Vistance Networks, Inc. Q2 FY2024 earnings call

• Sale of OWN and DAS: CommScope is exploring capital structure optimization, with the deal to sell OWN and DAS to Amphenol expected to close in the first half of 2025, intending to use proceeds to reduce debt.
• Core Business Performance: Mixed, with CCS showing strength, while ANS and NICS face weakness. The CommScope NEXT program is driving improved adjusted EBITDA as a percentage of sales.
• CCS Details: Order rates improving, building and data center demand strong (especially hyperscale and cloud), with $100 million of incremental annualized revenue capacity investments and new products launched.
• Broadband: Orders improving sequentially, but demand remains low relative to 2021-2022, with the BEAD program pushed to the second half of 2025.
• Core NICS: RUCKUS inventory normalized, demand improving, with progress on Wi-Fi 7, RUCKUS One, and vertical market strategies.
• ANS: Historically weak in the first half of 2024, but well positioned for the upgrade cycle with new products, having acquired Casa Systems' HFC assets and finalized FDX product agreements.

CCS: Net sales of $728 million, up 5% year-over-year; adjusted EBITDA of $171 million, up 107% year-over-year. Adjusted EBITDA as a percentage of revenue was 23.5%. Driven by building and data center, especially hyperscale and cloud. Core NICS: Net sales of $132 million, down 44% year-over-year; adjusted EBITDA of -$3 million, down $59 million year-over-year, impacted by channel inventory overhang. ANS: Net sales of $193 million, down 43% year-over-year; adjusted EBITDA of $33 million, down 47% year-over-year, challenged by customer inventory adjustments and upgrade delays. OWN and DAS: Net sales of $333 million, up 4% year-over-year; adjusted EBITDA of $101 million, up 66% year-over-year. The deal to sell to Amphenol is expected to close in the first half of 2025.

• Core adjusted EBITDA guidepost for 2024: $700 million to $800 million, with breakeven adjusted free cash flow.
• Expect small sequential core revenue and adjusted EBITDA improvement in the third quarter.
• OWN and DAS revenue and adjusted EBITDA expected to decrease in the third quarter as reported as held for sale.

• Uncertainty in the timing and magnitude of demand recovery in ANS and NICS.
• Channel inventory overhang impacting Core NICS in the first half of 2024.
• Delayed upgrade cycles and customer inventory adjustments affecting ANS.

Q: Meta Marshall from Morgan Stanley asked about data center share gains and the Casa acquisition.

A: Chuck Treadway stated CommScope is well positioned for data center and cloud GenAI projects, with share gains possible, and the Casa acquisition is freeing up projects and driving interest in virtual CMTS.

Q: Samik Chatterjee from JPMorgan inquired about the CommScope NEXT program and CCS margin comparison.

A: Kyle Lorentzen and Chuck Treadway discussed the implementation of $100 million in cost savings from CommScope NEXT and noted GenAI-related opportunities have better margins than traditional broadband.

Q: George Notter from Jefferies asked about the CCS onetime cost adjustment and revenue mix.

A: Kyle Lorentzen mentioned a $5 million to $10 million onetime G&A cost adjustment and that about 15% of CCS revenue goes to the data center market.

Q: Steven Fox from Fox Advisors questioned cash flow from divested business and CCS conversion margins.

A: Kyle Lorentzen said cash from OWN and DAS will be included in cash forecasts, and CCS conversion margins are expected to stay close to current levels.

Q: Simon Leopold from Raymond James sought clarification on CCS revenue mix.

A: Kyle Lorentzen confirmed the 15% refers to the data center business, including hyperscale, cloud, and enterprise data centers.

Q: Matt Niknam from Deutsche Bank asked about inventory digestion and RUCKUS macro headwinds.

A: Kyle Lorentzen and Chuck Treadway discussed inventory buildup in ANS and RUCKUS, with RUCKUS inventory normalized and no significant macro headwinds.

Q: Simon Leopold from Raymond James asked about the ANS amplifier opportunity.

A: Chuck Treadway mentioned progress on a unified DOCSIS product and strong feedback on amplifiers from major players, with CommScope well positioned in the market.