CommScope Holding Company Inc (COMM) 2015 Q4 法說會逐字稿

Good morning. My name is Brent and I will be your conference operator today. At this time I would like to welcome everyone to the CommScope fourth-quarter 2015 earnings conference call.

(Operator Instructions)

Thank you. I would now like to turn the call over to Jennifer Crawford, Manager of Investor Relations. Please go ahead.

Thanks, Brent. Good morning and thank you for joining us today to discuss CommScope's fourth-quarter 2015 results. With me on the call are Eddie Edwards, CommScope's' President and CEO; Mark Olson, CommScope's Executive Vice President and CFO; and Phil Armstrong, CommScope's Senior Vice President of Corporate Finance. You can find the slides that accompany this review on our Investor Relations website.

Before I cover a few housekeeping items I'm pleased to announce we will host our 2016 CommScope Investor Day at the NASDAQ market site in New York on Monday, May 16, 2016 beginning at 8.30 AM Eastern. Please see the Investor Relations Events and Presentations page of our website for registration details and additional information. Now to our housekeeping items.

On slide 2 you will find our cautionary language related to forward-looking statements. During this conference call we will 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 2015 10-K filed earlier this morning and other SEC filings. 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.

Please 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 additional meaningful information to investors. Detailed reconciliations of GAAP to adjusted measures can be found in the appendix to our slide presentation.

Slide 3 is our agenda for this morning. Mark Olson will provide a financial overview, review the quarter results, highlight our four-segment performance, discuss cash flow and liquidity, and then provide our outlook for the first-quarter and calendar-year 2016. Finally, Eddie will discuss our progress on the BNS integration and make closing comments before we open the line for Q&A. To make sure everyone has the opportunity to ask a question on today's call, we request you ask one question and return to the queue for any additional questions.

I will now turn it over to Mark Olson. Mark?

Thank you, Jennifer, and good morning, all. Before we discuss our fourth-quarter operating results, I'd like to highlight the significant progress that we've made over the past several years and the growth we expect in 2016.

Slide 4 gives you a historic view of sales and adjusted operating income and the significant impact of the BNS acquisition. The chart on the left shows GAAP revenue by year since 2011, including the midpoint of our current guidance for calendar-year 2016. Revenues over this period have been affected by volatility in our wireless segment, acquisitions, focused product pruning and foreign-exchange headwinds, but we expect to average a 9% annual growth rate for the five years ending 2016.

In addition to driving both organic and inorganic revenue growth, we've delivered on our commitment of driving profitability. Using the midpoint of our 2016 guidance, we expect a 34% year-over-year increase in adjusted operating income and average 21% annual growth for the five years ending 2016.

As we've consistently highlighted, we focus on creating profitable growth. The key reasons operating income has grown faster than sales include: sales volume leverage, as we manufacture about 85% of what we sell; favorable mix of increasingly complex solutions versus component sales; restructuring or pruning underperforming products; a culture of disciplined cost management; and synergies associated with acquisitions. Our hard work continues to deliver expansion in both gross margin and adjusted operating margin.

Slide 5 highlights one of the secondary benefits of the transformational BNS acquisition. Not only did we acquire a leading global fiber technology and substantially expand our addressable market, but we further diversified our Company.

While the wireless business remains an attractive long-term market, it is by its nature a lumpy business. The addition of BNS reduces wireless from roughly two-thirds of our total sales to about 40% as we now had exposure to both the wireline and wireless sides of operators' CapEx budgets.

We also create more geographic diversity. In the fourth quarter of 2015, North American sales represented just under half of our overall sales with the Europe, Middle East and Africa region and the Asia-Pacific region each accounting for about 20% of sales.

Now let's turn to slide 6 for a summary of our fourth quarter. We are pleased to report fourth-quarter sales of $1.14 billion, which was consistent with our guidance and an increase of 38% year over year. This is the first full quarter that includes the BNS acquisition.

BNS sales in the quarter were $389 million. Excluding BNS and the impact of foreign exchange rate changes, legacy CommScope revenue was down 6% year over year.

Orders were $1.15 billion during the fourth quarter, which provided a book-to-bill ratio of just over 1 times. BNS and wireless book-to-bill ratios were equal to or greater than 1 times, while the other two segments were slightly below 1. This is the first time since the first quarter of 2014 where wireless has exited a quarter with a book-to-bill ratio of 1 times or greater.

Gross margin for the fourth quarter of 35% was negatively affected by $51 million of purchase accounting charges, primarily related to the markup of inventory due to the BNS acquisition. Excluding purchase accounting adjustments, gross margin was 39%, an increase of 490 basis points year over year. The increase was driven by the BNS acquisition, a favorable mix of products sold and the benefits of cost reduction initiatives.

For the quarter, we reported GAAP operating income of $22 million, which included purchase accounting charges of $51 million and an additional $15 million of transaction and integration costs associated with the BNS acquisition. Excluding these charges and other special items, non-GAAP adjusted operating income increased 41% year over year to $196 million or 17% of sales.

Excluding BNS, adjusted operating income for the legacy CommScope business declined 4% year over year, but adjusted operating margins expanded approximately 100 basis points to 17.8%. Despite lower year-over-year sales, this improvement reflects the ongoing impact of cost-management initiatives and favorable product mix.

For the quarter, the Company reported a net loss of $75 million, which reflects purchase accounting adjustments, transaction and integration costs and other special items. Excluding these items, non-GAAP adjusted net income increased to $83 million or $0.42 per diluted share, up 11% year over year. Included in adjusted net income were $7 million of foreign-exchange losses partially offset by a modestly lower tax rate.

Despite lower sales in the legacy CommScope business, our operating performance rose year over year due to the addition of BNS and continued margin expansion. The higher adjusted operating results were partially offset by higher interest expense driven by the incremental acquisition-related debt.

I'll now discuss fourth-quarter performance in each of our four segments, starting with the wireless segment on slide 7. In wireless we are a global leader in merchant RF wireless network connectivity solutions as well as DAS and small-cell solutions. Our solutions are primarily marketed under the Andrew brand and enable wireless operators to deploy macro-cell site, metro-cell site, DAS and small-cell solutions to meet a network's cellular coverage and capacity requirements.

Wireless segment sales declined 7% year over year to $452 million. Excluding the impact of foreign exchange rate changes, wireless sales declined 3% due to lower spending by wireless operators in the EMEA and Asia-Pacific regions, partially offset by higher sales in North America.

In the quarter wireless adjusted operating income declined 5% year over year to $80 million, or 18% of wireless sales. Despite lower sales volumes, wireless adjusted operating margin increased approximately 40 basis points year over year.

We've recently expanded our leadership capabilities in providing indoor wireless capacity and coverage through the acquisition of Airvana, a leader in small-cell solutions. We believe that the combination of Airvana's innovative small-cell offerings and our industry-leading DAS portfolio enables us to provide a broader range of solutions, addressing single-operator, single-band, low-capacity environments all the way through multi-carrier, multi-band, high-capacity environments. We expect to invest heavily in small-cell R&D during 2016 to build upon Airvana's differentiated technology.

For 2016, we expect improvement in the North American market but are cautious on the international markets given global economic uncertainties. Longer term we expect to continue the demand for wireless solutions to be positively affected by wireless coverage and capacity expansion in the emerging markets and the increasing demand for mobile broadband in developed markets.

As mobile broadband demand continues to increase, we expect to begin to see operators transition to 5G spending in developed markets over the next few years. We actively participate in 5G standards bodies and have supported early 5G trials with wireless operators. Our engineers are also working with wireless operators to develop tower top and metro-cell solutions for 5G applications.

In addition, we believe our ION-E platform is the most flexible DAS solution in the market. We think this flexibility is needed to truly optimize the 5G multi-operator, multi-band and multi-technology environment. CommScope has played a role in virtually all of the world's premier communication networks, and 5G is no exception.

Moving to slide 8, I'll discuss our enterprise segment. We are a global leader in enterprise connectivity solutions for commercial buildings and data centers. Our comprehensive solutions include optical fiber and twisted-pair structured cable solutions, intelligent infrastructure software, network rack and cabinet enclosures, and network design services.

Enterprise sales declined 4% year over year to $203 million. Excluding the impact of foreign exchange rate changes, enterprise sales declined 2% year over year, driven by declines in most major geographic regions, except North America where we saw solid mid single-digit growth year over year.

Despite lower sales volumes, enterprise adjusted operating income for the quarter rose year over year to $43 million or 21% of enterprise sales, primarily due to a favorable mix of products sold, including higher fiber sales to data centers. We are pleased with the solid enterprise performance and are proud of our position in the market. We remain confident in our long-term growth opportunities.

BNS significantly enhances our competitive position through its robust portfolio of fiber solutions. We believe these solutions will enable us to increase our global market position and serve our customers better.

I will now turn to slide 9 to discuss our broadband segment. We are a global leader in providing cable and communications products that support the multichannel video, voice, and high-speed data services provided by multiple system operators, or MSOs. We are a leading global manufacturer of coaxial cable for hybrid fiber coax networks, and a leading supplier of fiber optic cable for North American MSOs.

Broadband sales declined 24% year over year to $99 million, down from a strong fourth quarter of 2014. Sales, which were affected by our ongoing product pruning, declined due to lower investment in all major geographic regions. Broadband continues to prune less profitable products from its portfolio in order to improve operating margins.

Foreign exchange rate changes also negatively impacted sales by approximately 1% in the fourth quarter of 2015 compared to the prior-year period. In the quarter broadband adjusted operating income decreased to $11 million or 12% of broadband sales, primarily due to lower sales volumes. Despite lower sales, broadband adjusted operating margin increased by more than 150 basis points year over year, driven by a favorable mix of products sold, lower material costs, and the benefits of cost reduction initiatives and product pruning efforts.

Our broadband team delivered another quarter of strong operating margins as product pruning and cost management focus continues. We expect demand for our broadband products to continue to be influenced by competition among service providers, ongoing maintenance and upgrade requirements, consolidation in the broadband service provider market, and activity in the residential construction market. Additionally, we believe the BNS product portfolio will further strengthen our broadband business by providing leading Fiber-To-The-x technology.

I'll now turn to slide 10 to discuss our BNS segment. We are a global leader providing fiber optic and copper connectivity for telecom and enterprise markets as well as DAS solutions for the wireless market. These connectivity solutions include Fiber-To-The-x and data center solutions and central office connectivity and equipment, all of which include a robust portfolio of fiber optic connectors. Additional connectivity solutions offered by our BNS segment include fiber management systems, patch cords and panels, complete cabling systems, cable assemblies for use in office, data center, factory and residential applications, as well as DAS solutions.

The fourth quarter marks our first full quarter of BNS results. BNS revenues declined 7% year over year to $389 million, primarily due to the negative impact of foreign exchange rate changes. Excluding the impact of foreign exchange, BNS revenue for the fourth quarter declined 1% year over year due to lower wireless revenue, which was partially offset by strong North American fiber activity, both in Fiber-To-The-x and hyperscale data centers. BNS adjusted operating income for the quarter was $62 million or 16% of BNS sales.

We expect BNS product sales to be positively affected by the global deployment of fiber optic solutions for Fiber-To-The-x and data center applications. Growing demand for fiber solutions is expected to be somewhat offset by decelerating demand for copper solutions in networks. As the positive order rate we saw in the fourth quarter has continued into the first quarter, we're now in the process of adding capacity for an expected long-term ramp in Fiber-To-The-x buildouts.

Next I'll discuss cash flow and liquidity on slide 11. During the fourth quarter CommScope generated $116 million in cash from operations, invested $15 million in capital expenditures, net of spending related to BNS integration, and paid $25 million in transaction and integration costs, primarily related to the BNS acquisition.

Adjusted free cash flow for the quarters was $125 million, up 8% year over year, and adjusted free cash flow for the full year was $354 million. We ended the quarter with $841 million of total liquidity, comprised of $563 million in cash and cash equivalents and availability under our credit facility of $278 million.

Earlier in our presentation I highlighted our progress in revenue and adjusted operating income over the past few years. The top chart on slide 12 gives you some history of our adjusted free cash flow. We expect to deliver more than $425 million of adjusted free cash flow in 2016 and greater than $500 million in 2017.

The primary use of our free cash flow will be to reinvest in the business and reduce debt. The bottom chart shows major debt maturities for the next 10 years. We believe we have a solid capital structure and will focus on the 2018 and 2020 maturities as we delever in 2016.

We said last quarter that we would begin a pattern of debt repayments and we did, paying down $116 million in the fourth quarter. In 2016, we expect to continue that pattern. At the end of 2015, our pro forma net leverage ratio was 5 times. We expect our net leverage to be in the low 4-times range by the end of this year.

Finally, I'll cover our outlook on slide 13. Our guidance excludes amortization of purchased intangibles, restructuring costs, transaction and integration costs and other special items. Our first-quarter outlook reflects a slow start to the year and assumes relatively stable business conditions.

For the first quarter we expect revenue of $1.075 billion to $1.150 billion, adjusted operating income of $165 million to $195 million, adjusted earnings of $0.32 to $0.37 per diluted share, and an adjusted effective tax rate of 34% to 35%. At the midpoint of first-quarter guidance, revenue is down 3% sequentially, while adjusted operating income declines 8%. First-quarter adjusted operating income guidance is impacted by sequential volume declines and, in addition, our first-quarter guidance reflects a return to plan levels of variable compensation for all business groups.

For the full year, we expect revenue of $4.9 billion to $5.05 billion, adjusted operating income of $950 million to $1 billion, adjusted earnings per diluted share of $2.25 to $2.35, up 24% year over year at the midpoint of $2.30 per diluted share, an adjusted effective tax rate of 34% to 35% and adjusted free cash flow of more than $425 million, or up 20% year over year. While we expect mid single-digit growth in North America, led by fiber buildouts and improved wireless spending, we are more cautious regarding spending in other areas of the world given challenging economic conditions in the international markets.

And with that I'll turn the call over to Eddie to discuss BNS integration progress and thoughts on the quarter before the operator opens the call for Q&A. Eddie?

Thank you, Mark. Turning to slide 14 I'll give you an update on our progress of integrating the BNS business. We have made tremendous progress over the last six months. We remain very excited about the BNS technology, its people and leadership and how we expect it to significantly enhance our global competitive position. We will have more innovation, more solutions, and more scale.

Yet, our enthusiasm must be tempered with patience. Much remains to be accomplished before we are able to realize the full potential of the new CommScope.

In the fourth quarter we began establishing a new organizational structure to build upon the strength of the two companies. Our goal was to place the best talent, the most innovative technologies, and the most advanced operational practices together, all in order to position CommScope for future success.

With that, we have created two key customer-facing business groups: CommScope Mobility Solutions comprised of the former wireless businesses of both CommScope and BNS; and CommScope Connectivity Solutions comprised of the enterprise businesses from both companies as well as our former broadband segment and BNS's former telecom segment. Ben Cardwell will continue to lead CommScope Mobility Solutions, while David Redfern, who formerly led the BNS business, will lead CommScope Connectivity Solutions.

With that, we intend to report first-quarter results in 2016 reflecting this new management structure. We believe this new structure will help us accelerate industry innovation, solve more wired and wireless network challenges, and better serve more customers in more markets around the globe.

Please note that we intend to hold our Investor Day on May 16 in New York, as Jennifer has said, where we will provide an introduction to the broader management team, highlight our technology leadership, provide an in-depth update on synergies and discuss long-term growth opportunities. Please contact Jennifer for more information or view additional details on our Investor Relations website.

With that background, I'm pleased to announce that we're increasing our synergy targets related to the BNS integration. Please see our initial update on slide 15 for a cost synergy summary.

We had previously expected $150 million in annual synergies from the BNS acquisition by 2018, which included more than $50 million of synergies in 2016. We now expect to realize more than $75 million of synergies during this year and more than $175 million of synergies by 2018. Early integration activities that have been completed include: a reorganization of our sales force, that's more than 250 individuals impacted; announcements of two facility closures; and the movement off of certain transaction service agreements with TE Connectivity.

While early integration activities have been successful, we still have a lot of hard work in front of us. We are focused on continuing to execute on our integration plans and delivering on our cost synergy plan.

In summary, we delivered fourth-quarter performance consistent with our outlook by executing well despite continued global macroeconomic uncertainty and foreign-exchange headwinds. In spite of the difficult business environment, we are pleased with year-over-year adjusted operating margin expansion.

After robust growth in 2014, 2015 was very challenging for our wireless business. Wireless remains an attractive long-term, albeit lumpy, business. We believe we have maintained our strong market position and expect to see the beginning of a recovery in North America during the course of this year.

2015 was also a year of dramatic transformation. We successfully financed and completed the acquisition of BNS which we expect will accelerate our strategy to provide profitable growth. We've entered into attractive adjacent markets and broadened our position as a leading communications infrastructure provider. We continue to execute on our BNS integration plan and are extremely pleased with our progress.

I would like to thank the global CommScope team for all their hard work and integration efforts. I am proud of the hundreds of employees who have tirelessly worked on the integration plans and are now putting forth so much effort to execute on those plans. Because of those efforts, we expect to have completed the majority of the critical integration projects by the first half of 2017.

Overall, we remain focused on positioning our Company for long-term success by delivering profitable growth while managing costs effectively. We are well positioned to help customers transition to the networks of the future, with our robust fiber portfolio our technology-leading wireless solutions. Together with BNS, we are confident in our long-term market position in attractive end-markets.

And now, with that, we're happy to entertain any questions you may have. And I turn the call back over to the operator. Brent?

(Operator Instructions)

Your first question comes from the line of Amir Rozwadowski with Barclays. Please go ahead.

Thank you very much and good morning, folks. I was wondering if we could talk a bit about the commentary that you had mentioned about improving trends in North America. First and foremost, where are you seeing those trends coming from in terms of your product lines? And what type of expectations are factored into your outlook for 2016?

And then as a quick follow-up, if we think about how the year should progress, clearly there's much more tempered expectations in the first quarter versus the full year, so maybe perhaps talking through how we should think about those trends progressing and what gives you confidence in the improving trends through the course of the year. Thank you very much.

I'll answer a part of that, Amir, and then Mark can take over, wants to talk about how we put that into our numbers. I talked about 2015 being challenging in wireless and much of that driven by a slowdown in North America.

What we're seeing today is increase in demand across the larger customers there and we expect that in the tower top solutions that we offer to increase, not just here in the United States but also in Mexico. In fiber-to-the-X, it's a new product category for us, and we are seeing strong demand in all areas of that.

Now, part of the limiting issue in what you see in the first quarter is that we have capacity limitations out of the gate in wireless. With what we saw in 2015 we were cautious as to adding back capacity. I'll remind you in 2014 we increased capacity of antenna solutions for this market substantially in the first half by ramping up and then ramping down our North American antenna production facilities.

We're in the process in the fiber area of adding capacity through the acquisition of equipment which is currently being installed in Mexico, and we expect that to come online later this quarter. And in both regards, for the capacity increases in both regards of the two things that I mentioned, that capacity is coming online and will be in position by the end of the quarter.

So, that gives us confidence of recovery. I think that we can see forward enough based on today that we feel confident as to the numbers that we put in our outlook and we look forward to executing on that.

Thank you very much.

Your next question comes from the line of Vijay Bhagavath with Deutsche Bank. Please go ahead.

Hi, Eddie, Mark. Vijay here. It's great to see your wireless business beat expectations in the December quarter. We think this is an important first catalyst for the rest of the year. My question for you is how we should look at wireless network upgrades, especially on capacity and optimization, unraveling through the rest of the year? Would it be, here in the US, led by AT&T mainly? Or would it be more of a broader based recovery? And then also your thoughts on Europe and Asia, maybe China, if you would, on wireless network operations this year. Thanks.

We've covered the globe here, then. In North America I think the demand is across the board. The larger carriers are continuing to spend, and I think on capacity more so than coverage because they have a good footprint. A North American operator is talking about starting their build in earnest. We're well positioned there, as well. So as it comes, we have the ability to react.

We have maybe lower expectations in Europe as to growth. The economic situation there is maybe more dire than what we had anticipated a year or so ago. So, we're cautious as to how we would plan for that.

In China, I think we've talked about how we sell in wireless in China, is to where we can make money we sell, and where we are more challenged because of domestic suppliers that's a market that we -- we're not a revenue-only generator. We care about the bottom line more so. So, we're cautious as to how we sell into that market. However, we do have relationships with all three carriers in both domestic OEMs and we bid on all jobs and the ones that we can win, we certainly deliver.

In other parts of Asia we've had great opportunities during the course of the last couple of years in doing full buildouts of several operators in Malaysia and Indonesia and Philippines. I think we see in many cases some of that continue. These are all 3G networks.

I think it's a smattering of all the geographies put together. Our tower top business here in North America is improving. We're seeing demand for the capability of CommScope since we make everything except the radio that goes up the tower to be able to supply that to a customer for operating efficiency and at a lower cost than buying it and having margin acceleration because of buying from a lot of different folks.

So we like our position, we feel good about the market. And as we've said on every call that I've ever been on, it is a lumpy, cyclical business, and we have to be mindful of that as we do our projections.

And, Eddie, I would just add that at this midway point through the quarter we're seeing a continuation of a strong book-to-bill that we saw in the fourth quarter.

And further to that, our book-to-bill generally is the highest we've seen since Q1 of 2014. We feel very optimistic that we're seeing some recovery, at least from a CommScope perspective, in the demand for our products.

Excellent. Thank you.

Your next question comes from the line of Jess Lubert with Wells Fargo Securities. Please go ahead.

Hi, guys. Good morning. Two questions. Maybe just first following up on an earlier one, I was hoping you could help you understand how to think a little about Q2 and Q3 seasonality, to what degree we should expect the year to be a little more back-end weighted, or if you think you can bring the new capacity online here in Q1 so we see a more normal seasonal first half versus second half. The question's really just I wanted to dig into BNS a little bit as revenues were a bit weaker than we expected but margins were better. So, just wanted to understand how we should be thinking about currency, do you think this business grows in 2016. And if you could provide some additional insight into the factors that are giving you confidence to raise the synergy target for the deal, that would be great. Thanks.

From BNS we saw their North American business did grow. Their EMEA business was down organically due to large jobs that they saw in 2014 and some project oriented in the fiber-to-the-X there for backhaul. So, we saw a shrinkage there.

The wireless business had a significant downward momentum. In the North American market where BNS was only played, the two of us had significant position. I think the carriers had to reassess how that was going to be dealt with.

And also we have started our product pruning efforts, which I think we're known for, and the wireless business was impacted by that. So, it's not something that we feel so bad about because we want to have revenue that's quality revenue.

The impact also in BNS relative vis-a-vis CommScope is much more impacted by foreign exchange. I think Mark said that in his comments. So, we saw that impacted in the last quarter significantly to hurt them.

But to your comment on the seasonality, Jess, our second and third quarters are our strongest, and we would expect that to continue to be the case on a normal seasonality pattern. But we do expect that second half wireless growth will be greater. Albeit that it's ramping currently, we do expect stronger wireless activity in the second half.

And your last question you asked about synergies and why we feel comfortable. We started down this road in January of 2015, and we talked to you about how we had 30 categories of where we thought synergies would come from. We were somewhat limited by our visibility there because we were direct competitors in many businesses, and so there was a limitation to what TE would allow us to see.

So, now we got to see everything, we feel more optimistic about some of the operational capabilities and insourcing versus outsourcing and cost differentials in the supply chain that were stronger than what we had anticipated when we gave you the $150 million and when we gave you the $50 million in year one. Many of those things can take effect quickly. I think as he I said, Peter has impacted his sales force. That was completed by the end of the year 2015 and that was at least 250 individuals that were impacted by that.

So, we've gotten to where we thought we would be quicker, and we found some nuggets that we hadn't anticipated when we did this in January of 2015. So, we feel comfortable that the 175 is achievable. And I think, as Mark said, it's greater than $175 million, so we feel comfortable that is achievable.

The next question comes from the line of Rod Hall with JPMorgan.

Thanks for taking my questions. I just wanted to circle back around to the international versus domestic growth rates. You guys saw in 2015 just over an 8% decline in the domestic revenues and then about 4% growth in international, on our calculation. So, international slowed a little bit from the prior year. I just wonder if you could quantify for us how you're thinking about 2016 in terms of those growth rates. Does domestic grow? Is it flat? And then does the international revenue growth deteriorate a little bit more in your forecast as it stands right now.

The other thing that I wanted to just circle back on is the missed revenue due to the capacity constraint. Can you guys quantify that at all? How much revenue did you miss and when does that capacity exactly come online in Q1? Thank you.

Rob, maybe I'll take a cut at your first question and maybe Eddie will touch on the second. As far as growth in 2016, we expect mid single-digit growth in North America out of both our wireline and wireless businesses. And then within the international markets, again, it's a little bit of a mixed bag by geographic region.

As Eddie had commented, we do have foreign exchange headwinds that, coupled with economic uncertainties in Europe, temper our outlook there. While in Asia, we do see growth opportunities, in particular in wireless, and, as well, some in the wireline business, as well. So international we're going to continue to be cautious around while we see mid single-digit growth in North America in each of our two primary business lines.

In the case of what did capacity constraint do to us, I'm not going to quantify what that is, except to say that we feel comfortable that we can recover to meet the targets for the full year. We feel comfortable at the demand that we see, both in the wireless and the connectivity solutions business, and we don't really have concerns.

The equipment is in place, it's being debugged. So, we're going to exit the quarter with significantly more capacity than we entered. If we had any individual or employee-based shortages, those have been filled. So, I think we're ready to go as soon as we get things debugged.

Part of this is, as Mark has said, we make about 85% of what we sell but we outsource a lot of components from people. And the supply chain, primarily the North American supply chain, could not recover at the same pace that maybe we could get our factories ready. So, that's really been in the wireless side the biggest delay and that has pretty much gone its course and we're in pretty good shape right now.

Your next question comes from the line of Simon Leopold with Raymond James. Please go ahead.

Great. Thank you very much for taking my question. I just wanted to see if you could comment on two things. One is, any implications for you with the acquisition of Alcatel-Lucent by Nokia, given that I believe you've partnered with Nokia in the past and Alcatel-Lucent has some competing products in its RFS division? Anything you could offer on that.

And then in terms of your enterprise business, I understand you sounded a bit more cautious in terms of the book-to-bill and the tone here. And I'm just wondering if you could give us some insight as to what you've seen quarter to date given some of the commentary we've heard during earnings season about slowdowns during the month of January in enterprise spending, particularly campus and commercial type environments. Thank you.

We had a good relationship with Alcatel. We have a very good relationship with Nokia. We work on a lot of projects with both of them. I think the combination makes a stronger customer.

I'm not concerned as to any negative impact that would bring to us as the supplier. I think that Nokia appreciates the scale that CommScope's wireless business has and its ability to react to demands in the market.

We are strong here in North America through Alcatel. Nokia is now very strong here in North America. I think the two of us together can benefit from that. And so I think it's positive.

The thing with RFS, it's not certain to us yet as to where that exactly fits. Assuming it fits within the Nokia process, we would see no difference there than when it was competing with us as part of Alcatel. We know them very well. I know them intimately. So, it's not something that gives us any elevated level of concern as being part of a greater Nokia.

In the case of enterprise, we have an expanded position in fiber. I think the fiber part of enterprise is growing certainly faster than copper. It's very important as to what we see. Our position in the hyperscale data centers is enhanced you through the acquisition of BNS. That's a place that CommScope didn't play very much.

A lot of this business is project oriented, so it depends on which projects you're working on and where you are positioned. We have, as you know, a global position, and I think right now we have leadership positions in every part of the world through this acquisition in enterprise. We're a $1.5 billion enterprise business today. That's a scale that is not available to others and so we expect to utilize that position.

Your next question comes from the line of George Notter with Jefferies. Please go ahead.

Hey, thanks very much, guys. I was curious about what you're seeing on the small-cell side. Obviously a number of operators in the US are starting to push into small cells. I would certainly imagine you're seeing more of that internationally, as well. But I'd love to step back and better understand how the economics of small cells work for CommScope. As you guys see shifts in those CapEx budgets, is it incrementally positive for you? Is it neutral? How do you think about it?

Okay. That's a good question. From a standpoint of small cells, we've talked about that a lot. We've gotten a lot of questions in the past and what I've said is when the time is appropriate, we will invest. Our technology from legacy CommScope was more on a multi-operator, multi-frequency basis. And the cost of our products relative to some of the small-cell products in the marketplace was different. So, we felt at the appropriate time we would invest.

That happened to be in October of 2015 when we bought what we think is the leading small-cell business in the world. It is, what we think, the only cloud RAND-based system out there that is operational. And we think that the Airvana, our now small-cell part of our wireless business, with our support and our capital base can be successful in the future.

There's maybe more talk than installation done in small cells today, but we do think it is going to be a growing part of the market as the indoor coverage is going to be something that's not just nice to have, but something that's demanded. So, the ability of people to have that ability to talk anywhere and any time is going to be demanded. I think that with the position that Airvana has had and the number of products that they've had in the market over time, that it's going to be good for CommScope in the future.

Thanks.

Your next question comes from the line of Shawn Harrison with Longbow Research. Please go ahead.

Good morning. Two clarifications, if I may, on both the synergies as well as debt reduction. How much of the synergies are realized to date and how would you expect that to ramp throughout the year? And then also just the debt reduction, should we anticipate that to be back-half weighted considering that's typically the dynamic of your cash flow?

On synergies, we realized greater than $75 million this year. I think that's as granular as we'll get. We have identified every dollar of that $75 million-plus so we feel very comfortable as to realizing it. As I said, we are ahead of where we thought we would be and we have a clear path to get to greater than $175 million over a period of time.

To answer your question, Shawn, on timing, you're exactly right, they will ramp during the year. Many of the actions to deliver that $75 million have either already been taken or are fully underway, but they will ramp. And then your question on cash flow, we do generate the vast majority of our cash in the second half of the year, so debt reduction would be second half oriented.

Thanks. As a clarification, did you see any synergy realization during the fourth quarter?

We did see some, yes.

Okay. Was it nominal? Was it --?

It wasn't tens of millions of dollars. It was millions of dollars.

Thanks very much, Mark.

Your next question comes from the line of Tal Liani with Bank of America Merrill Lynch. Please go ahead.

I wanted to ask about LTE-Advanced and 5G. Do they represent incremental opportunity or incremental demand for your wireless product or is it already covered by the first-generation LTE deployment?

Tal, thanks. 5G is much talked about. The bodies are still trying to decide what it's going to really be. We participate in each of these bodies -- the SE and the Standards bodies, operator user groups and board membership in 5G America. So, we're with the people that are leading, the OEM that lead some of this development along with the carriers.

It will give us opportunities for new antennas, depending upon frequencies of spectrum that's going to be out there, utilized for 5G, for filtering, which is a big part of our wireless business, and for connectivity technologies that will be needed to connect these sites. We're actively involved in some of the cloud RAND nodes for the operators and deploying these that will house baseband capacity, fiber management and power to what we think will be 100 to 200 cell site clusters.

So, we're well positioned. We think it's going to be a good market for us. I think in the indoor side and what we do today, this will enhance the capability of I&E because, as we've talked about, it has the full universe of frequencies within all the spectrums from a software-defined base to not have to be reinvented. It's all already in the box and we think it will give us an advantage for a 5G deployment -- 5G, 4G and 3G deployment in the future.

The second question I had was about DAS. Is it still 20% of wireless? And can you give us an update about it?

DAS is growing at a faster pace than our wireless business. We have a plus and a negative. We talked about the BNS wireless business being off because of several reasons. Airvana is something that we believe will be a growth driver for us, although during 2016 we're going to invest a lot in it relative to revenue.

We talked about DAS being approximately 20% of the wireless business historically. It's trending more to 25% over time so I think we'll see it grow at a faster pace, due to what I've just said, than the wireless business as a whole.

Your next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Yes, good morning. Thanks very much for taking my question. I was hoping you could give us an update on the Company's exposure to copper versus fiber, in particular now that you have the BNS business as part of your overall portfolio. And if you could help us think about the growth rates in copper versus fiber going forward given the comments you made on that, Mark, in your prepared commentary.

Yes, sure, Mark, I'll take a shot at that and maybe Eddie wants to add. Prior to the BNS acquisition, we were evidence heavily weighted as a copper shop. And with the addition of the fiber-rich portfolio that BNS brought us, we're now about half and half copper and fiber. Fiber is growing very nicely for us. And while copper is declining at a modest rate, we expect that will continue over the years to come. The growth in fiber is outstripping that nicely.

I think the only comment I would make is, while copper is not the same pace as what fiber is in growth, it is still nicely profitable. It's a business that has supported us for a long period of time. We expect it to in the future, as well.

Thank you very much.

Your next question comes from the line of Steven Fox with Cross Research. Please go ahead.

Hi, good morning. Just to follow up on that fiber part, can you just maybe dig in a little bit more in terms of talking about fiber-to-the-X versus data center and what type of growth rates you're expecting for this year from those two fiber markets? And then a quick follow-up -- just looking at your gross margin above 39%, I think it's a record. Can you talk about opportunities to expand that further in 2016 and what would drive that? Thank you.

Sure. I think on the first part, Steven, as far as copper fiber, we are seeing nice growth in fiber in both data center and now with the addition of BNS in the hyperscale data center market, in particular, as well as fiber-to-the-X. And we see growth in both of those markets in North America in particular, and also in selected regions outside the US. Australia may be one of those.

And the second, your appetite's insatiable. This is something that we really focus on -- what are our margins as opposed to revenue generation, albeit important. We do have competitors. It is a highly competitive market.

We do still have opportunities in cutting costs, both from a supply chain standpoint as well as efficiency in our operations. And this would not be right today the most efficient time because we're undergoing immense change. But I think we had a great margin.

I think, with some of the declining revenue in some of the businesses to maintain the margins that we did shows the quality of our teams and the ability of our sales guys to maintain price and get the returns that we need. So, we think where we are is a good place and we'll continue to strive harder to improve it.

Great. Thanks.

Your next question comes from the line of Amir Rozwadowski with Barclays. Please go ahead.

Thank you. I just wanted to follow up on how to think about taxes going forward. I think that you folks are guiding to 34% to 35% rate going forward. That seems a bit high relative to what you've done historically. Just wanted to see what the moving pieces were from that perspective.

Sure, Amir. You may recall back at the time that we went public we had given a long-term outlook of 34% to 36%. In 2014, our effective rate was about 35.5%. And as we entered 2015, we began to see a little bit of downward pressure. We were booking to about a 34.5% rate the first half of last year.

And then with the advent of the BNS acquisition, the fact that we closed portions of that deal offshore -- so, it was a carve out, it wasn't all closed in one location. We bought assets and legal entities in a variety of foreign jurisdictions. As such, we did not repatriate cash out of most of our foreign locations in the second half of last year. And the repatriation of foreign earnings is the single biggest driver of our effective tax rate.

In the second half of last year we were booking at about a 30% rate. We averaged 32.5% for the year. We expect to return to a more normal profile, 34% to 35% in 2016. But over the longer term, as we pay down debt and we grow cash flow and foreign earnings, we do expect longer term a continuation of downward pressure. And then you'll also recall that our cash tax savings are expected to be in a range of about $30 million annually as a result of the tax deductible amortization that came with the BNS acquisition.

Excellent. Thank you so much for the incremental color.

Your final question comes from the line of Tim Savageaux with Northland Capital Markets.

A couple of very quick ones. Did you give an estimate for cash restructuring costs for the year, number one? And, number two, do you expect BNS to grow sequentially despite what appears to be some conflicting commentary around positive book-to-bill, yet downward seasonality, I assume maybe on the wireless and enterprise side? Would you expect, given your comments about demand and capacity additions, sequential growth through seasonality in BNS? Thanks.

I'll take the first part of that, Tim. Our estimate of cash costs to achieve the synergies that we have described has been $125 million to $175 million. And that remains our best estimate at this point. We incurred a portion of those in 2015, maybe in the range of as much as $50 million or so in 2016, but we do expect to be substantially complete with the heavy lifting behind the integration by the midpoint of next year. So, $125 million to $175 million is how you should think about that.

And then the second question, I think we're not going to talk about BNS going forward. It's going to be connectivity solutions. We do expect organic growth in that business and growth even after the expected FX changes. So we do expect to be a growing business over the period.

But you'll recall, Tim, from a seasonality standpoint that the second and third quarters are our strongest, so a positive book-to-bill in Q1 would lead to stronger second and third quarters.

Okay, thank you.

We thank you all for your comments and questions. I'd like a few points to make as we close the call. Themes for the year and what we see -- 2016 EPS was up 24%, will be up 24% year over year. Our adjusted free cash flow will be up 20%, another 18% in 2017. We expect to generate greater than $425 million in free cash flow during 2016 and greater than $500 million in 2017.

We think that long-term secular trends remain intact with fiber and wireless here in North America and we're currently ramping capacity to meet our strong book-to-bill. The integration of BNS has led to better diversification, both geographically and in our segments, with wireless now being less than 40% of our revenue. We're executing on our synergy targets and we've increased the target for this year to greater than $75 million, and the annualized or the 2018 annualized target to be greater than $175 million.

We have changed our organizational structure and, with that, that's how we'll be conversing with you going forward through both Mobility Solutions and Connectivity Solutions within the Company. We do you appreciate your interest. We look forward to talking with you at the end of Q1 and wish you a good weekend.

Thank you. This does conclude today's conference call. You may now disconnect.