CommScope Holding Company, Inc. Q4 FY2024 earnings call

Fourth Quarter Performance - Delivered core net sales of $1.17 billion, a year-over-year increase of 27% and core adjusted EBITDA of $240 million, a year-over-year increase of 69%, driven by strength in CCS and core NICS business. - Sequentially improved revenue and adjusted EBITDA for the third consecutive quarter. ### Business Updates - CCS: Strong in data center, enterprise fiber grew 73% in 2024, 96% in Q4 2024. Investing in capacity expansion. - Core NICS: Revenue up 13% in Q4, adjusted EBITDA up 285% YOY. Channel inventory normalized, RUCKUS initiatives (Edge platform, vertical strategy) gaining traction. - ANS: 2024 was transitional, but FDX nodes shipments to Comcast in Q4, expect ramp in 2025. ### Debt Refinancing - Refinanced portion of debt, sold OWN and DAS businesses, paid down approximately $2 billion of debt with proceeds from the sale.

CCS: Fourth quarter core net sales were $1.17 billion, a year-over-year increase of 27%, and core adjusted EBITDA was $240 million, a year-over-year increase of 69%. Full year 2024 core net sales were $4.21 billion, a decrease of 8% from the prior year, with core adjusted EBITDA of $756 million, in line with prior year. The enterprise fiber business drove revenues of $623 million in 2024, a 73% increase year-over-year, and $202 million in Q4 2024, a 96% increase from Q4 2023. Core NICS (excluding DAS): Revenue was up 13% in the fourth quarter compared to prior year, and core NICS adjusted EBITDA was up $19 million or 285% versus prior year. ANS: 2024 was a transitional year with weak performance. Q4 net sales were $261 million, a 12% increase from the prior year, but adjusted EBITDA was $38 million, down $14 million or 27% from the prior year due to factors like lower software revenue.

2025 Outlook - Projected 2025 core adjusted EBITDA in the $1.0 billion to $1.05 billion range. - First quarter core revenue and adjusted EBITDA expected down from Q4 due to seasonality. - Expect second half of 2025 stronger than first half.

Risks - Tariffs impacting manufacturing exposure in U.S. and international markets. - Uncertainty around timing and magnitude of ANS upgrade cycle. - Seasonality affecting quarterly performance.

Q: Congrats on the quarter. Two, if I could. I guess, first, on the core adjusted EBITDA guide. So you've guided to $1 billion to $1.05 billion for next year. That implies, I think, relative to the pullback in 1Q that you're talking about that's tied to seasonality, a pretty meaningful step up. So I'm wondering, Chuck, if you can speak to the visibility and confidence level in that ramp-up in forward periods? And then secondly, just in terms of tariffs, I'm wondering if there's anything that's baked into the outlook. And if you can remind us of your manufacturing exposure between the U.S. and other international markets that could be impacted?

A: Okay. So I'll take confidence in the recovery question first. And look, we've seen sequential quarterly improvement throughout 2024. We're exiting the year, as Kyle said and I did as well at $240 million of adjusted EBITDA and that includes a $17 million inventory -- $18 million inventory charge. And when we think about these things together or separately, I mean, this is well over $950 million adjusted EBITDA going forward. I'd also say that we've had lots of positive conversations with our customers in all the segments. And I would say the main two drivers to think about in terms of recovery are both the data center business as well as the FDX launch. In terms of tariffs, we manufacture a lot in the U.S. as well as in countries where we sell our products. I'd say overall, we're very supportive of U.S. manufacturing. Our most significant and immediate exposure, I would say, which is similar to our competition is Mexico. And just like others, we're waiting to see what happens with tariffs. In the short term, we're evaluating price increases. And then I would say in the medium term, potentially moving some manufacturing and warehousing. But I would say, in most cases, we believe we're in a similar position with competition.

Q: A couple of questions from me. Chuck, I was wondering, first of all, you mentioned market share gains a couple of times when talking about the enterprise fiber business. Can you sort of dig into what's driving that? And also any new products that you're excited about in that business specifically? And then second, a little bit of a definitional question. You then talked about broadband and structured cabling and structured cabling can also be in the enterprise, I guess, depending on how we're defining it on the copper side. So I guess can you talk about structured cabling from a copper standpoint in enterprise or land networks and how you're thinking about that for the year?

A: Yes. In terms of data center, positioning of our company. I'd say overall, it's about now 15% of our company. As Kyle mentioned, it was 22% for CCS in 2024 and then 27% of our business in the Q4. And when you think about some of the numbers we talked about growth quarter-over-quarter -- I mean, year-over-year for the fourth quarter, I mean, almost 100%. We believe we're a leader in the space. I mean, the products that we're talking about are MPO connectors, raceways and panels. And we've also went out to third parties to look at what does this mean to us? What does this market mean to us with our particular specific product range and what's happening in the space, and we see that growing at approximately 30% over the next few year. And it's truly driven by the GenAI [Technical Difficulty] I just look at our numbers compared to what I hear from others, and I think that we are gaining share there. But I would say, in general, it's just a very fast-growing market, and we're very pleased that we're in it. I'll let Kyle take the second question.

Q: I've got two here. One is looking at this progress in data center. I know historically, you were heavily levered towards enterprise. And clearly, you're getting some traction here with the larger buyers like the hyperscalers. So within this growth and the outlook, could you help us gain a better understanding of where you stand today within the data center business as to the split between those hyperscale type buyers and your more traditional enterprise? And then I've got a follow-up on the ANS segment.

A: Yes. So I think as we think about data center, I mean, we're not going to get into specific numbers, but I just think like generally in the market, it's definitely weighted toward hyperscalers. The hyperscalers are the drivers of that market. Although we play outside of the data -- the hyperscalers, definitely, it's -- our business is more weighted toward hyperscalers than it is the other part of the business. I think what we'd say about the other part of the business is we saw -- our growth in '24 isn't coming solely from hyperscalers. It's coming from hyperscalers and the other cloud data center customers that we have.

Q: Maybe 2 questions for me. One, kind of appreciate the EBITDA guide. Just is there any rough contextualization of revenue growth that's associated with that or just revenue range we should be thinking of? And then second, on the NICS business, as you look at improvement there throughout the year, how are you judging pent-up demand for this Edge refresh launch versus just fundamental demand coming back?

A: I'll take the second question, and then Kyle can hit the first one. I would say what we've really seen here in the NICS business is the channel inventory build is behind us. And I would say it's back to normal growth, and we're expecting that to be higher single digits per year over the next few years. And then what's really helping us here is our full suite of products. I mean, RUCKUS One and Wi-Fi 7 are getting good traction. And we're focused on growing share -- market share, specifically in the verticals that we talked about for. And I think another big important piece for us here is the investments. We're going to be investing about $15 million in our direct sales force to improve coverage and to grow the business. And we also think there's a little bit of -- that's going to help us with this back to office. We believe there's going to be some help there.

Q: This is Priyanka on for Samik. And so I think we want to pinpoint on the question on FDX amplifiers. Can you walk us through how you anticipate this rollout of FDX amplifiers and unified amplifiers to play out in 2025?

A: Well, I would say we shipped in the fourth quarter, we probably shipped about $50 million worth of FDX amplifiers. And as we go into 2025, we're going to ship as much as $300 million. I would say that that's not all incremental because the FDX could cannibalize some of the previous generation Amplifier products.

Q: I wonder if there's any activity or kind of thoughts on the strategic front. So obviously, the OWN and DAS sale was very helpful in addressing the debt stack. But I think there was also just ideas that other parts of your business could be attractive and other sorts of strategic combination. So wondering if there's anything that's still opportunistically possible there? Or has that largely died down now that you've been able to address the debt profile?

A: Yes. I'd just say, look, we're really head down focused on running our business right now. We're really excited about data center business, FDX, the new products and structured cabling. I mean probably for the first time since Kyle and I have been here that all 3 businesses are kind of now hitting on -- hitting good stride at the same time. So we got a lot to do here.