On May 7, CommScope (NASDAQ: COMM), a global leader in infrastructure for communications networks, reported results for the quarter ended March 31, 2020.
CommScope reported that its net sales in the first quarter of 2020 increased 84.9% year over year to $2.03 billion primarily due to the contribution of $1.03 billion from the company's ARRIS acquisition. However, on a combined company basis, net sales decreased 18.0% year over year to $2.03 billion.
The company estimates that first-quarter 2020 net sales were negatively impacted by approximately $70 million related to supply chain disruptions as a result of COVID-19, as well as certain other COVID-19 related disruptions.
For comparisons described below as a combined company, the first quarter of 2019 includes historical ARRIS results (with certain classification changes to align to CommScope’s presentation). Reconciliations of the combined company amounts and reported GAAP results to non-GAAP adjusted segment results are included below.
According to its financial statement for the quarter, CommScope generated a net loss of $(159.9) million, or $(0.89) per basic share, in the first quarter, a decrease from the prior year period's net loss of $(2.3) million, or $(0.01) per basic share. Non-GAAP adjusted net income for the first quarter was $27.2 million, or $0.12 per diluted share, versus $93.0 million, or $0.48 per diluted share, in the first quarter of 2019.
Non-GAAP adjusted EBITDA increased 10.9% to $231.2 million as compared to last year. On a combined company basis, non-GAAP adjusted EBITDA for the first quarter of 2020 decreased by 21.4% and was 11.4% of net sales compared to 11.9% of net sales in the first quarter of 2019. The company estimates that first-quarter 2020 non-GAAP adjusted EBITDA was negatively impacted by approximately $30 million related to supply chain disruptions as a result of COVID-19, as well as certain other COVID-19 related disruptions.
CommScope's President and Chief Executive Officer Eddie Edwards commented, “We saw strong performance in the first quarter with net sales, non-GAAP adjusted EBITDA and adjusted EPS consistent with our expectations. Despite the significant supply headwinds resulting from COVID-19, we remain well-positioned to support network operators globally, delivering our innovative products that are the backbone to critical communications infrastructure. The board and leadership team are confident CommScope will successfully navigate through this challenging operating environment and emerge a stronger company.”
Due to the evolving and significant uncertainties related to the impact of the COVID-19 pandemic, CommScope said that is is withdrawing its full-year 2020 outlook.
“Given the dynamic nature and unprecedented situation, we are taking decisive actions to strengthen our financial position and prudently manage our balance sheet. These actions include adjusting our operating plan to reduce costs and capital expenditures and drawing $250 million on our ABL revolving credit facility as a precautionary measure to preserve financial flexibility,” said Alex Pease, Executive Vice President and Chief Financial Officer for CommScope.
While the company is not providing specific guidance for the second quarter, the company expects its second quarter sales and non-GAAP adjusted EBITDA to improve modestly compared to the first quarter.
Pease continued, “While our business to date has proven to be remarkably resilient and we have seen extremely strong order rates across certain critical segments, we are acutely aware of the strains on the global economy and the impact that could have on many of our customers, particularly in the enterprise space. Due to this ongoing market uncertainty created by the COVID-19 pandemic, we are not providing specific guidance for the second quarter of 2020 and we are withdrawing our full year outlook. However, we do expect our second quarter sales and non-GAAP adjusted EBITDA to improve modestly compared to the first quarter.”
Pease added, “We are monitoring the situation closely and remain in close contact with our business partners and customers. Never has it been more apparent how critical our products are to support the networks of the future, enabling remote working, and keeping people around the world connected. We continue to enable and deliver the broadband connectivity that is essential to a wide array of the functions crucial to our digital society and are committed to creating long-term value for shareholders.”
A summary of the company's first quarter segment results is as follows:
Broadband Networks (includes Network Cable & Connectivity and Network & Cloud)
-- Net sales of $613.4 million, down 20.0% with declines in Network Cable and Connectivity and Network & Cloud.
Home Networks (includes In-Home Video & Broadband Connectivity Devices)
-- Net sales of $601.4 million, down 27.0% driven by declines in In-Home Video, partially offset by growth in Broadband Connectivity Devices.
Outdoor Wireless Networks (includes Macro Tower Solutions and Metro Cell Solutions)
-- Net sales of $348.9 million, down 10.7% primarily driven by declines in Macro Tower Solutions.
Venue and Campus Networks (includes Enterprise which includes Indoor Copper and Fiber Connectivity, DCCS which includes DAS and OneCell, and Ruckus Networks)
-- Net sales of $469.5 million, down 5.9% primarily driven by declines in indoor copper.
CommScope's President and CEO Edwards concluded, “In this period of uncertainty in our global operating environment, we are focused first and foremost on the health and wellbeing of our employees, their families and the communities in which we operate. Protecting these resources is of the utmost importance to CommScope, and we are taking significant actions to ensure everyone’s safety. I am incredibly proud of our team and how resilient our business model is. We quickly mobilized across the company to respond to the COVID-19 pandemic; supporting the phenomenal and sudden increase in demand for broadband and connectivity by everyone: our emergency services, businesses, remote workers and everyone sheltering-in-place at home. On behalf of the board and management team, I thank our employees for their fortitude, creativity, innovation, positive spirit and resilience in providing essential services.”