CommScope, Inc. (CTV)

Q2 2010 Earnings Call Transcript

July 28, 2010 5:00 pm ET


Phil Armstrong – SVP, Corporate Finance

Jearld Leonhardt – EVP & CFO

Eddie Edwards – President & COO


Simon Leopold – Morgan, Keegan

Jeff Beach – Stifel Nicolaus

Amir Rozwadowski – Barclays Capital

Steve O'Brien – JPMorgan

George Notter – Jefferies

Amitabh Passi – UBS

Will Power – Robert W. Baird

Tony Kure – KeyBanc

Shawn Harrison – Longbow Research



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Good afternoon. My name is Schenel and I will be your conference operator today. At this time, I would like to welcome everyone to the CommScope second quarter 2010 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

I will now turn the call over to Phil Armstrong, Senior Vice President of Corporate Finance.

Phil Armstrong

Thank you, Schenel. Good afternoon and thank you for joining us on the call and sorry about the technical difficulties there. Joining me today on the call is Frank Drendel, CommScope’s Chairman and Chief Executive Officer; Eddie Edwards, CommScope’s President and Chief Operating Officer; and Jearld Leonhardt, CommScope’s Executive Vice President and Chief Financial Officer.

Please note the slide presentation that accompanies this call can be found on CommScope website at under the Investor Relations tab.

Turning to that presentation, if you will take a look at slide two, which is our forward-looking statements, you will find the cautionary language related to forward-looking statements. During this call, we may make forward-looking statements regarding our financial position, plans and outlook that are based on information currently available to management, management’s beliefs and a number of assumptions concerning future events.

Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, which could cause the actual results to differ materially from those currently expected. For a more detailed description of factors that could cause such a difference, please see our press release and CommScope’s 10-Q filed today with the Securities and Exchange Commission. In providing forward-looking statements, the Company is not undertaking any duty or obligation to update these statements as a result of new information, future events or otherwise. Also note that all dollar figures and percentages are approximations.

In addition to GAAP information, we will provide certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides meaningful information to investors. Detailed reconciliations of GAAP to adjusted results can be found in the press release we issued today and in the appendix to our slide presentation.

On one of the planning item, please note that CommScope intends to host an analyst meeting on November 15


and 16


in Dallas, Texas, at the Cowboys Stadium. After a formal management presentation, the Chief Technical Officer of the Cowboys organization will provide a behind-the-scenes IT tour of the facility.

Now, I’ll turn it over to Jearld Leonhardt. Jearld?

Jearld Leonhardt

Alright, thanks, Phil. We will review second quarter 2010 results for you today and our outlook, and then I’ll turn it over to Eddie Edwards to make a few comments before opening it up fir questions.

Slide three, starting there, provides a snapshot of CommScope’s second quarter 2010 performance. The second quarter 2010 saw sales increase by 7% year-over-year and 16% sequentially to $838 million. In the quarter, foreign exchange rates positively affected sales by $3 million on a year-over-year basis, but negatively affected sales by $6 million on a sequential basis.

As anticipated, North America wireless operators significantly increased spending in the quarter under 3G and 4G wireless infrastructure and from a geographic standpoint, the U.S. market was the most robust in the quarter. Strength in the North American wireless market and global enterprise markets were somewhat offset by lower sales in India and China.

The gross margin for the second quarter of 2010 was 30% and includes a gain of $9 million for an arbitration award related to warranty cost arising from a business that Andrew had acquired several years ago prior to the CommScope-Andrew merger. Now, excluding this special item, adjusted gross margin was 29%. Gross margin rose modestly on a sequential basis, but declined year-over-year due primarily to higher material cost, a return to normal business practices for salary and incentive compensation and lower prices for certain cable products.

SG&A expense for the second quarter of 2010 was $117 million, up $18 million year-over-year primarily due to the reinstatement of certain incentive-based employee cash bonus programs in 2010 that had been suspended for 2009 and higher selling cost due to higher sales.

Operating income in the second quarter of 2010 was $81 million compared to $74 million in the year-ago quarter. Adjusted operating income, which excludes the amortization of purchased intangibles and other special items declined 19% from the year-ago period to $101 million. The decline in adjusted operating income is primarily attributable to a decline in broadband operating income. However, adjusted operating income increased 53% sequentially primarily due to improved wireless performance.

Interest expense for the quarter was $23 million compared to $43 million in the year ago quarter. Last year we incurred non-cash charges of $17 million related to an interest make whole payment and the write-off of deferred financing fees in connection with accelerated debt payments. Excluding these items, interest expense in the year-ago quarter was $26 million. Interest expense declined year-over-year due to lower debt levels.

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