美国
证券交易委员会
华盛顿特区20549
表格
(标记一个)
根据1934年证券交易法第13或15(d)条款的季度报告。 |
截至2024年6月30日季度结束
或
根据1934年证券交易法第13或15(d)条款的过渡报告 |
为过渡期从 至
委员会文件编号
（依凭章程所载的完整登记名称）
(依据所在地或其他管辖区) 的注册地或组织地点) |
(国税局雇主识别号码) 识别号码) |
(总部办公地址)
(邮递区号)
(
(注册人电话号码，包括区号)
根据法案第12(b)条规定注册的证券：
每种类别的名称 |
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交易 标的 |
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每个注册交易所的名称 |
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请勾选以下选项以表示申报人（1）已提交证券交易法1934年第13条或15(d)条所要求提交的所有报告，且在过去12个月中（或申报人需要提交此类报告的较短期间）已提交；（2）已受到过去90天内此类提交要求的限制。
用勾选方式表示，注册人在过去12个月（或注册人需提交此类文件的较短期间）已向适用法规S-t条例405条的提交每一个互动数据文件。
通过勾选标记指出注册人是大型加速申报器、加速申报器、非加速申报公司、较小的报告公司还是新兴成长公司。请参阅《交易法》第 120 亿条第 2 条中的「大型加速申报公司」、「加速申报公司」、「较小的报告公司」和「新兴增长公司」的定义。
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加速归档人 |
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☐ |
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非加速归档人 |
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☐ |
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小型报告公司 |
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新兴成长型企业 |
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如果是新兴成长型企业，在符合任何依据证券交易法第13(a)条所提供的任何新的或修改的财务会计准则的遵循的延伸过渡期方面，是否选择不使用核准记号进行指示。☐
请在核取方框内表明公司是否为空壳公司（根据交易所法规120亿2号所定义）。 是 ☐ 否
截至2024年10月30日，有
commscope控股公司，Inc。
10-Q表格
2024年9月30日
目录
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2 |
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4 |
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5 |
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7 |
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29 |
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47 |
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47 |
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48 |
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48 |
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48 |
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48 |
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48 |
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49 |
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50 |
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51 |
1
PART 1 – FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Operations
(Unaudited – In millions, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Transition service agreement income |
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Operating expenses: |
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Selling, general and administrative |
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Research and development |
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Amortization of purchased intangible assets |
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Restructuring costs (credits), net |
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Asset impairments |
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Total operating expenses |
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Operating income (loss) |
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Other income (expense), net |
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Interest expense |
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Interest income |
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Loss from continuing operations before income taxes |
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Income tax (expense) benefit |
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( |
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( |
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Loss from continuing operations |
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( |
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( |
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( |
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( |
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Income (loss) from discontinued operations, net of income |
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( |
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( |
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Net loss |
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( |
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( |
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( |
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( |
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Series A convertible preferred stock dividends |
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( |
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( |
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( |
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( |
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Net loss attributable to common stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Basic: |
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Loss from continuing operations per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Earnings (loss) from discontinued operations per share |
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( |
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( |
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Loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Diluted: |
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Loss from continuing operations per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Earnings (loss) from discontinued operations per share |
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( |
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( |
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Loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See notes to unaudited condensed consolidated financial statements. |
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2
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited – In millions)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Comprehensive income (loss): |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation gain (loss) |
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( |
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( |
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Pension and other postretirement benefit activity |
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Gain (loss) on hedging instruments |
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( |
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( |
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Total other comprehensive income (loss), net of tax |
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( |
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( |
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Total comprehensive income (loss) |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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See notes to unaudited condensed consolidated financial statements. |
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3
CommScope Holding Company, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share amounts)
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Unaudited |
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December 31, 2023 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for doubtful accounts |
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Inventories, net |
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Prepaid expenses and other current assets |
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Current assets held for sale |
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Total current assets |
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Property, plant and equipment, net of accumulated depreciation |
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Goodwill |
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Other intangible assets, net |
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Deferred income taxes |
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Other noncurrent assets |
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Noncurrent assets held for sale |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Deficit |
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Accounts payable |
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$ |
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$ |
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Accrued and other liabilities |
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Current portion of long-term debt |
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Current liabilities held for sale |
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Total current liabilities |
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Long-term debt |
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Deferred income taxes |
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Other noncurrent liabilities |
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Noncurrent liabilities held for sale |
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Total liabilities |
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Series A convertible preferred stock, $ |
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Stockholders' deficit: |
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Preferred stock, $ |
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Issued and outstanding shares: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Treasury stock, at cost: |
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( |
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( |
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Total stockholders' deficit |
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( |
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( |
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Total liabilities and stockholders' deficit |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
4
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Cash Flows (1)
(Unaudited – In millions)
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Nine Months Ended |
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September 30, |
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2024 |
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2023 |
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Operating Activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash generated by (used in) operating activities: |
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Depreciation and amortization |
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Equity-based compensation |
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Deferred income taxes |
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( |
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Asset impairments |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
) |
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Inventories |
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Prepaid expenses and other assets |
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( |
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Accounts payable and other liabilities |
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( |
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Other |
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( |
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Net cash generated by (used in) operating activities |
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( |
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Investing Activities: |
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Additions to property, plant and equipment |
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( |
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( |
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Proceeds from sale of property, plant and equipment |
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Acquisition of a business |
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( |
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Other |
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Net cash generated by (used in) investing activities |
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( |
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Financing Activities: |
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Long-term debt repaid |
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( |
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( |
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Long-term debt repurchases |
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( |
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Tax withholding payments for vested equity-based compensation awards |
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( |
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( |
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Other |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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( |
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Change in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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(1) The cash flows related to discontinued operations have not been segregated. Accordingly, the Condensed Consolidated Statements of Cash Flows include the results of continuing and discontinued operations. |
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See notes to unaudited condensed consolidated financial statements. |
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5
CommScope Holding Company, Inc. |
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Condensed Consolidated Statements of Stockholders' Deficit |
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(Unaudited – In millions, except share amounts) |
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Number of common shares outstanding: |
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Balance at beginning of period |
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Issuance of shares under equity-based compensation plans |
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Shares surrendered under equity-based compensation plans |
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( |
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( |
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( |
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( |
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Balance at end of period |
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Common stock: |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Issuance of shares under equity-based compensation plans |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Additional paid-in capital: |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Equity-based compensation |
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Dividends on Series A convertible preferred stock |
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( |
) |
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( |
) |
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( |
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( |
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Other |
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( |
) |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Accumulated deficit: |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Net loss |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Balance at end of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Accumulated other comprehensive loss: |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Other comprehensive income (loss), net of tax |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Treasury stock, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net shares surrendered under equity-based compensation |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Total stockholders' deficit |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
See notes to unaudited condensed consolidated financial statements. |
|
|||||||||||||||
6
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
1. BACKGROUND AND BASIS OF PRESENTATION
Background
CommScope Holding Company, Inc., along with its direct and indirect subsidiaries (CommScope or the Company), is a global provider of infrastructure solutions for communication, data center and entertainment networks. The Company’s solutions for wired and wireless networks enable service providers, including cable, telephone and digital broadcast satellite operators and media programmers, to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant wireless and wired connectivity across complex and varied networking environments. The Company’s solutions are complemented by services including technical support, systems design and integration. CommScope is a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. CommScope’s global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale.
On July 18, 2024, the Company entered into a definitive agreement with Amphenol Corporation, a Delaware corporation (Amphenol), pursuant to which Amphenol has agreed to acquire the Company’s Outdoor Wireless Networks (OWN) segment and the Distributed Antenna Systems (DAS) business unit of its Networking, Intelligent Cellular & Security Solutions (NICS) segment in exchange for approximately $
The Company completed the acquisition of certain assets of Casa Systems, Inc. and its subsidiaries (Casa) on June 7, 2024 (the Casa Transaction). As part of the Casa Transaction, the Company acquired certain assets (the Casa Assets) and assumed certain specified liabilities (the Casa Liabilities) of Casa. The sale was conducted pursuant to the bid procedures (the Bid Procedures) established in the chapter 11 cases of Casa Systems, Inc. and certain affiliates in the United States (U.S.) Bankruptcy Court for the District of Delaware (the Bankruptcy Court). Pursuant to the Bid Procedures, the Company was designated as the successful bidder following an auction held on May 29, 2024. On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to the Company pursuant to section 363 of the U.S. Bankruptcy Code (subject to the terms thereof). The sale closed on June 7, 2024 and, at such time, the Company funded the purchase price of $
On January 9, 2024, the Company completed the sale of its Home Networks (Home) segment and substantially all of the associated segment assets and liabilities (Home business) to Vantiva SA (Vantiva) pursuant to the Call Option Agreement entered into on October 2, 2023 and Purchase Agreement dated as of December 7, 2023. In the fourth quarter of 2023, the Company determined the sale of the Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with accounting guidance. All prior period amounts in these condensed consolidated financial statements have been recast to reflect the discontinuation of the Home business.
The discussions in these condensed consolidated financial statements relate solely to the Company’s continuing operations, unless otherwise noted. As a result, the Company is reporting financial performance based on the following remaining three operating segments, which excludes the OWN segment, DAS business unit in NICS and Home business: Connectivity and Cable Solutions (CCS), NICS (excluding DAS) and ANS. See Note 3 for further discussion of the discontinued operations related to the OWN segment, DAS business unit and Home business.
7
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of the interim period financial statements. The results of operations for these interim periods are not necessarily indicative of the results of operations to be expected for any future period or the full fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.
As of January 1, 2024, management shifted certain product lines from the Company’s CCS segment to its ANS segment to better align with how the businesses are managed. All prior period amounts in these condensed consolidated financial statements have been recast to reflect these operating segment changes.
The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and are presented in accordance with the applicable requirements of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the 2023 Annual Report). The significant accounting policies followed by the Company are set forth in Note 2 within the Company’s audited consolidated financial statements included in the 2023 Annual Report. There were no material changes in the Company’s significant accounting policies during the three or nine months ended September 30, 2024.
Liquidity
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2024, the Company has $
Proceeds of approximately $
Concurrently, the Company is negotiating with creditors to explore both restructuring and/or refinancing of the 2025 Notes. No commitments have been obtained regarding this alternative as of the filing date, although it remains part of the Company’s plans to mitigate conditions that give rise to substantial doubt about the Company’s ability to operate as a going concern.
Management has assessed its plan to mitigate the conditions that give rise to substantial doubt and, considering the pending sale of the Company’s OWN segment and DAS business unit, management believes such plan is probable and will alleviate substantial doubt about the Company’s ability to operate as a going concern.
Concentrations of Risk and Related Party Transactions
The Company relies on sole suppliers or a limited group of suppliers for certain key components, subassemblies and modules and a limited group of contract manufacturers to manufacture a significant portion of its products. Any disruption or termination of these arrangements could have a material adverse impact on the Company’s results of operations.
8
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
As of September 30, 2024, funds affiliated with Carlyle Partners VII S1 Holdings, L.P. (Carlyle) owned
Commitments and Contingencies
Product Warranties
The Company recognizes a liability for the estimated claims that may be paid under its customer assurance-type warranty agreements to remedy potential deficiencies of quality or performance of the Company’s products.
The following table summarizes the activity in the product warranty accrual, included in accrued and other liabilities and other noncurrent liabilities on the Condensed Consolidated Balance Sheets:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Product warranty accrual, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for warranty claims |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warranty claims paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Product warranty accrual, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-cancellable Purchase Obligations
In the third quarter of 2023, the Company entered into a long-term supply contract with a third-party to secure the supply of certain raw materials. Under the terms of the contract, the Company will make advance payments through 2026 totaling $
Legal Proceedings
The Company is party to certain intellectual property claims and also periodically receives notices asserting that its products infringe on another party’s patents and other intellectual property rights. These claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages or royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to indemnify certain customers for costs related to products sold to such customers. The outcome of these claims and notices is uncertain, and a reasonable estimate of the loss from unfavorable outcomes in certain of these matters either cannot be determined or is estimated at the minimum amount of a range of estimates. The actual loss, through settlement or trial, could be material and may vary significantly from the Company’s estimates. From time to time, the Company may also be involved as a plaintiff in certain intellectual property claims. Gain contingencies, if any, are recognized when they are realized.
The Company is also either a plaintiff or a defendant in certain other pending legal matters in the normal course of business. Management believes none of these other pending legal matters will have a material adverse effect on the Company’s business or financial condition upon final disposition.
9
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The Company is subject to various federal, state, local and foreign laws and regulations governing the use, discharge, disposal and remediation of hazardous materials. Compliance with current laws and regulations has not had, and is not expected to have, a material adverse effect on the Company’s financial condition or results of operations.
Asset Impairments
Goodwill
Goodwill is tested for impairment annually or at other times if events have occurred or circumstances exist that indicate the carrying value of the reporting unit may exceed its fair value. As of January 1, 2024, the Company assessed goodwill for impairment due to a change in the composition of reporting units as a result of the new segment structure and certain other intrasegment realignments. The Company performed impairment testing immediately before and after the change and determined that no goodwill impairment existed. As of the most recent impairment test on January 1, 2024, the implied fair value of the Enterprise and ANS reporting units exceeded its respective carrying amount by
During the third quarter of 2023, the Company concluded that a triggering event occurred, primarily due to a sustained decrease in the market value of the Company’s debt and common stock affecting the overall business and changes in expected future cash flows due to reduced earnings forecasts and current macroeconomic conditions, including a rising interest rate environment. The Company performed an interim quantitative goodwill impairment test as of September 30, 2023 for its ANS and Building and Data Center Connectivity (BDCC) reporting units, which were most sensitive to negative performance and outlook, to compare the fair values of the reporting units to their carrying amounts, including the goodwill. As a result, for the three and nine months ended September 30, 2023, the Company recorded a goodwill impairment charge of $
Subsequently, the Company’s ANS and BDCC reporting units failed the annual goodwill impairment test, and partial impairments were recorded as of October 1, 2023.
As a result of the new segment structure and certain other intrasegment realignments, as of January 1, 2024, the BDCC and Network Cable and Connectivity (NCC) reporting units are being referred to as Enterprise and Broadband, respectively, which are both in the CCS reportable segment.
Considering the low headroom going forward for each of the ANS and Enterprise reporting units, there is a risk for future impairment in the event of declines in general economic, market or business conditions or any significant unfavorable change in the forecasted cash flows, weighted average cost of capital or growth rates. If current and long-term projections for the ANS and Enterprise reporting units are not realized or decrease materially, the Company may be required to recognize additional goodwill impairment charges, and these charges could be material to the Company’s results of operations.
Long-lived Assets
Long-lived assets, which include property, plant and equipment, intangible assets with finite lives and right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable, based on the undiscounted cash flows expected to be derived from the use and ultimate disposition of the assets. Assets identified as impaired are adjusted to estimated fair value. Equity investments without readily determinable fair values are evaluated each reporting period for impairment based on a qualitative assessment and are then measured at fair value if an impairment is determined to exist. Other than certain assets impaired as a result of restructuring actions and as part of discontinued operations, there were
10
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Income Taxes
For the three and nine months ended September 30, 2024, the Company recognized income tax expense of $
For the three and nine months ended September 30, 2023, the Company recognized an income tax benefit of $
Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS) from continuing operations is computed by dividing income (loss) from continuing operations, less any dividends and deemed dividends related to the Convertible Preferred Stock, by the weighted average number of common shares outstanding during the period. The numerator in diluted EPS from continuing operations is based on the basic EPS from continuing operations numerator, adjusted to add back any dividends and deemed dividends related to the Convertible Preferred Stock, subject to antidilution requirements. The denominator used in diluted EPS from continuing operations is based on the basic EPS computation plus the effect of potentially dilutive common shares related to the Convertible Preferred Stock and equity-based compensation plans, subject to antidilution requirements.
Basic EPS from discontinued operations is computed by dividing income (loss) from discontinued operations, net of income taxes by the weighted average number of common shares outstanding during the period. The numerator in diluted EPS from discontinued operations is the same as the basic EPS from discontinued operations numerator. The denominator used in diluted EPS from discontinued operations is based on the basic EPS computation plus the effect of potentially dilutive common shares related to the Convertible Preferred Stock and equity-based compensation plans, subject to antidilution requirements.
For the three and nine months ended September 30, 2024,
For the three and nine months ended September 30, 2024,
11
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table presents the basis for the EPS computations (in millions, except per share data):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Dividends on Series A convertible preferred stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding – basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of as-if converted Series A convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of equity-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding – diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from continuing operations per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Earnings (loss) from discontinued operations per share |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from continuing operations per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Earnings (loss) from discontinued operations per share |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Recent Accounting Pronouncements
Adopted During the Nine Months Ended September 30, 2024
On January 1, 2024, the Company adopted the rollforward disclosure requirement of Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The new guidance improves the transparency of supplier finance programs by requiring that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information about the program to allow a user of its financial statements to understand the program’s nature, activity during the period, changes from period to period and potential effect on an entity’s financial statements. The requirement to disclose rollforward information was effective prospectively for the Company as of January 1, 2024. The impact of adopting this new guidance was not material to the condensed consolidated financial statements and related disclosures.
Issued but Not Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance is expected to improve income tax disclosures by requiring additional information related to the rate reconciliation and income taxes paid, including 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) disaggregation of income taxes paid by jurisdiction. The guidance is effective for the Company on a prospective basis, although retrospective application is permitted, as of January 1, 2025 for the annual period. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on the condensed consolidated financial statements.
12
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance is expected to improve reportable segment disclosure requirements primarily through enhanced disclosures for significant segment expenses. The guidance is effective for the Company on a retrospective basis as of January 1, 2024 for the annual period and January 1, 2025 for the interim periods. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on the condensed consolidated financial statements.
2. ACQUISITIONS
On June 7, 2024, the Company completed the acquisition of certain assets of Casa Systems, Inc. and its subsidiaries (Casa), which provides telecommunication infrastructure equipment and software-centric infrastructure solutions that allow cable service providers to deliver voice, video and data services over a single platform. The acquired assets included, among other things, accounts receivable, specified inventory, intellectual property and intellectual property rights, certain specified contracts, including facility leases, equipment and other personal property (collectively, the Casa Assets). As part of the Casa Transaction, the Company assumed certain specified liabilities, including certain cure costs related to assumed contracts and liabilities under such contracts and relating to the employment of continuing employees, in each case, arising after the consummation of the acquisition (collectively, the Casa Liabilities).
The sale was conducted pursuant to the Bid Procedures established in the chapter 11 cases of Casa Systems, Inc. and certain affiliates in the Bankruptcy Court. Pursuant to the Bid Procedures, the Company was designated as the successful bidder following an auction held on May 29, 2024. On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to the Company pursuant to section 363 of the U.S. Bankruptcy Code (subject to the terms thereof). The sale closed on June 7, 2024 and, at such time, the Company funded the purchase price of $
The Company plans to integrate this strategic acquisition into its ANS segment and expects the acquisition to strengthen its ANS segment’s position by enhancing its virtual CMTS and PON product offerings, which will enable customers to migrate to DAA solutions at their own speed, and further grow its customer base.
The Company recorded the purchase of the Casa Transaction using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, and, accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of acquisition. As of September 30, 2024, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the validation of the underlying cash flows used to determine the fair value of the identified intangible assets. The final determination of the fair value of certain assets and liabilities will be completed within the one-year measurement period from the date of acquisition, which is necessary to adequately analyze all the factors used in establishing the asset and liability fair values as of the acquisition date, including, but not limited to intangible assets, accounts receivable, inventory and personal property.
13
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed in the Casa Transaction as of the acquisition date:
|
|
Amounts Recognized as of Acquisition Date |
|
|
Q3 Measurement Period Adjustments |
|
|
Amounts Recognized as of Acquisition Date (As Adjusted) |
|
|||
Purchase price |
|
|
|
|
|
|
|
|
|
|||
Total cash consideration paid |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|||
Accounts receivable, net (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Inventories, net |
|
|
|
|
|
( |
) |
|
|
|
||
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|||
Goodwill |
|
|
|
|
|
|
|
|
|
|||
Identifiable intangible assets |
|
|
|
|
|
( |
) |
|
|
|
||
Other noncurrent assets |
|
|
|
|
|
( |
) |
|
|
|
||
Less: Liabilities assumed |
|
|
|
|
|
|
|
|
|
|||
Accounts payable and accrued and |
|
|
|
|
|
|
|
|
|
|||
Other noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|||
Fair value allocated to net assets acquired |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The impact of measurement period adjustments to the Condensed Consolidated Statements of Operations was immaterial for the three and nine months ended September 30, 2024.
The goodwill arising from the Casa Transaction is believed to result from the company’s reputation in the marketplace and assembled workforce and is expected to be fully deductible for income tax purposes.
Various valuation techniques which use significant unobservable inputs, or Level 3 inputs as defined by the fair value hierarchy, were used to estimate the fair value of the assets acquired and the liabilities assumed. Using these valuation approaches requires the Company to make certain estimates and assumptions. The estimated fair values are expected to change as the Company completes its valuation analyses of the assets acquired and liabilities assumed.
The table below summarizes the preliminary valuations of the intangible assets acquired that were determined by management to meet the criteria for recognition apart from goodwill and determined to have finite lives. The values presented below are preliminary estimates and are subject to change as management completes its valuation of the Casa Transaction:
|
|
Estimated Fair Value |
|
|
Weighted Average Estimated Useful Life |
|
Customer relationships |
|
$ |
|
|
||
Existing technology |
|
|
|
|
||
Total amortizable intangible assets |
|
$ |
|
|
|
|
The Company recorded $
The Company recognized $
14
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
3. DISCONTINUED OPERATIONS
On July 18, 2024, the Company entered into a definitive agreement with Amphenol, pursuant to which Amphenol has agreed to acquire the Company’s OWN segment and the DAS business unit of its NICS segment in exchange for approximately $
The OWN segment and DAS business unit qualified as “held for sale” per ASC 360-10 in the third quarter of 2024 and were classified as a discontinued operation per ASC 205-20, as the Company determined, qualitatively and quantitatively, that this transaction represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. As such, activity directly attributable to the OWN segment and DAS business unit has been removed from continuing operations and presented in income (loss) from discontinued operations, net of income taxes, on the Condensed Consolidated Statements of Operations for all periods presented. In addition, all assets and liabilities of the OWN segment and DAS business unit were classified as assets and liabilities held for sale on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023.
On January 9, 2024, the Company completed the sale of the Home business to Vantiva pursuant to the Call Option Agreement entered into on October 2, 2023 and the Purchase Agreement dated as of December 7, 2023, in exchange for (i)
The Home business qualified as “held for sale” per ASC 360-10 in the fourth quarter of 2023 and was classified as a discontinued operation per ASC 205-20, as the Company determined, qualitatively and quantitatively, that this transaction represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. As such, activity directly attributable to the Home business has been removed from continuing operations and presented in income (loss) from discontinued operations, net of income taxes, on the Condensed Consolidated Statements of Operations for all periods presented. In addition, all assets and liabilities of the Home business were classified as assets and liabilities held for sale on the Consolidated Balance Sheets as of December 31, 2023, and in connection with the “held for sale” classification, the Company recognized a loss on classification as held for sale of $
In conjunction with the closing of the Home business transaction, the Company entered into a transition service agreement with Vantiva (Vantiva TSA), whereby the Company provides and receives certain post-closing support on a transitional basis which is included in continuing operations in transition service agreement income. The terms of the Vantiva TSA vary based on the services provided thereunder, with the longest such term having a duration of sixteen months. The Vantiva TSA provides options to extend services for up to two renewal terms of three months each. Following the closing of the transaction, the Company also entered into a Supply Agreement with Vantiva (Vantiva Supply Agreement), whereby the Company sells certain retained inventory at cost, or market price if below cost, for a period of two years. The Company’s investment in Vantiva is accounted for using the equity method of accounting, and the carrying value of the investment is included in other noncurrent assets in the Condensed Consolidated Balance Sheets. The Company recognized a loss on its investment of $
During the first quarter of 2024, the Company recorded a $
15
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table presents the summarized components of income (loss) from discontinued operations, net of income taxes for the three months ended September 30, 2023 and 2024:
|
OWN |
|
|
DAS |
|
|
Home |
|
|
Total |
|
||||||||||||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gross profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of purchased intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Restructuring costs (credits), net |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||||
Asset impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Other income (expense), net |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Income (loss) from operations of discontinued |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Loss on disposal of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||||||
Income tax (expense) benefit |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income (loss) from discontinued operations, net |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||
The following table presents the summarized components of income (loss) from discontinued operations, net of income taxes for the nine months ended September 30, 2023 and 2024:
|
OWN |
|
|
DAS |
|
|
Home |
|
|
Total |
|
||||||||||||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Cost of sales (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gross profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of purchased intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Restructuring costs (credits), net |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Asset impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Other income (expense), net (2) |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Income (loss) from operations of discontinued |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Loss on disposal of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||||||
Income tax (expense) benefit |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income (loss) from discontinued operations, net |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||
16
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table presents balance sheet information for assets and liabilities held for sale related to the discontinued operations:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventories, net |
|
|
|
|
|
|
||
Prepaid expenses and other |
|
|
|
|
|
|
||
Property, plant, and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Other intangible assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Loss on classification of held for sale |
|
|
|
|
|
( |
) |
|
Total current assets held for sale |
|
$ |
|
|
$ |
|
||
Property, plant, and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Other intangible assets, net |
|
|
|
|
|
|
||
Other noncurrent assets |
|
|
|
|
|
|
||
Total noncurrent assets |
|
|
|
|
|
|
||
Total assets held for sale |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued and other liabilities |
|
|
|
|
|
|
||
Total current liabilities held for sale |
|
$ |
|
|
$ |
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Other noncurrent liabilities |
|
|
|
|
|
|
||
Total noncurrent liabilities |
|
|
|
|
|
|
||
Total liabilities held for sale |
|
$ |
|
|
$ |
|
||
The following table presents the details of the loss on disposal of Home business:
|
|
January 9, 2024 |
|
|
Consideration received (net of cash acquired): |
|
|
|
|
Fair value of shares issued to seller |
|
$ |
|
|
Total disposal consideration |
|
|
|
|
Carrying value of net assets sold |
|
|
( |
) |
Loss on disposal of Home business before income taxes |
|
|
( |
) |
Reclassification of foreign currency translation |
|
|
( |
) |
Loss on disposal of Home business before income taxes |
|
|
( |
) |
Income tax expense |
|
|
( |
) |
Loss on disposal of Home business, net of income taxes |
|
$ |
( |
) |
17
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The cash flows related to discontinued operations have not been segregated in the Condensed Consolidated Statements of Cash Flows, and accordingly, they include the results from continuing and discontinued operations. The Company’s cash inflows related to the Vantiva TSA and inventory sales resulting from the Home business transaction, as described above, were $
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Loss on disposal of Home business |
|
$ |
|
|
$ |
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Asset impairments |
|
|
|
|
|
|
||
Loss on equity investment |
|
|
|
|
|
|
||
Equity-based compensation |
|
|
|
|
|
|
||
Capital expenditures |
|
|
|
|
|
|
||
The Company also recorded a partial impairment of $
4. GOODWILL
The following table presents the activity in goodwill by reportable segment:
|
|
December 31, 2023 |
|
|
Activity |
|
|
September 30, 2024 |
|
|||||||||||||||||||
|
|
Goodwill |
|
|
Accumulated Impairment Losses |
|
|
Total |
|
|
Foreign Exchange and Other |
|
|
Goodwill |
|
|
Accumulated Impairment Losses |
|
|
Total |
|
|||||||
CCS |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
NICS |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
ANS |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Goodwill at December 31, 2023 reflects the reorganization of the Company’s segment structure, as disclosed in Note 1. As a result of the new segment structure and certain other intrasegment realignments, as of January 1, 2024, the Company assessed goodwill for impairment due to changes in the composition of certain reporting units. The Company performed impairment testing immediately before the change and after the change once goodwill was reallocated and determined that no goodwill impairment existed.
Additional goodwill of $
For the quarter ended September 30,2024, the Company completed an impairment analysis for goodwill recorded within the NICS reporting unit, which is impacted by the pending divestiture of the DAS business. The quantitative assessment was used, and the Company determined that the fair value of the impacted reporting unit exceeded the carrying value and that
18
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
During the third quarter of 2023, the Company concluded that a triggering event occurred, primarily due to a sustained decrease in the market value of the Company’s debt and common stock affecting the overall business and changes in expected future cash flows due to reduced earnings forecasts and current macroeconomic conditions, including a rising interest rate environment. As a result, the Company performed an interim quantitative goodwill impairment test as of September 30, 2023 for its ANS and BDCC reporting units and recorded a goodwill impairment charge of $
5. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Net Sales
See Note 9 for the presentation of net sales by segment and geographic region.
Allowance for Doubtful Accounts
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Allowance for doubtful accounts, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision (benefit) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Write-offs |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Foreign exchange and other |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Allowance for doubtful accounts, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Customer Contract Balances
The following table provides the balance sheet location and amounts of contract assets, or unbilled accounts receivable, and contract liabilities, or deferred revenue, from contracts with customers:
Contract Balance Type |
|
Balance Sheet Location |
|
September 30, |
|
|
December 31, 2023 |
|
||
Unbilled accounts receivable |
|
Accounts receivable, net of allowance for doubtful accounts |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Deferred revenue - current |
|
Accrued and other liabilities |
|
$ |
|
|
$ |
|
||
Deferred revenue - noncurrent |
|
Other noncurrent liabilities |
|
|
|
|
|
|
||
Total contract liabilities |
|
|
|
$ |
|
|
$ |
|
||
There were no material changes to contract asset balances for the nine months ended September 30, 2024 as a result of changes in estimates or impairments. The change in the contract liability balance from December 31, 2023 to September 30, 2024 was primarily due to upfront support billings to be recognized over the support term. During the three and nine months ended September 30, 2024, the Company recognized $
6. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Accounts Receivable
|
|
September 30, |
|
|
December 31, |
|
||
Accounts receivable - trade |
|
$ |
|
|
$ |
|
||
Accounts receivable - other |
|
|
|
|
|
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Total accounts receivable, net |
|
$ |
|
|
$ |
|
||
19
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Inventories
|
|
September 30, |
|
|
December 31, |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventories, net |
|
$ |
|
|
$ |
|
||
Accrued and Other Liabilities
|
|
September 30, |
|
|
December 31, |
|
||
Compensation and employee benefit liabilities |
|
$ |
|
|
$ |
|
||
Deferred revenue |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
||
Product warranty accrual |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued and other liabilities |
|
$ |
|
|
$ |
|
||
Operating Lease Information
|
Balance Sheet Location |
|
September 30, |
|
|
December 31, |
|
||
Other noncurrent assets |
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
||
Accrued and other liabilities |
|
$ |
|
|
$ |
|
|||
Other noncurrent liabilities |
|
|
|
|
|
|
|||
Total lease liabilities |
|
|
$ |
|
|
$ |
|
||
20
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Accumulated Other Comprehensive Loss
The following table presents changes in accumulated other comprehensive loss (AOCL), net of tax:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from AOCL |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Defined benefit plan activity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net AOCL at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
During the nine months ended September 30, 2024, the amount reclassified from net AOCL related to foreign currency translation was recorded in the loss on disposal of the Home business, included in income (loss) from discontinued operations, net of income taxes, on the Condensed Consolidated Statements of Operations.
Cash Flow Information
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash paid during the period for: |
|
|
|
|
|
|
||
Income taxes, net of refunds |
|
$ |
|
|
$ |
|
||
Interest |
|
|
|
|
|
|
||
Non-cash investing activities: |
|
|
|
|
|
|
||
Equity method investment from divestiture |
|
|
|
|
|
|
||
21
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
7. FINANCING
|
|
September 30, |
|
|
December 31, |
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Senior secured term loan due |
|
|
|
|
|
|
||
Senior secured revolving credit facility |
|
|
|
|
|
|
||
Total principal amount of debt |
|
|
|
|
|
|
||
Less: Original issue discount, net of amortization |
|
|
( |
) |
|
|
( |
) |
Less: Debt issuance costs, net of amortization |
|
|
( |
) |
|
|
( |
) |
Less: Current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
$ |
|
|
$ |
|
||
The 2025 Notes will mature in less than twelve months and have been reclassified to the current portion of long-term debt from long-term debt in the Condensed Consolidated Balance Sheets as of September 30, 2024. See Note 8 within the Company’s audited consolidated financial statements included in the 2023 Annual Report for additional information on the terms and conditions of the Company’s debt obligations.
Senior Secured Credit Facilities
During the three and nine months ended September 30, 2024, the Company made the quarterly scheduled amortization payments totaling $
As of September 30, 2024, the Company did not reflect any portion of the 2026 Term Loan as a current portion of long-term debt related to the potentially required excess cash flow payment because the amount that may be payable in 2024, if any, cannot currently be reliably estimated. There is no excess cash flow payment required in 2024 related to 2023.
During the nine months ended September 30, 2024, the Company did
Other Matters
The Company’s non-guarantor subsidiaries held $
The weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap contracts and the amortization of debt issuance costs and original issue discount, was
22
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
8. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, debt instruments, interest rate swap contracts and foreign currency contracts. For cash and cash equivalents, trade receivables and trade payables, the carrying amounts of these financial instruments as of September 30, 2024 and December 31, 2023 were considered representative of their fair values due to their short terms to maturity. The fair values of the Company’s debt instruments, interest rate swap contracts and foreign currency contracts were based on indicative quotes.
Fair value measurements using quoted prices in active markets for identical assets and liabilities fall within Level 1 of the fair value hierarchy, measurements using significant other observable inputs fall within Level 2, and measurements using significant unobservable inputs fall within Level 3.
The carrying amounts, estimated fair values and valuation input levels of the Company’s debt instruments, interest rate swap contracts and foreign currency contracts as of September 30, 2024 and December 31, 2023, are as follows:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
|
||||||||||
|
|
Carrying |
|
|
Fair Value |
|
|
Carrying |
|
|
Fair Value |
|
|
Valuation |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Level 2 |
||||
Interest rate swap contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
7.125% senior notes due 2028 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Level 2 |
||||
5.00% senior notes due 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
8.25% senior notes due 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
6.00% senior notes due 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
4.75% senior secured notes due 2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
6.00% senior secured notes due 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
Senior secured term loan due 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
Foreign currency contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
Interest rate swap contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
Non-Recurring Fair Value Measurements
The Company recorded the assets acquired and liabilities assumed from the Casa Transaction during the second quarter of 2024, as well as the respective measurement adjustments in the third quarter of 2024. The fair values were determined using Level 3 valuation inputs. See Note 2 in these unaudited condensed consolidated financial statements.
During the first quarter of 2024, the Company recognized a loss on impairment of unutilized real estate within restructuring costs, net on the Condensed Consolidated Statements of Operations. The fair value was determined using Level 3 valuation inputs. See Note 10 in these unaudited condensed consolidated financial statements.
In the third quarter of 2023, a goodwill impairment charge of $
These fair value estimates are based on pertinent information available to management as of the valuation date. Although management is not aware of any factors that would significantly affect these fair value estimates, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from the amounts presented.
23
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
9. SEGMENTS AND GEOGRAPHIC INFORMATION
As a result of the pending sale of the OWN segment and DAS business unit, and the divestiture of the Home business, the Company is reporting financial performance based on the following remaining three operating segments: CCS, NICS (excluding DAS) and ANS. In addition, as of January 1, 2024, management shifted certain product lines from the Company’s CCS segment to its ANS segment to better align with how the businesses are managed. For all periods presented, amounts have been recast to reflect these operating segment changes.
The CCS segment provides fiber optic and copper connectivity and cable solutions for use in telecommunications, cable television, residential broadband networks, data centers and business enterprises. The CCS portfolio includes network solutions for indoor and outdoor network applications. Indoor network solutions include optical fiber and twisted pair structured cable solutions, intelligent infrastructure management hardware and software and network rack and cabinet enclosures. Outdoor network solutions are used in both local-area and wide-area networks and “last mile” fiber-to-the-home installations, including deployments of fiber-to-the-node, fiber-to-the-premises and fiber-to-the-distribution point to homes, businesses and cell sites.
The NICS segment provides wireless networks for enterprises and service providers. Product offerings include indoor cellular solutions such as public key infrastructure solutions, indoor and outdoor Wi-Fi and long-term evolution (LTE) access points, access and aggregation switches; an Internet of Things suite; on-premises and cloud-based control and management systems; and software and software-as-a-service applications addressing security, location, reporting and analytics.
The ANS segment’s product solutions include cable modem termination systems, video infrastructure, distribution and transmission equipment and cloud solutions that enable facility-based service providers to construct a state-of-the-art residential and metro distribution network.
The following table provides summary financial information by reportable segment:
|
|
September 30, |
|
|
December 31, |
|
||
Identifiable segment-related assets: |
|
|
|
|
|
|
||
CCS |
|
$ |
|
|
$ |
|
||
NICS |
|
|
|
|
|
|
||
ANS |
|
|
|
|
|
|
||
Corporate and other |
|
|
|
|
|
|
||
Total identifiable segment-related assets |
|
|
|
|
|
|
||
Reconciliation to total assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Deferred income tax assets |
|
|
|
|
|
|
||
Home business assets |
|
|
|
|
|
|
||
Assets held for sale |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
The Home business assets line item above reflects certain assets retained by the Company related to the Home business, with the primary asset being net inventory related to the Home business in the amount of $
The Company’s measurement of segment performance is adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization). The Company defines adjusted EBITDA as operating income (loss), adjusted to exclude depreciation, amortization of intangible assets, restructuring costs, asset impairments, equity-based compensation, transaction, transformation and integration costs and other items that the Company believes are useful to exclude in the evaluation of operating performance from period to period because these items are not representative of the Company’s recurring business.
24
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table provides net sales, adjusted EBITDA, depreciation expense and additions to property, plant and equipment by reportable segment:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CCS |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NICS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ANS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CCS |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NICS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ANS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate and other (1) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total segment adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of intangible assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Restructuring (costs) credits, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Equity-based compensation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Asset impairments |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Transaction, transformation and integration costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Acquisition accounting adjustments |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Patent claims and litigation settlements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recovery of Russian accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cyber incident costs |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Consolidated operating income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CCS |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NICS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ANS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate and other (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated depreciation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Additions to property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CCS |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NICS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ANS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate and other (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated additions to property, plant and equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
25
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Sales to customers located outside of the U.S. comprised
|
|
Three Months Ended September 30, 2024 |
|
|||||||||||||
|
|
CCS |
|
|
NICS |
|
|
ANS |
|
|
Total |
|
||||
Geographic Region: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe, Middle East and Africa |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Caribbean and Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||
|
|
CCS |
|
|
NICS |
|
|
ANS |
|
|
Total |
|
||||
Geographic Region: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe, Middle East and Africa |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Caribbean and Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Nine Months Ended September 30, 2024 |
|
|||||||||||||
|
|
CCS |
|
|
NICS |
|
|
ANS |
|
|
Total |
|
||||
Geographic Region: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe, Middle East and Africa |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Caribbean and Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||
|
|
CCS |
|
|
NICS |
|
|
ANS |
|
|
Total |
|
||||
Geographic Region: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe, Middle East and Africa |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Caribbean and Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10. RESTRUCTURING COSTS (CREDITS), NET
The Company incurs costs associated with restructuring initiatives intended to improve overall operating performance and profitability. The costs related to restructuring actions are generally cash-based and primarily consist of employee-related costs, which include severance and other one-time termination benefits.
In addition to the employee-related costs, the Company records other costs associated with restructuring actions, such as the gain or loss on the sale of facilities and impairment costs arising from unutilized real estate or equipment. The Company attempts to sell or lease this unutilized space, but additional impairment charges may be incurred related to these or other excess assets.
26
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The Company’s net pretax restructuring activity included in restructuring costs (credits), net on the Condensed Consolidated Statements of Operations, by segment, was as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
CCS |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
NICS |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
ANS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate and other |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The corporate and other line item above reflects general corporate restructuring costs that were previously allocated to the OWN segment, DAS business unit and Home segment. These indirect expenses have been classified as continuing operations, since the costs were not directly attributable to these discontinued operations. Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to the Company’s remaining segments. The corporate and other costs related to the OWN segment and DAS business unit will be reallocated to the Company’s remaining segments beginning in the first quarter of 2025.
Restructuring liabilities were included in the Company’s Condensed Consolidated Balance Sheets as follows:
|
|
September 30, |
|
|
December 31, |
|
||
Accrued and other liabilities |
|
$ |
|
|
$ |
|
||
Other noncurrent liabilities |
|
|
|
|
|
|
||
Total restructuring liabilities |
|
$ |
|
|
$ |
|
||
CommScope NEXT Restructuring Actions
In the first quarter of 2021, the Company announced and began implementing a business transformation initiative called CommScope NEXT. This initiative is designed to drive shareholder value through three pillars: profitable growth, operational efficiency and portfolio optimization.
|
|
Employee-Related Costs |
|
|
Other |
|
|
Total |
|
|||
Balance at June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additional expense (credits), net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Cash paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Third-party indemnification receivable (1) |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange and other non-cash items |
|
|
|
|
|
|
|
|
|
|||
Balance at September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Balance at December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additional expense, net |
|
|
|
|
|
|
|
|
|
|||
Cash paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Third-party indemnification receivable (1) |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange and other non-cash items |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
CommScope NEXT actions to date have included the closure of manufacturing, administration and warehouse facilities, as well as headcount reductions in other manufacturing locations and engineering, marketing, sales and administrative functions, and asset impairments associated with restructuring-related actions. During the three and nine months ended September 30, 2024, additional expenses were recorded for employee-related costs for severance. Other costs included the impairment of idled administration and engineering facilities during the three and nine months ended September 30, 2024.
27
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The Company has recognized restructuring charges of $
11. SERIES A CONVERTIBLE PREFERRED STOCK
On April 4, 2019, the Company issued and sold
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following narrative is an analysis of the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. The discussion is provided to increase the understanding of, and should be read in conjunction with, the unaudited condensed consolidated financial statements and accompanying notes included in this report as well as the audited consolidated financial statements, related notes thereto and management’s discussion and analysis of financial condition and results of operations, including management’s discussion and analysis regarding the application of critical accounting policies and the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report).
We discuss certain financial measures in management’s discussion and analysis of financial condition and results of operations, including adjusted EBITDA, that differ from measures calculated in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.). See "Reconciliation of Non-GAAP Measures" included below for more information about these non-GAAP financial measures, including our reasons for including the measures and material limitations with respect to the usefulness of the measures.
Overview
We are a global provider of infrastructure solutions for communication, data center and entertainment networks. Our solutions for wired and wireless networks enable service providers, including cable, telephone and digital broadcast satellite operators and media programmers, to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant wireless and wired connectivity across complex and varied networking environments. Our solutions are complemented by services including technical support, systems design and integration. We are a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. Our global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale.
We completed the acquisition of certain assets of Casa Systems, Inc. and its subsidiaries (Casa) on June 7, 2024 (the Casa Transaction). As part of the Casa Transaction, we acquired certain assets (the Casa Assets) and assumed certain specified liabilities (the Casa Liabilities) of Casa. The sale was conducted pursuant to the bid procedures (the Bid Procedures) established in the chapter 11 cases of Casa Systems, Inc. and certain affiliates in the U.S. Bankruptcy Court for the District of Delaware (the Bankruptcy Court). Pursuant to the Bid Procedures, we were designated as the successful bidder following an auction held on May 29, 2024. On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to us pursuant to section 363 of the U.S. Bankruptcy Code (subject to the terms thereof). The sale closed on June 7, 2024 and, at such time, we funded the purchase price of $45.1 million and settled certain assumed Casa Liabilities, with cash on hand. We plan to integrate this strategic acquisition into our Access Network Solutions (ANS) segment and expect the acquisition to strengthen our ANS segment’s position by enhancing its virtual cable modem termination systems and passive optical network product offerings, which will enable customers to migrate to distributed access architecture solutions at their own speed, and further grow our customer base. We recorded $0.4 million and $1.4 million of transaction and integration costs for both the three and nine months ended September 30, 2024, respectively, related to the Casa Transaction, and these costs were recognized in selling, general and administrative expense in the Condensed Consolidated Statements of Operations. See Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the Casa Transaction.
29
CommScope NEXT
Since 2021, we have been engaged in a transformation initiative referred to as CommScope NEXT, which is designed to drive shareholder value through three pillars: profitable growth, operational efficiency and portfolio optimization. We believe these efforts are critical to making us more competitive and allowing us to invest in growth, de-leverage our indebtedness and maximize stockholder and other stakeholder value in the future. In 2022, CommScope NEXT generated positive impacts on net sales, profitability and cash flow from our execution on pricing initiatives, capacity expansion and operational efficiencies. In 2023, we experienced headwinds related to a slow-down in spending by our customers as discussed further below, but we continued to execute under CommScope NEXT to improve our profitability and cash flows by continuing to drive operational efficiencies and focusing on portfolio optimization. We continue to focus on driving operational efficiencies and other cost savings initiatives as well as portfolio optimization, all of which should enable us to take advantage of the expected recovery in demand in the fourth quarter of 2024. To that end, we incurred $(0.9) million and $30.6 million of net restructuring costs (credits) and $19.5 million and $45.8 million of transaction, transformation and integration costs during the three and nine months ended September 30, 2024, respectively, primarily related to CommScope NEXT initiatives. In addition, we incurred $22.0 million and $43.1 million of net restructuring costs and $14.6 million and $17.7 million of transaction, transformation and integration costs during the three and nine months ended September 30, 2023, respectively. We expect to continue to incur such costs during the remainder of 2024 as we continue executing on CommScope NEXT initiatives, and the resulting charges and cash requirements could be material.
On July 18, 2024, we entered into a definitive agreement with Amphenol Corporation, a Delaware corporation (Amphenol), pursuant to which Amphenol has agreed to acquire our Outdoor Wireless Networks (OWN) segment and the Distributed Antenna Systems (DAS) business unit of our Networking, Intelligent Cellular & Security Solutions (NICS) segment in exchange for approximately $2.1 billion in cash, to be paid by Amphenol upon closing. The sale is expected to close within the first quarter of 2025, subject to customary closing conditions, including receipt of applicable regulatory approvals. We determined the anticipated sale of our OWN segment and DAS business unit met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Accounting Standards Codification (ASC) No. 360-10, Impairment and Disposal of Long–Lived Assets, and ASC No. 205-20, Presentation of Financial Statements: Discontinued Operations, in the third quarter of 2024 due to its relative size and strategic rationale. For all periods presented, amounts in these consolidated financial statements have been recast to reflect the discontinuation of our OWN segment and DAS business unit in accordance with guidance.
On January 9, 2024, we completed the sale of our Home Networks (Home) segment and substantially all of the associated segment assets and liabilities (Home business) to Vantiva SA (Vantiva) pursuant to the Call Option Agreement entered into on October 2, 2023 and the Purchase Agreement dated as of December 7, 2023. In the fourth quarter of 2023, we determined the sale of our Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with accounting guidance. All prior period amounts have been recast to reflect the discontinuation of our Home business.
Our continuing operations results include general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment. These indirect costs, reflected on the corporate and other line item within our segment information below, are classified as continuing operations, since they were not directly attributable to these discontinued operations. Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to our remaining segments and partially offset by income from our transition services agreement with Vantiva. The corporate and other costs related to the OWN segment and DAS business will be reallocated to our remaining segments beginning in the first quarter of 2025.
Additionally, below we refer to certain supplementary Core financial measures, which reflect the results of the CCS, NICS excluding DAS, and ANS segments, in the aggregate, and exclude general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment, since these costs were not directly attributable to the discontinued operations. The Core results represent the business results as currently managed and reported by the Company. Future results and the composition of any business divested in the future may vary and differ materially from the presentation of the Core financial measures. See the “Segment Results” section below for the aggregation of our Core financial measures.
Unless otherwise noted, the following discussions relate solely to our continuing operations. As a result, we are reporting financial performance based on the following remaining three operating segments, which excludes the OWN segment, DAS business unit in NICS and Home business: Connectivity and Cable Solutions (CCS), NICS (excluding DAS) and ANS. For further discussion of the discontinued operations related to our OWN segment, DAS business unit and Home business, see Note 3 in the Notes to Unaudited Condensed Consolidated Financial Statements.
As of January 1, 2024, we shifted certain product lines from our CCS segment to our ANS segment to better align with how the businesses are managed. All prior period amounts have been recast to reflect these operating segment changes.
30
Impacts of Current Economic Conditions
In 2023, macroeconomic factors such as higher interest rates, inflation and concerns about a global economic slow-down softened demand for our products, with certain customers reducing purchases as they right-sized their inventories and others pausing capital spending. This industry recession has continued to negatively impact our net sales in all segments for the first three quarters of 2024. We are beginning to see a recovery in demand in certain businesses and expect to see additional recovery in demand later in 2024.
In 2023, we began implementing additional cost savings initiatives to improve profitability, and we continued to implement further initiatives during the first three quarters of 2024. These initiatives should enable us to take advantage of the expected recovery in demand later in 2024. If this expected recovery does not occur in 2024, our outlook will be materially impacted.
For more discussion on risks related to our customers, see Part I, Item 1A, “Risk Factors” in our 2023 Annual Report.
CRITICAL ACCOUNTING POLICIES
Other than an update to the impairment reviews of goodwill, there have been no changes in our critical accounting policies as disclosed in our 2023 Annual Report.
Asset Impairment Reviews
Impairment Reviews of Goodwill
Our interim goodwill impairment test as of September 30, 2023 resulted in a partial impairment charge of $425.9 million for the ANS reporting unit. Our annual goodwill impairment test as of October 1, 2023, resulted in partial impairment charges of $99.1 million and $46.3 million for the Enterprise (previously Building and Data Center Connectivity) and ANS reporting units, respectively. As of the most recent interim impairment test on January 1, 2024, immediately before and after changes in the composition of those reporting units, the implied fair value of the Enterprise and ANS reporting units exceeded its respective carrying amount by 8% and 7%, respectively.
Considering the low headroom going forward for each of the ANS and Enterprise reporting units, management has continued to disclose the risk for future impairment in the event of declines in general economic, market or business conditions or any significant unfavorable change in the forecasted cash flows, weighted average cost of capital or growth rates. If current and long-term projections for the ANS and Enterprise reporting units are not realized or decrease materially, we may be required to recognize additional goodwill impairment charges, and these charges could be material to our results of operations.
Consistent with the information previously provided in our 2023 Annual Report, the following table provides summary information regarding our reporting units with goodwill balances as of January 1, 2024, that have the lowest level of headroom. The table presents key assumptions used in our interim goodwill analysis, along with sensitivity analyses showing the effect of a change in certain key assumptions, assuming all other assumptions remain constant, to the resulting fair value using an income approach.
|
|
Key Assumptions |
|
|
Goodwill |
|
|
Excess (Deficit) of Fair Value to Carrying Value |
|
|||||||||||||||||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Reporting |
|
Discount |
|
|
Terminal |
|
|
Balance at January 1, 2024 |
|
|
% of |
|
|
Result of Interim Goodwill Test as of January 1, 2024 |
|
|
Decrease of 10% in Cash Flows |
|
|
Decrease of 0.5% in Long-term Growth Rate |
|
|
Increase of 0.5% in Discount Rate |
|
||||||||
ANS |
|
|
14.0 |
% |
|
|
1.0 |
% |
|
$ |
261.4 |
|
|
|
2.8 |
% |
|
$ |
114.8 |
|
|
$ |
(38.6 |
) |
|
$ |
95.6 |
|
|
$ |
52.8 |
|
Enterprise |
|
|
11.0 |
% |
|
|
1.5 |
% |
|
|
742.3 |
|
|
|
7.9 |
% |
|
|
92.8 |
|
|
|
(35.1 |
) |
|
|
57.7 |
|
|
|
25.3 |
|
31
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 WITH THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|
|
|
||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
Amount |
|
|
% of Net |
|
|
Change |
|
|
% |
|
||||||
|
|
(dollars in millions, except per share amounts) |
|
|||||||||||||||||||||
Net sales |
|
$ |
1,082.2 |
|
|
|
100.0 |
% |
|
$ |
1,053.4 |
|
|
|
100.0 |
% |
|
$ |
28.8 |
|
|
|
2.7 |
% |
Gross profit |
|
|
435.1 |
|
|
|
40.2 |
|
|
|
380.2 |
|
|
|
36.1 |
|
|
|
54.9 |
|
|
|
14.4 |
|
Operating income (loss) |
|
|
102.2 |
|
|
|
9.4 |
|
|
|
(408.4 |
) |
|
|
(38.8 |
) |
|
|
510.6 |
|
|
NM |
|
|
Core operating income (1) |
|
|
127.6 |
|
|
|
11.8 |
|
|
|
(382.2 |
) |
|
|
(36.3 |
) |
|
|
509.8 |
|
|
NM |
|
|
Non-GAAP adjusted EBITDA (2) |
|
|
204.2 |
|
|
|
18.9 |
|
|
|
156.8 |
|
|
|
14.9 |
|
|
|
47.4 |
|
|
|
30.2 |
|
Core adjusted EBITDA (1) |
|
|
220.4 |
|
|
|
20.4 |
|
|
|
176.3 |
|
|
|
16.7 |
|
|
|
44.1 |
|
|
|
25.0 |
|
Loss from continuing operations |
|
|
(96.7 |
) |
|
|
(8.9 |
) |
|
|
(533.8 |
) |
|
|
(50.7 |
) |
|
|
437.1 |
|
|
|
(81.9 |
) |
Diluted loss from continuing operations |
|
$ |
(0.52 |
) |
|
|
|
|
$ |
(2.59 |
) |
|
|
|
|
$ |
2.07 |
|
|
NM |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|
|
|
||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
Amount |
|
|
% of Net |
|
|
Change |
|
|
% |
|
||||||
|
|
(dollars in millions, except per share amounts) |
|
|||||||||||||||||||||
Net sales |
|
$ |
3,036.7 |
|
|
|
100.0 |
% |
|
$ |
3,642.1 |
|
|
|
100.0 |
% |
|
$ |
(605.4 |
) |
|
|
(16.6 |
)% |
Gross profit |
|
|
1,126.8 |
|
|
|
37.1 |
|
|
|
1,322.0 |
|
|
|
36.3 |
|
|
|
(195.2 |
) |
|
|
(14.8 |
) |
Operating income (loss) |
|
|
136.5 |
|
|
|
4.5 |
|
|
|
(278.8 |
) |
|
|
(7.7 |
) |
|
|
415.3 |
|
|
NM |
|
|
Core operating income (1) |
|
|
190.9 |
|
|
|
6.3 |
|
|
|
(190.1 |
) |
|
|
(5.2 |
) |
|
|
381.0 |
|
|
NM |
|
|
Non-GAAP adjusted EBITDA (2) |
|
|
474.6 |
|
|
|
15.6 |
|
|
|
544.9 |
|
|
|
15.0 |
|
|
|
(70.3 |
) |
|
|
(12.9 |
) |
Core adjusted EBITDA (1) |
|
|
513.7 |
|
|
|
16.9 |
|
|
|
614.0 |
|
|
|
16.9 |
|
|
|
(100.3 |
) |
|
|
(16.3 |
) |
Loss from continuing operations |
|
|
(397.9 |
) |
|
|
(13.1 |
) |
|
|
(681.9 |
) |
|
|
(18.7 |
) |
|
|
284.0 |
|
|
|
(41.6 |
) |
Diluted loss from continuing operations |
|
$ |
(2.09 |
) |
|
|
|
|
$ |
(3.46 |
) |
|
|
|
|
$ |
1.37 |
|
|
NM |
|
|||
NM – Not meaningful
Net sales
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
|
|
|
% |
|
|
September 30, |
|
|
|
|
|
% |
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Net sales |
|
$ |
1,082.2 |
|
|
$ |
1,053.4 |
|
|
$ |
28.8 |
|
|
|
2.7 |
% |
|
$ |
3,036.7 |
|
|
$ |
3,642.1 |
|
|
$ |
(605.4 |
) |
|
|
(16.6 |
)% |
Domestic |
|
|
714.6 |
|
|
|
693.2 |
|
|
|
21.4 |
|
|
|
3.1 |
|
|
|
1,985.5 |
|
|
|
2,414.0 |
|
|
|
(428.5 |
) |
|
|
(17.8 |
) |
International |
|
|
367.6 |
|
|
|
360.2 |
|
|
|
7.4 |
|
|
|
2.1 |
|
|
|
1,051.2 |
|
|
|
1,228.1 |
|
|
|
(176.9 |
) |
|
|
(14.4 |
) |
32
Net sales for the three months ended September 30, 2024 increased $28.8 million, or 2.7%, compared to the prior year period primarily driven by increased sales volumes. Net sales for the nine months ended September 30, 2024 decreased $605.4 million, or 16.6%, compared to the prior year period as certain customers have continued their reduced purchasing as they right-size their inventories and others have continued their pause in capital spending. The increase in net sales for the three months ended September 30, 2024 was driven by higher net sales of $106.2 million in the CCS segment, partially offset by lower net sales of $45.1 million in the NICS segment and $32.3 million in the ANS segment. The decrease in net sales for the nine months ended September 30, 2024 was driven by lower net sales of $288.0 million in the ANS segment, $238.5 million in the NICS segment and $78.9 million in the CCS segment. For further details by segment, see “Segment Results” below.
From a regional perspective, for the three months ended September 30, 2024 compared to the prior year period, net sales increased in the U.S. by $21.4 million, the Europe, Middle East and Africa (EMEA) region by $6.2 million, Canada by $3.2 million, and the Asia Pacific (APAC) region $0.5 million, but decreased in the Caribbean and Latin American (CALA) region by $2.5 million. For the nine months ended September 30, 2024 compared to the prior year period, net sales decreased in the U.S. by $428.5 million, the EMEA region by $93.0 million, the CALA region by $66.9 million, the APAC region by $15.0 million and Canada by $2.0 million. Net sales to customers located outside of the U.S. comprised 34.0% and 34.6% of total net sales for the three and nine months ended September 30, 2024, respectively, compared to 34.2% and 33.7% for the three and nine months ended September 30, 2023, respectively. Foreign exchange rate changes did not have a material impact on our net sales during the three or nine months ended September 30, 2024 compared to the prior year periods. For additional information on regional sales by segment, see “Segment Results” below and Note 9 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein.
Gross profit, TSA income, SG&A expense and R&D expense
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
|
|
|
% |
|
|
September 30, |
|
|
|
|
|
% |
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Gross profit |
|
$ |
435.1 |
|
|
$ |
380.2 |
|
|
$ |
54.9 |
|
|
|
14.4 |
% |
|
$ |
1,126.8 |
|
|
$ |
1,322.0 |
|
|
$ |
(195.2 |
) |
|
|
(14.8 |
)% |
As a percent of sales |
|
|
40.2 |
% |
|
|
36.1 |
% |
|
|
|
|
|
|
|
|
37.1 |
% |
|
|
36.3 |
% |
|
|
|
|
|
|
||||
TSA income |
|
|
4.4 |
|
|
|
— |
|
|
|
4.4 |
|
|
NM |
|
|
|
22.4 |
|
|
|
— |
|
|
|
22.4 |
|
|
NM |
|
||
As a percent of sales |
|
|
0.4 |
% |
|
NM |
|
|
|
|
|
|
|
|
|
0.7 |
% |
|
NM |
|
|
|
|
|
|
|
||||||
SG&A expense |
|
|
203.4 |
|
|
|
186.4 |
|
|
|
17.0 |
|
|
|
9.1 |
|
|
|
565.5 |
|
|
|
602.1 |
|
|
|
(36.6 |
) |
|
|
(6.1 |
) |
As a percent of sales |
|
|
18.8 |
% |
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
18.6 |
% |
|
|
16.5 |
% |
|
|
|
|
|
|
||||
R&D expense |
|
|
78.0 |
|
|
|
85.4 |
|
|
|
(7.4 |
) |
|
|
(8.7 |
) |
|
|
235.2 |
|
|
|
297.9 |
|
|
|
(62.7 |
) |
|
|
(21.0 |
) |
As a percent of sales |
|
|
7.2 |
% |
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
7.7 |
% |
|
|
8.2 |
% |
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
NM – Not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gross profit (net sales less cost of sales)
Gross profit increased by $54.9 million for the three months ended September 30, 2024 compared to the prior year period primarily due to increased net sales volumes and favorable product mix, partially offset by higher freight costs. For the nine months ended September 30, 2024, gross profit decreased by $195.2 million compared to the prior year period primarily due to lower net sales volumes, partially offset by favorable product mix and lower input costs.
Transition service agreement income
Transition service agreement (TSA) income is related to the TSA we entered into with Vantiva in conjunction with the closing of the transaction to divest of the Home business in January 2024. Under the TSA agreement, we are providing (and in some instances receiving) certain post-closing support on a transitional basis. The TSA has varying terms for duration up to sixteen months, depending on the service, and provides for options to extend services for up to two renewal terms of three months each. As of the end of the third quarter of 2024, the majority of the services have ceased.
33
Selling, general and administrative expense
For the three months ended September 30, 2024, selling, general and administrative (SG&A) expense increased by $17.0 million compared to the prior year period primarily due to higher variable incentive compensation expense of $17.2 million and higher transaction, transformation and integration costs of $4.9 million due to ongoing CommScope NEXT initiatives, partially offset by reductions due to cost savings initiatives and lower bad debt expense of $6.0 million. For the nine months ended September 30, 2024, SG&A expense decreased $36.6 million compared to the prior year period primarily due to cost savings initiatives and lower bad debt expense of $15.6 million, partially offset by higher transaction, transformation and integration costs of $28.1 million and higher variable incentive compensation expense of $7.8 million. We expect to continue to incur transaction, transformation and integration costs during the remainder of 2024, and the resulting charges and cash requirements could be material.
Research and development expense
Research and development (R&D) expense decreased by $7.4 million for the three months ended September 30, 2024 compared to the prior year period primarily due to lower spending within the NICS segment. For the nine months ended September 30, 2024, R&D expense decreased by $62.7 million compared to the prior year period primarily due to lower spending within the NICS, CCS and ANS segments. R&D activities generally involve ensuring that our products are capable of meeting the evolving technological needs of our customers, bringing new products to market and modifying existing products to better serve our customers.
Amortization of purchased intangible assets, Restructuring costs (credits), net and Asset impairments
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
|
|
|
% |
|
|
September 30, |
|
|
|
|
|
% |
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Amortization of purchased intangible |
|
$ |
56.8 |
|
|
$ |
68.9 |
|
|
$ |
(12.1 |
) |
|
|
(17.6 |
)% |
|
$ |
181.4 |
|
|
$ |
231.8 |
|
|
$ |
(50.4 |
) |
|
|
(21.7 |
)% |
Restructuring costs (credits), net |
|
|
(0.9 |
) |
|
|
22.0 |
|
|
|
(22.9 |
) |
|
NM |
|
|
|
30.6 |
|
|
|
43.1 |
|
|
|
(12.5 |
) |
|
|
(29.0 |
) |
|
Asset impairments |
|
|
— |
|
|
|
425.9 |
|
|
|
(425.9 |
) |
|
|
(100.0 |
) |
|
|
— |
|
|
|
425.9 |
|
|
|
(425.9 |
) |
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
NM – Not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of purchased intangible assets
For the three and nine months ended September 30, 2024, amortization of purchased intangible assets was lower compared to the prior year periods because certain of our intangible assets became fully amortized.
Restructuring costs (credits), net
The net restructuring costs (credits) recorded during the three and nine months ended September 30, 2024 and 2023 were primarily related to CommScope NEXT. For the three and nine months ended September 30, 2024, our net restructuring costs (credits) were $(0.9) million and $30.6 million, respectively, and we paid $8.1 million and $24.4 million, respectively, to settle restructuring liabilities. We expect to pay an additional $2.9 million during the remainder of 2024 related to restructuring actions that have been initiated. Additional restructuring actions related to CommScope NEXT are expected to be identified, and the resulting charges and cash requirements could be material.
Asset impairments
We did not record any asset impairment charges during the three or nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, we recorded a goodwill impairment charge of $425.9 million related to our ANS reporting unit within our ANS segment. For more discussion on the asset impairment charge recorded during the third quarter of 2023, see Notes 1, 4 and 8 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein.
34
Other income (expense), net
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
|
|
|
% |
|
|
September 30, |
|
|
|
|
|
% |
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Foreign currency gain (loss) |
|
$ |
(10.2 |
) |
|
$ |
(0.5 |
) |
|
$ |
(9.7 |
) |
|
|
1940.0 |
% |
|
$ |
(4.8 |
) |
|
$ |
0.9 |
|
|
$ |
(5.7 |
) |
|
|
(633.3 |
)% |
Other income, net |
|
|
3.4 |
|
|
|
8.5 |
|
|
|
(5.1 |
) |
|
|
(60.0 |
) |
|
|
6.5 |
|
|
|
18.7 |
|
|
|
(12.2 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
NM – Not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency gain (loss)
Foreign currency gain (loss) includes the net foreign currency gains and losses resulting from the settlement of receivables and payables, foreign currency contracts and short-term intercompany advances in a currency other than the subsidiary’s functional currency. The change in foreign currency gain (loss) for the three and nine months ended September 30, 2024 compared to the prior year periods was primarily driven by certain unhedged currencies.
Other income, net
The change in other income, net for the three and nine months ended September 30, 2024 compared to the prior year periods was primarily driven by a gain of $8.6 million and $19.0 million, respectively, on the early extinguishment of debt related to our debt repurchases in the prior year periods. There were no debt repurchases during the three or nine months ended September 30, 2024.
Interest expense, Interest income and Income taxes
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
|
|
|
% |
|
|
September 30, |
|
|
|
|
|
% |
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Interest expense |
|
$ |
(168.0 |
) |
|
$ |
(171.3 |
) |
|
$ |
3.3 |
|
|
|
(1.9 |
)% |
|
$ |
(503.2 |
) |
|
$ |
(504.9 |
) |
|
$ |
1.7 |
|
|
|
(0.3 |
)% |
Interest income |
|
|
2.6 |
|
|
|
3.4 |
|
|
|
(0.8 |
) |
|
|
(23.5 |
) |
|
|
8.3 |
|
|
|
7.8 |
|
|
|
0.5 |
|
|
|
6.4 |
|
Income tax (expense) |
|
|
(26.7 |
) |
|
|
34.5 |
|
|
|
(61.2 |
) |
|
|
(177.4 |
) |
|
|
(41.2 |
) |
|
|
74.4 |
|
|
|
(115.6 |
) |
|
|
(155.4 |
) |
Interest expense and Interest income
Interest expense for the three and nine months ended September 30, 2024 did not change significantly when compared to the prior year periods. For the three and nine months ended September 30, 2024, interest expense was favorably impacted by lower long-term debt balances as a result of the debt repurchases in 2023, and unfavorably impacted by increased variable interest rate on our senior secured term loan due 2026 (2026 Term Loan) as a result of the Federal Reserve’s increases in interest rates. Our weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap contracts and the amortization of debt issuance costs and original issue discount, was 7.09% at September 30, 2024, 7.22% at December 31, 2023 and 7.23% at September 30, 2023.
Our interest expense and payments on our variable rate debt could increase if the Federal Reserve increases interest rates in the remainder of 2024. See Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk” in our 2023 Annual Report for further discussion of our interest rate risk.
35
Income tax (expense) benefit
For the three and nine months ended September 30, 2024, we recognized income tax expense of $26.7 million on a pretax loss of $70.0 million and income tax expense of $41.2 million on a pretax loss of $356.7 million, respectively. Our income taxes for the three and nine months ended September 30, 2024, were unfavorably impacted by $35.9 million and $103.7 million, respectively, of additional valuation allowance related to current year federal and state interest limitation carryforwards and U.S. anti-deferral provisions, partially offset by tax benefits related to federal tax credits. For the three and nine months ended September 30, 2024, we used a discrete calculation to compute the net tax benefit associated with external interest. Using the estimated annual tax rate for this component of income would have produced significant variability in the estimated annual effective tax rate, and use of the discrete method for this component results in the best estimate of the estimated annual effective tax rate.
For the three and nine months ended September 30, 2023, we recognized an income tax benefit of $34.5 million on a pretax loss of $568.3 million and an income tax benefit of $74.4 million on a pretax loss of $756.3 million, respectively. Our tax benefit for the three and nine months ended September 30, 2023, was unfavorably impacted by a goodwill impairment charge of $425.9 million for which minimal tax benefits were recorded. Our tax benefit was favorably impacted by $4.1 million related to tax law changes for the three and nine months ended September 30, 2023. In addition to the unfavorable impact of the goodwill impairment charge mentioned above, for the nine months ended September 30, 2023, our tax benefit was also unfavorably impacted by excess tax costs of $7.1 million related to equity compensation awards but favorably impacted by $9.6 million related to the release of various uncertain tax positions.
36
Segment Results
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
|
|
|
|||||||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
|
Amount |
|
|
% of Net |
|
|
|
Change |
|
|
% |
|
|
||||||
|
|
(dollars in millions) |
|
|
|||||||||||||||||||||||
Net sales by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CCS |
|
$ |
736.7 |
|
|
|
68.1 |
|
% |
|
$ |
630.5 |
|
|
|
59.9 |
|
% |
|
$ |
106.2 |
|
|
|
16.8 |
|
% |
NICS |
|
|
157.5 |
|
|
|
14.6 |
|
|
|
|
202.6 |
|
|
|
19.2 |
|
|
|
|
(45.1 |
) |
|
|
(22.3 |
) |
|
ANS |
|
|
188.0 |
|
|
|
17.4 |
|
|
|
|
220.3 |
|
|
|
20.9 |
|
|
|
|
(32.3 |
) |
|
|
(14.7 |
) |
|
Consolidated net sales |
|
$ |
1,082.2 |
|
|
|
100.0 |
|
% |
|
$ |
1,053.4 |
|
|
|
100.0 |
|
% |
|
$ |
28.8 |
|
|
|
2.7 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income (loss) by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CCS |
|
$ |
136.5 |
|
|
|
18.5 |
|
% |
|
$ |
26.3 |
|
|
|
4.2 |
|
% |
|
$ |
110.2 |
|
|
|
419.0 |
|
% |
NICS |
|
|
9.1 |
|
|
|
5.8 |
|
|
|
|
21.3 |
|
|
|
10.5 |
|
|
|
|
(12.2 |
) |
|
|
(57.3 |
) |
|
ANS |
|
|
(18.0 |
) |
|
|
(9.6 |
) |
|
|
|
(429.8 |
) |
|
|
(195.1 |
) |
|
|
|
411.8 |
|
|
|
(95.8 |
) |
|
Core operating income (1) |
|
|
127.6 |
|
|
|
11.8 |
|
|
|
|
(382.2 |
) |
|
|
(36.3 |
) |
|
|
|
509.8 |
|
|
NM |
|
|
|
Corporate and other (2) |
|
|
(25.4 |
) |
|
NM |
|
|
|
|
(26.2 |
) |
|
NM |
|
|
|
|
0.8 |
|
|
|
(3.1 |
) |
% |
||
Consolidated operating income (loss) |
|
$ |
102.2 |
|
|
|
9.4 |
|
% |
|
$ |
(408.4 |
) |
|
|
(38.8 |
) |
% |
|
$ |
510.6 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Adjusted EBITDA by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CCS |
|
$ |
173.9 |
|
|
|
23.6 |
|
% |
|
$ |
80.9 |
|
|
|
12.8 |
|
% |
|
$ |
93.0 |
|
|
|
115.0 |
|
% |
NICS |
|
|
27.8 |
|
|
|
17.7 |
|
|
|
|
39.2 |
|
|
|
19.3 |
|
|
|
|
(11.4 |
) |
|
|
(29.1 |
) |
|
ANS |
|
|
18.7 |
|
|
|
9.9 |
|
|
|
|
56.2 |
|
|
|
25.5 |
|
|
|
|
(37.5 |
) |
|
|
(66.7 |
) |
|
Core adjusted EBITDA (1) |
|
|
220.4 |
|
|
|
20.4 |
|
|
|
|
176.3 |
|
|
|
16.7 |
|
|
|
|
44.1 |
|
|
|
25.0 |
|
|
Corporate and other (2) |
|
|
(16.2 |
) |
|
NM |
|
|
|
|
(19.5 |
) |
|
NM |
|
|
|
|
3.3 |
|
|
|
(16.9 |
) |
|
||
Non-GAAP consolidated adjusted |
|
$ |
204.2 |
|
|
|
18.9 |
|
% |
|
$ |
156.8 |
|
|
|
14.9 |
|
% |
|
$ |
47.4 |
|
|
|
30.2 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
NM – Not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
37
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
|
Amount |
|
|
% of Net |
|
|
|
Change |
|
|
% |
|
|
||||||
|
|
(dollars in millions) |
|
|
|||||||||||||||||||||||
Net sales by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CCS |
|
$ |
2,069.7 |
|
|
|
68.2 |
|
% |
|
$ |
2,148.6 |
|
|
|
59.0 |
|
% |
|
$ |
(78.9 |
) |
|
|
(3.7 |
) |
% |
NICS |
|
|
398.8 |
|
|
|
13.1 |
|
|
|
|
637.3 |
|
|
|
17.5 |
|
|
|
|
(238.5 |
) |
|
|
(37.4 |
) |
|
ANS |
|
|
568.2 |
|
|
|
18.7 |
|
|
|
|
856.2 |
|
|
|
23.5 |
|
|
|
|
(288.0 |
) |
|
|
(33.6 |
) |
|
Consolidated net sales |
|
$ |
3,036.7 |
|
|
|
100.0 |
|
% |
|
$ |
3,642.1 |
|
|
|
100.0 |
|
% |
|
$ |
(605.4 |
) |
|
|
(16.6 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income (loss) by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CCS |
|
$ |
325.2 |
|
|
|
15.7 |
|
% |
|
$ |
186.8 |
|
|
|
8.7 |
|
% |
|
$ |
138.4 |
|
|
|
74.1 |
|
% |
NICS |
|
|
(52.7 |
) |
|
|
(13.2 |
) |
|
|
|
73.3 |
|
|
|
11.5 |
|
|
|
|
(126.0 |
) |
|
|
(171.9 |
) |
% |
ANS |
|
|
(81.6 |
) |
|
|
(14.4 |
) |
|
|
|
(450.2 |
) |
|
|
(52.6 |
) |
|
|
|
368.6 |
|
|
|
(81.9 |
) |
|
Core operating income (1) |
|
|
190.9 |
|
|
|
6.3 |
|
|
|
|
(190.1 |
) |
|
|
(5.2 |
) |
|
|
|
381.0 |
|
|
NM |
|
|
|
Corporate and other (2) |
|
|
(54.4 |
) |
|
NM |
|
|
|
|
(88.7 |
) |
|
NM |
|
|
|
|
34.3 |
|
|
|
(38.7 |
) |
|
||
Consolidated operating income (loss) |
|
$ |
136.5 |
|
|
|
4.5 |
|
% |
|
$ |
(278.8 |
) |
|
|
(7.7 |
) |
% |
|
$ |
415.3 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Adjusted EBITDA by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CCS |
|
$ |
440.3 |
|
|
|
21.3 |
|
% |
|
$ |
314.9 |
|
|
|
14.7 |
|
% |
|
$ |
125.4 |
|
|
|
39.8 |
|
% |
NICS |
|
|
6.7 |
|
|
|
1.7 |
|
|
|
|
133.2 |
|
|
|
20.9 |
|
|
|
|
(126.5 |
) |
|
|
(95.0 |
) |
|
ANS |
|
|
66.7 |
|
|
|
11.7 |
|
|
|
|
165.9 |
|
|
|
19.4 |
|
|
|
|
(99.2 |
) |
|
|
(59.8 |
) |
|
Core adjusted EBITDA (1) |
|
|
513.7 |
|
|
|
16.9 |
|
|
|
|
614.0 |
|
|
|
16.9 |
|
|
|
|
(100.3 |
) |
|
|
(16.3 |
) |
|
Corporate and other (2) |
|
|
(39.1 |
) |
|
NM |
|
|
|
|
(69.1 |
) |
|
NM |
|
|
|
|
30.0 |
|
|
|
(43.4 |
) |
|
||
Non-GAAP consolidated adjusted |
|
$ |
474.6 |
|
|
|
15.6 |
|
% |
|
$ |
544.9 |
|
|
|
15.0 |
|
% |
|
$ |
(70.3 |
) |
|
|
(12.9 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
NM – Not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Connectivity and Cable Solutions Segment
Net sales for the CCS segment increased for the three months ended September 30, 2024 compared to the prior year period primarily due to higher sales volumes in the Enterprise business. CCS segment net sales decreased for the nine months ended September 30, 2024 compared to the prior year period primarily due to lower sales volumes as certain customers paused spending in the first quarter as they right-sized their inventory levels. From a regional perspective, for the three months ended September 30, 2024, net sales increased in the U.S. by $93.1 million, the EMEA region by $19.5 million and Canada by $3.3 million, but decreased in the CALA region by $7.9 million and the APAC region by $1.8 million, compared to the prior year period. For the nine months ended September 30, 2024, net sales decreased in the U.S. by $52.1 million and the CALA region by $37.2 million, but increased in the APAC region by $6.4 million and the EMEA region by $4.0 million, and remained the same in Canada, compared to the prior year period. Foreign exchange rate changes did not have a material impact on our CCS net sales during the three or nine months ended September 30, 2024.
38
For the three months ended September 30, 2024, CCS segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to higher sales volumes, favorable product mix and lower input costs, partially offset by higher SG&A costs. For the nine months ended September 30, 2024, CCS segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to favorable product mix and lower R&D, SG&A and input costs, partially offset by lower sales volumes. For the three and nine months ended September 30, 2024, CCS segment operating income was also favorably impacted by reductions in restructuring costs of $16.6 million and 13.9 million, respectively, partially offset by increases in transaction, transition and integration costs of $3.5 million and $11.0 million, respectively. Restructuring costs and transaction, transition and integration costs are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.
Networking, Intelligent Cellular and Security Solutions Segment
For the three and nine months ended September 30, 2024, NICS segment net sales decreased compared to the prior year periods primarily due to lower sales volumes of our Ruckus products driven by lower demand and channel inventory digestion. From a regional perspective, for the three months ended September 30, 2024, NICS segment net sales decreased in the U.S. by $29.6 million, the EMEA region by $10.3 million, Canada by $5.3 million and the APAC region by $2.3 million, but increased in the CALA region by $2.4 million, compared to the prior year period. For the nine months ended September 30, 2024, NICS segment net sales decreased in the U.S. by $139.9 million, the EMEA region by $57.9 million, the APAC region by $29.3 million, Canada by $8.2 million and the CALA region by $3.2 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our NICS net sales during the three or nine months ended September 30, 2024.
For the three and nine months ended September 30, 2024, NICS segment operating income and adjusted EBITDA decreased compared to the prior year periods primarily due to lower sales volumes, lower pricing and higher freight costs, partially offset by lower R&D costs and favorable product mix. For the nine months ended September 30, 2024, NICS segment operating income and adjusted EBITDA were favorably impacted by lower SG&A costs primarily due to cost savings initiatives. NICS segment operating income was also favorably impacted by a gain of $3.5 million related to the settlement of an intellectual property litigation claim during the three and nine months ended September 30, 2023. The impacts of intellectual property litigation settlements are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.
Access Network Solutions Segment
For the three and nine months ended September 30, 2024, net sales decreased in the ANS segment compared to the prior year periods primarily due to lower sales volumes as certain customers have paused spending as they right-size their inventory levels. From a regional perspective, for the three months ended September 30, 2024, ANS segment net sales decreased in the U.S. by $42.1 million and the EMEA region by $3.0 million, but increased in Canada by $5.2 million, the APAC region by $4.6 million and the CALA region by $3.0 million, compared to the prior year period. For the nine months ended September 30, 2024, ANS segment net sales decreased in the U.S. by $236.5 million, the EMEA region by $39.1 million and the CALA region by $26.5 million, but increased in the APAC region by $7.9 million and Canada by $6.2 million, compared to the prior year period. Foreign exchange rate changes did not have a material impact on our ANS net sales during the three or nine months ended September 30, 2024.
Excluding the goodwill impairment charge of $425.9 million from operating loss for the three and nine months ended September 30, 2024, ANS segment operating loss increased and adjusted EBITDA decreased for both the three and nine months ended September 30, 2024 compared to the prior year periods. For the three months ended September 30, 2024, ANS segment operating loss and adjusted EBITDA were negatively impacted by lower sales volumes, unfavorable product mix, and higher R&D and input costs, compared to the prior year period. ANS segment operating loss and adjusted EBITDA for the nine months ended September 30, 2024 were negatively impacted by lower sales volumes, partially offset by benefits from lower SG&A, R&D and input costs, and favorable product mix. The reductions in SG&A costs impacting the nine months ended September 30, 2024 were primarily due to cost savings initiatives. For the three months ended September 30, 2024, ANS segment operating loss was also favorably impacted by reductions in amortization expense of $13.1 million, transaction, transformation and integration costs of $5.6 million and restructuring costs of $2.7 million. For the nine months ended September 30, 2024, operating loss was favorably impacted by a reduction in amortization expense of $50.1 million, partially offset by an increase in restructuring costs of $14.4 million. Goodwill impairment charges, restructuring costs, transaction, transformation and integration costs and amortization expense are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.
39
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes certain key measures of our liquidity and capital resources (in millions, except percentage data):
|
|
|
|
|
$ |
|
|
% |
|
|
|||||||
|
|
September 30, |
|
|
December 31, |
|
|
Change |
|
|
Change |
|
|
||||
|
|
(dollars in millions) |
|
|
|||||||||||||
Cash and cash equivalents (1) |
|
$ |
456.4 |
|
|
$ |
543.8 |
|
|
$ |
(87.4 |
) |
|
|
(16.1 |
) |
% |
Working capital, net of assets and liabilities held for |
|
|
777.6 |
|
|
|
730.4 |
|
|
|
47.2 |
|
|
|
6.5 |
|
|
Availability under Revolving Credit Facility |
|
|
567.9 |
|
|
|
688.0 |
|
|
|
(120.1 |
) |
|
|
(17.5 |
) |
|
Long-term debt, including current portion |
|
|
9,273.0 |
|
|
|
9,278.6 |
|
|
|
(5.6 |
) |
|
|
(0.1 |
) |
|
Total capitalization (3) |
|
|
7,161.2 |
|
|
|
7,471.9 |
|
|
|
(310.7 |
) |
|
|
(4.2 |
) |
|
Long-term debt as a percentage of total capitalization |
|
|
129.5 |
% |
|
|
124.2 |
% |
|
|
|
|
|
|
|
||
Our principal sources of liquidity on a short-term basis are cash and cash equivalents, cash flows provided by operations and availability under our credit facilities. On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of additional equity and/or debt.
The primary uses of liquidity include debt service requirements, voluntary debt repayments, redemptions or purchases on the open market, working capital requirements, capital expenditures, business separation transaction costs, transformation costs, restructuring costs, dividends related to the Convertible Preferred Stock if we elect to pay such dividends in cash, litigation settlements, income tax payments and other contractual obligations. As of September 30, 2024, we have $1.27 billion outstanding on our 6.00% senior unsecured notes which mature on June 15, 2025 (the 2025 Notes), which is less than a year from the date that the condensed consolidated financial statements are issued for the quarter ended September 30, 2024. We do not currently have sufficient cash or liquidity to repay the 2025 Notes when they mature on June 15, 2025.
Proceeds of approximately $2.1 billion from the pending sale of our OWN segment and DAS business unit may be used under certain circumstances to retire the 2025 Notes due to flexibility under our debt documents. We believe this is probable of occurring and will alleviate substantial doubt about our ability to operate as a going concern.
Concurrently, we are negotiating with creditors to explore both restructuring and/or refinancing of the 2025 Notes. No commitments have been obtained regarding this alternative as of the filing date, although it remains part of our plans to mitigate conditions that give rise to substantial doubt about our ability to operate as a going concern.
Management has assessed our plan to mitigate the conditions that give rise to substantial doubt and, considering the pending sale of our OWN segment and DAS business unit, management believes such plan is probable and will alleviate substantial doubt about our ability to operate as a going concern.
We may be required to obtain additional financing in the future to address our liquidity needs, and, subject to market conditions, we may from time to time seek to amend, refinance, restructure, exchange or repurchase our outstanding indebtedness and/or raise additional equity or other financing. Any debt we incur in the future may have terms (including cash interest rate, financial covenants and covenants limiting our operating flexibility or ability to obtain additional financings) that are not favorable to us, and any such additional equity financing may dilute the economic and/or voting interests of our existing stockholders, may be preferred in right of payment to our outstanding common stock or confer other privileges to the holders and may contain financial or operational covenants that restrict our operating flexibility or ability to obtain additional financings. Furthermore, our failure to obtain any necessary financing, amendment, refinancing, restructuring, exchange or repurchases could have a material and adverse effect on our results of operations, cash flows, financial condition and liquidity.
40
We may experience volatility in cash flows between periods due to, among other reasons, variability in the timing of vendor payments and customer receipts. We may, from time to time, seek to obtain alternative sources of financing, by borrowing additional amounts under our senior secured asset-based revolving credit facility (Revolving Credit Facility), issuing debt or equity securities or incurring other indebtedness, if market conditions are favorable, utilizing trade credit, selling assets (including businesses or business lines) or securitizing receivables to meet future cash needs or to reduce our borrowing costs. Any issuance of equity or debt may be for cash or in exchange for our outstanding securities or indebtedness, or a combination thereof.
Our outstanding debt securities and debt under our credit facilities are currently trading at discounts to their respective principal amounts. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase such debt for cash, in exchange for common or preferred stock or debt, or for a combination thereof, in each case in open-market purchases and/or privately negotiated transactions, tender offers or exchange offers and upon such terms and at such prices as we may determine. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions and applicable regulatory, legal and accounting factors. Whether or not we engage in any such transactions will be determined at our discretion. The amounts involved in any such transactions, individually or in the aggregate, may be material.
Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in the “Reconciliation of Non-GAAP Measures” section below, but also give pro forma effect to certain events, including acquisitions, synergies and savings from cost reduction initiatives such as facility closures and headcount reductions. For the twelve months ended September 30, 2024, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $615.0 million, which included annualized savings expected from cost reduction initiatives of $18.6 million so that the impact of cost reduction initiatives is fully reflected in the twelve-month period used in the calculation of the ratios. In addition to limitations under these indentures, our senior secured credit facilities contain customary negative covenants based on similar financial measures. We believe we are in compliance with the covenants under our indentures and senior secured credit facilities as of September 30, 2024.
Cash and cash equivalents decreased during the nine months ended September 30, 2024 primarily driven by $45.1 million of cash paid related to the Casa Transaction, debt repayments of $24.0 million and capital expenditures of $18.0 million. As of September 30, 2024, approximately 57% of our cash and cash equivalents were held outside the U.S.
Working capital, net of assets and liabilities held for sale and excluding cash and cash equivalents and the current portion of long-term debt, increased during the nine months ended September 30, 2024 compared to the fourth quarter of 2023 primarily due to higher accounts receivable with favorable operating performance driving higher net sales in the third quarter of 2024 compared to the fourth quarter of 2023, higher prepaid assets, and lower accrued liabilities due to interest payments. The increase was partially offset by higher accounts payable due to timing of payments and lower inventory. During the nine months ended September 30, 2024, we sold accounts receivable under customer-sponsored supplier financing agreements. This had an impact of approximately $95 million on working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of September 30, 2024. Under these agreements, we are able to sell certain accounts receivable to a bank, and we retain no interest in and have no servicing responsibilities for the accounts receivable sold. The net reduction in total capitalization during the nine months ended September 30, 2024 reflected the net loss for the period.
Cash Flow Overview
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||
|
|
(dollars in millions) |
|
|||||||||||||
Net cash generated by (used in) operating activities |
|
$ |
(4.8 |
) |
|
$ |
229.5 |
|
|
$ |
(234.3 |
) |
|
|
(102.1 |
)% |
Net cash generated by (used in) investing activities |
|
|
(54.3 |
) |
|
|
18.3 |
|
|
|
(72.6 |
) |
|
|
(396.7 |
) |
Net cash used in financing activities |
|
|
(25.8 |
) |
|
|
(122.9 |
) |
|
|
97.1 |
|
|
|
(79.0 |
) |
41
Operating Activities
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in millions) |
|
|||||
Net loss |
|
$ |
(347.8 |
) |
|
$ |
(925.7 |
) |
Adjustments to reconcile net loss to net cash generated by (used in) operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
287.7 |
|
|
|
442.2 |
|
Equity-based compensation |
|
|
21.1 |
|
|
|
35.5 |
|
Deferred income taxes |
|
|
1.9 |
|
|
|
(249.9 |
) |
Asset impairments |
|
|
17.2 |
|
|
|
895.1 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
(99.1 |
) |
|
|
375.0 |
|
Inventories |
|
|
58.2 |
|
|
|
218.0 |
|
Prepaid expenses and other assets |
|
|
(108.7 |
) |
|
|
13.2 |
|
Accounts payable and other liabilities |
|
|
81.8 |
|
|
|
(524.8 |
) |
Other |
|
|
82.9 |
|
|
|
(49.1 |
) |
Net cash generated by (used in) operating activities |
|
$ |
(4.8 |
) |
|
$ |
229.5 |
|
During the nine months ended September 30, 2024, the decrease in net cash generated by operating activities was primarily driven by better operating performance in the prior year period compared to the current year period, partially offset by lower variable incentive compensation paid in the current year period compared to the prior year period.
Investing Activities
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in millions) |
|
|||||
Additions to property, plant and equipment |
|
$ |
(18.0 |
) |
|
$ |
(43.9 |
) |
Proceeds from sale of property, plant and equipment |
|
|
0.2 |
|
|
|
41.8 |
|
Acquisition of a business |
|
|
(45.1 |
) |
|
|
— |
|
Other |
|
|
8.6 |
|
|
|
20.4 |
|
Net cash generated by (used in) investing activities |
|
$ |
(54.3 |
) |
|
$ |
18.3 |
|
During the nine months ended September 30, 2024, the decrease in cash generated by investing activities compared to the prior year period was primarily driven by cash paid of $45.1 million related to the Casa Transaction and decreased capital expenditures of $25.9 million, partially offset by prior year period proceeds of $41.8 million from the sale of property, plant and equipment mostly related to the sale of an international manufacturing facility that was closed as part of CommScope NEXT. Cash used in investing activities in the current year period was favorably impacted by proceeds of $8.6 million on the sale of certain nonfinancial assets. Cash generated by investing activities in the prior year period was favorably impacted by proceeds of $11.1 million related to the sale of an equity investment and proceeds of $9.3 million on the sale of certain nonfinancial assets.
Financing Activities
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in millions) |
|
|||||
Long-term debt repaid |
|
$ |
(24.0 |
) |
|
$ |
(24.0 |
) |
Long-term debt repurchases |
|
|
— |
|
|
|
(92.1 |
) |
Tax withholding payments for vested equity-based compensation awards |
|
|
(1.8 |
) |
|
|
(8.9 |
) |
Other |
|
|
— |
|
|
|
2.1 |
|
Net cash used in financing activities |
|
$ |
(25.8 |
) |
|
$ |
(122.9 |
) |
42
During the nine months ended September 30, 2024, we paid the quarterly scheduled amortization payment of $24.0 million on the 2026 Term Loan. We did not borrow under our Revolving Credit Facility. As of September 30, 2024, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $567.9 million, reflecting a borrowing base subject to maximum capacity of $636.4 million reduced by $68.5 million of letters of credit issued under the Revolving Credit Facility.
During the nine months ended September 30, 2023, we repurchased $81.4 million aggregate principal amount of our 8.25% senior notes due 2027, $4.3 million aggregate principal amount of our 7.125% senior notes due 2028 and $25.4 million aggregate principal amount of the 2025 Notes, for total cash consideration paid of $92.1 million. We also paid three quarterly scheduled amortization payments totaling $24.0 million on the 2026 Term Loan during the nine months ended September 30, 2023.
During the nine months ended September 30, 2024, employees surrendered shares of our common stock to satisfy their tax withholding requirements on vested restricted stock units (RSUs) and performance share units (PSUs), which reduced cash flows by $1.8 million compared to $8.9 million in the prior year period.
43
Reconciliation of Non-GAAP Measures
We believe that presenting certain non-GAAP financial measures enhances an investor’s understanding of our financial performance. We further believe that these financial measures are useful in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our recurring business. We also use certain of these financial measures for business planning purposes and in measuring our performance relative to that of our competitors.
We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term “non-GAAP adjusted EBITDA” may vary from that of others in our industry. These financial measures should not be considered as alternatives to operating income (loss), net income (loss) or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance, operating cash flows or liquidity.
We also believe presenting these non-GAAP results for the twelve months ended September 30, 2024 provides an additional tool for assessing our recent performance. Such amounts are unaudited and are derived by subtracting the data for the nine months ended September 30, 2023 from the data for the year ended December 31, 2023 and then adding the data for the nine months ended September 30, 2024.
Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in this section, but also give pro forma effect to certain events, including acquisitions and savings from cost reduction initiatives such as facility closures and headcount reductions.
Consolidated
|
|
Three Months |
|
|
Nine Months |
|
|
Year |
|
|
Twelve Months |
|
||||||||||||
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2024 |
|
||||||
|
|
(in millions) |
|
|||||||||||||||||||||
Loss from continuing operations |
|
$ |
(96.7 |
) |
|
$ |
(533.8 |
) |
|
$ |
(397.9 |
) |
|
$ |
(681.9 |
) |
|
$ |
(1,063.4 |
) |
|
$ |
(779.4 |
) |
Income tax expense (benefit) |
|
|
26.7 |
|
|
|
(34.5 |
) |
|
|
41.2 |
|
|
|
(74.4 |
) |
|
|
67.4 |
|
|
|
183.0 |
|
Interest income |
|
|
(2.6 |
) |
|
|
(3.4 |
) |
|
|
(8.3 |
) |
|
|
(7.8 |
) |
|
|
(11.1 |
) |
|
|
(11.6 |
) |
Interest expense |
|
|
168.0 |
|
|
|
171.3 |
|
|
|
503.2 |
|
|
|
504.9 |
|
|
|
675.8 |
|
|
|
674.1 |
|
Other (income) expense, net |
|
|
6.8 |
|
|
|
(8.0 |
) |
|
|
(1.7 |
) |
|
|
(19.6 |
) |
|
|
(65.9 |
) |
|
|
(48.0 |
) |
Operating income (loss) |
|
|
102.2 |
|
|
|
(408.4 |
) |
|
|
136.5 |
|
|
|
(278.8 |
) |
|
|
(397.2 |
) |
|
|
18.1 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of purchased intangible assets |
|
|
56.8 |
|
|
|
68.9 |
|
|
|
181.4 |
|
|
|
231.8 |
|
|
|
301.0 |
|
|
|
250.6 |
|
Restructuring costs (credits), net |
|
|
(0.9 |
) |
|
|
22.0 |
|
|
|
30.6 |
|
|
|
43.1 |
|
|
|
25.1 |
|
|
|
12.6 |
|
Equity-based compensation |
|
|
7.3 |
|
|
|
9.4 |
|
|
|
18.3 |
|
|
|
29.1 |
|
|
|
38.6 |
|
|
|
27.8 |
|
Asset impairments |
|
|
— |
|
|
|
425.9 |
|
|
|
— |
|
|
|
425.9 |
|
|
|
571.4 |
|
|
|
145.5 |
|
Transaction, transformation and integration |
|
|
19.5 |
|
|
|
14.6 |
|
|
|
45.8 |
|
|
|
17.7 |
|
|
|
27.1 |
|
|
|
55.2 |
|
Acquisition accounting adjustments (2) |
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
— |
|
Patent claims and litigation settlements |
|
|
— |
|
|
|
(3.5 |
) |
|
|
— |
|
|
|
(3.5 |
) |
|
|
(3.5 |
) |
|
|
— |
|
Recovery of Russian accounts receivable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.0 |
) |
|
|
(2.0 |
) |
|
|
— |
|
Cyber incident costs (3) |
|
|
— |
|
|
|
1.5 |
|
|
|
— |
|
|
|
5.1 |
|
|
|
5.5 |
|
|
|
0.4 |
|
Depreciation |
|
|
19.3 |
|
|
|
26.0 |
|
|
|
62.0 |
|
|
|
75.2 |
|
|
|
99.4 |
|
|
|
86.2 |
|
Non-GAAP adjusted EBITDA |
|
$ |
204.2 |
|
|
$ |
156.8 |
|
|
$ |
474.6 |
|
|
$ |
544.9 |
|
|
$ |
666.7 |
|
|
$ |
596.4 |
|
44
Reconciliation of Segment Adjusted EBITDA
Segment adjusted EBITDA is provided as a performance measure in Note 9 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein. Below we reconcile segment adjusted EBITDA for each segment, individually, to operating income (loss) for that segment to supplement the reconciliation of the total segment adjusted EBITDA to consolidated operating income in Note 9.
Connectivity and Cable Solutions Segment
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operating income |
|
$ |
136.5 |
|
|
$ |
26.3 |
|
|
$ |
325.2 |
|
|
$ |
186.8 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of purchased intangible assets |
|
|
18.1 |
|
|
|
18.9 |
|
|
|
55.0 |
|
|
|
56.8 |
|
Restructuring costs (credits), net |
|
|
(0.6 |
) |
|
|
16.0 |
|
|
|
0.2 |
|
|
|
14.1 |
|
Equity-based compensation |
|
|
2.8 |
|
|
|
3.7 |
|
|
|
7.3 |
|
|
|
10.8 |
|
Transaction, transformation and integration costs |
|
|
3.6 |
|
|
|
0.1 |
|
|
|
11.6 |
|
|
|
0.6 |
|
Recovery of Russian accounts receivable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.0 |
) |
Cyber incident costs |
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
2.4 |
|
Depreciation |
|
|
13.5 |
|
|
|
15.2 |
|
|
|
41.0 |
|
|
|
45.4 |
|
Adjusted EBITDA |
|
$ |
173.9 |
|
|
$ |
80.9 |
|
|
$ |
440.3 |
|
|
$ |
314.9 |
|
Networking, Intelligent Cellular and Security Solutions Segment
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operating income (loss) |
|
$ |
9.1 |
|
|
$ |
21.3 |
|
|
$ |
(52.7 |
) |
|
$ |
73.3 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of purchased intangible assets |
|
|
12.7 |
|
|
|
12.7 |
|
|
|
38.0 |
|
|
|
38.0 |
|
Restructuring costs (credits), net |
|
|
(0.2 |
) |
|
|
0.7 |
|
|
|
2.3 |
|
|
|
6.0 |
|
Equity-based compensation |
|
|
1.9 |
|
|
|
2.0 |
|
|
|
4.9 |
|
|
|
6.7 |
|
Transaction, transformation and integration costs |
|
|
2.8 |
|
|
|
3.1 |
|
|
|
9.0 |
|
|
|
3.5 |
|
Acquisition accounting adjustments |
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
1.0 |
|
Patent claims and litigation settlements |
|
|
— |
|
|
|
(3.5 |
) |
|
|
— |
|
|
|
(3.5 |
) |
Cyber incident costs |
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
0.7 |
|
Depreciation |
|
|
1.5 |
|
|
|
2.5 |
|
|
|
5.3 |
|
|
|
7.5 |
|
Adjusted EBITDA |
|
$ |
27.8 |
|
|
$ |
39.2 |
|
|
$ |
6.7 |
|
|
$ |
133.2 |
|
Access Network Solutions Segment
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operating loss |
|
$ |
(18.0 |
) |
|
$ |
(429.8 |
) |
|
$ |
(81.6 |
) |
|
$ |
(450.2 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of purchased intangible assets |
|
|
24.3 |
|
|
|
37.4 |
|
|
|
86.4 |
|
|
|
136.5 |
|
Restructuring costs, net |
|
|
0.1 |
|
|
|
2.8 |
|
|
|
28.0 |
|
|
|
13.6 |
|
Equity-based compensation |
|
|
2.2 |
|
|
|
2.6 |
|
|
|
5.2 |
|
|
|
8.5 |
|
Asset impairments |
|
|
— |
|
|
|
425.9 |
|
|
|
— |
|
|
|
425.9 |
|
Transaction, transformation and integration costs |
|
|
5.7 |
|
|
|
11.3 |
|
|
|
14.5 |
|
|
|
13.1 |
|
Cyber incident costs |
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
1.0 |
|
Depreciation |
|
|
4.3 |
|
|
|
5.6 |
|
|
|
14.2 |
|
|
|
17.4 |
|
Adjusted EBITDA |
|
$ |
18.7 |
|
|
$ |
56.2 |
|
|
$ |
66.7 |
|
|
$ |
165.9 |
|
Note: Components may not sum to total due to rounding.
45
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views with respect to future events and financial performance. These forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “potential,” “anticipate,” “should,” “could,” “designed to,” “foreseeable future,” “believe,” “think,” “scheduled,” “outlook,” “target,” “guidance” and similar expressions, although not all forward-looking statements contain such terms. This list of indicative terms and phrases is not intended to be all-inclusive.
These forward-looking statements are subject to various risks and uncertainties, many of which are outside our control, including, without limitation, our dependence on customers’ capital spending on data, communication and entertainment equipment, which could be negatively impacted by a regional or global economic downturn, among other factors; the potential impact of higher than normal inflation; concentration of sales among a limited number of customers and channel partners; risks associated with our sales through channel partners; changes to the regulatory environment in which we and our customers operate; changes in technology; industry competition and the ability to retain customers through product innovation, introduction, and marketing; changes in cost and availability of key raw materials, components and commodities and the potential effect on customer pricing and timing of delivery of products to customers; risks related to our ability to implement price increases on our products and services; risks associated with our dependence on a limited number of key suppliers for certain raw materials and components; risks related to the successful execution of CommScope NEXT and other cost saving initiatives; potential difficulties in realigning global manufacturing capacity and capabilities among our global manufacturing facilities or those of our contract manufacturers that may affect our ability to meet customer demands for products; possible future restructuring actions; the risk that our manufacturing operations, including our contract manufacturers on which we rely, encounter capacity, production, quality, financial or other difficulties causing difficulty in meeting customer demands; our substantial indebtedness, including our upcoming maturities and evaluation of capital structure alternatives and restrictive debt covenants; our ability to refinance existing indebtedness prior to its maturity or incur additional indebtedness at acceptable interest rates or at all; our ability to generate cash to service our indebtedness; the divestiture of the Home segment and its effect on our remaining businesses; the expected timing of the closing of the sale of the OWN and DAS businesses (the Transaction); the expected benefits of the Transaction, including the expected financial performance of CommScope following the Transaction; the ability of the parties to obtain any required regulatory approvals in connection with the Transaction and to complete the Transaction considering the various closing conditions; expenses related to the Transaction and any potential future costs; the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive agreement governing the Transaction, or an inability to consummate the Transaction on the terms described or at all; the effect of the announcement of the Transaction on the ability of CommScope to retain and hire key personnel and maintain relationships with its key business partners and customers, and others with whom it does business, or on its operating results and businesses generally; the response of CommScope’s competitors, creditors and other stakeholders to the Transaction; risks associated with the disruption of management’s attention from ongoing business operations due to the Transaction; the ability to meet expectations regarding the timing and completion of the Transaction; potential litigation relating to the Transaction; restrictions during the pendency of the Transaction that may impact the ability to pursue certain business opportunities, including uncertainty regarding the timing of the separation, achievement of the expected benefits and the potential disruption to the business; our ability to integrate and fully realize anticipated benefits from prior or future divestitures, acquisitions or equity investments; possible future additional impairment charges for fixed or intangible assets, including goodwill; our ability to attract and retain qualified key employees; labor unrest; product quality or performance issues, including those associated with our suppliers or contract manufacturers, and associated warranty claims; our ability to maintain effective management information technology systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches, ransomware or computer viruses; the use of open standards; the long-term impact of climate change; significant international operations exposing us to economic risks like variability in foreign exchange rates and inflation, as well as political and other risks, including the impact of wars, regional conflicts and terrorism; our ability to comply with governmental anti-corruption laws and regulations worldwide; the impact of export and import controls and sanctions worldwide on our supply chain and ability to compete in international markets; changes in the laws and policies in the U.S. affecting trade, including the risk and uncertainty related to tariffs or potential trade wars and potential changes to laws and policies, that may impact our products; the costs of protecting or defending intellectual property; costs and challenges of compliance with domestic and foreign social and environmental laws; the impact of litigation and similar regulatory proceedings in which we are involved or may become involved, including the costs of such litigation; the scope, duration and impact of disease outbreaks and pandemics, such as COVID-19, on our business, including employees, sites, operations, customers, supply chain logistics and the global economy; our stock price volatility; income tax rate variability and ability to recover amounts recorded as deferred tax assets; and other factors beyond our control.
46
These and other factors are discussed in greater detail in our 2023 Annual Report and may be updated from time to time in our annual reports, quarterly reports, current reports and other filings we make with the Securities and Exchange Commission. Although the information contained in this Quarterly Report on Form 10-Q represents our best judgment as of the date of this report based on information currently available and reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date made. We are not undertaking any duty or obligation to update this information to reflect developments or information obtained after the date of this Quarterly Report on Form 10-Q, except to the extent required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the interest rate risk, commodity price risk or foreign currency exchange rate risk information previously reported under Item 7A of our 2023 Annual Report, as filed with the Securities and Exchange Commission on February 29, 2024.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
Reference should be made to our 2023 Annual Report for additional information regarding discussion of the effectiveness of the Company’s controls and procedures. There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
47
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain intellectual property claims and also periodically receives notices asserting that its products infringe on another party’s patents and other intellectual property rights. These claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages or royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to indemnify certain customers for costs related to products sold to such customers. The outcome of these claims and notices is uncertain, and a reasonable estimate of the loss from unfavorable outcomes in certain of these matters either cannot be determined or is estimated at the minimum amount of a range of estimates. The actual loss, through settlement or trial, could be material and may vary significantly from the Company’s estimates. From time to time, the Company may also be involved as a plaintiff in certain intellectual property claims. Gain contingencies, if any, are recognized when they are realized.
The Company is also either a plaintiff or a defendant in certain other pending legal matters in the normal course of business. Management believes none of these other pending legal matters will have a material adverse effect on the Company’s business or financial condition upon final disposition.
In addition, the Company is subject to various federal, state, local and foreign laws and regulations governing the use, discharge, disposal and remediation of hazardous materials. Compliance with current laws and regulations has not had, and is not expected to have, a material adverse effect on the Company’s financial condition or results of operations.
ITEM 1A. RISK FACTORS
The Company’s business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary from recent results or from anticipated future results. There have been no material changes to our risk factors disclosed in Part I, Item 1A, "Risk Factors" of our 2023 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities:
None.
Issuer Purchases of Equity Securities:
The following table summarizes the stock purchase activity for the three months ended September 30, 2024:
Period |
|
Total Number |
|
|
Average |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs |
|
||||
July 1, 2024 - July 31, 2024 |
|
|
544 |
|
|
$ |
1.17 |
|
|
|
— |
|
|
$ |
— |
|
August 1, 2024 - August 31, 2024 |
|
|
204 |
|
|
$ |
3.96 |
|
|
|
— |
|
|
$ |
— |
|
September 1, 2024 - September 30, 2024 |
|
|
2,549 |
|
|
$ |
3.86 |
|
|
|
— |
|
|
$ |
— |
|
Total |
|
|
3,297 |
|
|
$ |
3.42 |
|
|
|
— |
|
|
|
|
|
(1) The shares purchased were withheld to satisfy the withholding tax obligations related to RSUs and PSUs that vested during the period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
48
ITEM 5. OTHER INFORMATION
Insider Trading Arrangements
Our officers and directors did not
49
ITEM 6. EXHIBITS
2.1 |
|
10.2 |
|
31.1 ** |
Certification of Principal Executive Officer pursuant to Rule 13a-14(a). |
31.2 ** |
Certification of Principal Financial Officer pursuant to Rule 13a-14(a). |
32.1 ** |
|
101.INS |
Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
101.SCH |
Inline XBRL Schema Document, furnished herewith. |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
** |
Filed herewith. |
*** |
Management contract or compensatory plan or arrangement. |
50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
COMMSCOPE HOLDING COMPANY, INC. |
|
|
November 6, 2024 |
/s/ Kyle D. Lorentzen |
Date |
Kyle D. Lorentzen |
|
Executive Vice President and Chief Financial Officer |
|
(Principal Financial Officer and duly authorized officer) |
|
|
|
|
51