Vistance Networks, Inc. Q4 FY2023 earnings call

• The business is under significant pressure with low demand and minimal visibility to recovery. All segments face market demand challenges.
• CCS has long-term market tailwinds but short-term demand uncertain; seen small order rate upticks. Developed products for rural broadband and enterprise data centers.
• NICS had a strong year but under short-term pressure due to demand decline and inventory; RUCKUS led decline but Wi-Fi 7 products position for future share gain.
• OWN saw slight recovery in order rates in fourth quarter and early first quarter, but 2024 remains challenging.
• ANS transitioned to edge products, introduced new solutions, but impacted by customer inventory and project delays.
• Divested Home business to Vantiva in early January 2024.

Core CommScope delivered net sales of $5.79 billion, decreasing 23% from the prior year. Core adjusted EBITDA was $1.02 billion, a decrease of 18% from the prior year.

• CCS: Net sales of $556 million decreased 42% from the prior year. CCS adjusted EBITDA of $84 million was a decrease of 55% from the prior year.
• NICS: Net sales of $217 million decreased by 25% versus the fourth quarter of 2022. NICS adjusted EBITDA of $29 million decreased 48% from the prior year. Full year 2023 adjusted EBITDA in NICS was $225 million, up $173 million over prior year.
• OWN: Net sales of $183 million decreased 40% from the prior year. OWN adjusted EBITDA of $31 million declined 24% from the prior year.
• ANS: Net sales of $231 million decreased 38% from the prior year. ANS adjusted EBITDA of $54 million was down $41 million or 43% from the prior year.
• Home: Net sales were $294 million declining 25% from the prior year. Home adjusted EBITDA of negative $46 million decreased from negative $5 million versus prior year

• Expect first quarter revenue and adjusted EBITDA to be substantially lower than fourth quarter of 2023.
• First quarter adjusted EBITDA expected in the $100 million to $125 million range.
• Anticipate second half 2024 recovery but uncertainty remains.
• Implementing $100 million of annual cost reductions.

• Market demand uncertainty with no clear recovery timing.
• Customers adjusting inventory and delaying orders, impacting revenues.
• Delays in DOCSIS 4.0 upgrade projects affecting order rates and revenues.
• Lack of visibility into recovery timing complicating cash and capital structure management.
• Challenges with capital structure and upcoming debt maturities.

Q: Can you dig deep into the issues in NICS business, like if delay in purchasing decisions is broad-based and what leads to recovery in second half of the year?

A: It's broad-based. NICS EBITDA grew from negative $15 million to plus $240 million, gained share. Underestimated channel inventories impact. Leading indicators strong, orders pushed out but funnel remains strong, expecting second half recovery due to funnel and channel inventory indications.

Q: Regarding BEAD funding, how much of spending is towards equipment/product categories you serve and its materiality to recovery?

A: States starting to award BEADs funding, expecting spending late 2024 and pickup in 2025. Total available market for them is ~$4 billion over 4-5 years.

Q: About ANS business, is the softness in network upgrades new and any update on vCore products?

A: Real indications of orders pushed out in fourth quarter of last year. Have several trials ongoing with Virtual CMTS product, hope for positive news on next earnings call.

Q: On input costs, any benefits seen?

A: Generally, input costs mostly neutral; some inputs came down slightly but most materials net basis pretty neutral.

Q: How to think about normalized growth in NICS past inventory adjustment and confidence in structural demand?

A: Structural demand intact due to strong funnel. Dell'Oro report shows lower 2024 but 5% CAGR expected over next five years. Second half expected to bounce back due to inventory adjustments and funnel.

Q: Shift to Open RAN in U.S. and Europe and its impact on OWN segment?

A: Supportive of customer base using Open RAN technology. Focus on passive antennas, MOSAIC product, rural areas which are positive for them.

Q: Competition impact on pricing and smaller competitors?

A: Not much pricing pressure currently. Small firms in deeper challenging situation; need to hold together through downtime.

Q: Cash flows going forward, any working capital or production actions?

A: Inventory is an area of opportunity. Implementing $100 million cost plan across organization to optimize, looking for opportunities to optimize in all functional areas.

Q: Share gain opportunities as demand comes back and where demand improvement seen in segments?

A: Greatest share gain opportunity in NICS with Wi-Fi 7 product already winning orders. ANS has revamped edge products like FDX and virtual CMTS. CCS has capacity in place and gained share, expecting recovery. OWN seeing some traction in MOSAIC product line.