Q3 2023 CommScope Holding Company Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Commscope third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone you will then hear an automated message the bias in your hand is raised to withdraw your question. Please press star one again.
Please be advised today's conference is being recorded I would now like to turn the comps over to your speaker today, Massimo Disabato Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today to discuss <unk> 2023 third quarter results.
And last month, <unk>, Vice President of Investor Relations for Commscope and with me on today's call are Chuck <unk>, President and CEO, and <unk> Executive Vice President and CFO.
You can find the slides that accompany this report on our Investor Relations website.
Please note that some of our comments today will contain forward looking statements based on our current view of our business and actual future results may differ materially.
Please 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.
A few housekeeping items to review.
Today, we will discuss certain adjusted or non-GAAP financial measures.
Which are described in more detail in this morning's earnings materials.
Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website.
All references during today's discussion will be to our adjusted results.
All quarterly growth rates are described during today's presentation are on a year over year basis, unless otherwise noted.
I'll now turn the call over to our President and CEO Chuck Treadway.
Thank you Maximo and good morning, everyone I'll begin on slide two.
Commscope delivered core net sales of $135 billion in core adjusted EBITDA of $245 million for the third quarter of 2023.
Our third quarter continues to be impacted by lower customer orders driven by larger than expected customer inventory corrections customer capex reductions and the macroeconomic uncertainty.
For consolidated Commscope, which includes our home networks business, we reported net sales of $1 6 billion.
Down 33% year over year, and adjusted EBITDA of 245 $49 million down 28% year over year.
As discussed previously our Ccs and <unk> businesses have been experiencing lower order rates since the beginning of the year and we have seen no meaningful recovery in the third quarter.
In addition to the challenges we have been experiencing in TTS and OWS.
In the third quarter, we were approached by our E&S customers that they are seeing project timing slipping into next year and have more inventory than required.
The result is going to be a softer than expected rest of the year and first half of 2024 and our E&S segment.
Based on our current order rates and visibility into the fourth quarter. We are revising our 2023 core adjusted EBITDA guide close to $1 billion to $1 5 billion.
Clearly this is a disappointing development as we look over the next few quarters.
However, we continue to be bullish on our long term growth, including general market recovery government funding for connectivity and cable upgrades.
We are well positioned to take advantage of the recovery as we are a leader in each of these businesses and have invested in capacity and product development.
While we are in constant dialogue with customers about business projections and inventory levels. We continue to work with our customers to better understand true demand and the impact on our business.
As we discussed on our second quarter earnings call. We continue to manage what we can control.
We have aggressively been managing our costs and have implemented approximately $150 million of cost reduction activities in 2023.
Although we have been aggressive on cost we still feel there is an opportunity for further cost reduction.
These actions include direct material savings automation and further efficiency projects.
We are working on defining these actions and are targeting an incremental $100 million of cost reduction to be implemented by the end of the first quarter 2024.
I am proud of our team's focus on what we can control.
Despite the decline in core revenue of 32% year over year, our core adjusted EBITDA as a percentage of revenue has improved by approximately 50 basis points.
Now I'd like to give you an update on each of our businesses.
As we indicated in previous calls Ccs has strong long term market tailwind, including significant spending commitments to improve the United States broadband infrastructure. In addition to other country programs around the world.
We are well positioned to take advantage of the recovery as we have invested in capacity and has the full suite of products in place.
We are also positioned the business to meet the build America requirements for the United States government funding.
Outside of the broadband investments. We're also encouraged by developments in our building and data center portion of the Ccs business is significant momentum is occurring on the cloud and AI side of the data centers.
Also in Ccs, we've been aggressive with our cost structure.
We are looking at additional cost opportunities to drive efficiency.
We believe that there is still a substantial value that we can drive on the cost side.
However, these projects are a bit more time intensive.
An example of an area that we're focusing on is automation.
Investment in new equipment processes and systems can drive further efficiency and lower cost in this segment.
We remain bullish on Ccs is a result of the longer term market tailwind and our strong position in this market.
Ccs will recover it is.
Just a matter of timing of this recovery.
The recovery, coupled with our more efficient cost structure will drive substantial financial performance.
Turning to mix the business continues to perform very well our year to date EBITDA of $196 million is up $200 million over prior year.
Our next segment LTM adjusted EBITDA is $252 million.
We're very proud of the mix transformation.
Our ability to grow the business and leverage our cost base has created strong value in this segment.
It is a game changer for our company.
We are well positioned for continued growth as we announced two major new product offerings in the third quarter with our rocket one suite and Wi Fi <unk> Enterprise class access point product.
As we discussed previously <unk> is an AI driven cloud native platform delivering network assurance service delivery and business intelligence and a unified dashboard.
It simplifies converged network management across multi access public and private networks.
Also we have officially launched our Wi Fi seven products.
As one of the first to launch a Wi Fi seven product, we are well positioned as a first mover in the market to gain share by taking advantage of the functionality and enhancements of Wi Fi setup.
Finally in mix, we continue to invest in our go to market strategy. We believe that as a result of our channel network and knowledge of certain market segments. We can continue to increase market share by investing in products systems and resources dedicated to those market segments.
We have developed a plan and are now in the implementation phase.
In <unk> as we mentioned in previous calls we fully contemplated a decline in U S carrier capital spend however.
However, these declines are much more severe than what we had expected.
And I don't think we're alone in these sentiments.
Although carriers indicated some recovery in the second half this is not materialized.
There will be a recovery. However at this time there is limited visibility into the timing of the recovery.
Based on the lack of visibility in this segment at this moment, we would expect that 2024 will look similar to what we've seen in 2023.
Again in the OWS segment, we continue to focus on what we can control we have been aggressive in cost in this segment.
The results of our cost management have resulted in year over year flat EBITDA margins, despite a 45% decline in revenue.
In addition to cost management, we continue to develop and commercialize new products we.
We have discussed the mosaic antenna in previous calls. However, we are also developing new products in the power and steel space.
We will continue to develop new products to supplement our existing base business.
Again, similar to where we are at Ccs, we are well positioned in the market and feel like we will benefit from a market recovery.
Finishing with E&S as we have discussed this segment has made a very successful transition to a leading supplier of edge related products, including milk amplifiers and RPT RMB modules.
Although we remain a strong supplier of our legacy MTS technology, we continue to grow our edge business as we're in the early phases of the DOCSIS four <unk> upgrades.
We are well positioned to be a major player in the DOCSIS four <unk> upgrade cycle as we are the only supplier with all of the products and believe our products are the best performing.
During the recent Cte cable Tec Expo we.
We were able to demonstrate our wide product range.
This show just reconfirm the momentum behind the DOCSIS four <unk> upgrade commitment and our strong position in this market.
Many of the demonstrations by cable companies showing best in class speeds were achieved with our product backlog.
In the last 90 days, we announced our SPX product range, including collaboration with Comcast on an FDA <unk> amplifier and the launch of our virtual <unk> product that is now in customer labs.
Although we are very bullish on the four point of upgrade in the third quarter. We saw two major short term developments that will impact near term performance.
The first is inventory adjustments by our customers.
Several customers informed us that they are holding too much inventory and need to make short term adjustments to orders to rightsize their inventory.
In addition, some of our customers are experiencing slower than expected ramp on there for upgrade projects.
As a result of these two issues order rates and revenues will be negatively impacted in the next few quarters.
In summary, the markets will return we are.
We're well positioned when the markets do return and we are focusing on what we can control.
This work will put us in stronger financial position when the markets come back.
And with that I'd like to turn things over to Kyle to talk more about our third quarter results.
Thank you Chuck and good morning, everyone I'll start with an overview of our third quarter 2023 results on slide three.
For the third quarter consolidated Commscope reported net sales of $1 6 billion, a decrease of 33% from the prior year driven by declines in Ccs, <unk>, Ams and home, but partially offset by strong mix growth.
Adjusted EBITDA of $249 million decreased by 28%.
Adjusted EPS was <unk> 13 per share decreasing 74% from prior year.
We experienced lower demand in our Ccs OWS and Ams segments as customer more aggressively normalized inventory levels and manage their capital spending.
For core Commscope net sales of $135 billion.
<unk> declined 32% from the prior year and adjusted EBITDA of $245 million decreased 30%.
The adjusted EBITDA held up a bit better than our revenue as we continue to drive our cost reduction plan and we have driven favorable mix.
As we have experienced lower orders, particularly in <unk>.
Core Commscope backlog continued to decrease and ended the quarter at $155 6 billion, but a D.
Increase of 19% versus the end of Q2.
And essentially all of our businesses, we are back to normalized backlog levels.
As a result of the normalized backlogs.
Order rates are going to be the direct driver of revenue.
Turning now to our segment highlights on slide four.
Starting with Ccs net sales of $633 million decreased 37% from the prior year.
Gcs adjusted EBITDA of $79 million was a decrease of 58% from the prior year driven primarily by the drop in revenue.
The decline is more attributable to our network connectivity and cabling business than our building and data center business.
We have seen no meaningful pickup in our order rates despite indication from customers that they expected to see a stronger second half.
In addition to the weak third quarter order rates, we are seeing limited pickup in order rates in October.
Although ccs customer conversations remain bullish on medium and long term growth. The short term demand profile remains very uncertain as customers continue to manage inventory and cash.
We are also seeing some project delays as customers wait for government funding to ramp spend.
Based on current visibility, we expect to see lower revenues and EBITDA in the fourth quarter.
<unk> net sales of $289 million increased by 12%.
From a business unit perspective, ICM increased 26%.
Mix adjusted EBITDA of $63 million increased 155% from the prior year of $38 million change, primarily driven by stronger demand and operational improvements.
The next segment LTM, adjusted EBITDA was $252 million, an improvement of $250 million versus LTM a year ago.
And ruckus as we work through the supply chain constraints and release product out of backlog and order rates have declined.
This is a temporary situation as customers digest their inventory.
All of our other leading indicators point to continued strong demand for our products.
We are excited about our continued product development, particularly our ruckus, one Wi Fi seven products.
We feel that we are well positioned to continue to take share in the medium and long term.
<unk> net sales of $210 million decreased 45% from the prior year and across most business units.
Similar to Ccs customers indicated a strong second half that has not materialized.
And in this segment remained soft with very limited visibility.
Customers continue to limit new builds and are working down inflated inventories.
Although we have aggressively managed costs <unk> adjusted EBITDA of $45 million declined 45% from the prior year.
Class actions have allowed us to maintain adjusted EBITDA as a percent of sales year over year at approximately 21, 6%.
The near term outlook remains uncertain. However, we would expect the fourth quarter revenue and adjusted EBITDA will be lower than third quarter.
Based on current visibility, which is very limited as mentioned, we would expect 2024 to look similar to 2023 in this segment.
<unk> net sales of $218 million decreased 36% from the prior year due to inventory adjustment and project delays.
<unk> adjusted EBITDA of $58 million was essentially flat from the prior year, driven by lower revenue offset by cost reductions and product mix.
During the quarter several of our large customers approach us about pulling back order rates as they dealt with higher inventory levels and project delays.
This had an impact on our third quarter revenues.
Also we expect these adjustments to impact the fourth quarter and early 2024.
Despite the short term challenges AOS continues to position itself to take advantage of the DOCSIS four <unk> upgrade cycle we.
We are the only supplier that can supply all the products from amplifiers nodes modules and CMT us including virtual MTS.
As mentioned, our new <unk> product is in the lab trials with several customers.
During the recent FCT show our products were part of major service provider demonstrations on industry, leading speeds we.
We continue to win new DOCSIS, four <unk> business at major customers and are well positioned for future growth.
Finally during the quarter, we announced the divestiture of our home business to the A&P Rob we.
We feel this combination positions the business for success in a challenging market we.
We feel this is the best outcome for our customers and shareholders.
Our owner ship position in Vancouver will allow us to take advantage of the combined scale of the two businesses as well as the substantial synergies the combination will deliver.
We look forward to working with the MTA management to close the transaction in late 2023 or early 2024.
Home net sales were $249 million declining 36% from the prior year essentially across all business units driven by customer inventory adjustments and lower demand.
Home adjusted EBITDA of $3 million improved from negative $5 million versus prior year as a result of cost savings efforts.
Turning to slide five for an update on cash flow.
During the quarter, we generated cash from operations of $139 million.
We continue to reduce inventory driven by a decline in revenue as well as improved management of inventory.
As previously discussed we are still holding excess inventory driven by the supply chain constraints in 2021 and 2022, we are just beginning to unlock some of this value as.
As revenue declines.
Our ability to monetize despite.
Despite the revenue and EBIT with challenges we are revising our range for 2023, adjusted free cash flow to $300 million to $350 million.
Turning to slide six for an update on our liquidity and capital structure.
During the third quarter, our cash and liquidity remains strong we ended the quarter with $519 million in global cash and total available cash and liquidity of over $1 two 9 billion.
During the quarter, we increased our cash balance by $101 million, we did not draw on our ABL revolver during the third quarter and therefore ended the quarter with no outstanding balance.
In the third quarter, we continued to execute our debt buyback program and repurchased $26 million of our long term debt for cash consideration of $17 million.
To add more detail, we repurchased $25 million of the eight 5% senior notes due 2027 and $1 million of the seven 125% senior notes due 2028.
Since the beginning of the year, we have repurchased $111 million of debt.
During the quarter, we also pay the required $8 million of term loan amortization.
The company ended the quarter with net leverage ratio of six seven times.
Going forward, we intend to use cash opportunistically to buy back securities across the breadth of our capital structure.
I'll now turning to slide seven where I will conclude my prepared remarks with some commentary around our expectations for the remainder of 2023.
As discussed the external environment remains very uncertain as evidenced by our downward guide post revision.
We remind you of our positioning of our guide posts over the.
Last few quarters.
As you can recall in our Q1 earnings we indicated customers signaled to a strong recovery in the second half.
On our second quarter call, our guidepost assumed a modest recovery in the second half orders.
Florida now our customers are indicating no rebound in orders for Q4.
Although customers were indicating a recovery in the second half. This has not materialized. In addition, we have experienced the large unforeseen short term adjustment with Ams customers.
As evidenced across most of our markets and competitors, we are passive telecom cable and hardware recession the.
The challenge with the current position is the lack of visibility.
Even despite some visibility into customer inventories customer short term build plans remain uncertain.
We are still very bullish on medium and long term growth. However, short term challenges are significant.
We have reduced our 2023 core adjusted EBITDA guidance to one to $1 <unk> 5 billion.
Although we are not giving specifics our current view on 2024 is that it looks similar to 2023. However, this would indicate some recovery from current demand levels.
As Chuck mentioned, we continue to evaluate our cost structure, including accelerating certain commscope next efficiency initiatives, although we have implemented approximately $150 million on operating expense reductions since the beginning of the year, we are still evaluating additional actions.
As we have gone through this exercise we are excited with the opportunities we have found and implemented.
Upon recovery of the demand, we should be well positioned to drive strong profitable performance.
Finally, I'd like to address our capital structure and specifically our upcoming maturities.
We currently have several alternatives that could potentially be used to address the upcoming maturities, including but not limited to <unk>.
Cash on hand, ABL availability, our senior secured debt incurrence basket and proceeds from asset sales for today's call. We will not be making further comment with respect to our capital structure. However, we will provide updates as appropriate as we continue to evaluate these alternatives.
And with that I'd like to give the floor back to Chuck for some closing remarks.
Thank you Kyle.
We are faced with some significant challenges as many of our markets have not cooperated and the visibility to the timing of the recovery is limited.
The recovery in the second half has not materialized.
We are not alone as this industry is facing similar challenges.
Although we continue to manage what we can control and aggressively managed cost it is not enough to offset a 32% decline in core revenue.
We do remain bullish on the recovery. It is just a matter of timing.
We are well positioned for the expected recovery and we are a leader in most of our segments and have invested in future growth with capacity and new products.
Based on the actions, we're taking in the current environment to drive efficiency in the markets do recover we are well positioned to drive significantly improved financial performance.
In addition, we will continue to work on near term capital structure, including asset sales and opportunistic transactions.
With that we'll now open the line for questions.
Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered which remove yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Yes.
Okay.
Yeah.
Sure.
Our first question comes from Simon Leopold of Raymond James Your line is open.
Great. Thank you very much for taking the question.
I wanted to unpack.
<unk> segment, a little bit here in that.
With the upgrades that operators have announced it seems as if demand for amplifiers will be particularly strong. So I think at a high level. It sounds like you expect improvement by the second half of 'twenty four what I'm trying to get a better understanding it's a little bit of insight into the composition of the E&S segment.
<unk> now and in the future.
Basically how material or amplifiers to that business and then I've got a quick follow up.
Okay. So I will start out by saying that we feel really good about where we are with the Ams business to unpack it a little bit do you think I mean, we have our traditional legacy product lines, which are still out there.
We also at the show we introduced a DOCSIS three one extended.
Seeing a lot of interest to that obviously, we haven't made any sales there, but this gives a lot of opportunity to go a lot faster with higher speeds without a massive upgrade.
Additionally, we really turned and pivoted to where the market was going.
And we are supporting our customers whichever way. They go so with that we were able as you know we launched the <unk> amplifier with with Comcast. We also have the ESD option as well and I would say the amplifier portion of our business is significant.
But in addition to that we also have the <unk> and R&D.
Again, whatever choice the customer decides to go we're there to support them.
Yeah.
Along with notes and and our virtual <unk>, which is now allows with other customers.
So I would say that our amplifier business as significant I am not going to give you. The exact details of the size of that but I would say, it's a significant part of our business and we feel like we are the leading we're the leading supplier on the edge.
Going forward.
Great and then just as a follow up.
Within the next market the campus wireless Lan and switching market.
A number of the third party market researchers are calling for that market to decline in 2024 after sort of the supply chain strength exhibited in 2023 and I get the fact, you're not beholden to the market is a relatively small player but could you help us understand your confidence.
In that particular segment for 2024.
Yes.
I think we're not alone I think a lot of people are calling out mid single digit growth going forward.
And we believe that as well.
We are seeing we are seeing lower order rates right now, but it's really about the higher distribution inventories, we released a lot of backlog and the distributors are now digesting this inventory.
Monitor a lot of our leading indicators in the business, specifically funnel and when we win a project it's closed slash one and.
And we're monitoring that and we see that coming in which gives us a really good insight on the future and where we are and that's why we feel the confidence in the.
In the mid single digits plus growth going forward.
Thank you.
One of them.
Question.
Our next question comes from meta Marshall with Morgan Stanley. Your line is open.
Great. Thanks.
Maybe first question when you talk about 2024 looking similar to 2023 is that on kind of Q3 run rates or just the quantum as a whole and then.
The second question for me just maybe upfront.
I know Simon just kind of asked about the next business, but just kind of how are you seeing the overall.
Health of the environment kind of beyond backlog release, and kind of strengths that you are finding with the new portfolio. Thanks.
Yes.
Let me, let me deal with the 24 question I think when we say.
24, looking a lot like <unk>.
<unk> three I think we're referencing sort of the full year look.
And I think in our prepared remarks, we talked about in order to get there we are going to have to see some recovery in order rates from where we're sitting today in Q3 and Q4.
So that would sort of indicate at least some some level of recovery in the second half.
And then to answer your other part of your question on the mix business.
A few parts to that business, but think about the das and are part of our business. We actually one of the first five players there with an open ran architecture. So we feel really good about that and where that's going also with private private networks on that side of our business on the Wi Fi side of our business I mean, we.
Launched Wi Fi Wi Fi seven.
Ruckus, one network as a service, but what's really helping us win and why I believe we were growing in the market as our dedication to vertical markets.
We specifically target the market, we really understand to go real deep into that market.
We developed specific products or attributes for that marketplace, we train our salespeople in those areas and our value added resellers and we're really pushing I believe and what we're seeing is as we've invested in salespeople in these specific verticals, we're getting the returns from our investments. So we feel confident about where we are in the other.
Thing Thats, helping us is where we're really small player in the Grand scheme of things.
In terms of market share. So we don't really look at where the market is going but where our technology and where our vertical markets and investments specifically to go gain share.
Alright, thank you.
Yes.
One moment for our next question.
Our next question comes from Tal Leone with Bank of America. Your line is open.
Hi, guys.
Two questions.
First one on M&A, when you talked to harmonic they're taking they're talking about different architectures in the markets, where they are ahead of you and they're taking share and I do see announcements of cable companies their way.
Can you talk about your competitive position in the E&S space the migration to distributed.
CMT.
And where you are in the on the technology front. The next question is more about the balance sheet.
Last quarter, you told US you are going to give us an update this quarter on how you intend to restructure and it seems like you are not giving US an update now you don't want to discuss it.
What changed like why don't we get an update on <unk>.
What can you do in order to.
Pay down that 2025 debt. Thanks.
Yes, let me I'll deal with the last part of your question.
So I think in our prepared remarks.
<unk> referenced several alternatives that we have to deal with the capital structure.
In the near term maturities.
<unk>.
We can we're continuing to work through that.
And when we have an update.
We'll let people know at this point in time, we're continuing to work through that.
To address your other question on E&S.
I'd say, we have a very strong position in the marketplace.
Today because of our legacy position.
As I was sharing with Simon.
Based on Simon's question talking about our DOCSIS three <unk>.
$3, one E where customers want to get.
Symmetrical one gig plus speeds.
If they haven't upgraded product with US Gen two product with software they can get those speeds without a major investment and we are seeing interest in that and that legacy position not only helps us to upgrade our existing footprint, but it also allows us to really understand the customers network. So when you think about virtual <unk>.
And as I shared with you in my prepared remarks, we're in several customer labs, because of our understanding of their software and how their network because of the understanding of how their network works and our software that we have in our <unk> that puts us in a really good position to be able to transition to a virtual or virtual or at edge.
CMT us so we feel good about that additionally on the DAA side.
We pivoted to where the customer was going which was more of a remote phy solution, but we also are supporting our customers that want to go remote Mac phy.
And as we were at Cte.
Our customers there was a lot of appreciation for our ability to support them whichever way they want to go.
And we're going to continue to support our customers.
And whatever path they choose to take.
Great. Thank you.
One moment for our next question.
Our next question comes from George Notter with Jefferies. Your line is open.
Hi, guys, thanks very much.
I was interested in asking about.
Supply chain input costs.
Obviously, it's a big part of the cost of goods here in the company the economy is slowing.
Youre starting to see some supply chain input cost relief I think.
I know, it's a pretty big number in the context of your overall Cogs I'm wondering if it's.
The tailwind in the business right now and then so if you could talk about that that would be great. And then also I'd be curious about what you've assumed in terms of supply chain input costs.
In terms of your guidance for a similar 2024.
Yes, so on the on the input cost side.
I think it's.
A little bit of a mixed bag relative to what we are saying I mean, theres definitely some inputs that are coming down.
And there's other inputs.
We're actually seeing some increases.
I think just in general how.
How you should think about it is if we go back to where we were two years ago. Our input costs are still remain higher than where we were back then.
I think as we think about the 2000 and as we move into 2024 I don't think we I don't think we expect to see major changes there or at least in any modeling we would be doing.
I think as we've talked about before.
For us, it's really trying to manage the margins.
And how the pricing versus the input cost impact margin. So I think.
It's a mixed bag I think we're definitely still higher than where we were its definitely still inflated we are seeing some relief.
But not to the levels that we saw.
Sort of pre supply chain challenges.
Got it and then you mentioned price I mean any opportunity to.
I tried to go after some more price in the marketplace to try to improve the sort of margin and EBITDA situation here.
I think we're competitively priced at this point.
So I wouldn't be we're not seeing we're not seeing much price pressure pressure. So what I would say right now we're just seeing prices hold right now.
Got it okay. Thank you.
One moment for our next question.
Our next question comes from Sami <unk> with Jpmorgan. Your line is open.
Hi, Thanks for the question guys. This is Joe Cardoso on for <unk>. So.
Just one question from me.
Some of your peers in the space have highlighted recent headwinds in the form of enhanced a cam program given participation would exclude customers from participating in deed curious if youre seeing any of that in your customer base and if so any way you can characterize how much of your customer base would be eligible to participate in enhanced <unk>.
And Cam program, just trying to get a sense of the potential.
Impact and exposure there thanks.
Can you can you restate the question I didn't catch I didn't I didn't understand the term used in the beginning.
Yes.
The ATM program is essentially.
An extension of the original a cam program with investments to service provider customers, where essentially they can.
Essentially they participate in that instead of.
The beat funding and essentially what that is.
And tells us that the spending would be tranche down as opposed to seeing the funding all upfront for bead. So therefore, our customers are taking a pause and deciding if they want to participate in that or indeed, I don't know if you guys have any experience.
Think the way we would answer that is.
We're understanding the requirements would be we're working with our customers. There's lots of permutations that we see relative to the funding and the programs.
The way that I would think about it as we're in constant dialogue with the customers about what they can do and what we can do.
I think thats for us Thats still unfolding and we don't we don't have any specifics around that right now.
The other comment I would add to that is <unk> is the largest program at $42 5 billion.
The states are going to start getting awarded that business in the first half of 'twenty four.
We will see we will see a small revenue impact from that in 'twenty four but the large ramp of that as expected more in 2025.
Got it thanks for the color guys.
Thank you.
One moment for our next question.
Our next question comes from Matt <unk> with Deutsche Bank. Your line is open.
Hey, guys. Thank you for taking the question just two if I could first on visibility.
I'm, just wondering maybe Chuck or Kyle is the commentary.
Burying it all across.
Ccs OWS.
Or is it fairly uniform in terms of everybody pausing.
At a minimum through the middle of next year.
And then secondarily on asset sales you referenced that as a potential option something you maybe evaluating I know theres been some press reports out there just wondering if theres any additional color you can offer up in terms of what pieces of the business.
Could potentially be monetized.
Okay. So I'll take the first part of the question.
I think as we as we think about visibility across the business segments.
Thank you.
Where we have the lowest level of visibility is in the Ccs and OWS business.
And I think.
Although we are in constant dialogue with our customers.
Trying to get a true understanding of their build plan.
I think it's challenging at this point in time and I think.
We're not alone in that in that position.
I think on the E&S side of the business.
We're talking to the major customers and some of the challenges that we see now we believer are short term in nature as they adjust their inventory levels.
And then I think we've talked about mix were.
Yes, I mean, we pushed a lot of Prada.
Product into the channel partners as we released some backlog.
There are digesting that.
We're seeing a little bit lower order rates, but again in that business.
A lot of our business is going through channel partners and we have a lot of leading metrics that look at what the funnels are and what what we're winning ahead of actually shipping the product and I think we feel that.
Again, as we as we move into 'twenty four.
We have some visibility into that so I think <unk>.
<unk> and OWS I think or the.
Probably the places that we have the most challenges with the visibility.
The second part of your question.
I mean, we're really not going to comment on that.
I think we've.
We have.
We have identified.
That asset sales are a possibility for us to deal with the capital structure.
I think that's at this point in time, that's all we're going to we're going to we're going to say.
Thank you.
One moment for our next question.
Our next question comes from Steven Fox with Fox Advisors. Your line is open.
Hi, Good morning. After what you just said Chuck this might be an unfair question, but I was just curious if theres any way on the Ccs an owned business to disaggregate the inventory correction from the actual cycle.
Just and maybe compare sort of cyclical challenges to prior cycles, especially given what seems like.
Over enthusiasm for like government funding that is intact.
Yes, I would say.
What we're really learning is is.
There was obviously an overbuy similar to what we saw in the rest of the economy.
Related to Covid, we're trying to get that.
Understood about in terms of percentage.
You really asked us a ballpark of it it could be a 20% ish type number.
And what we're what we've been working with our customers and I've had personal personal visits in their offices in all the major customers, where we're talking with them about we want to be a better supplier to you. When this thing turns back on because it will turn back on and we need help understanding the specific.
Skus that youre going to be buying that because I can't I can't produce dollars I have to produce skus. So we've been working a lot with them and understanding their inventory that they have on hand and understanding what they what they think they're going to need in their build plans, but we needed at the next level of detail and our teams are working together to do that and I feel.
<unk> that we're going to be a better supplier.
And that relationship is going to help us going forward.
And just to be clear youre, saying, a 20% inventory over by is that what the 20% was referring to that's a ballpark Steven if I had to say what I think yes.
Okay. Thank you.
And I'm not showing any further questions at this time I would like to turn the call back over to Chuck tried way for any closing remarks.
Yes, so I'd like to thank everyone for their support of Commscope.
And for your time today I'd like everyone wish everyone a very good week. Thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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Good day, and thank you for standing by and welcome to the Commscope third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the especially the press star one on your telephone you will then hear an automated message the bias on your hand is raised to withdraw your question. Please press star one again, please be advised.
Today's conference is being recorded I would now like turn the conference over to your Speaker today, Massimo Disabato Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today to discuss Commscope is 2023 third quarter results.
Last month, <unk>, Vice President of Investor Relations for Commscope and with me on today's call are Chuck <unk>, President and CEO.
And Cal 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 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 review.
Today, we will discuss certain adjusted or non-GAAP financial measures.
Which are described in more detail in this morning's earnings materials.
Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website.
All references during today's discussion will be to our adjusted results.
All quarterly growth rates are described during today's presentation are on a year over year basis, unless otherwise noted.
I'll now turn the call over to our President and CEO Chuck Treadway.
Thank you Maximo and good morning, everyone I'll begin on slide two.
Commscope delivered core net sales of 1.35 billion.
<unk> adjusted EBITDA of $245 million for the third quarter of 2023.
Our third quarter continues to be impacted by lower customer orders driven by larger than expected customer inventory corrections.
<unk> capex reductions and the macroeconomic uncertainty.
For consolidated Commscope, which includes our home networks business, we reported net sales of $1 6 billion down.
Down 33% year over year, and adjusted EBITDA of 245 $49 million.
Down 28% year over year.
As discussed previously our Ccs and <unk> businesses have been experiencing lower order rates since the beginning of the year and we have seen no meaningful recovery in the third quarter.
In addition to the challenges we have been experiencing in TTS and OWS.
In the third quarter, we were approached by our E&S customers that they are seeing project timing slipping into next year and have more inventory than required.
The result is going to be a softer than expected rest of the year and first half of 2024 and our E&S segment.
Based on our current order rates and visibility into the fourth quarter. We are revising our 2023 core adjusted EBITDA guide close to $1 billion to $105 billion.
Clearly this is a disappointing development as we look over the next few quarters.
However, we continue to be bullish on our long term growth, including general market recovery government funding for connectivity and cable upgrades.
We are well positioned to take advantage of the recovery as we are a leader in each of these businesses and have invested in capacity and product development.
While we are in constant dialogue with customers about business projections and inventory levels. We continue to work with our customers to better understand true demand and the impact on our business.
As we discussed on our second quarter earnings call. We continue to manage what we can control.
We have aggressively been managing our costs and have implemented approximately $150 million of cost.
Reduction activities in 2023.
Although we have been aggressive on cost we still feel there is an opportunity for further cost reduction.
These actions include direct material savings automation and further efficiency projects.
We are working on defining these actions and are targeting an incremental $100 million of cost reduction to be implemented by the end of the first quarter 2024.
I am proud of our team's focus on what we can control.
Despite the decline in core revenue of 32% year over year, our core adjusted EBITDA as a percentage of revenue has improved by approximately 50 basis points.
Now I'd like to give you an update on each of our businesses.
As we indicated in previous calls GTS has strong long term market tailwind, including significant spending commitments to improve the United States broadband infrastructure. In addition to other country programs around the world.
We are well positioned to take advantage of the recovery as we have invested in capacity and has the full suite of products in place.
We are also positioning the business to meet.
The build America requirements for the United States government funding.
Outside of the broadband investments. We're also encouraged by developments in our building and data center portion of the Ccs business is significant momentum is occurring on the cloud and AI side of the data centers.
Also in Ccs, we've been aggressive with our cost structure.
We are looking at additional cost opportunities to drive efficiency.
We believe that there is still a substantial value that we can drive on the cost side.
However, these projects are a bit more time intensive.
An example of an area that we're focusing on is automation.
Investment in new equipment processes and systems can drive further efficiency and lower cost in this segment.
We remain bullish on Ccs is a result of the longer term market tailwind and our strong position in this market.
Ccs will recover it is just a matter of timing of this recovery.
The recovery, coupled with a more efficient cost structure will drive substantial financial performance.
Turning to mix the business continues to perform very well our year to date EBITDA of $196 million.
Is up $200 million over prior year.
The next segment LTM adjusted EBITDA is $252 million.
We're very proud of the mixed transformation.
Our ability to grow the business and leverage our cost base has created strong value in this segment.
It is the game changer for our company.
We are well positioned for continued growth as we announced two major new product offerings in the third quarter with our rocket one suite and Wi Fi seven enterprise class access point product.
As we discussed previously what this one is an AI driven cloud native platform delivering network assurance service delivery and business intelligence and a unified dashboard.
It simplifies converged network management across multi access public and private networks.
Also we have officially launched our Wi Fi seven products.
One of the first to launch a Wi Fi seven product, we are well positioned as a first mover in the market to gain share by taking advantage of the functionality and enhancements of Wi Fi setup.
Finally in mix, we continue to invest in our go to market strategy. We believe that as a result of our channel network and knowledge of certain market segments. We can continue to increase market share by investing in products systems and resources dedicated to those market segments.
We have developed a plan and are now in the implementation phase.
In <unk> as we mentioned in previous calls we fully contemplated the decline in U S carrier capital spend.
However, these declines are much more severe than what we had expected.
I don't think we're alone and these sentiments.
Although carriers indicated some recovery in the second half this is not materialized.
There will be a recovery. However at this time there is limited visibility into the timing of the recovery.
Based on the lack of visibility in this segment at this moment, we would expect that 2024 will look similar to what we've seen in 2023.
Again in the <unk> segment, we continue to focus on what we can control.
We have been aggressive in cost in this segment.
The results of our cost management have resulted in year over year flat EBITDA margins, despite a 45% decline in revenue.
In addition to cost management, we continue to develop and commercialize new products. We have discussed the mosaic antenna in previous calls.
However, we are also developing new products in the power and steel space.
We will continue to develop new products to supplement our existing base business.
Again, similar to where we are at Ccs, we are well positioned in the market and feel like we will benefit from a market recovery.
Finishing with E&S as we have discussed this segment has made a very successful transition to a leading supplier of edge related products, including milk amplifiers and RPT RMB modules.
Although we remain a strong supplier of our legacy MTS technology, we continue to grow our edge business as we are in the early phases of the DOCSIS four <unk> upgrades.
We are well positioned to be a major player in the DOCSIS four <unk> upgrade cycle as we are the only supplier with all of the products and believe our products are the best performing.
During the recent Cte cable Tec Expo.
We were able to demonstrate our wide product range.
This show just reconfirm the momentum behind the DOCSIS four <unk> upgrade commitment and our strong position in this market.
Many of the demonstrations by cable companies showing best in class speeds were achieved with our product backlog.
In the last 90 days, we announced our SPX product range, including collaboration with Comcast on an <unk> amplifier and the launch of our virtual <unk> product that is now in customer labs.
Although we are very bullish on the four upgrade in the third quarter. We saw two major short term developments that will impact near term performance.
The first is inventory adjustments by our customers.
Several customers informed us that they are holding too much inventory and need to make short term adjustments to orders to rightsize their inventory.
In addition, some of our customers are experiencing slower than expected ramp on their portfolio upgrade projects.
As a result of these two issues order rates and revenues will be negatively impacted in the next few quarters.
In summary, the markets will return we are well positioned when the markets do return and we are focusing on what we can control.
This work will put us in stronger financial position when the markets come back.
And with that I'd like to turn things over to Kyle to talk more about our third quarter results.
Thank you Chuck and good morning, everyone I'll start with an overview of our third quarter 2023 results on slide three.
For the third quarter consolidated Commscope reported net sales of $1 6 billion a decrease of 33% from the prior year driven by declines in Ccs, Hello, Wm, NFS and home, but partially offset by strong mix growth.
Adjusted EBITDA of $249 million decreased by 28%.
Adjusted EPS was <unk> 13 per share decreasing 74% from prior year.
We experienced lower demand in our Ccs OWS and Ams segments as customers more aggressively normalized inventory levels and manage their capital spending.
For core Commscope net sales of $135 billion.
Declined 32% from the prior year and adjusted EBITDA of $245 million decreased 30%.
The adjusted EBITDA held up a bit better than our revenue as we continue to drive our cost reduction plan and we have driven favorable mix.
As we have experienced lower orders, particularly in Ccs OWS.
Core Commscope backlog continued to decrease and ended the quarter at one five to $5 6 billion.
But a decrease of 19% versus the end of Q2.
And essentially all of our businesses, we are back to normalized backlog levels as.
As a result of the normalized backlogs.
Order rates are going to be the direct driver of revenue.
Turning now to our segment highlights on slide four.
Starting with Ccs net sales of $633 million decreased 37% from the prior year.
Gcs adjusted EBITDA of $79 million was a decrease of 58% from the prior year driven primarily by the drop in revenue.
The decline is more attributable to our network connectivity and cabling business than our building and data center business.
We have seen no meaningful pickup in our order rates despite indication from customers that they expected to see a stronger second half.
In addition to the weak third quarter order rates, we have seen limited pickup in order rates in October.
Although ccs customer conversations remain bullish on medium and long term growth. The short term demand profile remains very uncertain as customers continue to manage inventory and cash.
We are also seeing some project delays as customers wait for government funding to ramp spend.
Based on current visibility, we expect to see lower revenues and EBITDA in the fourth quarter.
<unk> net sales of $289 million increased by 12%.
From a business unit perspective, Ics increased 26%.
Mix adjusted EBITDA of $63 million increased to 155% from the prior year of $38 million change, primarily driven by stronger demand and operational improvements.
The next segment LTM, adjusted EBITDA was $252 million, an improvement of $250 million versus LTM a year ago.
And rockets as we work these supply chain constraints and release product out of backlog and order rates have declined.
This is a temporary situation as customers digest their inventory.
All of our other leading indicators point to continued strong demand for our products.
We are excited about our continued product development, particularly our ruckus, one and Wi Fi seven products.
We feel that we are well positioned to continue to take share in the medium and long term.
<unk> net sales of $210 million decreased 45% from the prior year and across most business units.
Similar to Ccs customers indicated a strong second half that has not materialized.
And in this segment remained soft with very limited visibility.
Customers continue to limit new builds and are working down inflated inventories.
Although we are aggressively managed costs <unk> <unk> and adjusted EBITDA of $45 million declined 45% from the prior year.
Class actions have allowed us to maintain adjusted EBITDA as a percent of sales.
Year over year at approximately 21, 6%.
The near term outlook remains uncertain. However, we would expect the fourth quarter revenue and adjusted EBITDA would be lower than third quarter.
Based on current visibility, which is very limited as mentioned, we would expect 2024 to look similar to 2023 in this segment.
<unk> net sales of $218 million decreased 36% from the prior year due to inventory adjustment and project delays.
<unk> adjusted EBITDA of $58 million was essentially flat from the prior year, driven by lower revenue offset by cost reductions and product mix.
During the quarter several of our large customers approach us about pulling back order rates as they dealt with higher inventory levels and project delays.
It's had an impact on our third quarter revenues.
Also we expect these adjustments to impact the fourth quarter and early 2024.
Despite the short term challenges.
<unk> continues to position itself to take advantage of the DOCSIS four <unk> upgrade cycle we.
We are the only supplier that can supply all the products from amplifiers nodes modules, MTM TFS, including virtual <unk> MTS.
As mentioned, our new <unk> product is in the lab trials with several customers.
During the recent FCT show our products were part of major service provider demonstrations on industry, leading speeds we.
We continue to win new DOCSIS four point out business at major customers and are well positioned for future growth.
Finally during the quarter, we announced the divestiture of our home business to Vancouver, we.
We feel this combination positions the business for success in a challenging market we.
We feel this is the best outcome for our customers and shareholders.
Our owner ship position in Rand Teva will allow us to take advantage of the combined scale of the two businesses as well as the substantial synergies the combination will deliver.
We look forward to working with <unk> management to close the transaction in late 2023 or early 2024.
Home net sales were $249 million.
Mining, 36% from the prior year essentially across all business units driven by customer inventory adjustments and lower demand.
Home adjusted EBITDA of $3 million to improve from negative $5 million versus prior year as a result of cost saving efforts.
Turning to slide five for an update on cash flow.
During the quarter, we generated cash from operations of $139 million.
We continue to reduce inventory driven by a decline in revenue as well as improved management of inventory as previously.
As Lee discussed we are still holding excess inventory driven by the supply chain constraints in 2021 and 2022, we are just beginning to unlock some of this value as.
As revenue declines.
Our ability to monetize despite the revenue.
Revenue and EBIT with challenges, we are revising our range for 2023, adjusted free cash flow to $300 to $350 million.
Turning to slide six for an update on our liquidity and capital structure.
During the third quarter, our cash and liquidity remains strong we ended the quarter with $519 million in global cash and total available cash and liquidity of over $1 two 9 billion.
During the quarter, we increased our cash balance by $101 million, we did not draw on our ABL revolver during the third quarter and therefore ended the quarter with no outstanding balance.
In the third quarter, we continued to execute our debt buyback program and repurchased $26 million of our long term debt for cash consideration of $17 million.
To add more detail, we repurchased $25 million of the 825% senior notes due 2027 and $1 million of the seven 1% to 5% senior notes due 2028.
Since the beginning of the year, we have repurchased $111 million of debt.
During the quarter, we also pay the required $8 million of term loan amortization.
The company ended the quarter with net leverage ratio of six seven times.
Going forward, we intend to use cash opportunistically to buy back securities across the breadth of our capital structure.
I'll now turning to slide seven where I will conclude my prepared remarks with some commentary around our expectations for the remainder of 2023.
As discussed the external environment remains very uncertain as evidenced by our downward guideposts revision.
We remind you of our positioning of our guide posts over the.
Last few quarters.
As you can recall in our Q1 earnings we indicated customers signaled to a strong recovery in the second half.
On our second quarter call, our guidepost assumed a modest recovery in the second half orders.
Florida now our customers are indicating no rebound in orders for Q4.
Although customers were indicating a recovery in the second half. This has not materialized. In addition, we have experienced the large unforeseen short term adjustment with ians customers.
As evidenced across most of our markets and competitors, we are passive telecom cable and hardware recession the.
The challenge with the current position is the lack of visibility.
Even despite some visibility into customer inventories customer short term build plans remain uncertain.
We are still very bullish on medium and long term growth. However, short term challenges are significant.
We have reduced our 2023 core adjusted EBITDA guidance to one to $1 5 billion.
Although we are not giving specifics our current view on 2024 is that it looks similar to 2023. However, this would indicate some recovery from current demand levels.
As Chuck mentioned, we continue to evaluate our cost structure, including accelerating certain commscope next efficiency initiatives, although we have implemented approximately $150 million on operating expense reduction since the beginning of the year, we are still evaluating additional actions.
As we have gone through this exercise we are excited with the opportunities we have found and implemented upon recovery of the demand, we should be well positioned to drive strong profitable performance.
Finally, I'd like to address our capital structure and specifically our upcoming maturities.
We currently have several alternatives that could potentially be used to address the upcoming debt maturities, including but not limited to.
Cash on hand, ABL availability, our senior secured debt incurrence basket and proceeds from asset sales for today's call. We will not be making further comments with respect to our capital structure. However, we will provide updates as appropriate as we continue to evaluate these alternatives.
And with that I'd like to give the floor back to Chuck for some closing remarks.
Thank you Kyle.
We are faced with some significant challenges as many of our markets have not cooperated and the visibility to the timing of the recovery is limited.
The recovery in the second half has not materialized.
We are not alone as this industry is facing similar challenges.
Although we continue to manage what we can control and aggressively manage cost.
Not enough to offset a 32% decline in core revenue.
We do remain bullish on the recovery. It is just a matter of timing.
We are well positioned for the expected recovery and we are a leader in most of our segments and have invested in future growth with capacity and new products.
Just on the actions we have taken in the current environment to drive efficiency in the markets do recover we are well positioned to drive significantly improved financial performance.
In addition, we will continue to work on near term capital structure, including asset sales and opportunistic transactions.
And with that we'll now open the line for questions.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
This has been answered or wishing move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Simon Leopold of Raymond James Your line is open.
Great. Thank you very much for taking the question I wanted to unpack.
<unk> segment, a little bit here in that.
With the upgrades that operators have announced it seems as if demand for amplifiers will be particularly strong. So I think at a high level. It sounds like you expect improvement by the second half of 'twenty four what I'm trying to get a better understanding it's a little bit of insight into the composition of of VNS segue.
Now and in the future.
Basically how material or amplifiers to that business and then I've got a quick follow up.
Okay, So I'll start out by saying that.
We feel really good about where we are with the E&S business.
Unpack it a little bit do you think I mean, we have our traditional legacy product lines, which are still out there.
We also at the show we introduced.
DOCSIS three one extended.
We're seeing a lot of interest to that obviously, we haven't made any sales there, but this gives a lot of opportunity to go a lot faster with higher speeds without a massive upgrade.
Additionally, we really turned and pivoted to where the market was going.
And we are supporting our customers whichever way. They go so with this we were able as you know we launched the mdx amplifier with with Comcast. We also have the ESD option as well and I would say the amplifier portion of our business is significant.
But in addition to that we also have the <unk> and R&D.
Again, whatever choice the customer decides to go we're there to support them.
Along.
Along with notes.
And our virtual <unk>, which is now in labs with other customers.
So I would say that our amplifier business as significant I am not going to give you. The exact details of the size of that but I would say, it's a significant part of our business and we feel like we are the leading we're the leading supplier on the edge.
Going forward.
Great and then just as a follow up.
Within the next market the campus wireless Lan and switching market at.
A number of the third party market researchers are calling for that market to decline in 2024 after sort of the supply chain strength exhibited in 2023 and I get the fact youre not beholding to the market is a relatively small player but could you help us understand your confidence.
In that particular segment for 2024.
Yes, I think we're not alone I think a lot of people are calling up mid single digit growth going forward.
And we believe that as well.
We are seeing we are seeing lower order rates right now, but it's really about the higher distribution inventories, we released a lot of backlog and the distributors are now digesting this inventory.
We monitor a lot of our leading indicators in the business, specifically funnel and when we win a project it's closed slash one.
And we're monitoring that and we see that coming in which gives us a really good insight on the future and where we are and that's why we feel the confidence in the.
In the in the mid single digit plus growth going forward.
Thank you.
One of them.
Question.
Our next question comes from meta Marshall with Morgan Stanley. Your line is open.
Great. Thanks.
Maybe first question when you talk about 2024 looking similar to 2023 is that on kind of.
Q3 run rates or just in the quantum as a whole and then.
The second question for me just maybe upfront.
I know Simon just kind of asked about the next business, but just kind of how are you seeing the overall.
Health of the environment kind of beyond backlog release, and kind of strengths that youre, finding with the new portfolio. Thanks.
Yes.
Let me deal with the 24 question I think.
24, looking a lot like.
'twenty three I think we're referencing sort of the full year look.
And I think in our prepared remarks, we talked about in order to get there we are going to have to see some recovery in order rates from where we're sitting today in Q3 and Q4.
So that would sort of indicate at least some some level of recovery in the second half.
And then to answer your other part of your question on the mix business.
There's a few parts to that business, but think about the das and are part of our business. We actually one of the first five G. Players there with an open ran architecture. So we feel really good about that and where that's going also with private private networks.
That side of our business.
On the Wi Fi side of our business I mean, we just launched Wi Fi Wi Fi seven.
Ruckus, one network as a service, but what's really helping us win and why I believe we were growing in the market as our dedication to vertical markets.
Specifically target the market, we really understand to go real deep into that market with.
We developed specific products or attributes for that marketplace, we train our salespeople in those areas in our in our value added resellers and we're really pushing I believe and what we're seeing is as we've invested in salespeople in these specific verticals, we're getting the returns from our investments. So we feel confident about where we are in the other.
Thing Thats, helping us is where we're really small player in the Grand scheme of things.
In terms of market share. So we don't really look at where the market is going but where our technology and where our vertical markets and investments specifically to go gain share.
Great. Thank you.
Yes.
One moment for our next question.
Our next question comes from Tal Leone with Bank of America. Your line is open.
Hi, guys.
I have two questions.
The first one on M&A when you talked to harmonic they're taking they're talking about different architectures in the market, where they are ahead of you and they're taking share and I do see announcements of.
Cable companies their way.
Can you talk about your competitive position in the E&S space the migration to distributed.
CMT is and where you are in the on the technology front. The next question is more about the balance sheet.
Last quarter, you told US you are going to give us an update this quarter on how you intend to restructure and it seems like you are now giving US an update now you don't want to discuss it.
What changed like why don't we get an update on.
What can you do in order to.
Pay down that 2025 debt. Thanks.
Yes, let me I'll deal with the last part of your question.
So I think in our prepared remarks.
We referenced several alternatives that we have to deal with the capital structure.
Yes.
In the near term maturities.
We can we're continuing to work through that.
And when we have an update we'll let up.
People know at this point in time, we're continuing to work through that.
Yes.
Your other question on E&S.
I would say we have a very strong position in the marketplace.
Today because of our legacy position.
And as I was sharing with Simon.
Based on Simon's question talking about our DOCSIS, three <unk>, three <unk>, where customers want to get.
Symmetrical one gig plus speeds.
If they haven't upgraded product with us.
Two product with software they can get those speeds without a major investment and we are seeing interest in that and that legacy position not only helps us to upgrade our existing footprint, but it also allows us to really understand the customers network. So when you think about virtual <unk> and as I shared with you in my prepared remarks.
Several customer labs, because of our understanding of their software and how their network because of the understanding of how their network works and our software that we have in our <unk> that puts us in a really good position to be able to transition to a virtual of virtual or edge.
CMT, yes, so we feel good about that additionally on the DAA side.
We pivoted to where the customer was going which was more of a remote phy solution, but we also are supporting our customers that want to go remote Mac phy.
And as we were at Cte.
Our customers there was a lot of appreciation for our ability to support them whichever way they want to go.
And we're going to continue to support our customers.
Whatever path they choose to take.
Great. Thank you.
One moment for our next question.
Our next question comes from George Notter with Jefferies. Your line is open.
Hi, guys. Thanks, very much I was interested in asking about.
Supply chain input costs.
Obviously, it's a big part of the cost of goods here in the company the economy is slowing.
You're starting to see some supply chain input cost relief I think.
No, it's a pretty big number in the context of your overall Cogs I'm wondering if it's a.
A tailwind in the business right now and then so if you could talk about that that'd be great. And then also I'd be curious about what you've assumed in terms of supply chain input costs.
In terms of your guidance for a similar 2024.
Yes, so on the on the input cost side.
I think it's.
We are a little bit of a mixed bag relative to what we're seeing I mean, there's definitely some inputs that are coming down.
And there is other inputs.
We're actually seeing some increases.
I think just in general how.
How you should think about it is if we go back to where we were two years ago. Our input costs are are still.
Main higher than where we were back then.
I think as we think about the 2000 and as we move into 2024 I don't think we I don't think we expect to see major changes there or at least in any modeling we would be doing.
I think as we've talked about before.
For us, it's really trying to manage the margins.
And how the pricing versus the input cost impact margin. So I think.
It's a mixed bag I think we're definitely still higher than where we were its definitely still inflated we are seeing in some relief.
But not to the levels that we saw.
Pre supply chain challenges.
Got it and then.
You mentioned price I mean any opportunity to kind of.
Try to go after some more price in the marketplace to try to improve the margin and EBITDA situation here.
I think we're competitively priced at this point.
So I wouldn't be.
Not seeing we're not seeing much price pressure pressure, so what I'd say right now we're just seeing prices hold right now.
Got it okay. Thank you.
One of them before our next question.
Our next question comes from Sam <unk> with JP Morgan Your line is open.
Hi, Thanks for the question guys. This is Joe Cardoso on for Sonic.
So just one question from me.
Some of your peers in the space have highlighted recent headwinds in the form of enhanced a cam program given participation would exclude customers from participating in deed.
If youre seeing any of that in your customer base and if so any way you can characterize how much of your customer base would be eligible to participate in enhanced to enhance a cam program just trying to get a sense of the potential.
Impacting exposure there thanks.
Can you can you restate the question I didn't catch I didn't I didn't understand the term used in the beginning.
Yes.
The ATM program, it's essentially.
An extension of the original a Cam program with investments to service customers were essentially they can.
Essentially they participate in that instead of.
The beat funding and essentially what that is.
And tells us that the spending would be tranche down as opposed to seeing the funding all upfront for beat so therefore, our customers are taking a pause and deciding if they want to participate in that or indeed, I don't know if you guys have any experience.
Think the way we would answer that is.
We're understanding the requirements will be we're working with our customers. There's lots of permutations that we see relative to the funding and the programs.
The way that I would think about it as we're in constant dialogue with the customers about what they can do and what we can do.
I think thats for us Thats still unfolding and we don't we don't have any specifics around that right now.
The other comment I would add to that as you know beat is the largest program at $42 5 billion.
The states are going to start getting awarded that business in the first half of 'twenty four.
We will see we will see a small revenue impact from that in 'twenty four but the large ramp of that as expected more in 2025.
Got it thanks for the color guys. Thank you.
One moment for our next question.
Our next question comes from Matt <unk> with Deutsche Bank. Your line is open.
Hey, guys. Thank you for taking the question.
Just two if I could first on visibility.
I'm, just wondering maybe Chuck or Kyle is the commentary varying at all across.
<unk> <unk> <unk>.
Or is it fairly uniform in terms of everybody pausing at a minimum through the middle of next year and then secondarily on asset sales you referenced that as a potential option something you may be evaluating I know theres been some press reports out there just wondering if theres any additional color you can offer up in terms of what pieces of the business could potentially.
Monotype.
Okay.
I'll take the first part of the question.
I think as we as we think about visibility across the business segments I think.
Where we have the lowest level of visibility is in the Ccs on OWS business.
And I think.
Although we are in constant dialogue with our customers.
To get the true understanding of their build plan.
I think it's challenging at this point in time and I think.
We're not alone in that in that position.
I think on the E&S side of the business.
<unk>.
<unk>.
We're talking to the major customers and some of the challenges that we see now we believer are short term in nature as they adjust their inventory levels.
And then I think we've talked about mix were.
Yes, I mean, we pushed a lot of Prada.
Product into the channel partners as we released some backlog.
We're digesting that.
We're seeing a little bit lower order rates, but again in that business.
A lot of our business is going through channel partners and we have a lot of leading metrics that look at what the funnels are and what what we're winning ahead of actually shipping the product and I think we feel that.
Again, as we as we move into 'twenty four.
We have some visibility into that so I think <unk>.
<unk> and <unk> and I think are the.
Probably the places that we have the most challenges with the visibility.
The second part of your question.
I mean, we're really not going to comment on that.
I think we've.
Yes.
Identified.
That asset sales are a possibility for us to deal with the capital structure and I.
I think that's at this point in time, that's all we're going to we're going to we're going to say.
Thank you.
One moment for our next question.
Our next question comes from Steven Fox with Fox Advisors. Your line is open.
Hi, Good morning. After what you just said Chuck this might be an unfair question, but I was just curious if theres any way on the Ccs an owned business to disaggregate the inventory correction from the actual cycle.
Just and maybe compare sort of cyclical challenges to prior cycles, especially given what seems like.
Over enthusiasm for like government funding that is impacting things.
Yes, I would say what we're really learning is is.
There was obviously an overbuy similar to what we saw in the rest of the economy with related to Covid, we're trying to get that.
Understood about in terms of percentage.
You really asked us in the ballpark of it it could be a 20% ish type number.
And what we're what we've been working with our customers and I've had personal personal visits in their offices and all of the major customers, where we're talking with them about we want to be a better supplier to you. When this thing turns back on because it will turn back on and we need help understanding the specific.
Skus that youre going to be buying that because I can't I can't produce dollars I have to produce skus. So we've been working a lot with them and understanding their inventory that they have on hand and understanding what they what they think they're going to need in their build plans, but we needed at the next level of detail and our teams are working together to do that and I feel.
That we're going to be a better supplier.
And that relationship is going to help us going forward.
And just to be clear youre, saying, a 20% inventory over by is that what the 20% was referring to thats a ballpark Steven if I had to say what I think yes.
Okay. Thank you.
And I'm not showing any further questions at this time I would like to turn the call back over to Chuck tread way for any closing remarks.
Yes, so I'd like to thank everyone for their support of Commscope.
And for your time today I'd like everyone wish everyone a very good week. Thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.