CommScope Holding Company Inc

Previous wording

The following narrative is an analysis of the three months ended March 31, 2024 compared to the three months ended March 31, 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).

Current wording

The following narrative is an analysis of the three and six months ended June 30, 2024 compared to the three and six months ended June 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).

Previous wording

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. In the first quarter of 2024, we continued 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 second half of 2024. To that end, we incurred $30.6 million of net restructuring costs and $8.5 million of transaction, transformation and integration costs during the three months ended March 31, 2024, respectively, primarily related to CommScope NEXT initiatives. 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.

Current wording

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. In the first half of 2024, we continued 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 second half of 2024. To that end, we incurred $0.9 million and $31.5 million of net restructuring costs and $23.7 million and $32.3 million of transaction, transformation and integration costs during the three and six months ended June 30, 2024, respectively, primarily related to CommScope NEXT initiatives. 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.

Previous wording

The results of our recast continuing operations do not align with our historical “Core” measures, which excluded the Home segment. Our continuing operations results for the prior year period include general corporate costs that were previously allocated to the Home segment. These indirect costs, reflected on the corporate and other line item within our segment information below, are classified as continuing operations for the prior year period presented, since they were not directly attributable to the discontinued operations of the Home segment. Beginning in the first quarter of 2024, these costs have been reallocated to our remaining segments and partially offset by income from our transition services agreement with Vantiva.

Current wording

Our continuing operations results for the prior year periods include general corporate costs that were previously allocated to the Home segment. These indirect costs, reflected on the corporate and other line item within our segment information below, are classified as continuing operations for the prior year periods presented, since they were not directly attributable to the discontinued operations of the Home segment. Beginning in the first quarter of 2024, these costs have been reallocated to our remaining segments and partially offset by income from our transition services agreement with Vantiva.

Previous wording

As a result of the divestiture of the Home business, we are now reporting financial performance based on the following remaining four operating segments, which excludes our Home business: Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS) and Access Network Solutions (ANS). For the prior year period presented, amounts have been recast to reflect these operating segment changes.

Current wording

As a result of the divestiture of the Home business, we are now reporting financial performance based on the following remaining four operating segments, which excludes our Home business: Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS) and ANS. For the prior year periods presented, amounts have been recast to reflect these operating segment changes.

Previous wording

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-size their inventories and others pausing capital spending. This industry recession has continued to negatively impact our net sales in all segments for the first quarter of 2024. We currently do not expect to begin to see a recovery in demand until the second half of 2024.

Current wording

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 half 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.

Previous wording

In 2023, we began implementing additional cost savings initiatives to improve profitability, and we continued to implement further initiatives during the three months ended March 31, 2024. These initiatives should enable us to take advantage of the expected recovery in demand in the second half of 2024. If the expected recovery in demand of our products does not occur in 2024, our outlook will be materially impacted.

Current wording

In 2023, we began implementing additional cost savings initiatives to improve profitability, and we continued to implement further initiatives during the first half of 2024. These initiatives should enable us to take advantage of the expected recovery in demand later in 2024. If the expected recovery in demand of our products does not occur in 2024, our outlook will be materially impacted.

Previous wording

There have been no changes in our critical accounting policies as disclosed in our 2023 Annual Report.

Current wording

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.

Previous wording

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2024 WITH THE THREE MONTHS ENDED MARCH 31, 2023

Current wording

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 WITH THE THREE AND SIX MONTHS ENDED JUNE 30, 2023

Previous wording

Net sales for the three months ended March 31, 2024 decreased $496.0 million, or 29.8%, compared to the prior year period primarily driven by decreased sales volumes as certain customers have continued their reduced purchasing as they right-size their inventories and others have continued their pause in capital spending. The decrease in net sales for the three months ended March 31, 2024 was driven by lower net sales of $216.4 million in the CCS segment, $113.0 million in the ANS segment, $104.2 million in the NICS segment and $62.4 million in the OWN segment. For further details by segment, see “Segment Results” below.

Current wording

Net sales for the three and six months ended June 30, 2024 decreased $201.9 million, or 12.7%, and $697.9 million, or 21.5%, respectively, compared to the prior year periods primarily driven by decreased sales volumes as certain customers have continued their reduced purchasing as they right-size their inventories and others have continued their pause in capital spending. Core net sales for the three and six months ended June 30, 2024 decreased $215.6 million, or 17.0%, and $634.1 million, or 24.5%, respectively, compared to the prior year periods. The decrease in core net sales for the three months ended June 30, 2024 was driven by lower net sales of $142.6 million in the ANS segment and $104.4 million in the NICS segment (excluding DAS), partially offset by increased net sales of $31.4 million in the CCS segment. The decrease in core net sales for the six months ended June 30, 2024 was driven by lower net sales of $255.6 million in the ANS segment, $193.5 million in the NICS segment (excluding DAS) and $185.0 million in the CCS segment. For the three and six months ended June 30, 2024, net sales in the OWN segment increased $27.5 million and decreased $34.9 million, respectively. For the three and six months ended June 30, 2024, net sales in the DAS business unit decreased $13.8 million and $28.9 million, respectively. For further details by segment, see “Segment Results” below.

Previous wording

From a regional perspective, for the three months ended March 31, 2024 compared to the prior year period, net sales decreased in the U.S. by $390.5 million, the Europe, Middle East and Africa (EMEA) region by $61.1 million, the Caribbean and Latin American (CALA) region by $21.7 million, Canada by $13.7 million and the Asia Pacific (APAC) region by $9.0 million. Net sales to customers located outside of the U.S. comprised 35.2% and 31.1% of total net sales for the three months ended March 31, 2024 and 2023, respectively. Foreign exchange rate changes did not have a material impact on our net sales during the three months ended March 31, 2024. For additional information on regional sales by segment, see “Segment Results” below and Note 8 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein.

Current wording

From a regional perspective, for the three months ended June 30, 2024 compared to the prior year period, net sales decreased in the U.S. by $107.7 million, the Europe, Middle East and Africa (EMEA) region by $59.0 million, the Caribbean and Latin American (CALA) region by $40.5 million and the Asia Pacific (APAC) region by $4.9 million, but increased in Canada by $10.2 million. For the six months ended June 30, 2024 compared to the prior year period, net sales decreased in the U.S. by $498.2 million, the EMEA region by $120.1 million, the CALA region by $62.2 million, the APAC region by $13.9 million and Canada by $3.5 million. Net sales to customers located outside of the U.S. comprised 35.9% and 35.6% of total net sales for the three and six months ended June 30, 2024, respectively, compared to 37.3% and 34.1% for three and six months ended June 24, 2023, respectively. Foreign exchange rate changes did not have a material impact on our net sales during the three or six months ended June 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.

Previous wording

Gross profit decreased by $228.0 million for the three months ended March 31, 2024 compared to the prior year period primarily due to lower net sales volumes, partially offset by favorable product mix and lower material costs.

Current wording

Gross profit decreased by $21.3 million and $249.3 million for the three and six months ended June 30, 2024, respectively, compared to the prior year periods primarily due to lower net sales volumes, partially offset by favorable product mix and lower input costs.

Previous wording

For the three months ended March 31, 2024, selling, general and administrative (SG&A) expense decreased by $32.3 million compared to the prior year period primarily due to cost savings initiatives and lower variable incentive compensation expense of $4.3 million. During the three months ended March 31, 2024, these favorable impacts were partially offset by higher transaction, transformation and integration costs of $8.2 million due to ongoing CommScope NEXT initiatives. We expect to continue to incur these costs during the remainder of 2024, and the resulting charges and cash requirements could be material.

Current wording

For the three and six months ended June 30, 2024, selling, general and administrative (SG&A) expense decreased by $19.7 million and $52.0 million, respectively, compared to the prior year periods primarily due to cost savings initiatives, lower bad debt expense of $7.5 million and $8.9 million, respectively, and lower variable incentive compensation expense of $1.2 million and $4.8 million, respectively. These favorable impacts were partially offset by higher transaction, transformation and integration costs of $20.9 million and $29.2 million for the three and six months ended June 30, 2024, respectively, due to ongoing CommScope NEXT initiatives. We expect to continue to incur these costs during the remainder of 2024, and the resulting charges and cash requirements could be material.

Previous wording

Research and development (R&D) expense decreased by $21.2 million for the three months ended March 31, 2024 compared to the prior year period primarily due to lower spending across all 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.

Current wording

Research and development (R&D) expense decreased by $28.6 million and $57.9 million for the three and six months ended June 30, 2024, respectively, compared to the prior year periods primarily due to lower spending primarily within the CCS, NICS 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.

Previous wording

Amortization of purchased intangible assets and Restructuring costs (credits), net

Current wording

Amortization of purchased intangible assets and Restructuring costs, net

Previous wording

For the three months ended March 31, 2024, amortization of purchased intangible assets was lower compared to the prior year period because certain of our intangible assets became fully amortized.

Current wording

For the three and six months ended June 30, 2024, amortization of purchased intangible assets was lower compared to the prior year periods because certain of our intangible assets became fully amortized.

Previous wording

The net restructuring costs recorded during the three months ended March 31, 2024 and 2023 were primarily related to CommScope NEXT. For the three months ended March 31, 2024, our restructuring costs were $30.6 million, and we paid $9.3 million to settle restructuring liabilities. We expect to pay an additional $9.1 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.

Current wording

The net restructuring costs recorded during the three and six months ended June 30, 2024 and 2023 were primarily related to CommScope NEXT. For the three and six months ended June 30, 2024, our restructuring costs were $0.9 million and $31.5 million, respectively, and we paid $7.0 million and $16.3 million, respectively, to settle restructuring liabilities. We expect to pay an additional $9.9 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.

Previous wording

Foreign currency 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 loss for the three months ended March 31, 2024 compared to the prior year period was primarily driven by certain unhedged currencies.

Current wording

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 six months ended June 30, 2024 compared to the prior year periods was primarily driven by certain unhedged currencies.

Previous wording

The change in other income (expense), net for the three months ended March 31, 2024 compared to the prior year period was primarily driven by a gain of $7.5 million on the early extinguishment of debt related to our debt repurchases in the prior year period. There were no debt repurchases during the three months ended March 31, 2024.

Current wording

The change in other income, net for the three and six months ended June 30, 2024 compared to the prior year periods was primarily driven by a gain of $2.9 million and $10.4 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 six months ended June 30, 2024.

Previous wording

The increase in interest expense for the three months ended March 31, 2024 compared to the prior year period was driven by the 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 7.21% at March 31, 2024, 7.22% at December 31, 2023 and 7.06% at March 31, 2023.

Current wording

Interest expense for the three and six months ended June 30, 2024 did not change significantly when compared to the prior year periods. For the three and six months ended June 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 7.22% at June 30, 2024, 7.22% at December 31, 2023 and 7.24% at June 30, 2023.

Previous wording

Our interest expense and payments on our variable rate debt will continue to increase if the Federal Reserve increases interest rates in 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.

Current wording

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.

Previous wording

For the three months ended March 31, 2024, we recognized income tax expense of $99.8 million on a pretax loss of $162.3 million. Our tax expense for the three months ended March 31, 2024, was unfavorably impacted by 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.

Current wording

For the three and six months ended June 30, 2024, we recognized an income tax benefit of $43.7 million on pretax income of $31.1 million and income tax expense of $56.1 million on a pretax loss of $131.2 million, respectively. Our income taxes for the three and six months ended June 30, 2024, were unfavorably impacted by $67.8 million of additional valuation allowance related to current year federal and state interest limitation carryforwards, U.S. anti-deferral provisions and excess tax costs of $7.3 million related to equity compensation awards, partially offset by tax benefits related to federal tax credits. For the three and six months ended June 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.

Previous wording

The prior year period includes general corporate costs that were previously allocated to the Home segment. These indirect costs have been classified as continuing operations for the prior year period, since they were not directly attributable to the discontinued operations of the Home segment. Beginning in the first quarter of 2024, these costs have been reallocated to our remaining segments and partially offset by income from our transition service agreement with Vantiva.

Current wording

The prior year periods include general corporate costs that were previously allocated to the Home segment. These indirect costs have been classified as continuing operations for the prior year periods, since they were not directly attributable to the discontinued operations of the Home segment. Beginning in the first quarter of 2024, these costs have been reallocated to our remaining segments and partially offset by income from our transition service agreement with Vantiva.

Previous wording

Net sales for the CCS segment decreased for the three months ended March 31, 2024 compared to the prior year period 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 March 31, 2024, net sales decreased in the U.S. by $174.7 million, the EMEA region by $14.2 million, the CALA region by $13.9 million, Canada by $7.7 million and the APAC region by $5.9 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our CCS net sales during the three months ended March 31, 2024.

Current wording

Net sales for the CCS segment increased for the three months ended compared to the prior year period primarily due to higher sales volumes in the Enterprise business. CCS segment net sales decreased for the six months ended June 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 June 30, 2024, net sales increased in the U.S. by $29.6 million, the APAC region by $14.1 million and Canada by $4.4 million, but decreased in the CALA region by $15.4 million and the EMEA region by $1.3 million, compared to the prior year period. For the six months ended June 30, 2024, net sales decreased in the U.S. by $145.1 million, the CALA region by $29.3 million, the EMEA region by $15.5 million and Canada by $3.3 million, but increased in the APAC region by $8.2 million 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 six months ended June 30, 2024.

Previous wording

For the three months ended March 31, 2024, CCS segment operating income and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes, partially offset by lower SG&A costs, favorable product mix and lower material and R&D costs. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. CCS segment operating income for the three months ended March 31, 2023 was also favorably impacted by a $20.2 million gain in restructuring costs related to the sale of an international manufacturing facility. Restructuring costs are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Current wording

For the three months ended June 30, 2024, CCS segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to higher sales volumes and favorable product mix. For the six months ended June 30, 2024, CCS segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to favorable product mix and lower SG&A, input and R&D costs, partially offset by lower sales volumes. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. For the three months ended June 30, 2024, CCS segment operating income was also favorably impacted by a reduction in restructuring costs of $12.8 million, partially offset by an increase in transaction, transition and integration costs of $7.2 million. For the six months ended June 30, 2024, CCS segment operating income was unfavorably impacted by an increase in transaction, transition and integration costs of $7.4 million. Restructuring costs and transaction, transition and integration costs are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Previous wording

For the three months ended March 31, 2024, OWN segment net sales decreased compared to the prior year period primarily due to lower sales volumes as a result of reductions in spending by certain North American operators. From a regional perspective, for the three months ended March 31, 2024, OWN segment net sales decreased in the U.S. by $63.2 million, Canada by $0.8 million and the EMEA region by $0.7 million, but increased in the APAC region by $2.1 million and the CALA region by $0.2 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our OWN net sales during the three months ended March 31, 2024.

Current wording

For the three months ended June 30, 2024, OWN segment net sales increased compared to the prior year period primarily due to higher sales volumes. For the six months ended June 30, 2024, OWN segment net sales decreased compared to the prior year period primarily due to lower sales volumes as a result of reductions in spending in the first quarter by certain North American operators. From a regional perspective, for the three months ended June 30, 2024, OWN segment net sales increased in the U.S. by $22.3 million, the CALA region by $1.9 million, the EMEA region by $1.6 million, the APAC region by $1.1 million and Canada by $0.6 million compared to the prior year period. For the six months ended June 30, 2024, OWN segment net sales decreased in the U.S. by $40.9 million and Canada by $0.2 million, but increased in the APAC region by $3.2 million, the CALA region by $2.1 million and the EMEA region by $0.9 million, compared to the prior year period. Foreign exchange rate changes did not have a material impact on our OWN net sales during the three and six months ended June 30, 2024.

Previous wording

For the three months ended March 31, 2024, OWN segment operating income and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes partially offset by lower SG&A costs. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. See “Reconciliation of Segment Adjusted EBITDA” below.

Current wording

For the three months ended June 30, 2024, OWN 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. For the six months ended June 30, 2024, OWN segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to lower SG&A costs, favorable product mix and lower input costs, partially offset by lower sales volumes. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. See “Reconciliation of Segment Adjusted EBITDA” below.

Previous wording

For the three months ended March 31, 2024, NICS segment net sales decreased compared to the prior year period primarily due to lower sales volumes of our Ruckus products. From a regional perspective, for the three months ended March 31, 2024, NICS segment net sales decreased in the U.S. by $67.5 million, the EMEA region by $25.0 million, the APAC region by $8.7 million, the CALA region by $2.3 million and Canada by $0.7 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 months ended March 31, 2024.

Current wording

For the three and six months ended June 30, 2024, NICS segment net sales decreased compared to the prior year periods primarily due to lower sales volumes of our Ruckus products driven from lower demand and channel inventory digestion. From a regional perspective, for the three months ended June 30, 2024, NICS segment net sales decreased in the U.S. by $50.4 million, the EMEA region by $44.4 million, the APAC region by $19.9 million, the CALA region by $3.2 million and Canada by $0.3 million compared to the prior year period. For the six months ended June 30, 2024, NICS segment net sales decreased in the U.S. by $117.9 million, the EMEA region by $69.4 million, the APAC region by $28.6 million, the CALA region by $5.5 million and Canada by $1.0 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 six months ended June 30, 2024.

Previous wording

For the three months ended March 31, 2024, NICS segment operating loss increased and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes and lower pricing, partially offset by favorable product mix and lower R&D and SG&A costs. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. See “Reconciliation of Segment Adjusted EBITDA” below.

Current wording

For the three and six months ended June 30, 2024, NICS segment operating loss increased and adjusted EBITDA decreased compared to the prior year periods primarily due to lower sales volumes, lower pricing and higher inventory reserves, partially offset by lower SG&A and R&D costs and favorable product mix. The reductions in SG&A costs impacting both operating loss and adjusted EBITDA were primarily due to cost savings initiatives. See “Reconciliation of Segment Adjusted EBITDA” below.

Previous wording

For the three months ended March 31, 2024, net sales decreased in the ANS segment due to lower sales volumes compared to the prior year period 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 March 31, 2024, ANS segment net sales decreased in the U.S. by $85.1 million, the EMEA region by $21.2 million, the CALA region by $5.7 million and Canada by $4.5 million, but increased in the APAC region by $3.5 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 months ended March 31, 2024.

Current wording

For the three and six months ended June 30, 2024, net sales decreased in the ANS segment due to lower sales volumes 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 June 30, 2024, ANS segment net sales decreased in the U.S. by $109.2 million, the CALA region by $23.8 million, the EMEA region by $14.9 million and the APAC region by $0.2 million, but increased in Canada by $5.5 million, compared to the prior year period. For the six months ended June 30, 2024, ANS segment net sales decreased in the U.S. by $194.3 million, the EMEA region by $36.1 million and the CALA region by $29.5 million, but increased in the APAC region by $3.3 million and Canada by $1.0 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 six months ended June 30, 2024.

Previous wording

For the three months ended March 31, 2024, ANS segment operating loss increased and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes but benefited from lower freight, favorable product mix and lower SG&A and R&D costs compared to the prior year period. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. For the three months ended March 31, 2024, ANS segment operating loss was negatively impacted by increases of $27.6 million in restructuring costs and $4.8 million in transaction, transformation and integration costs. These negative impacts were partially offset by a reduction of $23.9 million in amortization expense. Restructuring costs, transaction, transformation and integration costs and amortization expense are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Current wording

For the three and six months ended June 30, 2024, ANS segment operating income (loss) and adjusted EBITDA were impacted unfavorably by lower sales volumes but benefited from lower SG&A and R&D costs, favorable product mix, lower freight and lower input costs compared to the prior year periods. The reductions in SG&A costs impacting both operating income (loss) and adjusted EBITDA were primarily due to cost savings initiatives. For the three months ended June 30, 2024, ANS segment operating income (loss) was also favorably impacted by reductions in amortization expense of $13.1 million and restructuring costs of $10.4 million. For the six months ended June 30, 2024, operating income (loss) was favorably impacted by a reduction in amortization expense of $37.0 million, partially offset by increases in restructuring costs of $17.2 million and transaction, transformation and integration costs of $6.9 million. Restructuring costs, transaction, transformation and integration costs and amortization expense are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Previous wording

Working capital is net of assets and liabilities held for sale and consists of current assets of $2,407.4 million less current liabilities of $1,048.9 million as of March 31, 2024 and current assets of $2,584.1 million less current liabilities of $1,102.2 million as of December 31, 2023.

Current wording

Working capital is net of assets and liabilities held for sale and consists of current assets of $2,564.8 million less current liabilities of $2,473.1 million as of June 30, 2024 and current assets of $2,584.1 million less current liabilities of $1,102.2 million as of December 31, 2023.

Previous wording

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.

Current wording

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 June 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 within one year of the date that the condensed consolidated financial statements are issued for the quarter ended June 30, 2024. We do not currently have sufficient cash or liquidity to repay the 2025 Notes when they mature on June 15, 2025.

Previous wording

We currently believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our Revolving Credit Facility, will be sufficient to meet our presently anticipated future cash needs. However, 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.

Current wording

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.

Previous wording

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 March 31, 2024, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $903.3 million, which included annualized savings expected from cost reduction initiatives of $65.0 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 March 31, 2024.

Current wording

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 June 30, 2024, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $926.1 million, which included annualized savings expected from cost reduction initiatives of $38.4 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 June 30, 2024.

Previous wording

Cash and cash equivalents decreased during the three months ended March 31, 2024 primarily driven by cash used in operating activities of $177.7 million. As of March 31, 2024, approximately 64% of our cash and cash equivalents were held outside the U.S.

Current wording

Cash and cash equivalents decreased during the six months ended June 30, 2024 primarily driven by cash used in operating activities of $126.9 million and cash paid of $45.1 million related to the Casa Transaction. As of June 30, 2024, approximately 66% of our cash and cash equivalents were held outside the U.S.

Previous wording

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 three months ended March 31, 2024 compared to the fourth quarter of 2023 primarily due to lower accrued liabilities due to the pay-out of our 2023 variable incentive compensation and interest payments. During the three months ended March 31, 2024, we sold accounts receivable under customer-sponsored supplier financing agreements. This had an impact of approximately $45 million on working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of March 31, 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 three months ended March 31, 2024 reflected the net loss for the period.

Current wording

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 six months ended June 30, 2024 compared to the fourth quarter of 2023 primarily due to higher accounts receivable balances due to increased net sales in the second quarter of 2024 compared to the fourth quarter of 2023 and lower accrued liabilities due to the pay-out of our 2023 variable incentive compensation. These increases were partially offset by increases in accounts payable and other liabilities. During the six months ended June 30, 2024, we sold accounts receivable under customer-sponsored supplier financing agreements. This had an impact of approximately $53 million on working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of June 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 six months ended June 30, 2024 reflected the net loss for the period.

Previous wording

During the three months ended March 31, 2024, the increase in cash used in operating activities compared to the prior year period was primarily driven by better operating performance in the first quarter of 2023 compared to the first quarter of 2024, partially offset by lower variable incentive compensation paid in the first quarter of 2024 compared to the first quarter of 2023.

Current wording

During the six months ended June 30, 2024, net cash generated by (used in) operating activities decreased compared to the prior year period primarily due to better operating performance in the first half of 2023 compared to the first half of 2024, partially offset by lower variable incentive compensation paid in the first half of 2024 compared to the first half of 2023.

Previous wording

During the three months ended March 31, 2024, the decrease in cash generated by investing activities compared to the prior year period was primarily driven by $41.0 million of proceeds from the sale of property, plant and equipment received during the three months ended March 31, 2023, partially offset by an $8.4 million decrease in capital expenditures. The proceeds on the sale of property, plant and equipment in the prior year period primarily related to the sale of an international manufacturing facility that was closed as part of CommScope NEXT. The cash received from other investing activities in both periods related to the sale of certain nonfinancial assets.

Current wording

During the six months ended June 30, 2024, the decrease in cash generated by (used in) 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 $23.9 million, partially offset by prior year period proceeds of $41.6 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 $11.2 million related to the sale of an equity investment and proceeds of $9.3 million on the sale of certain nonfinancial assets.

Previous wording

During the three months ended March 31, 2024, we paid the quarterly scheduled amortization payment of $8.0 million on the 2026 Term Loan. We did not borrow under our Revolving Credit Facility. As of March 31, 2024, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $550.5 million, reflecting a borrowing base subject to maximum capacity of $645.1 million reduced by $94.6 million of letters of credit issued under the Revolving Credit Facility.

Current wording

During the six months ended June 30, 2024, we paid the quarterly scheduled amortization payment of $16.0 million on the 2026 Term Loan. We did not borrow under our Revolving Credit Facility. As of June 30, 2024, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $535.4 million, reflecting a borrowing base subject to maximum capacity of $634.4 million reduced by $99.0 million of letters of credit issued under the Revolving Credit Facility.

Previous wording

During the three months ended March 31, 2023, we repurchased $47.4 million aggregate principal amount of our 8.25% senior notes due 2027, $3.1 million aggregate principal amount of our 7.125% senior notes due 2028 and $7.0 million aggregate principal amount of our 6.00% senior notes due 2025, for total cash consideration paid of $50.0 million. We also paid a quarterly scheduled amortization payment of $8.0 million on the 2026 Term Loan during the three months ended March 31, 2023.

Current wording

During the six months ended June 30, 2023, we repurchased $56.9 million aggregate principal amount of our 8.25% senior notes due 2027, $3.1 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 $75.0 million. We also paid two quarterly scheduled amortization payments totaling $16.0 million on the 2026 Term Loan during the six months ended June 30, 2023.