half EBITDA led to a meaningful improvement in our cash generation as we generated $364 million in free cash flow during the fourth quarter.

Our record cooler adjusted EBITDA performance in the fourth quarter is a testament to our continued execution of our Commscope next transformation initiatives across our core portfolio, including our efforts to recover inflationary pressures through pricing initiatives and the back half of the year.

Specifically, we view the substantial growth contributed by our Ccs and mix segments as the foundation for Commscope feature.

As expected are booked to build declined in the fourth quarter. However.

However, we are in constant dialogue with our customers and expect this cost to last a couple of quarters as medium and long term fundamentals remained strong.

We believe the short term adjustment will give way to strong long term demand as the network and fiber buildout isn't early innings.

We feel to strengthen our business continues to be evidenced in our backlog.

Which for the core business ended the year at <unk> at over $2.9 billion.

For additional context over the last two years, our core backlog has grown 110%.

Our book to Bill over that time was 111 and in 2022, we delivered a full year book to Bill of 1.1.

Suffice to say our business isn't a significantly better position than we were two years ago.

With this splitting in mind as we look to 2023, we are once again reaffirming our <unk> adjusted EBITDA Guide coast of 13521 5 billion.

As indicated in our third quarter call. Our full year 2023, adjusted EBITDA range considered the potential for flat too low top line growth for the year.

And regarding pacing throughout 2023, we expect to see a stronger second half in the first half.

In addition, we expect typical seasonality project timing and customer inventory adjustments to negatively impact our first quarter of the year.

Before turning to call Kyle I would like to talk about our business position to start the new year.

As we've indicated throughout last year, we believe Ccs has strong market tailwind and that we were at the beginning of a multiyear build out of fiber cable and connectivity.

Over the past 18 months, we've aggressively invested in our internal capacity to enable commscope to take full advantage of carrier footprint expansion driving fiber deeper.

In addition, we are all well positioned to serve demand for billions of dollars and expected government subsidies to help close the digital divide.

And our innovation engine is fully engaged to deploy the products that will enable all of this to come to fruition spit.

Specifically designed to reduce installation complexity safe time and train the labor force faster.

We continue to design, our connectivity and cabling portfolio with these things in mind.

And we believe our innovations are driving strategic wins in the market.

And more recently, we've continued to demonstrate our innovation and technology leadership in the market with key participants and programs like the world Digital opportunity fund.

All set in the years to come we view, our continued technology innovations capacity investments and customer demand will drive incremental opportunity for Ccs growth.

Turning to mix, we eclipse an important milestone in the third quarter of 2022.

Driving the business to significant improvement and anchoring on a trend of profitability that we expect to continue going forward.

Again, evidenced in the $56 million of adjusted EBITDA delivered in the fourth quarter.

While chip supply constraints remain we continue to see signs of loosening in the market and expect gradual release throughout 2023.

Additionally, mixed ended the year with over $777 million backlog already representing over 80% of the revenue produced in 2022.

We also continue to invest in services and recurring software as part of the segments transformation of growth initiatives.

For the remaining core Commscope businesses.

<unk>, while they're overall growth potential they may be more muted or innovation engine isn't slowing down.

And older begin as we mentioned in the latter part of 2022, we fully contemplated a decline in the U S carrier capital spending into our overall Corps Commscope diagnose.

And while this may present headwinds for 2023 revenue and EBITDA performance in the business, we expect some level of offset driven by share gains from our new technologies. This.

This includes the mosaic antenna solution as well as opportunities to deliver lower powered passive antennas and energy cost conscious regions such as Europe .

Finishing with an S. We've discussed throughout 2022, the profitability headwinds. The segment continues to face is a higher concentration of our product revenue shifts to the edge of networks.

Yes, our strong installed base and leading technologies continue to position us as a market leader.

Just another example of our leadership was highlighted recently in our press release announcing a significant milestone of building and shipping more than 1 million amplifiers to top cable operators in 2022.

With that I will now turn the call over to Kyle to talk more about the year in the quarter.

Thank you and good morning, everyone.

I'll start with an overview of our full year 2022 financial results on slide three.

For the full year consolidated Commscope reported net sales of $9.23 billion, an increase of 7% from the prior year.

This performance was driven by growth in all core businesses with the exception of an S. And was also offset by the decline in home.

Growth in top line includes a headwind of approximately $150 million or 2% associated with the euro over a year change and FX right.

Excluding this impasse net sales grew over 9% organically.

Consolidated adjusted EBITDA $128 billion increased 14% from the prior year.

Adjusted EBITDA growth for the full year occurred across all segments with exception of Ains.

Adjusted earnings per share of $1 66 increased by 19% from the prior year.

As a result of our annual goodwill impairment testing, we recorded a 1.12 billion dollar impairment charge during the fourth quarter, which is excluded from the adjusted earnings per share calculation.

For the full year core Commscope reported net sales of $752 billion, an increase of 12% from the prior year.

Net sales growth was led by a significant year over year increase in Ccs followed by next 10 O W. N, while partially offset by a decline in inf's.

Gore adjusted EBITDA for the full year was $125 billion, an increase of 15% from the prior year and at the high end of our expected range for the full year of 2022.

Similar to net sales core adjusted EBITDA growth was driven by increases in Ccs Nicks and O W. N, while being partially offset by a decline in inf's.

Turning to our fourth quarter results on slide four.

For the fourth quarter consolidated Commscope reported net sales of $2.32 billion, an increase of 4% from the prior year net.

Net sales growth was driven by our Ccs next <unk> businesses, partially offset by declines WN and home.

For the quarter the year over year change and FX rate negatively impacted net sales by $44 million or 2%.

Excluding this impact fourth quarter net sales grew 6% organically.

Adjusted EBITDA of $376 million increased approximately 44% from the prior year, driven by the growth and Ccs and neck.

Six.

Fourth quarter adjusted earnings per share of 49 <unk>.

Increased by 58% from the prior year.

Core Commscope net sales of $1.93 billion increased 10% from the prior year driven by strength and Ccs next <unk>.

Cora adjusted EBITDA of $381 million increased 50% from prior year, driven by the strong performance and Ccs a mix.

As expected and indicated throughout the second half of 2022, we continue to work through our backlog to more manageable levels as supply chain conditions have begun to stabilise and our capacity enhancements have significantly reduced lead times.

In addition to supply chain and lead time is Chuck mentioned earlier, we saw meaningful reduction in order input at the end of the third quarter and again during the fourth quarter.

Primarily related to customers adjusting inventory levels.

We expect this to possess into the early parts of 2023.

Are short term visibility remains limited in certain products.

Our optimism for strength in the second half of 2023 and beyond is driven by constant dialogue with our customer base.

Or commscope ended the quarter with $2.9 billion in backlog of 110% above where it began 2021.

And our fastest growing businesses Ccs index are combined ending backlog for the year was $2.1 billion.

190% over the last two years however.

However, as expected the slowdown in orders during the fourth quarter yielded a fourth quarter book to Bill.

634 core Commscope.

As previously mentioned these lower order rates have been incorporated into our expectation to deliver full year 2023 core adjusted EBITDA within the range of $135 billion to $1.5 billion.

Look into the first quarter, we expect sequential net sales and adjusted EBITDA to be down more than the typical seasonal decline in the core business.

Despite the sequential decline however on a year over year basis, we would expect a significant improvement in quarter adjusted EBITDA performance.

And similar to 2022, we would expect to see a strong improvements sequentially from the first half to the second half of 2023.

Turning to our fourth quarter segment highlights on slide five.

Starting with Ccs net sales of $957 million increased 19% from the prior year.

Fourth quarter.

Growth and fiber once again drove the segment performance, increasing 40% across the entire fiber portfolio and for the full year 2022.

<unk> products group, 41%.

As indicated on our third quarter call, we saw weakness in our structure copper cable business on a year over year basis and sequential basis.

Mainly attributable to inventory bills with it within distributor channels and project delays.

Vcs adjusted EBITDA of $188 million grew 93% as the segment benefited from increased volume price and operational efficiencies.

Looking forward into 2023, we expect the business to improve on a year over year basis.

By continued market growth and a full year impact of the inflation related pricing.

Sequentially in the first quarter, we expect <unk> to be down given typical seasonality. In addition to continued inventory adjustments and the channel.

However, as mentioned earlier Ccs customer conversations remain bullish on medium and long term growth.

Despite chip constraints next net sales of $289 million grew 20% from the prior year driven by volume and price.

Next growth was once again led by rockets growing significantly year on year as well as sequentially delivering another record quarter revenue.

As Chuck mentioned were exiting the year with $777 billion, a backlog and mix.

Although improving semiconductor chip constraints will continue to impact the business in 2023.

Next adjusted EBITDA $56 million increased by $50 million from the prior year.

The strong performance is representative of the team successful execution and the challenging shifts supply environment.

All the while continuing to invest in future product offerings.

Additionally, the fourth quarter performance included one time benefits the profitability that we do not expect to occur going forward.

In addition to chip availability impacting EBITDA, we also expect to maintain a healthy level of investment and R&D.

O W. N net sales of $305 million declined 19% from the prior year.

W. N adjusted EBITDA of $41 million declined 23% from prior year, primarily driven by the decline in volume. In addition to 21 million dollar bad that charge related to one specific Oh wm customer.

As previously indicated we view the long term opportunity for OWS as having low single digit growth.

2023 presents anticipated headwinds that will position O W and top line to decline in the year.

This is primarily driven by the expected reduction to North American operator capital expenditures.

Offset to some extent with new product innovations discussed throughout the last few quarters, such as our mosaic antenna solution.

It's also important to highlight that this potential outcome has been previously contemplated that our full year 2023 core adjusted EBITDA guide posts.

And our annex business net sales of $375 million increased 15% from the prior year, primarily driven by growth and access technologies.

Adjusted EBITDA of $95 million declined approximately 2% from the prior year driven by the negative mixed impassive, operator spend shifting to the edge discussed at length in previous calls.

In addition on a sequential basis, we would not expect the same impact the project timing and higher margin product mix to benefit the segment during the first quarter.

Finishing up our segment highlights with home networks.

Net sales of $392 million declined 18% from the prior year and across both video and broadband businesses given weak demand.

Adjusted EBITDA of negative $5 million declined 12 $12 million from the prior year, primarily driven by lower volume.

While we expect home networks to be profitable for the full year 2023 performance improvements will be significantly waited to the second half of the year home will likely remain challenge with profitability during the first quarter.

Given the expectation of weak demand and customer inventory adjustments.

Turning to slide fixed for an update on cash flow.

As indicated on our prior call the fourth quarter delivered a substantial improvements in our cash flow generation.

Cash flow during the fourth quarter was driven by strong EBITDA and improving supply chain conditions that allowed us to moderate inventory growth.

We generated approximately $387 billion in cash from operations free.

Free cash flow of $364 million and adjusted free cash flow of $403 million during the fourth quarter.

As a result also indicated on prior earnings call.

This significant cash generation drove our full year.

Positive with cash from operations free cash flow and adjusted free cash flow to $190 million $89 million and $198 million respectively.

Looking forward why we expect to generate meaningful improved free cash flow for the full year 2023, how to remind you that the first quarter is historically significant use of cash to start the year.

Specifically because it is our second highest interest paying quarter and the timing of our annual incentive payouts.

As we indicated during the fourth quarter, we would expect the midpoint of our EBITDA guide codes for 2023 to deliver $4 million to $500 million or free cash flow for the year.