Q3 2024 CommScope Holding Co Inc Earnings Call
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Speaker Change: Today's conference is being recorded I would now like to turn the conference over to your first speaker today Masimo Disabato. Please go ahead.
Yeah.
Masimo Disabato: Good morning, and thank you for joining us today to discuss Commscope 2024 third quarter results.
Ah Matsumoto Sabino, Vice President of Investor Relations for Commscope and with me on today's call are Chuck Treadway, President and CEO, and Cala, Rencen 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.
Speaker Change: Before I turn the call over to Chuck I have a few housekeeping items to review.
Masimo Disabato: We will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials.
Masimo Disabato: 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.
Speaker Change: All quarterly growth rates described during today's presentation are on a year over year basis, unless otherwise noted.
Speaker Change: I'll now turn the call over to our President and CEO Chuck <unk>.
Chuck Treadway: Thank you Massimo good morning, everyone I'll begin on slide two.
In the third quarter core Commscope delivered net sales of 1.082 billion.
Speaker Change: A year over year increase of 3% and adjusted EBITDA of $220 million a year over year increase of 25% driven by strength in our Ccs segment.
I am pleased with our third quarter performance as we sequentially improved revenue and adjusted EBITDA from the second quarter as a result of the initial recovery of our core next segment.
Speaker Change: Our newly defined core business now consisting of Ccs.
And coordinates saw mixed results with continued strength in Ccs and weakness in E&S and mix.
Speaker Change: Visibility remains limited as upgrade timing and magnitude remains uncertain.
Speaker Change: As I have mentioned in past earnings calls, we continue to control what we can.
Speaker Change: Our core revenue was up 3% versus prior year, while core adjusted EBITDA grew at a healthy 25%.
Speaker Change: Adjusted EBITDA as a percentage of sales increased from 16, 7%.
24% and grew sequentially from 19, 1%.
This improvement has been driven by our Commscope <unk> program cost and.
Speaker Change: And favorable mix.
Speaker Change: We are focused on very specific initiatives in all areas of our business.
as we sequentially improved revenue and adjusted EBITDA from the second quarter as a result of the initial recovery of our core NICS segment.
Speaker Change: To enhance profitability.
Speaker Change: Now I would like to give you an update on each of our core businesses.
Our newly defined core business, now consisting of CCS, ANS, and core NICS, saw mixed results with continued strength in CCS and weakness in ANS and NICS.
Speaker Change: In the third quarter Ccs revenue grew 17%, while Ccs adjusted EBITDA increased 115%.
Ccs adjusted EBITDA as a percentage of revenue was approximately 23, 5% for the second straight quarter.
Visibility remains limited as upgrade timing and magnitude remains uncertain.
Speaker Change: We are continuing to see very strong demand from the Hyperscale and cloud data center business as.
As I have mentioned in past earnings calls, we continue to control what we can. Our core revenue was up 3 percent versus prior year, while core adjusted EBITDA grew at a healthy 25 percent.
Speaker Change: As the industry's need for bandwidth and data center capacity is increasing.
Speaker Change: We continue to invest in capacity to meet that demand.
Adjusted EBITDA as a percentage of sales increased from 16.7 percent to 20.4 percent and grew sequentially from 19.1 percent.
Speaker Change: During the third quarter, we approved an additional capacity expansion project that will support demand into 2025.
This improvement has been driven by our CommScope Next program, Cost Management, and Favorable Mix. We have focused on very specific initiatives in all areas of our business to enhance profitability.
Speaker Change: The outlook is very strong with our customers signaling robust growth in data centers over the next several years.
Speaker Change: These investments are highly accretive to EBITDA with short paybacks.
Speaker Change: In addition to capacity for our fiber products, we continue to implement our system <unk> two <unk> initiatives focused on copper technology leadership.
Now I would like to give you an update on each of our core businesses.
In the third quarter, CCS revenue grew 17%, while CCS adjusted EBITDA increased 115%.
Speaker Change: During the quarter, we launched system acts Giga shield extend platform, which delivers leading categories six eight performance for shielded applications.
CCS adjusted EBITDA as a percentage of revenue was approximately 23.5% for the second straight quarter.
Speaker Change: Turning our attention to the broadband side of Ccs.
We are continuing to see very strong demand from the hyperscale and cloud data center business as the industry's need for bandwidth and data center capacity is increasing.
Speaker Change: Where we are pleased to deliver year over year growth in the third quarter.
Speaker Change: We believe Commscope is well positioned for broadband growth with capacity investments we made in 2022.
We continue to invest in capacity to meet that demand.
Speaker Change: We also continue to invest in technology as you have seen with our recent announcement of our prodigy Universal hardened connector solution.
During the third quarter, we approved an additional capacity expansion project that will support demand into 2025.
Speaker Change: In the third quarter, we announced the licensing partnership with the AFL, allowing them to supply <unk> Universal connectivity solutions.
The outlook is very strong, with our customers signaling robust growth in data centers over the next several years.
Speaker Change: Since the beginning of last year, we have seen continued improvement in customer inventory levels.
These investments are highly accretive to EBITDA with short paybacks.
Speaker Change: However, demand remains low relative to 2021 and 2022.
In addition to capacity for our fiber products, we continue to implement our Systemax 2.0 initiative focused on copper technology leadership.
Speaker Change: Customers are continuing to assess their upgrade plans, including evaluating the impact of bead and other federal funding programs on their builds.
During the quarter, we launched SystemAct's Gigashield Xtend platform, which delivers leading Category 6a performance for shielded applications.
Speaker Change: We have reached another milestone in the bead efforts as Commscope now has achieved manufacturers self certification through the department of Commerce for hundreds of Baba and bead ready products.
Turning our attention to the broadband side of CCS where we are pleased to deliver year-over-year growth in the third quarter.
Speaker Change: We remain bullish on this program today.
Speaker Change: To date the department of Commerce has accepted plants from $55 to 56 eligible states and U S territories.
Speaker Change: For the states that have opened their application process. We are currently working with key customers as they prepare these applications for broadband infrastructure projects.
Speaker Change: Market expectations point to projects beginning late 2025.
Speaker Change: But it will be much more of a 2026 story.
Speaker Change: We have ample capacity in the complete set of products to meet the expected higher demands supporting medium and long term growth.
Speaker Change: Turning to core Knicks, which excludes SaaS revenue was up 19% versus the second quarter.
Speaker Change: Core <unk> adjusted EBITDA was up $31 million sequentially versus the second quarter.
Speaker Change: This was driven by higher revenue and improved margins for Ruckus.
Speaker Change: We feel that the challenges in the first half with channel inventory are behind us as inventory levels have normalized.
Speaker Change: Looking forward, we expect typical seasonality, including some pullback in the fourth quarter.
Speaker Change: We believe the Ruckus business is well positioned for growth in 2025.
Speaker Change: In addition to normalized inventory in subsequent demands we have launched several ruckus initiatives, including our recently announced ruckus edge platform as well as the new Ruckus Pro solution.
Speaker Change: Ruckus edge extends the cloud based AI Ruckus, one platform to the edge of the network to enable rapid deployment and simplified management of these networks.
Speaker Change: In addition, we have continued to find traction on our market, leading Wi Fi <unk> solutions and have commercially deployed our Wi Fi access points, which was most recently announced to be used in the circuit of America's race track in Austin, Texas.
Speaker Change: We are continuing to see success on our specific vertical market strategy, focusing on expansion into manufacturing higher education and pro AB markets.
Speaker Change: We remain bullish on the core <unk> business and are investing for our next phase of growth.
Speaker Change: Finishing our core business updates with E&S.
Speaker Change: We previously mentioned in the first half of 2024 was historically weak due to our customers being faced with larger than expected inventory and navigating the choices for next generation HFC architecture.
Speaker Change: However, <unk> is best positioned with decades of knowledge of our customers' ecosystems.
Speaker Change: And our breadth of new products to take advantage of the latest DOCSIS upgrade cycle.
Speaker Change: Our suite of products now includes virtual San TFS nodes amplifiers, RPT and RMB modules and remote royalties for node pond.
Speaker Change: In September at the SCE Tech Expo, we showcased our entire suite of products and solutions that help customers upgrade their networks and the most agile ways possible.
Speaker Change: We demonstrated DOCSIS three one E that allows customers with an existing installed base of Casa are Arris E 6000, <unk> to deliver multi gigabit speeds with a simple software upgrade and a new CPE.
Speaker Change: We also highlighted our newest development a unified DOCSIS four <unk> solution that can enable SPX or ESD from the same hardware.
Speaker Change: These new solutions are welcomed by our customers at the show because it provided maximum flexibility for their upgrade cycle.
Speaker Change: In addition, during the show we jointly announced with Comcast that for the first time, our <unk> amplifier is live in their network serving customers.
Speaker Change: This is a significant milestone as it marks a multiyear joint effort to provide these groundbreaking network upgrades delivering multi gig symmetrical services across our customer base.
Speaker Change: This milestone is just the beginning of a multi year upgrade cycle that will continue to evolve. The next generation of DOCSIS four <unk> networks.
Speaker Change: During the quarter, we had meaningful shipments of SPX nodes to Comcast we expect.
Speaker Change: The significant increase in <unk> node shipments in the fourth quarter and expect this to continue into 2025.
Speaker Change: Small shipments of Mdx amplifiers will begin in the fourth quarter.
Speaker Change: With substantial increases in 2025.
Speaker Change: Also during the quarter, we won a virtual C cap deployment.
Speaker Change: This is positive momentum for our virtual C cap program, including utilizing the recent recently purchased constant technology.
Speaker Change: As you can see the momentum is building with the next phase of upgrades and the real question with our E&S business is the timing and magnitude of the upcoming upgrade cycle for our customers.
Speaker Change: Although customers have indicated a fairly aggressive upgrade cycle over the next several years. Many of these upgrades have been delayed.
Speaker Change: The timing and magnitude of these upgrade cycles will be an important driver of revenue and profitability for Ams.
Speaker Change: Moving back to core Commscope we.
Speaker Change: We are continuing to navigate our business through varying market conditions.
Speaker Change: Some of our businesses are benefiting quicker than others from a recovery, but we are still bullish medium and long term on all of our segments, albeit timing and magnitude of demand improvement remains uncertain.
Speaker Change: For our core businesses, we believe we are well positioned to take advantage of the demand.
Speaker Change: Rebound with ample capacity and the right product offerings.
Speaker Change: We will continue to control, what we can including supporting our customers as they navigate through their requirements.
Speaker Change: Based on actions that we've taken including Commscope next initiatives, we expect strong profitability improvement.
Speaker Change: As revenue recovers.
Speaker Change: This is evidenced by our strong adjusted EBITDA as a percentage of revenue in the third quarter of 24%.
Speaker Change: Before handing it over to Kyle I will give you an update on our recently announced divestiture of our <unk> and <unk> businesses to Amphenol.
Speaker Change: Based on current progress, we now expect the sale to close in the first quarter of 2025.
Speaker Change: We believe this transaction will provide us flexibility as we evaluate our capital structure.
Speaker Change: I want to thank our <unk> and <unk> teams for continuing to deliver solutions to our customers as we continue through this process.
Speaker Change: And with that I'd like to turn things over to Kyle to talk more about our third quarter results.
Kyle: Thank you Chuck and good morning, everyone I will start with an overview of our third quarter 2024 results on slide three.
Kyle: For the third quarter Commscope reported net sales from continuing operations of $1 two.
Speaker Change: $2 billion.
Speaker Change: An increase of 3% from the prior year driven by an increase in Ccs.
Speaker Change: Adjusted EBITDA from continuing operations of $204 million increased by 30%.
Speaker Change: Adjusted EPS.
Speaker Change: Was negative <unk> <unk> per share, but increased 58%.
Speaker Change: We experienced improved sequential revenue and adjusted EBITDA, driven by increasing demand in Ccs on Ruckus.
Speaker Change: For core Commscope, which excludes the OWS and daas businesses and general corporate costs that were previously allocated to the own WN dos and home businesses, We reported core adjusted EBITDA of $220 million for the third quarter of 2024, which increased 25.
Speaker Change: 5% from prior year.
Speaker Change: This was a 10% improvement sequentially versus the second quarter.
Speaker Change: Our adjusted EBITDA as a percentage of revenues of 24% increased by 370 basis points year over year as we continue to manage what we can control including costs.
Speaker Change: For Commscope, including OWS Dos we reported net sales of 141 4 billion.
Speaker Change: Which increased 5% from prior year with adjusted EBITDA of $308 million for the third quarter of 2024, which increased 27% from prior year.
Speaker Change: Core Commscope backlog ended the quarter at $882 million down versus the end of the second quarter.
Speaker Change: As mentioned previously in all of our businesses, we are back to normalized backlog levels with short lead times.
Speaker Change: Turning now to our third quarter highlights on slide four.
Speaker Change: Starting with Ccs net sales of $737 million increased 17% from the prior year.
Speaker Change: Ccs adjusted EBITDA of $174 million increased 115% from the prior year.
Speaker Change: <unk> adjusted EBITDA as a percentage of revenue for the quarter remained strong at 23, 6% driven by favorable mix cost savings and cost leverage.
Speaker Change: Although we expect Ccs adjusted EBITDA as a percentage of revenue to remain strong we would not expect it to remain at this level for the fourth quarter.
Speaker Change: The Ccs revenue increase is primarily being driven by the enterprise business, particularly of Hyperscale and cloud data centers.
Speaker Change: On a sequential basis Ccs revenue grew 1%.
Speaker Change: Looking towards the fourth quarter, we expect revenue to slightly improve sequentially, but EBITDA to remain fairly flat.
Speaker Change: Core next net sales of $157 million decreased 22% versus the third quarter of 2023, driven by the over buying in 2023.
Speaker Change: Core <unk> adjusted EBITDA of $28 million decreased 29% from the prior year, primarily driven by the decline in Ruckus revenue.
Speaker Change: As expected the overhang from channel inventory lasted through the first half of 2024 and started to improve in the third quarter.
Speaker Change: On a sequential basis revenue increased 19% and EBITDA increased $31 million.
Speaker Change: We continue to drive our vertical market strategies, and ruckus initiatives, including Ruckus edge and Wi Fi seven initiatives.
Speaker Change: In addition, we continue to shift more of our business to subscription.
Speaker Change: With the new products and vertical market focus we are well positioned to take market share in the medium and long term.
Speaker Change: Fourth quarter core <unk> adjusted EBITDA is expected to decline compared to third quarter results due to seasonality.
Speaker Change: <unk> net sales of $188 million decreased 15% from the prior year due to customer inventory adjustment and upgrade delays.
Speaker Change: <unk> adjusted EBITDA of $19 million was down $37 million or 67% from the prior year, driven by lower revenue and unfavorable product mix.
Speaker Change: The E&S market continues to be challenging as customers deal with excess inventory and delayed upgrade cycles.
Speaker Change: We expect to see an increase in both revenue and EBITDA in the fourth quarter versus the third quarter.
Speaker Change: As Chuck mentioned launching of Mdx products at Comcast will have a positive impact on the business over the next several quarters.
Speaker Change: The business remains well positioned to take advantage of upgrade cycles as we have decades.
Speaker Change: Of experience with customer ecosystems.
Speaker Change: The largest installed base and the broadest suite of products.
Speaker Change: Performance will be driven by the speed and magnitude of the upcoming upgrade cycle that is in early stages.
Speaker Change: Despite ams market uncertainty, we expect to see strong improvement in 2025 and <unk> performance.
Speaker Change: Finally, an update on our second quarter announcement of the divestiture of our OWS and daas businesses to Amphenol.
Speaker Change: We are expecting the transaction to close in the first quarter of 2025.
Speaker Change: Net sales of these two businesses were $332 million in the third quarter and increased 12% from the prior year.
Speaker Change: We expect fourth quarter, OWS and das revenue and adjusted EBITDA to decrease compared to third quarter note that the activity of these businesses was reported as discontinued operations, while the assets and liabilities of these businesses were reported as held for sale this quarter.
Speaker Change: Turning to slide five for an update on cash flow.
Speaker Change: During the quarter, we generated $122 million from cash flow from operations and free cash flow of $115 million.
Speaker Change: 2024 third quarter cash flow from operations declined from the prior year as a result of working capital needs.
Speaker Change: 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 $456 million in global cash and total available cash and liquidity of roughly $1.0 billion to $4 billion.
Speaker Change: During the quarter, our cash balance increased by $110 million, we did not draw on our ABL revolver during the third quarter and therefore ended the quarter with no outstanding balance it should be noted that we expect to lose approximately $140 million of our ABL availability with the OWS Das transaction.
Speaker Change: During the quarter, we paid the required $8 million of term loan amortization.
Speaker Change: We purchased no debt on the open market.
Speaker Change: Going forward, we intend to continue to use cash opportunistically to buy back securities across the breadth of our capital structure.
Speaker Change: The company ended the quarter with net leverage ratio of nine one down from the prior quarter of $9 70.
Speaker Change: The calculation of the net leverage includes the OWS and <unk> businesses.
Speaker Change: I'll now turn to slide seven where I will conclude my prepared remarks with some commentary around our expectations for the remainder of 2024 and 2025.
Speaker Change: In our core business during the first three quarters of 2024, we have seen strong recovery in our Ccs business driven by data center Gen AI growth and inventory normalization.
Speaker Change: We expect that this trend will continue.
Speaker Change: Unfortunately, the core <unk> and <unk> segments continue to lag as the demand environment remains uncertain.
Speaker Change: We would expect fourth quarter core revenue and adjusted EBITDA to be generally in line with third quarter results as we experienced normal seasonality in most of our businesses offset by some continued improvement in market conditions.
Speaker Change: Based on current visibility our full year core adjusted EBITDA Guidepost is expected to be between $700 million to $750 million with breakeven free cash flow based on the market uncertainty we are not providing guideposts for 2025 at this time, however, we would expect to see.
Speaker Change: Wrong improvement off of our full year 2020 for performance as markets continue to improve and customer inventory gets back to normalized levels.
Speaker Change: We continue to control, what we can control, including managing costs and supporting our customers.
Speaker Change: Our core adjusted EBITDA as a percentage of revenue improved from 16, 7% in the third quarter of 2023% to 24% in the third quarter of 2024.
Speaker Change: This is a testament to our priority to control, what we can and improve longer term profitability.
Speaker Change: Finally, I would like to make a few comments about our capital structure.
Speaker Change: We continue to evaluate several alternatives to address our upcoming debt maturities and deleverage our balance sheet we.
Speaker Change: We believe that the strengthening of our financial results over the course of the year as well as the impending receipt of the cash proceeds from the OWS and das sale of greatly improved our position with creditors.
Speaker Change: During the third quarter, we commenced discussions with certain creditors in an effort to identify a course of action with respect to our debt capital structure that would best position the company going forward.
Speaker Change: While we announced this morning that negotiations with one AD hoc group of our creditors have ceased we remain in active and constructive discussions with other creditors that are not part of that group.
Speaker Change: For today's call, we will not be making further comment with respect to our capital structure. However, we will provide updates as appropriate and with that I'd like to give the floor back to Chuck for some closing remarks.
Speaker Change: Thank you call.
Chuck Treadway: While we are generally pleased with our third quarter results Spa.
Chuck Treadway: Specifically with sequential improvement versus second quarter.
Chuck Treadway: Uncertainty continues to remain in our core businesses.
Chuck Treadway: Although we expect growth as we move into 2025, we remain hesitant on guiding to the magnitude of the improvement.
During the third quarter, we commenced discussions with certain creditors and an effort to identify a course of action with respect to our debt capital structure that would best position the company going forward.
Speaker Change: I am encouraged by our focus on items in our control, including market share new product introductions and profitability.
While we announced this morning, the negotiations with one AD hoc group of our creditors have ceased we remain in active and constructive discussions with other creditors that are not part of that group.
Speaker Change: This focus positions us well for medium and long term growth.
Speaker Change: I'm confident that we will capitalize on opportunities as markets improve evidenced by our strong EBITDA margins delivered over the last two quarters.
For today's call, we will not be making further comment with respect to our capital structure.
Speaker Change: And with that we'll now open the line for questions.
Speaker Change: However, we will provide updates as appropriate and with that I'd like to give the floor back to Chuck for some closing remarks.
Speaker Change: Thank you as mentioned at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please Tim IHOP, we compile our Q&A.
Chuck: Thank you Carl.
Chuck: While we are generally pleased with our third quarter results.
Chuck: Specifically with sequential improvement versus second quarter.
Chuck: Uncertainty continues to remain in our core businesses.
Speaker Change: Foster.
Speaker Change: Our first question comes from the line of meta Marshall with Morgan Stanley. Your line is now open.
Speaker Change: Great.
Speaker Change: <unk>.
Speaker Change: Maybe a question on the capacity expansion that you're doing.
Speaker Change: For kind of the data center opportunity just.
Speaker Change: Is that.
Speaker Change: Do you think that there is an ability to gain share in that market is that to take advantage of more data center interconnect opportunities just kind of expanding upon where that expansion is and where you think share gains are possible.
Speaker Change: Sure. Thank you.
Speaker Change: That investment gets us about another $300 million of revenue.
Speaker Change: And as we talk to customers.
Speaker Change: We are really bullish on the demand over the next several years we are hearing.
Speaker Change: This growth is 20% to 25% range.
Speaker Change: Year over year, continuing going forward.
Speaker Change: And we're one of the major players in this space.
Speaker Change: And it's a key growth area for Commscope that we're investing in and we're not really seeing anything that would indicate a change in this.
Speaker Change: Demand trajectory.
Speaker Change: Got it and then just on some of the.
Speaker Change: Do you think that there is an ability to gain share in that market? Is that to take advantage of more data center interconnect opportunities? Just kind of expanding upon where that expansion is and where you think share gains are possible. Thanks.
Speaker Change: The opportunity is on kind of some of the data center interconnect I think you guys have not traditionally had products in that market, but are there plans to kind of introduce products within that market.
Speaker Change: No, we're specifically operating more inside the data centers.
Mehta: Sure, thank you Mehta. That investment gets us about another three hundred million dollars of revenue and as we talk to customers
Speaker Change: Perfect. Thanks, I'll hand, it off.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: We're really bullish on the demand over the next several years. We're hearing, you know, this growth is 20 to 25% range year over year, continuing going forward. And, you know, we're one of the major players in this space.
Speaker Change: Our next question comes from the line of Simon Leopold with Raymond James Your line is now open.
Speaker Change: Thanks for taking the question.
Speaker Change: I'm a little bit confused around what you are describing happening within the E&S segment.
Speaker Change: and it's a key growth area for CommScope that we're investing in and we're not really seeing anything that would indicate a change in this demand trajectory.
Speaker Change: Yes.
Speaker Change: If I got my notes down you talked about meaningful shipments of EFT Dx into Comcast, but then.
Speaker Change: Got it and then just on some of the.
Speaker Change: Thought you said.
Chuck: Got it. And then, just on some of the opportunities on kind of some of the data center interconnect, I think you guys have not traditionally had products in that market, but are there plans to kind of introduce products within that market?
Speaker Change: Small shipments of <unk> amplifiers will begin in the fourth quarter with substantial increases in 2025.
Speaker Change: The opportunity is on kind of some of the data center interconnect I think you guys have not traditionally had products in that market, but are there plans to kind of introduce products within that market.
Speaker Change: So I wasn't sure sort of where we stand on the <unk> rollout.
Speaker Change: No specifically operating more inside the data centers.
Speaker Change: And then.
Speaker Change: It also further on kind of the amplifiers are there operators are waiting unified amplifier supporting both <unk> and ESD and if so what do you see as the timing for volume shipments of the unified version. Thank you.
Speaker Change: No, we're specifically, you know, operating more inside the data centers.
Speaker Change: Perfect. Thanks, I'll hand, it off.
Speaker Change: Got it.
Okay, perfect. Thanks. I'll hand it off.
Speaker Change: Thank you.
Bye.
Speaker Change: Our next question comes from a line of Simon Leopold with Raymond James Your line is now open.
Thank you.
Speaker Change: Our next question comes in the line of Simon Leopold with Raymond James. Your line is now open.
Speaker Change: Yep.
Thanks for taking the question.
Speaker Change: I'll start with the <unk>.
Speaker Change: Related to the mdx nodes and amplifiers. So we're starting to ship more we're going to we're starting to ship more nodes mdx nodes.
Simon Leopold: I'm a little bit confused around what you are describing happening within the E&S segment.
Thanks for taking the question.
Speaker Change: I'm a little bit confused around what you're describing happening within the the A&F segment. I guess if I got my notes down you talked about meaningful shipments of FDX into Comcast
Yes.
Speaker Change: In the fourth quarter.
Speaker Change: If I got my notes down you talked about meaningful shipments of mdx into Comcast, but then.
Speaker Change: And amplifiers are going to as well start it's just going to be a slower amount in the fourth quarter, but we're going to see a significant ramp up of the SPX amplifiers.
Speaker Change: What you said.
Speaker Change: But then I thought you said small shipments of FDX amplifiers will begin in the fourth quarter with substantial increases in 2025.
Speaker Change: Small shipments of SPX amplifiers will begin in the fourth quarter with substantial increases in 2025.
Speaker Change: Starting in 2025.
Speaker Change: At the beginning of the year.
Speaker Change: We have orders for that already and they are expecting to receive those.
Speaker Change: So I wasn't sure sort of where we stand on the <unk> rollout.
Speaker Change: Related for unified as anybody waiting on that we don't we don't believe so.
Chuck: I wasn't sure sort of where we stand on the FDX rollout.
Speaker Change: And then also further on kind of the amplifiers are there operators are waiting unified amplifier supporting both <unk> and ESD.
Speaker Change: And then also further on kind of the amplifiers, are there operators awaiting unified amplifiers supporting both FDX and ESD? And if so, what do you see as the timing for volume shipments of the unified versions? Thank you.
Speaker Change: We haven't we haven't seen it in our conversations with customers.
Speaker Change: Unified is one of many options and we will have that available when customers need it.
Speaker Change: So what do you see as the timing for volume shipments of the unified version. Thank you.
Speaker Change: But right now.
Speaker Change: We're not seeing it slow down anything.
Speaker Change: I appreciate that and then just a quick metric. Please last quarter, you told us that 15% of Ccs revenue was coming from data center connectivity could we get an update on that metric.
Speaker Change: Yes, I'll start with the <unk> related to the <unk> nodes and amplifiers. So we're starting to ship more.
Speaker Change: Yep, I'll start with the ANFs related to the FDX nodes and amplifiers.
Chuck: So, we're starting to ship more, we're starting to ship more nodes, FDX nodes.
Chuck: Turning to ship more nodes mdx nodes.
Chuck: In the fourth quarter.
Chuck: And amplifiers are going to as well start it's just going to be a slower amount in the fourth quarter, but we're going to see a significant ramp up of the SPX amplifiers.
Chuck: in the fourth quarter, and amplifiers are going to as well start, it's just going to be a slower amount in the fourth quarter, but we're going to see a significant ramp up of the FDX amplifiers starting in 2025.
Speaker Change: Yes, generally hasnt changed I mean, some of that goes through distribution. So it's not always a perfect number book.
Speaker Change: We continue to say that.
Speaker Change: 15% to 20% of the Ccs revenue come from the data center market.
Chuck: Starting in 2025.
Chuck: At the beginning of the year.
Chuck: We have orders for that already and they are expecting to receive those.
Speaker Change: Great. Thank you appreciate it.
at the beginning of the year.
Chuck: We have orders for that already and they're expecting to receive those.
Speaker Change: Thank you.
Chuck: Related for unified as anybody waiting on that we don't we don't believe so.
Speaker Change: Okay.
Chuck: Related for Unified, is anybody waiting on that? We don't we don't believe so, we haven't seen it in our conversations with customers. Unified is one of many options and we'll have that available when customers need it, but right now
Speaker Change: Our next question comes from the line is a net carry Ani with Evercore. Your line is now open.
Chuck: We haven't seen it in our conversations with customers.
Chuck: Unified is one of many options and we will have that available when customers need it.
Speaker Change: Good morning, Thanks for taking my question.
Speaker Change: Yes.
Chuck: But right now.
Speaker Change: You folks have like 3% revenue growth year over year on a core basis. This quarter and then EBITDA dollars are up like 25%. So just wanted to can you just talk about how much of the EBITDA dollar or margin expansion do you think is from sales leverage, especially in Ccs versus some of the benefits from Commscope next and then could you just maybe help us understand what's left.
Chuck: We're not seeing it slow down anything.
You know, we're not seeing that slow down anything.
Speaker Change: I appreciate that and then just a quick metric. Please last quarter, you told us that 15% of Ccs revenue.
Chuck: Appreciate that and then just a quick metric please. Last quarter you told us that 15% of CCS revenue was coming from data center connectivity. Could we get an update on that metric?
Chuck: Was coming from data center connectivity could we get an update on that metric.
Speaker Change: Yes, generally hasnt changed I mean, some of that goes through distribution. So it's not always a perfect number but we continue to say that.
Speaker Change: <unk> Commscope next from a savings perspective, as you think about.
Chuck: Yeah, it generally hasn't changed. I mean, some of it goes through distribution, so it's not always a perfect number, but, you know, we continue to say that it's, you know, 15 to 20% of the CCS revenue comes from the data center market.
Speaker Change: The next couple of quarters, it would be really helpful.
Speaker Change: Okay I'll take that one so I think.
Chuck: 15% to 20% of the Ccs revenue come from the data center market.
Speaker Change: As we think about this.
Speaker Change: The Ccs EBITDA margins in particular I think it is.
Speaker Change: Great. Thank you appreciate it.
Great. Thank you. Appreciate it.
Speaker Change: Thank you.
Speaker Change: A combination.
Speaker Change: No.
Thank you.
Speaker Change: We're definitely getting some favorable mix.
Speaker Change: Our next question comes from the line of net carry Ani with Evercore. Your line is now open.
Speaker Change: Our next question comes to the line of Amit Ghariani with Evercore. Your line is now open.
Speaker Change: As we as we grow the business and.
Speaker Change: Products that have a little bit higher margin.
Amit Ghariani: Good morning, Thanks for taking my question.
Speaker Change: I think that there is cost that we've taken out of the business and then I think there's also just the component of we get cost leverage as well.
Yes.
Speaker Change: You folks have had 3% revenue growth year over year on a core basis. This quarter and then EBITDA dollars are up like 25%. So just wanted to can you just talk about how much of the EBITDA dollar of margin expansion. You think is from sales leverage, especially in Gcs works with some of the benefits from Commscope next and then could you just maybe help us understand what's new.
Speaker Change: As the business as the business grows.
Speaker Change: I don't want to put a number on that but I think each of each one of those is contributing a fair amount to the EBITDA margins that we're seeing in Ccs.
Speaker Change: Left at Commscope next from a savings perspective, as you think about.
Speaker Change: As we.
Speaker Change: Step back and think about Commscope next.
Speaker Change: The next couple of quarters, it would be really helpful.
Speaker Change: No.
Speaker Change: Our <unk> model that was implemented a couple of years ago clearly identified over the last 18 months opportunities for us to continue to take cost out and I think the teams have done a nice job on doing that and I think that's reflective in the.
Speaker Change: Okay I'll take that one.
<unk>.
As we think about the.
Ccs EBITDA margins in particular.
Speaker Change: It's a combination of.
<unk>.
Speaker Change: EBITDA margins that we're posting now.
We're definitely getting some favorable mix.
As we as we grow the business in <unk>.
Speaker Change: I think when we when we think about moving forward with Commscope and accident, particularly on the cost side.
Speaker Change: Products that have a little bit higher margin.
Speaker Change: I think that there is cost that we've taken out of the business and then I think there's also just the component of we get cost leverage.
Speaker Change: Yes.
Speaker Change: That is a continuous improvement program.
Speaker Change: So I think we feel like there's more cost to come out.
Speaker Change: As the business as the business grows.
Speaker Change: Probably not as much as what we've seen already but I do think there's some opportunity for us as we think about continually improve the business to continue to manage cost out of the business.
Speaker Change: I don't want to put a number on that but I think each of each one of those is contributing a fair amount to the EBITDA margins that we're seeing in Ccs.
Speaker Change: Yes.
Speaker Change: Got it thank you for that and then.
Speaker Change: As we see.
Speaker Change: If I just go back to the Ccs segment, but folks have talked about adding a little bit more capacity I think what you say, you're adding about capacity that would equate to $300 million of incremental sales. Maybe you can just clarify if I got that correct.
Speaker Change: Step back and think about Commscope next.
No.
Speaker Change: Our <unk> model that was implemented a couple of years ago clearly identified over the last 18 months of opportunities for us to continue to take cost out and I think the teams have done a nice job on doing that and I think that's reflective.
Speaker Change: And then could you just also touch on how much capex dollars do you need incrementally to drive that I'm trying to think about what capex incrementally would be it sounds like in the December quarter to drive this capacity increase thank you.
Speaker Change: EBITDA margins that we're posting now.
Speaker Change: I think when we when we think about moving forward with Commscope and accident, particularly on the cost side.
Speaker Change: Yes, I think.
Speaker Change: At a high level, we're talking about.
Speaker Change: That is a continuous improvement program.
Speaker Change: The latest capacity investment.
Speaker Change: We're talking about spending.
Speaker Change: So I think we feel like there's more cost to come out.
Speaker Change: $10 million to $20 million to do that.
Speaker Change: Probably not as much as what we've seen already but I do think there's some opportunity for us as we think about continually improve the business to continue to manage cost out of the business.
Speaker Change: So I think the best way to think about the capex without giving you the specific numbers.
Speaker Change: Each one of these.
Speaker Change: Capital investments that we make in the data center market to expand capacity.
Yes.
Speaker Change: Got it thank you for that and then.
Speaker Change: Those are very very accretive.
Speaker Change: If I just go back to the Ccs segment, but you folks have talked about adding a little bit more capacity I think what you say you're adding capacity.
Speaker Change: Paybacks on those things are months in quarters not years, so as we invest that capacity, we would expect to get very strong payback on that on that investment.
Speaker Change: Capacity that would equate to $300 million of incremental sales maybe you can just clarify if I got that correct and then could you just also touch on how much capex dollars do you need incrementally to drive that I'm trying to think about what capex incrementally would be it sounds like in the December quarter to drive this capacity increase thank you.
Speaker Change: Yes.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from the line of Henrik <unk> with Jpmorgan. Your line is now open.
Speaker Change: Yes, I think.
Speaker Change: At a high level, we're talking about.
Speaker Change: The latest capacity investment.
Speaker Change: Hey, Tom Thanks for taking the questions and maybe I'll stick to the first one on Ccs as well you.
Speaker Change: Looking about spending.
$10 million to $20 million to do that.
Speaker Change: You had 17% revenue growth year over year in the quarter itself, maybe if you can sort of give us a bit more details in terms of.
Speaker Change: So I think the best way to think about the capex without giving you the specific numbers.
Speaker Change: Each one of these.
Speaker Change: Queen sort of caveat.
Speaker Change: Capital investments that we make in the data center market.
Speaker Change: As data center customers or what are you seeing in terms of growth rates.
Speaker Change: And capacity.
Speaker Change: Of much of a divergence should we think that is in terms of the revenue growth rate between the two and when you talk about the $800 million of capacity you are adding.
Speaker Change: Those are very very accretive I mean, the paybacks on those things are months in quarters not years, so as we invest that capacity.
Speaker Change: How are you thinking about the sort of when you fully filled out how does that allocation look between data center it versus <unk>.
Speaker Change: Back to get very strong payback on that on that investment.
Yes.
Speaker Change: <unk> and I have a follow up thank you.
Speaker Change: Great. Thank you.
Okay. Thank you.
Speaker Change: Yes.
Okay.
Speaker Change: We're not we're not going to provide all the detailed numbers within the Ccs.
Speaker Change: Our next question comes from the line of Henrik <unk> with Jpmorgan. Your line is now open.
Speaker Change: Business, but what I would say on year to year growth is I think as we said in our prepared remarks.
Speaker Change: Hey, Tom Thanks for taking the questions and maybe I'll stick to the first one on Ccs as well.
Speaker Change: A lot of the growth that we're seeing at 17% and Ccs is coming from data centers.
Speaker Change: You had 17% revenue growth year over year in the quarter itself, maybe if you can sort of give us a bit more details in terms of.
Speaker Change: On the broadband side of the business.
Speaker Change: We have seen.
Speaker Change: We've seen the market stabilize a little with inventory and we're starting to see sequential growth.
Speaker Change: Queen set of carriers voices datacenter customers what are you seeing in terms of growth rates.
Speaker Change: But we haven't yet on a year over year basis.
Speaker Change: Of much of a divergence should we think that is in terms of the revenue growth rate between the two and when you talk about the $800 million of capacity you're adding.
Speaker Change: A lot of growth in the in the broadband business, yet and then on the other part of our business.
Speaker Change: How are you thinking about the sort of when you fully filled out how does that allocation look between data center versus.
Speaker Change: Outside of the data center business, we do have an enterprise copper business and that business is that business has been up year over year as inventories have normalized.
Speaker Change: Carriers and I have a follow up thank you.
Speaker Change: At the in the channel.
Yes.
Speaker Change: That business as well so I think the way to think about it as we are.
Yes.
Speaker Change: We're not we're not going to provide all the detailed numbers within the Ccs.
Speaker Change: Very strong growth year over year.
Speaker Change: But what I would say on year to year growth is I think as we said in our prepared remarks.
Speaker Change: <unk>.
Speaker Change: And then in the data center business, we've got.
Speaker Change: Some growth in the copper business in the broadband business continues to be relatively flat in Ccs.
Speaker Change: A lot of the growth that we're seeing at 17% and Ccs is coming from data centers.
Speaker Change: Want to make sure you heard the number right. The investment we did in data centers $300 million more revenue not 800, okay. Okay. Alright, thanks, so correcting back, but any thoughts on sort of how that $300 million looks between.
Speaker Change: On the broadband side of the business.
Speaker Change: We have seen.
Speaker Change: We've seen the market stabilize a little with inventory and we're starting to see sequential growth.
Speaker Change: But we haven't yet on a year over year basis, <unk> seen a lot of growth in the in the broadband business, yet and then on the other part of our business.
Speaker Change: The carrier and data center customers and when you fill it out.
Speaker Change: Data centers all of those data center investments.
Speaker Change: Got it and then for my follow up and maybe this is more for you for the core EBITDA.
Speaker Change: Outside of the data center business, we do have an enterprise copper business and that business is that business has been up year over year as inventories have normalized.
Speaker Change: You are talking about strong growth in 2025, but there seems to be also.
Speaker Change: A part of the press release, where you focus on the stranded cost or the corporate cost allocated to Dublin definitely get moved to the segment.
Speaker Change: At the in the channel.
Speaker Change: That business as well so I think the way to think about it is we have very strong growth year over year.
Speaker Change: How much of a headwind on a year over year basis would that be to the core numbers, if I'm understanding the implications.
<unk>.
Speaker Change: And then in the data center business, we've got some.
Speaker Change: Some growth in the copper business in the broadband business continues to be relatively flat in Ccs.
Speaker Change: Thanks.
Speaker Change: We're still working through that but I mean I think.
Speaker Change: I just want to make sure you heard the number right. The investment we did in data centers $300 million more revenue not 800.
Speaker Change: For modeling purposes, it's probably a plus or minus $20 million stranded cost number on a year over year basis on an annual on an annual basis as well.
Speaker Change: Okay. Okay, alright, thanks, so correcting back, but any thoughts on sort of how that $300 million looks between.
Speaker Change: Okay. Okay got it great. Thanks for taking my questions.
Speaker Change: The carriers.
Speaker Change: Okay.
Speaker Change: Some of the customers and when you fill it out.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Steven Fox with Fox Advisors. Your line is now open.
Speaker Change: It is just the data center data center investments, Okay got it and then for my follow up maybe this is more for you for the call.
Steven Fox: Hi, good morning, everyone.
Speaker Change: <unk> EBITDA.
Speaker Change: You're talking about strong growth in 2025, but there seems to be also.
Speaker Change: I had a couple of questions first off I was wondering if you could help.
Speaker Change: Reset us on EBITDA margins a little bit.
Speaker Change: Just looking at the sequential trends on the core business ex the planned divestitures, it's kind of.
Speaker Change: All over the map or in the case of Ccs at very high levels versus historical is can you give us a sense for where you are versus potential sort of a normalized opportunity for expansion.
Speaker Change: US maybe right size the models.
Speaker Change: And then I have a follow up.
Speaker Change: Yes.
Speaker Change: Sort of take it by business I think on the Ccs business.
Speaker Change: We've seen a lot of growth there clearly.
Speaker Change: <unk>.
Speaker Change: And I think we talked a little bit about some moderation in the fourth quarter.
Speaker Change: Some of that is more mix driven.
Speaker Change: As we move forward into 'twenty, five and beyond I think there is an ability for us to continue to improve EBITDA margins, there, but I don't think we're going to see step function change what changes like we've seen.
Speaker Change: From 23 to 24, so I think we will.
Speaker Change: We will see more modest modest improvement there I think both in the <unk> business.
Speaker Change: Just because the revenues are down we would expect to see.
Speaker Change: Pretty strong improvement as we move into 'twenty five and the businesses.
Speaker Change: Recover and grow I think we would expect much stronger growth on EBITDA margins in those two businesses.
Speaker Change: But any sense on the <unk>.
Speaker Change: And give us somewhat like normal looks like for EBITDA margins.
Speaker Change: Yes, we have been next year, but.
Speaker Change: Yes, I think we can probably get back to where we were seeing in 'twenty, one and 'twenty two on those numbers.
Speaker Change: Thats helpful.
Speaker Change: And then on the backlog that you mentioned.
Speaker Change: I'm, just trying to get a comfort level with the backlog, which I just forgot the number the 800 plus million.
Speaker Change: The core sales of $1 billion 82.
Speaker Change: How do we how do we think about that is on a go forward basis, why is that normal or reasonable given how low versus the sales in the quarter.
Speaker Change: Yes.
Speaker Change: I think what we've said around backlog is.
Speaker Change: As we've looked over the last couple of years backlog.
Speaker Change: We have a lot of backlog.
Speaker Change: And sort of the 'twenty, one and 'twenty two periods, particularly in our Ccs business and our <unk> business and I think as we talked about.
Speaker Change: That was a lot of that was driven by supply chain constraint issues in and then in some cases capacity issues as those things are resolved.
Speaker Change: This business historically is a business that works off of sort of weeks of lead time.
Speaker Change: When we go back and look at where the business was before.
Speaker Change: All of the supply chain constraints and challenges that we had.
Speaker Change: During the Covid period.
Speaker Change: I think when we go back and look at the trending.
Speaker Change: The backlog levels that we see now.
Speaker Change: From a lead time perspective basis, I think we're we're sort of back to what we would consider to be normalized.
Speaker Change: Historically these are not businesses that work off of.
Speaker Change: Massive backlogs.
Speaker Change: Backlogs that got pushed further out these are businesses that some of the orders and we're shipping in a couple of weeks.
Speaker Change: Great. That's helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Our last question comes from the line of Tim <unk> with Northland.
Speaker Change: <unk> capital markets. Your line is now open.
Speaker Change: Hey, good afternoon I wanted to.
Speaker Change: Good question and a follow up first in terms of what Youre seeing.
Speaker Change: On the carrier side from a demand standpoint, what we're hearing out of some of the big <unk>.
Speaker Change: U S carriers in particular about fiber builds.
Speaker Change: It was pretty positive.
Speaker Change: And I think you made some comments about that stabilizing last quarter, but maybe less so this quarter. So if we can get an update on.
Speaker Change: Whether you might expect to see growth on the carrier side in Ccs.
Speaker Change: Next year and I'll just throw my follow up in there which is.
Speaker Change: Any headwinds from from what we saw coming out of further in terms of the delays in their network upgrade and that's it for me.
Speaker Change: Yes.
Speaker Change: Look.
Speaker Change: I would say our customers and our markets are projecting that homes past and homes connected is going to grow over the next three years and where we're at.
Speaker Change: So you're going to benefit from that growth.
Speaker Change: And we sell fiber and connectivity into that market and we continue to invest in technology to drive differentiation and that's what we've talked about this product we connect our technology.
Speaker Change: <unk> put in place.
Speaker Change: And so we are seeing a pickup there, but obviously its a lot we're not at the 22 levels.
Speaker Change: But we have seen improvement quarter over quarter in that space.
Speaker Change: And your second question was.
Speaker Change: About charter kind of pushing out their upgrade timeline, reducing the capex.
Speaker Change: Any impact there yes, yes.
Speaker Change: Yeah.
Speaker Change: We won't comment on specific customers, but we do have a position that charter.
Speaker Change: And.
Speaker Change: Specifically with the E&S segment, and we are seeing delays there.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you.
Speaker Change: We'd like.
Speaker Change: We'd like to thank you for your interest in Commscope and we appreciate your time today have a great rest of your week.
Speaker Change: Yes. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
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