CommScope Holding Company Inc

Previous 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).

Current wording

The following narrative is an analysis of the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. The discussion is provided to increase the understanding of, and should be read in conjunction with, the unaudited condensed consolidated financial statements and accompanying notes included in this report as well as the audited consolidated financial statements, related notes thereto and management’s discussion and analysis of financial condition and results of operations, including management’s discussion and analysis regarding the application of critical accounting policies and the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report).

Previous wording

We completed the acquisition of certain assets of Casa Systems, Inc. and its subsidiaries (Casa) on June 7, 2024 (the Casa Transaction). As part of the Casa Transaction, we acquired certain assets (the Casa Assets) and assumed certain specified liabilities (the Casa Liabilities) of Casa. The sale was conducted pursuant to the bid procedures (the Bid Procedures) established in the chapter 11 cases of Casa Systems, Inc. and certain affiliates in the U.S. Bankruptcy Court for the District of Delaware (the Bankruptcy Court). Pursuant to the Bid Procedures, we were designated as the successful bidder following an auction held on May 29, 2024. On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to us pursuant to section 363 of the Bankruptcy Court (subject to the terms thereof). The sale closed on June 7, 2024 and, at such time, we funded the purchase price of $45.1 million and settled certain assumed Casa Liabilities, with cash on hand. We plan to integrate this strategic acquisition into our Access Network Solutions (ANS) segment and expect the acquisition to strengthen our ANS segment’s position by enhancing itsvirtual cable modem termination systems and passive optical network product offerings, which will enable customers to migrate to distributed access architecture solutions at their own speed, and further grow our customer base. We recorded $1.0 million of transaction and integration costs for both the three and six months ended June 30, 2024 related to the Casa Transaction, and these costs were recognized in selling, general and administrative expense in the Condensed Consolidated Statements of Operations. See Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the Casa Transaction.

Current wording

We completed the acquisition of certain assets of Casa Systems, Inc. and its subsidiaries (Casa) on June 7, 2024 (the Casa Transaction). As part of the Casa Transaction, we acquired certain assets (the Casa Assets) and assumed certain specified liabilities (the Casa Liabilities) of Casa. The sale was conducted pursuant to the bid procedures (the Bid Procedures) established in the chapter 11 cases of Casa Systems, Inc. and certain affiliates in the U.S. Bankruptcy Court for the District of Delaware (the Bankruptcy Court). Pursuant to the Bid Procedures, we were designated as the successful bidder following an auction held on May 29, 2024. On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to us pursuant to section 363 of the U.S. Bankruptcy Code (subject to the terms thereof). The sale closed on June 7, 2024 and, at such time, we funded the purchase price of $45.1 million and settled certain assumed Casa Liabilities, with cash on hand. We plan to integrate this strategic acquisition into our Access Network Solutions (ANS) segment and expect the acquisition to strengthen our ANS segment’s position by enhancing itsvirtual cable modem termination systems and passive optical network product offerings, which will enable customers to migrate to distributed access architecture solutions at their own speed, and further grow our customer base. We recorded $0.4 million and $1.4 million of transaction and integration costs for both the three and nine months ended September 30, 2024, respectively, related to the Casa Transaction, and these costs were recognized in selling, general and administrative expense in the Condensed Consolidated Statements of Operations. See Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the Casa Transaction.

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 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.

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. We continue to focus on driving operational efficiencies and other cost savings initiatives as well as portfolio optimization, all of which should enable us to take advantage of the expected recovery in demand in the fourth quarter of 2024. To that end, we incurred $(0.9) million and $30.6 million of net restructuring costs (credits) and $19.5 million and $45.8 million of transaction, transformation and integration costs during the three and nine months ended September 30, 2024, respectively, primarily related to CommScope NEXT initiatives. In addition, we incurred $22.0 million and $43.1 million of net restructuring costs and $14.6 million and $17.7 million of transaction, transformation and integration costs during the three and nine months ended September 30, 2023, respectively. We expect to continue to incur such costs during the remainder of 2024 as we continue executing on CommScope NEXT initiatives, and the resulting charges and cash requirements could be material.

Previous wording

On January 9, 2024, we completed the sale of our Home Networks (Home) segment and substantially all of the associated segment assets and liabilities (Home business) to Vantiva SA (Vantiva) pursuant to the Call Option Agreement entered into on October 2, 2023 and the Purchase Agreement dated as of December 7, 2023. In the fourth quarter of 2023, we determined the sale of our Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with accounting guidance. All prior period amounts have been recast to reflect the discontinuation of our Home business. Unless otherwise noted, the following discussions relate solely to our continuing operations. For further discussion of the discontinued operation related to our Home business, see Note 3 in the Notes to Unaudited Condensed Consolidated Financial Statements.

Current wording

On January 9, 2024, we completed the sale of our Home Networks (Home) segment and substantially all of the associated segment assets and liabilities (Home business) to Vantiva SA (Vantiva) pursuant to the Call Option Agreement entered into on October 2, 2023 and the Purchase Agreement dated as of December 7, 2023. In the fourth quarter of 2023, we determined the sale of our Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with accounting guidance. All prior period amounts have been recast to reflect the discontinuation of our Home business.

Previous 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.

Current wording

Our continuing operations results include general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment. These indirect costs, reflected on the corporate and other line item within our segment information below, are classified as continuing operations, since they were not directly attributable to these discontinued operations. Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to our remaining segments and partially offset by income from our transition services agreement with Vantiva. The corporate and other costs related to the OWN segment and DAS business will be reallocated to our remaining segments beginning in the first quarter of 2025.

Previous wording

In July 2024, we entered into a definitive agreement to sell our OWN segment as well as the Distributed Antenna Systems (DAS) business unit of our NICS segment to Amphenol Corporation. As such, below we refer to certain supplementary Core financial measures, which reflect the results of the CCS, NICS excluding Distributed Antenna Systems (DAS), and ANS segments, in the aggregate. Core financial measures exclude the results and performance of the OWN segment and DAS business unit in NICS. The Core results and the OWN and DAS results represent the business results as currently managed and reported by the Company. Future results and the composition of any business divested in the future may vary and differ materially from the presentation of the Core financial measures. See the Segment Results section below for the aggregation of our Core financial measures.

Current wording

Additionally, below we refer to certain supplementary Core financial measures, which reflect the results of the CCS, NICS excluding DAS, and ANS segments, in the aggregate, and exclude general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment, since these costs were not directly attributable to the discontinued operations. The Core results represent the business results as currently managed and reported by the Company. Future results and the composition of any business divested in the future may vary and differ materially from the presentation of the Core financial measures. See the “Segment Results” section below for the aggregation of our Core financial measures.

Previous wording

As of January 1, 2024, we shifted certain product lines from our CCS segment to our ANS segment to better align with how the businesses are being managed. All prior period amounts have been recast to reflect these operating segment changes.

Current wording

As of January 1, 2024, we shifted certain product lines from our CCS segment to our ANS segment to better align with how the businesses are managed. All prior period amounts have been recast to reflect these operating segment changes.

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-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.

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 three quarters of 2024. We are beginning to see a recovery in demand in certain businesses and expect to see additional recovery in demand later in 2024.

Previous 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.

Current wording

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

Previous wording

Our annual goodwill impairment test as of October 1, 2023, resulted in partial impairment charges of $99.1 million and $46.3 million for the Enterprise (previously Building and Data Center Connectivity) and ANS reporting units, respectively. As of the most recent interim impairment test on January 1, 2024, immediately before and after changes in the composition of those reporting units, the implied fair value of the Enterprise and ANS reporting units exceeded its respective carrying amount by 8% and 7%, respectively.

Current wording

Our interim goodwill impairment test as of September 30, 2023 resulted in a partial impairment charge of $425.9 million for the ANS reporting unit. Our annual goodwill impairment test as of October 1, 2023, resulted in partial impairment charges of $99.1 million and $46.3 million for the Enterprise (previously Building and Data Center Connectivity) and ANS reporting units, respectively. As of the most recent interim impairment test on January 1, 2024, immediately before and after changes in the composition of those reporting units, the implied fair value of the Enterprise and ANS reporting units exceeded its respective carrying amount by 8% and 7%, respectively.

Previous 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

Current wording

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 WITH THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

Previous 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.

Current wording

Net sales for the three months ended September 30, 2024 increased $28.8 million, or 2.7%, compared to the prior year period primarily driven by increased sales volumes. Net sales for the nine months ended September 30, 2024 decreased $605.4 million, or 16.6%, compared to the prior year period as certain customers have continued their reduced purchasing as they right-size their inventories and others have continued their pause in capital spending. The increase in net sales for the three months ended September 30, 2024 was driven by higher net sales of $106.2 million in the CCS segment, partially offset by lower net sales of $45.1 million in the NICS segment and $32.3 million in the ANS segment. The decrease in net sales for the nine months ended September 30, 2024 was driven by lower net sales of $288.0 million in the ANS segment, $238.5 million in the NICS segment and $78.9 million in the CCS segment. For further details by segment, see “Segment Results” below.

Previous 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.

Current wording

From a regional perspective, for the three months ended September 30, 2024 compared to the prior year period, net sales increased in the U.S. by $21.4 million, the Europe, Middle East and Africa (EMEA) region by $6.2 million, Canada by $3.2 million, and the Asia Pacific (APAC) region $0.5 million, but decreased in the Caribbean and Latin American (CALA) region by $2.5 million. For the nine months ended September 30, 2024 compared to the prior year period, net sales decreased in the U.S. by $428.5 million, the EMEA region by $93.0 million, the CALA region by $66.9 million, the APAC region by $15.0 million and Canada by $2.0 million. Net sales to customers located outside of the U.S. comprised 34.0% and 34.6% of total net sales for the three and nine months ended September 30, 2024, respectively, compared to 34.2% and 33.7% for the three and nine months ended September 30, 2023, respectively. Foreign exchange rate changes did not have a material impact on our net sales during the three or nine months ended September 30, 2024 compared to the prior year periods. For additional information on regional sales by segment, see “Segment Results” below and Note 9 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein.

Previous 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.

Current wording

Gross profit increased by $54.9 million for the three months ended September 30, 2024 compared to the prior year period primarily due to increased net sales volumes and favorable product mix, partially offset by higher freight costs. For the nine months ended September 30, 2024, gross profit decreased by $195.2 million compared to the prior year period primarily due to lower net sales volumes, partially offset by favorable product mix and lower input costs.

Previous wording

Transition service agreement (TSA) income is related to the TSA we entered into with Vantiva in conjunction with the closing of the transaction to divest of the Home business in January 2024. Under the TSA agreement, we are providing (and in some instances receiving) certain post-closing support on a transitional basis. The TSA has varying terms for duration up to sixteen months, depending on the service, and provides for options to extend services for up to two renewal terms of three months each. The majority of the services are expected to cease by the end of 2024.

Current wording

Transition service agreement (TSA) income is related to the TSA we entered into with Vantiva in conjunction with the closing of the transaction to divest of the Home business in January 2024. Under the TSA agreement, we are providing (and in some instances receiving) certain post-closing support on a transitional basis. The TSA has varying terms for duration up to sixteen months, depending on the service, and provides for options to extend services for up to two renewal terms of three months each. As of the end of the third quarter of 2024, the majority of the services have ceased.

Previous 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.

Current wording

For the three months ended September 30, 2024, selling, general and administrative (SG&A) expense increased by $17.0 million compared to the prior year period primarily due to higher variable incentive compensation expense of $17.2 million and higher transaction, transformation and integration costs of $4.9 million due to ongoing CommScope NEXT initiatives, partially offset by reductions due to cost savings initiatives and lower bad debt expense of $6.0 million. For the nine months ended September 30, 2024, SG&A expense decreased $36.6 million compared to the prior year period primarily due to cost savings initiatives and lower bad debt expense of $15.6 million, partially offset by higher transaction, transformation and integration costs of $28.1 million and higher variable incentive compensation expense of $7.8 million. We expect to continue to incur transaction, transformation and integration costs during the remainder of 2024, and the resulting charges and cash requirements could be material.

Previous 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.

Current wording

Research and development (R&D) expense decreased by $7.4 million for the three months ended September 30, 2024 compared to the prior year period primarily due to lower spending within the NICS segment. For the nine months ended September 30, 2024, R&D expense decreased by $62.7 million compared to the prior year period primarily due to lower spending within the NICS, CCS and ANS segments. R&D activities generally involve ensuring that our products are capable of meeting the evolving technological needs of our customers, bringing new products to market and modifying existing products to better serve our customers.

Previous 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.

Current wording

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

Previous 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.

Current wording

The net restructuring costs (credits) recorded during the three and nine months ended September 30, 2024 and 2023 were primarily related to CommScope NEXT. For the three and nine months ended September 30, 2024, our net restructuring costs (credits) were $(0.9) million and $30.6 million, respectively, and we paid $8.1 million and $24.4 million, respectively, to settle restructuring liabilities. We expect to pay an additional $2.9 million during the remainder of 2024 related to restructuring actions that have been initiated. Additional restructuring actions related to CommScope NEXT are expected to be identified, and the resulting charges and cash requirements could be material.

Previous 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.

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

Previous 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.

Current wording

The change in other income, net for the three and nine months ended September 30, 2024 compared to the prior year periods was primarily driven by a gain of $8.6 million and $19.0 million, respectively, on the early extinguishment of debt related to our debt repurchases in the prior year periods. There were no debt repurchases during the three or nine months ended September 30, 2024.

Previous 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.

Current wording

Interest expense for the three and nine months ended September 30, 2024 did not change significantly when compared to the prior year periods. For the three and nine months ended September 30, 2024, interest expense was favorably impacted by lower long-term debt balances as a result of the debt repurchases in 2023, and unfavorably impacted by increased variable interest rate on our senior secured term loan due 2026 (2026 Term Loan) as a result of the Federal Reserve’s increases in interest rates. Our weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap contracts and the amortization of debt issuance costs and original issue discount, was 7.09% at September 30, 2024, 7.22% at December 31, 2023 and 7.23% at September 30, 2023.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, we recognized income tax expense of $26.7 million on a pretax loss of $70.0 million and income tax expense of $41.2 million on a pretax loss of $356.7 million, respectively. Our income taxes for the three and nine months ended September 30, 2024, were unfavorably impacted by $35.9 million and $103.7 million, respectively, of additional valuation allowance related to current year federal and state interest limitation carryforwards and U.S. anti-deferral provisions, partially offset by tax benefits related to federal tax credits. For the three and nine months ended September 30, 2024, we used a discrete calculation to compute the net tax benefit associated with external interest. Using the estimated annual tax rate for this component of income would have produced significant variability in the estimated annual effective tax rate, and use of the discrete method for this component results in the best estimate of the estimated annual effective tax rate.

Previous wording

For the three and six months ended June 30, 2023, we recognized an income tax benefit of $3.6 million on a pretax loss of $66.7 million and an income tax benefit of $7.6 million on a pretax loss of $40.9 million, respectively. This tax benefit was unfavorably impacted by U.S. anti-deferral provisions and noncreditable withholding taxes for the three and six months ended June 30, 2023. Excess tax costs of $5.4 million and $6.9 million related to equity compensation awards also impacted the tax benefit unfavorably for the three and six months ended June 30, 2023, respectively. These unfavorable impacts were partially offset by the favorable impacts of federal income tax credits as well as $1.5 million and $9.8 million of tax benefits related to the release of various uncertain tax positions for the three and six months ended June 30, 2023, respectively.

Current wording

For the three and nine months ended September 30, 2023, we recognized an income tax benefit of $34.5 million on a pretax loss of $568.3 million and an income tax benefit of $74.4 million on a pretax loss of $756.3 million, respectively. Our tax benefit for the three and nine months ended September 30, 2023, was unfavorably impacted by a goodwill impairment charge of $425.9 million for which minimal tax benefits were recorded. Our tax benefit was favorably impacted by $4.1 million related to tax law changes for the three and nine months ended September 30, 2023. In addition to the unfavorable impact of the goodwill impairment charge mentioned above, for the nine months ended September 30, 2023, our tax benefit was also unfavorably impacted by excess tax costs of $7.1 million related to equity compensation awards but favorably impacted by $9.6 million related to the release of various uncertain tax positions.

Previous 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.

Current wording

Net sales for the CCS segment increased for the three months ended September 30, 2024 compared to the prior year period primarily due to higher sales volumes in the Enterprise business. CCS segment net sales decreased for the nine months ended September 30, 2024 compared to the prior year period primarily due to lower sales volumes as certain customers paused spending in the first quarter as they right-sized their inventory levels. From a regional perspective, for the three months ended September 30, 2024, net sales increased in the U.S. by $93.1 million, the EMEA region by $19.5 million and Canada by $3.3 million, but decreased in the CALA region by $7.9 million and the APAC region by $1.8 million, compared to the prior year period. For the nine months ended September 30, 2024, net sales decreased in the U.S. by $52.1 million and the CALA region by $37.2 million, but increased in the APAC region by $6.4 million and the EMEA region by $4.0 million, and remained the same in Canada, compared to the prior year period. Foreign exchange rate changes did not have a material impact on our CCS net sales during the three or nine months ended September 30, 2024.

Previous 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.

Current wording

For the three months ended September 30, 2024, CCS segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to higher sales volumes, favorable product mix and lower input costs, partially offset by higher SG&A costs. For the nine months ended September 30, 2024, CCS segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to favorable product mix and lower R&D, SG&A and input costs, partially offset by lower sales volumes. For the three and nine months ended September 30, 2024, CCS segment operating income was also favorably impacted by reductions in restructuring costs of $16.6 million and 13.9 million, respectively, partially offset by increases in transaction, transition and integration costs of $3.5 million and $11.0 million, respectively. Restructuring costs and transaction, transition and integration costs are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, NICS segment net sales decreased compared to the prior year periods primarily due to lower sales volumes of our Ruckus products driven by lower demand and channel inventory digestion. From a regional perspective, for the three months ended September 30, 2024, NICS segment net sales decreased in the U.S. by $29.6 million, the EMEA region by $10.3 million, Canada by $5.3 million and the APAC region by $2.3 million, but increased in the CALA region by $2.4 million, compared to the prior year period. For the nine months ended September 30, 2024, NICS segment net sales decreased in the U.S. by $139.9 million, the EMEA region by $57.9 million, the APAC region by $29.3 million, Canada by $8.2 million and the CALA region by $3.2 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our NICS net sales during the three or nine months ended September 30, 2024.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, NICS segment operating income and adjusted EBITDA decreased compared to the prior year periods primarily due to lower sales volumes, lower pricing and higher freight costs, partially offset by lower R&D costs and favorable product mix. For the nine months ended September 30, 2024, NICS segment operating income and adjusted EBITDA were favorably impacted by lower SG&A costs primarily due to cost savings initiatives. NICS segment operating income was also favorably impacted by a gain of $3.5 million related to the settlement of an intellectual property litigation claim during the three and nine months ended September 30, 2023. The impacts of intellectual property litigation settlements are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, net sales decreased in the ANS segment compared to the prior year periods primarily due to lower sales volumes as certain customers have paused spending as they right-size their inventory levels. From a regional perspective, for the three months ended September 30, 2024, ANS segment net sales decreased in the U.S. by $42.1 million and the EMEA region by $3.0 million, but increased in Canada by $5.2 million, the APAC region by $4.6 million and the CALA region by $3.0 million, compared to the prior year period. For the nine months ended September 30, 2024, ANS segment net sales decreased in the U.S. by $236.5 million, the EMEA region by $39.1 million and the CALA region by $26.5 million, but increased in the APAC region by $7.9 million and Canada by $6.2 million, compared to the prior year period. Foreign exchange rate changes did not have a material impact on our ANS net sales during the three or nine months ended September 30, 2024.

Previous 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.

Current wording

Excluding the goodwill impairment charge of $425.9 million from operating loss for the three and nine months ended September 30, 2024, ANS segment operating loss increased and adjusted EBITDA decreased for both the three and nine months ended September 30, 2024 compared to the prior year periods. For the three months ended September 30, 2024, ANS segment operating loss and adjusted EBITDA were negatively impacted by lower sales volumes, unfavorable product mix, and higher R&D and input costs, compared to the prior year period. ANS segment operating loss and adjusted EBITDA for the nine months ended September 30, 2024 were negatively impacted by lower sales volumes, partially offset by benefits from lower SG&A, R&D and input costs, and favorable product mix. The reductions in SG&A costs impacting the nine months ended September 30, 2024 were primarily due to cost savings initiatives. For the three months ended September 30, 2024, ANS segment operating loss was also favorably impacted by reductions in amortization expense of $13.1 million, transaction, transformation and integration costs of $5.6 million and restructuring costs of $2.7 million. For the nine months ended September 30, 2024, operating loss was favorably impacted by a reduction in amortization expense of $50.1 million, partially offset by an increase in restructuring costs of $14.4 million. Goodwill impairment charges, restructuring costs, transaction, transformation and integration costs and amortization expense are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Previous 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.

Current wording

Working capital is net of assets and liabilities held for sale and consists of current assets of $2,078.4 million less current liabilities of $2,215.3 million as of September 30, 2024 and current assets of $2,128.2 million less current liabilities of $929.5 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. 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.

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 September 30, 2024, we have $1.27 billion outstanding on our 6.00% senior unsecured notes which mature on June 15, 2025 (the 2025 Notes), which is less than a year from the date that the condensed consolidated financial statements are issued for the quarter ended September 30, 2024. We do not currently have sufficient cash or liquidity to repay the 2025 Notes when they mature on June 15, 2025.

Previous wording

Proceeds of approximately $2.1 billion from the pending sale of our OWN segment and DAS business unit, may be used under certain circumstances to retire the 2025 Notes due to flexibility under our credit agreements. We believe this is probable of occurring and will alleviate substantial doubt about our ability to operate as a going concern.

Current wording

Proceeds of approximately $2.1 billion from the pending sale of our OWN segment and DAS business unit may be used under certain circumstances to retire the 2025 Notes due to flexibility under our debt documents. We believe this is probable of occurring and will alleviate substantial doubt about our ability to operate as a going concern.

Previous wording

Concurrently, we are negotiating with our noteholders and lenders to explore both restructuring and/or refinancing of the 2025 Notes. No commitments have been obtained regarding this alternative as of the filing date, thus it has not reached a level of being considered probable at this time, although it remains part of our plans to mitigate conditions that give rise to substantial doubt about our ability to operate as a going concern.

Current wording

Concurrently, we are negotiating with creditors to explore both restructuring and/or refinancing of the 2025 Notes. No commitments have been obtained regarding this alternative as of the filing date, although it remains part of our plans to mitigate conditions that give rise to substantial doubt about our ability to operate as a going concern.

Previous wording

Our outstanding debt securities and debt under our credit facilities are currently trading at substantial discounts to their respective principal amounts. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase such debt for cash, in exchange for common or preferred stock or debt, or for a combination thereof, in each case in open-market purchases and/or privately negotiated transactions, tender offers or exchange offers and upon such terms and at such prices as we may determine. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions and applicable regulatory, legal and accounting factors. Whether or not we engage in any such transactions will be determined at our discretion. The amounts involved in any such transactions, individually or in the aggregate, may be material.

Current wording

Our outstanding debt securities and debt under our credit facilities are currently trading at discounts to their respective principal amounts. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase such debt for cash, in exchange for common or preferred stock or debt, or for a combination thereof, in each case in open-market purchases and/or privately negotiated transactions, tender offers or exchange offers and upon such terms and at such prices as we may determine. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions and applicable regulatory, legal and accounting factors. Whether or not we engage in any such transactions will be determined at our discretion. The amounts involved in any such transactions, individually or in the aggregate, may be material.

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 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.

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 September 30, 2024, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $615.0 million, which included annualized savings expected from cost reduction initiatives of $18.6 million so that the impact of cost reduction initiatives is fully reflected in the twelve-month period used in the calculation of the ratios. In addition to limitations under these indentures, our senior secured credit facilities contain customary negative covenants based on similar financial measures. We believe we are in compliance with the covenants under our indentures and senior secured credit facilities as of September 30, 2024.

Previous 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.

Current wording

Cash and cash equivalents decreased during the nine months ended September 30, 2024 primarily driven by $45.1 million of cash paid related to the Casa Transaction, debt repayments of $24.0 million and capital expenditures of $18.0 million. As of September 30, 2024, approximately 57% of our cash and cash equivalents were held outside the U.S.

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 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.

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 nine months ended September 30, 2024 compared to the fourth quarter of 2023 primarily due to higher accounts receivable with favorable operating performance driving higher net sales in the third quarter of 2024 compared to the fourth quarter of 2023, higher prepaid assets, and lower accrued liabilities due to interest payments. The increase was partially offset by higher accounts payable due to timing of payments and lower inventory. During the nine months ended September 30, 2024, we sold accounts receivable under customer-sponsored supplier financing agreements. This had an impact of approximately $95 million on working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of September 30, 2024. Under these agreements, we are able to sell certain accounts receivable to a bank, and we retain no interest in and have no servicing responsibilities for the accounts receivable sold. The net reduction in total capitalization during the nine months ended September 30, 2024 reflected the net loss for the period.

Previous 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.

Current wording

During the nine months ended September 30, 2024, the decrease in net cash generated by operating activities was primarily driven by better operating performance in the prior year period compared to the current year period, partially offset by lower variable incentive compensation paid in the current year period compared to the prior year period.

Previous 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.

Current wording

During the nine months ended September 30, 2024, the decrease in cash generated by investing activities compared to the prior year period was primarily driven by cash paid of $45.1 million related to the Casa Transaction and decreased capital expenditures of $25.9 million, partially offset by prior year period proceeds of $41.8 million from the sale of property, plant and equipment mostly related to the sale of an international manufacturing facility that was closed as part of CommScope NEXT. Cash used in investing activities in the current year period was favorably impacted by proceeds of $8.6 million on the sale of certain nonfinancial assets. Cash generated by investing activities in the prior year period was favorably impacted by proceeds of $11.1 million related to the sale of an equity investment and proceeds of $9.3 million on the sale of certain nonfinancial assets.