CommScope Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the CommScope Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Massimo De Sabato, Vice President of Investor Relations, please go ahead.

Speaker 1

Good morning, and thank you for joining us today to discuss CommScope's 2023 Third Quarter Results. I'm Massimo De Sabata, Vice President of Investor Relations For CommScope and with me on today's call are Chuck Treadway, President and CEO and Kyle Lorenzen, Executive Vice President and CFO. You can find the slides that accompany this report on our Investor Relations website. Please note that some of our comments today will contain forward looking statements based on our current view of our business and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.

Speaker 1

Before I turn the call over to Chuck, I have a few housekeeping items to review. Today, we will discuss certain adjusted or non GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. All references during today's discussion will be to our adjusted results. All quarterly growth rates are described during today's presentation are on a year over year basis unless otherwise noted.

Speaker 1

I'll now turn the call over to our President and CEO, Chuck Treadway.

Speaker 2

Thank you, Massimo, and good morning, everyone. I'll begin on Slide 2. CommScope delivered core net sales of $1,350,000,000 and core adjusted EBITDA of $245,000,000 for the Q3 of 2023. Our Q3 continues to be impacted by lower customer orders driven by larger than expected customer inventory corrections, customer CapEx reductions and the macroeconomic uncertainty. For consolidated CommScope, which includes our home networks business, we reported net sales of $1,600,000,000 down 33% year over year Adjusted EBITDA of $249,000,000 down 28% year over year.

Speaker 2

As discussed previously, Our CCS and OWM businesses have been experiencing lower order rates since the beginning of the year, and we have seen no meaningful recovery in the Q3. In addition to the challenges we have been experiencing in CCS and OWM, in the Q3, we were approached by our A and S customers That they are seeing project timing slipping into next year and have more inventory than required. The result is going to be a softer than expected rest of the year and first half of twenty twenty four in our A and S segment. Based on our current order rates and visibility into the 4th quarter, We're revising our 2023 core adjusted EBITDA guidepost to $1,000,000,000 to $1,050,000,000 Clearly, this is a disappointing development as we look over the next few quarters. However, we continue to be bullish on our long term growth, including general market recovery, government funding for connectivity and cable upgrades.

Speaker 2

We are well positioned to take advantage of the recovery as we are a leader in each of these businesses and have invested in capacity and product development. While we are in constant dialogue with customers About business projections and inventory levels, we continue to work with our customers to better understand true demand and the impact on our business. As we discussed on our Q2 earnings call, we continue to manage what we can control. We have aggressively been managing our cost We've implemented approximately $150,000,000 of cost reduction activities in 2023. Although we have been aggressive on cost, We still feel there is an opportunity for further cost reduction.

Speaker 2

These actions include direct material savings, Automation and further efficiency projects. We are working on defining these actions and are targeting an incremental $100,000,000 of Cost reduction to be implemented by the end of the Q1 2024. I'm proud of our team's focus on what we can control. Despite the decline in core revenue of 32% year over year, our core adjusted EBITDA as a percentage of revenue has improved by approximately 50 basis points. Now, I'd like to give you an update on each of our businesses.

Speaker 2

As we indicated in previous calls, CCS has strong long term market tailwinds, including significant spending commitments to improve the United States broadband infrastructure in addition to other country programs around the world. We are well positioned to take advantage of the recovery as we have invested in capacity and have the full suite of products in place. We have also positioned the business to meet the Build America requirements For the United States government funding. Outside of the broadband investments, we are also encouraged by developments in our building and data center portion of CCS business, a significant momentum is occurring on the cloud and AI side of the data centers. Also in CCS, we have been aggressive with our cost structure.

Speaker 2

We are looking at additional cost opportunities to drive efficiency. We believe that there is still a substantial value that we can drive on the cost side. However, these projects are a bit more time intensive. An example of an area that we are focusing on is automation. Investment in new equipment, processes and systems can drive further efficiency and lower cost in this segment.

Speaker 2

We remain bullish on CCS as a result of the longer term market tailwinds and are strong positioned in this market. CCS will recover. It is just a matter of timing of this recovery. The recovery coupled with our more efficient cost structure will drive substantial financial performance. Turning to mix, the business continues to perform very well.

Speaker 2

Our year to date EBITDA of $196,000,000 It's up $200,000,000 over prior year. The NICS segment LTM adjusted EBITDA is $252,000,000 We are very proud of the MiX transformation. Our ability to grow the business and leverage our cost base has created strong value in this segment. It is a game changer for our company. We are well positioned for continued growth as we announced 2 major new product offerings in the 3rd quarter with our Ruckus 1 suite and Wi Fi 7 enterprise class access point product.

Speaker 2

As we discussed previously, Ruckus 1 is an AI driven cloud native platform delivering network assurance, service delivery And business intelligence in a unified dashboard. It simplifies converged network management across multi access public and private networks. Also, we have officially launched our WiFi 7 products.

Speaker 1

As one of the first to launch a WiFi 7 product,

Speaker 2

We are well positioned as a first mover in the market to gain share by taking advantage of the functionality and enhancements of WiFi 7. Finally, in mix, we continue to invest in our go to market strategy. We believe that as a result of our channel network and knowledge of certain market segments, We can continue to increase market share by investing in products, systems and resources dedicated to those market segments. We have developed a plan and are now in the implementation phase. In OWN, as we mentioned in previous calls, We fully contemplated the decline in U.

Speaker 2

S. Carrier capital spend. However, these declines are much more severe than what we had expected, and I don't think we are alone in these sentiments. Although carriers indicated some recovery in the second half, this has not materialized. There will be a recovery.

Speaker 2

However, at this time, there is limited visibility into the timing of the recovery. Based on the lack of visibility in this segment, At this moment, we would expect that 2024 will look similar to what we see in 2023. Again, in the OWM segment, We continue to focus on what we can control. We have been aggressive in costs in this segment. The results of our cost management Have resulted in year over year flat EBITDA margins despite a 45% decline in revenue.

Speaker 2

In addition to cost management, we continue to develop and commercialize new products. We have discussed the Mosaic antenna in previous calls. However, we are also developing new products in the power and steel space. We will continue to develop new products to supplement our existing base business. Again, similar to where we are at CCS, we are well positioned in the market and feel like we will benefit from a market recovery.

Speaker 2

Finishing with ANS, as we have discussed, the segment has made a very successful transition to a leading supplier of edge related products, including nodes, amplifiers and RPD R and D modules. Although we remain a strong supplier of our legacy CMTS technology, We continue to grow our Edge business as we are in the early phases of the DOCSIS 4.0 upgrades. We are well positioned to be a major player in the DOCSIS 4.0 upgrade cycle as we are the only supplier with all of the products and believe our products are the best performing. During the recent STTE CableTek Expo, we were able to demonstrate our wide product range. This show just reconfirmed the momentum behind the DOCSIS 4.0 upgrade commitment and our strong position in this market.

Speaker 2

Many of the demonstrations by cable companies showing best in class fees were achieved with our product backbone. In the last 90 days, we announced our FDX product range, including collaboration with Comcast on an FDX amplifier and the launch of our virtual CMTS product that is now in customer labs. Although we are very bullish on the 4.0 upgrade, In the Q3, we saw 2 major short term developments that will impact near term performance. The first is inventory adjustments by our customers. Several customers informed us that they are holding too much inventory and need to make short term adjustments to orders to right size their inventory.

Speaker 2

In addition, some of our customers are experiencing slower than expected ramps on their 4.0 upgrade projects. As a result of these two issues, Order rates and revenues will be negatively impacted in the next few quarters. In summary, the markets will return. We are well positioned when the markets do return and we are focusing on what we can control. This work will put us in stronger financial position when the markets come back.

Speaker 2

And with that, I'd like to turn things over to Kyle to talk more about

Speaker 3

our Q3 results. Thank you, Chuck, and good morning, everyone. I'll start with an overview of our Q3 2023 results On Slide 3. For the Q3, consolidated CommScope reported net sales of $1,600,000,000 A decrease of 33% from the prior year, driven by declines in CCS, OWN, ANS and home, but partially offset by strong mix growth. Adjusted EBITDA of $249,000,000 decreased by 28%.

Speaker 3

Adjusted EPS was $0.13 per share, decreasing 74% from prior year. We experienced lower demand in our CCS, OWN and A and S segments as customers more aggressively normalize inventory levels and manage their capital spending. For core CommScope, net sales of $1,350,000,000 Declined 32% from the prior year and adjusted EBITDA of $245,000,000 decreased 30%. The adjusted EBITDA held up a bit better than our revenue as we continue to drive our cost reduction plan and we have driven favorable mix. As we have experienced lower orders, particularly in TCS, OWN and ANS, core CommScope backlog continued to decrease and ended the quarter at $1,556,000,000 a decrease of 19% versus the end of Q2.

Speaker 3

In essentially all of our businesses, we are back to normalized backlog levels. As a result of the normalized backlogs, Order rates are going to be the direct driver of revenue. Turning now to our segment highlights on Slide 4. Starting with CCS, net sales of $633,000,000 decreased 37% from the prior year. TCS adjusted EBITDA of $79,000,000 was a decrease of 58% from the prior year, driven primarily by the drop in revenue.

Speaker 3

The decline is more attributable to our network connectivity and cabling business than our building and data center business. We have seen no meaningful pickup in our order rates despite indication from customers that they expected to see a stronger second half. In addition to the weak third quarter order rates, we have seen limited pickup in order rates in October. Although CCS customer conversations remain bullish on medium and long term growth, the short term demand profile remains very uncertain as customers continue to manage inventory and cash. We are also seeing some project delays as customers wait for government funding to ramp spend.

Speaker 3

Based on current visibility, we expect to see lower revenues and EBITDA in the 4th quarter. Nick's net sales of $289,000,000 increased by 12%. From a business unit perspective, ICN increased 26%. Nick's adjusted EBITDA of $63,000,000 increased 155% from the prior year, A $38,000,000 change, primarily driven by stronger demand and operational improvements. The mix segment LTM adjusted EBITDA It's $252,000,000 an improvement of $250,000,000 versus LTM a year ago.

Speaker 3

In ruckus, as we have worked these supply chain constraints and released product out of backlog, order rates have declined. This is a temporary situation as customers digest their inventory. All of our other leading indicators Point to continued strong demand for our products. We are excited about our continued product development, particularly our Ruckus 1 and WiFi 7 products. We feel that we are well positioned to continue to take share in the medium and long term.

Speaker 3

OWN net sales of $210,000,000 decreased 45% from the prior year and across most business units. Similar to CCS, customers indicated a strong second half That has not materialized. Demand in this segment remains soft with very limited visibility. Customers continue to limit new builds and are working down inflated inventories. Although we have aggressively managed costs, OWN adjusted EBITDA of $45,000,000 declined 45% from the prior year.

Speaker 3

The cost actions have allowed us to maintain adjusted EBITDA as a percent of sales year over year at approximately 21.6%. The near term outlook remains uncertain. However, we would expect that 4th quarter revenue and adjusted EBITDA would be lower than the 3rd quarter. Based on current visibility, which is very limited as mentioned, we would expect 2024 to look similar to 2023 in this segment. A and S net sales of $218,000,000 decreased 36% from the prior year due to inventory adjustment and project delays.

Speaker 3

A and S adjusted EBITDA of $58,000,000 was essentially flat from the prior year, driven by lower revenue, offset by cost reductions and product mix. During the quarter, several of our large customers approached us about Pulling back order rates as they dealt with higher inventory levels and project delays. This had an impact on our 3rd quarter revenues. Also, we expect these adjustments to impact the Q4 and early 2024. Despite the short term challenges, ANS continues to position itself to take advantage of the DOCSIS 4.0 upgrade cycle.

Speaker 3

We are the only supplier that can supply all the products from amplifiers, Nodes, modules and CMTS, including virtual CMTS. As mentioned, our new vcmTS product is in the lab trials With several customers, during the recent FCTE show, our products were part of major service provider demonstrations on industry leading speeds. We continue to win new DOCSIS 4.0 business at major customers and are well positioned for future growth. Finally, during the quarter, we announced the divestiture of our home business to Vantiva. We feel this combination positions the business for success in a challenging market.

Speaker 3

We feel this is the best outcome for our customers and shareholders. Our ownership position in Vantiva Will allow us to take advantage of the combined scale of the two businesses as well as the substantial synergies the combination will deliver. We look forward to working with Vantiva Management to close the transaction in late 2023 or early 2024. Home net sales were $249,000,000 declining 36% from the prior year, essentially across all business units, driven by customer inventory adjustments and lower demand. Home adjusted EBITDA of $3,000,000 improved from negative $5,000,000 versus prior year as a result of cost saving efforts.

Speaker 3

Turning to Slide 5 for an update on cash flow. During the quarter, we generated cash from operations of $139,000,000 We continue to reduce inventory, driven by a decline in revenue as well as improved management of inventory. As previously discussed, we are still holding excess inventory driven by the supply chain constraints in 2021 2022. We are just beginning to unlock some of this value. As revenue declines, it will delay our ability to monetize.

Speaker 3

Despite the revenue and EBITDA challenges, we are revising Our range for 2023 adjusted free cash flow to $300,000,000 to $350,000,000 Turning to Slide 6 for an update on our liquidity and capital structure. During the Q3, our cash and liquidity remained strong. We ended the quarter with $519,000,000 in global cash and total available cash and liquidity of over $1,290,000,000 During the quarter, we increased our cash balance by $101,000,000 We did not draw on our ABL revolver during the Q3 and therefore ended the quarter with no outstanding balance. In the Q3, we continued to execute our debt buyback program and repurchased $26,000,000 of our long term debt for cash consideration of $17,000,000 To add more detail, we repurchased $25,000,000 of the 8.25 percent senior notes due 2027 and $1,000,000 of the 7.125 percent senior notes due 2028. Since the beginning of the year, we have repurchased $111,000,000 of debt.

Speaker 3

During the quarter, we also paid the required $8,000,000 The company ended the quarter with net leverage ratio of 6.7 times. Going forward, we intend to use cash opportunistically to buy back securities across the breadth of our capital structure. I'm now turning to Slide 7, where I will conclude my prepared remarks with some commentary around our expectations for the remainder of 2023. As discussed, the external environment remains very uncertain as evidenced by our downward guidepost revision. Let me remind you of our positioning of our guideposts over the last few quarters.

Speaker 3

As you can recall, in our Q1 earnings, We indicated customers signaled to a strong recovery in the second half. On our second quarter call, our guidepost assumed a modest recovery in the second half orders. Fast forward to now, our customers are indicating no rebound in orders for Q4. Although customers were indicating a recovery in the second half, this has not materialized. In addition, we have experienced a large Unforeseen short term adjustment with A and S customers.

Speaker 3

As evidenced across most of our markets and competitors, We are in a passive telecom cable and hardware recession. The challenge with the current position is the lack of visibility. Even despite some visibility into customer inventories, customer short term build plans remain uncertain. We are still very bullish on medium and long term growth. However, short term challenges are significant.

Speaker 3

We have reduced our 2023 Core adjusted EBITDA guidance to $1,000,000,000 to $1,050,000,000 Although we are not giving specifics, Our current view on 2024 is that it looks similar to 2023. However, this would indicate some recovery from current demand levels. As Chuck mentioned, we continue to evaluate our cost structure, including accelerating certain CommScope NEXT efficiency initiatives. Although we have implemented approximately $150,000,000 on operating expense reductions since the beginning of the year, We are still evaluating additional actions. As we have gone through this exercise, we are excited with the opportunities we have found and implemented.

Speaker 3

Upon recovery of the demand, we should be well positioned to drive strong profitable performance. Finally, I'd like to address our capital structure and specifically our upcoming maturities. We currently have several alternatives that could potentially be used to address the upcoming maturities, including but not limited to cash on hand, ABL availability, our senior secured debt and current basket Proceeds from asset sales. For today's call, we will not be making further comment with respect to our capital structure. However, we will provide updates as appropriate as we continue to evaluate these alternatives.

Speaker 3

And with that, I'd like to give the floor back to Chuck for some closing remarks. Thank you, Kyle.

Speaker 2

We are faced with some significant challenges As many of our markets have not cooperated and the visibility to the timing of the recovery is limited. The recovery in the second half has not materialized. We are not alone as this industry is facing similar challenges. Although, we continue to manage What we can control and aggressively manage cost, it is not enough to offset a 32% decline in core revenue. We do remain bullish on the recovery.

Speaker 2

It is just a matter of timing. We are well positioned for the expected recovery as we are a leader in most of our segments and have invested in future growth with capacity and new products. Based on the actions we are taking on the current environment to drive When the markets do recover, we are well positioned to drive significantly improved financial performance. In addition, we will continue to work on near term capital structure, including asset sales and opportunistic transactions. And with that, we'll now open the line for questions.

Operator

Thank Our first question comes from Simon Leopold with Raymond James. Your line is open. Great.

Speaker 4

Thank you very much for taking the question. I wanted to unpack the A and S segment a little bit here in that With the upgrades that operators have announced, it seems as if demand for amplifiers will be particularly strong. So I think at a high level, it sounds like you expect improvement by the second half of twenty twenty four. What I'm trying to get a better understanding is a little bit of insight into Composition of the A and S segment now and in the future, basically how material are amplifiers to that business? And then I've got a quick follow-up.

Speaker 2

Okay. So I would start out by saying that we feel really good about where we are with the A and S Business to unpack it a little bit, you think we I mean, we have our traditional legacy product lines, which are still out there. We also at the show, we introduced a DOCSIS 3.1 extended. We're seeing a lot of interest Obviously, we haven't made any sales there, but this gives a lot of opportunity to go a lot faster with higher speeds without a massive upgrade. Additionally, we really turned and pivoted to where the market was going, and we are supporting

Speaker 3

our customers whichever way they go. So with the

Speaker 2

we were able as you know, we launched Whichever way they go. So with the we were able as you know, we launched the FDX amplifier with Comcast. We also have the ESD option as well. And I would say that the amplifier portion of our business is significant. But in addition to that, we also have the RPDs and RMDs.

Speaker 2

Again, whatever choice the customer decides to go, we're there to support them along with nodes And our virtual CMTS, which is now in labs with other customers. So I would say that our amplifier business is significant. I'm not going to give you the exact details of the size of that, but I would say it's a significant part of our business. And we feel like we're a leading We're the leading supplier on the edge going forward.

Speaker 4

Great. And then just as a follow-up, Within the NICS market, the campus wireless LAN and switching market, at least a number of the 3rd party market researchers are Calling for that market to decline in 2024 after sort of the supply chain strength exhibited in 2023. I get the fact you're not beholden to the market as a relatively small player, but could you help us understand your confidence In that particular segment for 2024? Thanks.

Speaker 2

Yes. I think we're not alone. I think a lot of people Calling out mid single digit growth going forward, and we believe that as well. We are seeing lower order rates right now, but It's really about the higher distribution inventories. We released a lot of backlog and the distributors are now digesting this inventory.

Speaker 2

We monitor a lot of leading indicators in the business, specifically funnel. And when we win a project, it's closedwon. And we're monitoring that and we see that coming in, which gives us a really good insight on the future and where we are. That's why we feel the confidence In the mid single digits plus growth going forward. Thank you.

Operator

One moment for our next question. Our next question comes from Meta Marshall with Morgan Stanley. Your line is open.

Speaker 5

Great. Thanks. Maybe first question, when you talk about 2024 looking similar to 2023, Is that on kind of Q3 run rates or just in the quantum as a whole? And then A second question for me, just maybe upfront. I know Simon just kind of asked about the NICS business, but just kind of how are you seeing the overall Health of the environment kind of beyond backlog release and kind of strengths that you're finding with the new portfolio?

Speaker 5

Thanks.

Speaker 3

Yes. Let me deal with the 24 question. I think, we'd say 24 looking a lot like 2023. I think we're referencing sort of the full year look. And I think in our prepared remarks, we talked about in order to get there, we are going to have to see some recovery in order rates From where we're sitting today in Q3 and Q4, so that would sort of indicate at least some level of recovery in the second half.

Speaker 2

And then to answer your other part of your question, on the mix business, I mean, there's a few parts to that business, but think about the DAS An Era part of our business, we actually are one of the first 5 gs players there with an Open RAN architecture. So we feel really good about that and where that's going. Also with private networks on that side of our business. On the Wi Fi side of our business, I mean, we just launched Wi Fi WiFi 7, Ruckus 1, Network as a Service. But what's really helping us win and why I believe We're growing in the market is our dedication to vertical markets.

Speaker 2

We specifically target a market we really understand and go real deep into that market. We develop specific products or attributes for that marketplace. We train our sales people in those areas and our value added resellers And we're really pushing, I believe. And what we're seeing is, as we've invested in salespeople in these specific verticals, we're getting the returns from our investments. So We feel confident about where we are.

Speaker 2

And the other thing that's helping us is we're really small player in the grand scheme of things in terms of market share. So we don't really look at where the market is going, but where our technology and where our vertical markets and investments specifically to go gain share are.

Speaker 5

Great. Thank you.

Operator

One moment for our next question. Our next question comes from Tal Liani with Bank of America. Your line is open.

Speaker 6

Hi, guys. I have two questions. First one on ANS, when we talk to Harmonic, they're talking about different architectures in the market where They are ahead of you and they are taking share. And I do see announcements of cable companies their way. Can you talk about your competitive position in the A and S space, the migration to distributed CMTSs and where you are On the technology front, the next question is more about the balance sheet.

Speaker 6

Last Last

Speaker 2

quarter, you told us you're going

Speaker 6

to give us an update this quarter on how you intend to restructure and it seems like you're not giving us an update now. You don't want to discuss it. What changed? Why don't we get an update on what can you do in order to Pay down the $20.25 debt. Thanks.

Speaker 3

Yes. Let me I'll deal with the last part of your question. So I think in our prepared remarks, we referenced several alternatives that we have to deal with the capital structure And the near term maturities, we're continuing to work through that. And when we have an update, we'll let people know. At this point in time, we're continuing to work through that.

Speaker 2

To address your other question on ANS, I would say we have a very strong position in the marketplace Today, because of our legacy position, and as I was sharing with Simon based on Simon's question, talking about our DOCSIS 3.1E, where customers want to get symmetrical 1 gig plus speeds, If they have an upgraded product with us, a Gen 2 product with software, they can get those speeds without a major investment. We are seeing interest in that. And that legacy position not only helps us to upgrade our existing footprint, But it also allows us to really understand the customer's network. So when you think about virtual CMTS and as I shared with you in my prepared remarks, We're in several customer labs. Because of our understanding of their software and how their because of their understanding of how their network works And our software that we have in our E6000, that puts us in a really good position to be able to transition to a virtual or at edge CMTS.

Speaker 2

So, we feel good about that. Additionally, on the DAA side, we pivoted to where the customer which was more of a remote PHY solution, but we also are supporting our customers that want to go remote MAC PHY. And As we were at FCTE, our customers there was a lot of appreciation for our ability to support them whichever way they want to go. And we're going to continue to support our customers in whatever path they choose to take.

Speaker 6

Great. Thank you.

Operator

One moment for our next question. Our next question comes from George Notter with Jefferies. Your line is open.

Speaker 7

Hi, guys. Thanks very much. I was interested in asking about supply chain input costs. Obviously, it's a big part of the cost of goods here in the company. The economy is slowing.

Speaker 7

You're starting to see some supply chain input cost relief, I think. I know it's a pretty big number in the context of your overall COGS. I'm wondering if it's A tailwind in the business right now. And then so if you could talk about that, that would be great. And then also I'd be curious about what you've assumed in terms of supply chain input costs In terms of your guidance for a similar 2024?

Speaker 7

Thanks.

Speaker 3

Yes. So on the input cost side, I think it's probably a little bit of a mixed bag relative to what we're seeing. I mean, there's definitely Some inputs that are coming down, and there's other inputs that are we're actually seeing some increases in. I think just in general, how you should think about it is, if we go back to where we were 2 years ago, Our input costs are still remain higher than where we were back then. I think as we think about the 2,000 And as we move into 2024, I don't think we expect to see major changes there Or at least in any modeling we would be doing.

Speaker 3

And I think as we've talked about before, For us, it's really trying to manage the margins and how the pricing versus the input cost impact margin. So I think Yes. It's a mixed bag. I think we're definitely still higher than where we were. It's definitely still inflated.

Speaker 3

We are seeing some relief, but not to the levels that we saw sort of pre supply chain challenges.

Speaker 7

Got it. And then you mentioned price. I mean, any opportunity to kind of try to go after some more price in the marketplace Try to improve the sort of margin and EBITDA situation here?

Speaker 2

I think we're competitively priced at this point. So I wouldn't be we're not seeing much price pressure. So I would say right now, we're just seeing prices hold right now. Got it.

Speaker 7

Okay. Thank you.

Operator

One moment for our next question. Our next question comes from Samik Chatterjee with JPMorgan. Your line is open.

Speaker 8

Hi. Thanks for the question, guys. This is Joe Cardoso on for Samik. So yes, just one question from me. Some of your peers in this space have highlighted recent headwinds in the form of enhanced ACAM program, Given participation would exclude customers from participating in bead, curious if you're seeing any of that in your customer base?

Speaker 8

And if so, any way you can characterize how much of your customer base would be eligible to participate in the enhanced ACAM program? Just trying to get a sense of the potential impact and exposure there. Thanks.

Speaker 2

Can you restate the question? I didn't catch I didn't understand the term used in the beginning.

Speaker 8

Yes. The enhanced A CAM program, it's essentially An extension of the original A CAM program with investments to service provider customers where essentially they can Essentially participate in that instead of the BEED funding and essentially what that entails is that The spending would be tranched out as opposed to seeing the funding all upfront for Bede. So therefore, customers are taking a pause in deciding if they want to participate in that or indeed. I don't know if you guys have any exposure

Speaker 3

to that. Yes. I think the way that we would answer that is We're understanding the requirements of BEED. We're working with our customers. There's lots of permutations that we see Relative to the funding and the programs, and the way that I would think about it is, we're in constant dialogue with the customers about What they can do and what we can do.

Speaker 3

And I think that's for us, that's still unfolding And we don't have any specifics around that right now.

Speaker 2

The other comment I would add to that is, BEAT is the largest program at $42,500,000,000 and The states are going to start getting awarded that business in the first half of twenty twenty four. And We will see a small revenue impact from that in 2024, but the large ramp of that is expected more in 2025.

Speaker 8

Got it. Thanks for the color, guys.

Speaker 2

Thank you.

Operator

One moment for our next question. Our next question comes from Matt Niknam with Deutsche Bank. Your line is open.

Speaker 6

Hey, guys. Thank you for taking the question. Just 2, if I could. First on visibility, I'm just wondering, maybe Chuck or Kyle, is the commentary varying at all across CCS, OWN, ANS, or is it fairly uniform in terms of everybody pausing at a minimum through the middle of next year? And then secondarily, on asset sales, you referenced that as a potential option, something you may be evaluating.

Speaker 6

I know there have been some press reports out there. Just wondering if there's any Additional color you can offer up in terms of what pieces of the business could potentially be monetized? Thanks.

Speaker 3

Okay. So I'll take the first part of the question. I think As we think about visibility across the business segments, I think where we have the lowest Level of visibility is in the CCS and OWM business. And I think, although we're in constant dialogue with our customers, Trying to get the true understanding of their build plan, I think it's challenging at this point in time. And I think We're not alone in that position.

Speaker 3

I think on the A and S side of the business, We're talking to the major customers and some of the challenges that we see now we believe are short term in nature As they adjust their inventory levels, and then I think we've talked about mix where Yes. I mean, we've pushed a lot of product into the channel partners as we've released some backlog. They're digesting that, that we're seeing a little bit lower order rates. But again, in that business, A lot of our business is going through channel partners and we have a lot of leading metrics that Look at what the funnels are and what we're winning ahead of actually shipping the product. And I think we feel that, Again, as we move into 2024, we have some visibility in the mix.

Speaker 3

So I think CCS and OWN, I think are probably the places that we have the most challenges with the visibility. The second part of your question, I mean, we're really not going to comment on that. I think we have identified that asset sales are a possibility for us Deal with the capital structure and I think that's at this point in time, that's all we're going to say.

Speaker 6

Thank you.

Operator

One moment for our next question. Our next question comes from Steven Fox with Fox Advisors. Your line is open.

Speaker 6

Hi, good morning. After what you just said, Chuck, this might be an unfair question. But I was just curious if there's any way on the CCS and Own business to disaggregate the inventory correction from the actual cycle, just and maybe compare Sort of cyclical challenges to prior cycles, especially given what seems like over enthusiasm for like government funding that is impacting things. Thanks.

Speaker 2

Yes. I would say what we're really learning is There was obviously an overbuy similar to what we saw in the rest of the economy with related to COVID. We're trying to get that understood about in terms of percentage. If you really ask us the ballpark of it, it could be a 20% -ish Type number and what we've been working with our customers and I've had personal visits in their offices and all the major customers Where we're talking with them about, we want to be a better supplier to you when this thing turns back on because it will turn back on. And we need help understanding the specific SKUs that you're going to be buying, not because I can't produce dollars, I have to produce SKUs.

Speaker 2

So We've been working a lot with them and understanding their inventory that they have on hand and understanding what they think they're going to need in their build plans, but we need it at the next level of detail and our teams are working together to do that. And I feel confident that we're going to be a better supplier And that relationship is going to help us going forward.

Speaker 6

And just to be clear, you're saying a 20% inventory overbuy. Is that what the 20% was That's

Speaker 2

a ballpark, Steven, if I had to say what I think, yes.

Speaker 6

Okay. Thank you.

Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Chuck Treadway for any closing remarks.

Speaker 2

Yes. I'd like to thank everyone for their support of CommScope and for your time today. I'd like everyone to have a wish everyone a very good week. Thank you.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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Earnings Conference Call
CommScope Q3 2023
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