CommScope Holding Company Inc (COMM) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CommScope first quarter 2005 earnings conference call. During the presentation all participants will be on a listen-only mode. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded, Monday, May 2nd, 2005. I would now like to turn the conference over to Phil Armstrong, Vice President of Investor Relations.

Good afternoon, and thank you for joining us on this call. Frank Drendel, CommScope's Chairman and Chief Executive Officer; Brian Garrett, CommScope's President and Chief Operating Officer; and Jearld Leonhardt, CommScope's Chief Financial Officer join me on the call.

During this conference 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 the press release we issued today and CommScope's filings with the Securities and Exchange Commission, particularly Exhibit 99.1 to CommScope's periodic reports. In providing forward-looking statements, the Company dot not intend, and is not undertaking any duty or obligation to update these statements as a result of new information, future events, and otherwise. Also please note that all dollar figures and percentages are approximations.

After Jearld Leonhardt reviews first quarter results and Frank Drendel makes a few comments, we'll open it up for questions. Jearld?

Thanks, Phil. CommScope today announced first quarter results for the period ended March 31, 2005. The Company reported first quarter sales of $309 million and net income of $5.5 million, or $0.09 per diluted share for the quarter. The reported net income includes previously announced after-tax charges of $1 million related to the organizational and cost-reduction initiatives at the Omaha, Nebraska, manufacturing facility. Excluding this charge, adjusted earnings were $7 million, or $0.11 per diluted share. This financial performance exceeded the high end of our guidance, and we believe it was an excellent start to the year.

Effective for the first quarter of 2005, CommScope, again, is reporting sales in three segments as a result of the continued integration of the Connectivity Solutions business into CommScope's global operations and reporting systems. These three segments are -- enterprise, broadband, and carrier. The enterprise segment mainly consists of sales of structured cabling systems for business enterprise applications. This segment includes sales of industry leading SYSTIMAX Solutions and Uniprise Solutions branded products. Enterprise segment also includes a modest amount of coaxial cable for various video and data applications, as primarily sold through the same distribution channels as the Uniprise Solutions. These coaxial cable products were previously reported in broadband video sales as a part of the cable segment.

The broadband segment primarily consists of sales of coaxial cable, fiber-optic cable, and conduit for cable television multi-system operators, or MSOs, around the world. MSOs provide multiple channel video, voice, and high-speed data services primarily to residential and commercial customers using Hybrid Fiber Coaxial, or HSC, architecture. The carrier segment consists of sales to wireline and wireless telecommunications service providers or carriers. This segment includes sales of ICS, or Integrated Cabinet Solutions; secure environmental enclosures; ExchangeMAX telephone central office products; and Cell Reach wireless products.

In the press release we issued today, we included a sales summary that provides actual and performance sales by segments. All of the year-over-year sales discussions that follow will be made on a pro forma basis using historical financial information for Connectivity Solutions as operated by Avaya during January of last year. Sales for the first quarter of 2005 increased to $309 million, up 18% year-over-year on a pro forma basis, primarily driven by price increases in response to higher raw material costs. CommScope's enterprise segment sales rose 24% year-over-year to $158 million. The strong year-over-year sales growth reflects higher prices for most products, improved international business in all regions, and new product introduction. Also note that enterprise sales in the first quarter of 2004 were affected by our efforts to reduce external channel inventory to a more appropriate level following the acquisition.

We have been particularly pleased with the sales of GigaSPEED x10D, our revolutionary copper cabling system, capable of supporting 10 gigabit Ethernet. We believe that it is the most advanced end-to-end cabling solution available today. We already have more than 50 project wins around the world, and are excited about the ongoing prospects for this growth.

Broadband segment sales rose 19% year-over-year to $108 million, primarily due to higher prices for most products, improving international sales, and ongoing domestic network expenditures. Broadband sales increased to all major domestic MSO's and increased in most regions of the world. The carrier segment grew about 2% year-over-year, driven by a substantially higher sales of wireless products, offset by lower sales of ICS and ExchangeMAX products. As anticipated, carrier segment sales increased 25% sequentially due to strong sales growth by ICS and wireless products to telecommunication service providers. We continue to make progress communicating Cell Reach wireless value proposition to both domestic and international carriers. The ICS business strengthened primarily due to ongoing domestic carrier construction projects for DSL and fiber-to-the-node projects.

Overall for CommScope, domestic sales rose about 17% year-over-year to $206 million, while total international sales rose 21% year-over-year to 103 million. International sales represented about one third of total company sales. External orders booked in the first quarter of 2005 were $313 million, for a consolidated book to bill of just over one time. Book to bill was around one time for each of the reported segments as well.

Gross margin for the first quarter of 2005 rose to 23.3%, compared to 22.8% in the fourth quarter of 2004. Gross margin increased sequentially, primarily due to the positive impact of higher sales prices, cost reduction initiatives at the Omaha facility, as well as increased sales volume for certain products. Gross margin in the first quarter of 2004 was 15.9% and reflected certain purchase accounting adjustments related to inventory acquired from Avaya and sold during that quarter. Excluding this impact, the Company's adjusted gross margin for the first quarter of 2004 was 21.6%. Total SG&A for the quarter was $54 million, and reflected spending for Sarbanes-Oxley related compliance efforts, the introduction of new products, and higher sequential bad debt expense. Research and development expense was $8 million, or about 3% of sales.

Connectivity Solutions Manufacturing, Inc., or CSMI, an indirect, wholly-owned manufacturing subsidiary of CommScope, continues to implement previously-announced organizational and cost-reduction initiatives at its Omaha facility. During the first quarter of 2005, the Company recognized $2 million in pre-tax net restructuring costs that were primarily related to process improvement costs and the impairment of excess equipment real estate. CSMI has also consolidated certain operations at the Omaha facility and is actively marketing excess real estate. As a result, certain CSMI real estate and equipment was reclassified from property plant equipment to assets held for sale within the current asset section.

We expect to recognize additional pre-tax restructuring costs during the second quarter of up to $3 million related to completing the implementation of initiatives announced in 2004. While we still have meaningful cost reduction opportunities at the Omaha facility, we are pleased with the continued progress, and believe that the previously announced cost-reduction initiatives are on track. Operating income was $8.5 million, or 2.7% of sales for the first quarter of 2005. Excluding special charges related to restructuring costs at Omaha, operating income more than doubled sequentially to $10.5, or 3.4% of sales for the quarter.

Now, I'll turn to cash flow and balance sheet items. Net cash used in the operating activities in the first quarter of 2005 was $9 million. The use of cash reflects an approximately $40 million increase in accounts receivable during the quarter. Accounts receivable increased and days sales outstanding also increased to about two days. The increase was primarily due to a reduction in prompt pay discount terms, as well as seasonal trends. Total depreciation and amortization expense was $16 million and included 3 million of intangibles amortization and deferred financing fees amortization of less than 1 million.

Capital spending for the quarter was $8 million, and this is expected to be the highest quarterly spending level for the year. First quarter capital spending reflects costs associated with ongoing cost-reduction projects, as well as the construction of a new broadband facility in China, which is expected to begin operations in the second quarter of 2005. At March 31, 2005, long-term debt including current maturities declined to $307 million, and was 40% of our book capital structure. CommScope ended the quarter with $155 million in cash, cash equivalents, and short-term investments.

In summary, we had an excellent start to the year relative to our expectations, and expect stronger financial performance in the second quarter, mainly due to the expected seasonal strength of the enterprise segment. While we expect ongoing cost pressures, we believe that the higher expected sales volumes will more than offset the impact on margin of higher costs. So for the second quarter of 2005, we expect sales to rise to 320 million to 340 million, and operating margin to increase to 5.0 to 5.5% of sales, excluding special charges. We have not changed our previously announced financial guidance for the calendar year 2005, which was sales in a range of 1.2 to 1.3 billion, and operating margin of 5.0 to 5.5%, excluding special charges.

Now Frank Drendel has some additional comments, and then we will open it up for Q&A.

Thank you, Jearld. Before we start with questions and answers, I just want to thank all the employees at CommScope who put forth such an effort to make the turn around in the fourth -- from the fourth quarter to the first quarter. So I wanted to thank them all. We've been actively engaged in several projects, and will discuss those as we go through the question and answer. So, open it up, Operator.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question comes from the line of Steven Fox from Merrill Lynch.

Good afternoon. Actually, it's Celeste Laurenzano for Steve Fox.

Hi, Celeste.

Hi. It appears that the first half of the year is tracking better than expectations, but the full year outlook is unchanged. So I was just wondering what was your thinking behind the second half? Is there something that you're maybe a little more cautious about? Would it be networking, cables? I'm just trying to understand. It appears that the second half is now going to be flat with the first half.

Well, I think our expectations, Celeste are that first half is better than our -- than we had previously thought. As we said, we really aren't changing our outlook for the second half of the year. Some of the people who follow us out there were not up to our guidance, and we think everyone should certainly be within the range of estimates that we've offered and feel good, certainly, about the strength we're seeing in the first half of the year.

Okay. And then I was wondering if you could just talk about the trends in -- for the 10 gigabit cable, is demand there better than anticipated? And then, maybe, if you could talk about what kind of trends you're seeing for that in Europe versus the U.S.?

Celeste, Brian Garrett, I'll respond to that. In the last quarter call we took particular note of strength that we had in the EMEA region. I'll tell you that, for the quarter, we had excellent performance in both North America and EMEA. In terms of total dollars, North America was actually stronger. But in terms of percentages of total sales, I think the EMEA team was the strongest geographic area in the quarter. If you look at the pipeline and the number of projects that are in play, there was mentioned here some 50 projects that were, quote, won in the period. We still have a strong pipeline, and I think our expectations are for continued improvement in the 10-G space.

Okay, thank you.

Our next question comes from the line of Steven Kamman from CIBC World Markets.

Hi guys. Happy to see the numbers coming in strongly. Got a couple questions here. Start with the carrier businesses. I think last quarter that had about a $30 million negative impact to EBIT. Any color you could give us on, sort of, what those businesses combined -- I guess, that was really the ExchangeMAX and ICS businesses. But any color you can give on the impact on EBITDA right now there?

From a sequential perspective?

Yes, or an absolute dollar basis, obviously, would be very helpful, just so we can locate what they are.

[Indiscernible -- multiple speakers] reference was a full year.

-- was a full year.

Oh, I'm sorry.

-- fourth quarter, yes.

And I think the best perspective, the simplest perspective in my mind, is to think about what's happened sequentially. And we've put a lot of focus on this lean initiative, the cost-reduction initiative in Omaha. And the comparisons are difficult because there's quite a few extraordinary items in all periods. But the order of magnitude, I think, sequentially, we made an improvement in the cost structure of that business, somewhere in the neighborhood of about $5 million Q1 over Q4 last year. And the vast majority of that really came from the cabinet business.

All right. So that -- so still a bit of a negative EBIT, but significantly less, is that fair?

Yes.

We made substantial improvement, as we said we would. And it is still a negative, and we still continue to see very strong input in the carrier cabinet solutions business and strong outlook in these fiber-to-the-home networks continue.

Yes, we were -- we had the benefit of, again, sequentially a lot of volume in our cabinet business, large growth, double-digit growth. And we also stated in the initial announcement of the cost reduction in Omaha, that for the activities to fully materialize, it would take us through the second quarter of this year. So moving into the current quarter, into the second quarter, we would expect further improvement in produced cost.

That's very encouraging. Question. Pricing -- I know you put through the price increase, about 4 to 7%. Looking at the growth on the enterprise side -- this is on the enterprise side -- just trying to figure out how much of the growth was, maybe -- was units and how much was price increase based. I'm just trying to, obviously, no hard way to break that out, but just any sense on what was mainly the driver in the increase on enterprise?

Well, I think the single largest is going to be price. And, but at the same token, I'll tell you we were very happy with the volume growth in the Uniprise project line. Being able to take our traditional cable offering and put it together with the connectivity technology that re acquired is turning out to be an excellent strategy and proposition for us. So we were -- I don't want to diminish the pleasure that we had, in terms of the results that we're getting in volume in the Uniprise segment.

Okay. And then just any thoughts on CapEx for the year for modeling perspectives? And then I know the China business is coming on line over the next couple quarters. Can you just, kind of, give us any heads up on, particularly -- like, a better way to put it -- any warnings in terms of how that might impact either your operating costs and/or when we should expect revenues there?

Well, with operations, we wouldn't expect any meaningful revenues, to start with your last question first, before the third quarter out of that facility. There will be some operations expected or some product shipped, we expect, however, in the second quarter, but very small amounts. The startup costs is having some current cost impact on us, but it's not material overall, it's a relatively small facility. But there should be an improvement, even on that amount, in the second half of the year as the facility ramps up.

Okay. And then CapEx.

Yes. CapEx, we haven't changed our estimate for the year, which was probably a little under $30 million for the full year, and the 8 million -- 8.2 million, I think it was, we spent in the first quarter, we think will be the largest single quarter of the year.

Okay. Thanks, very much.

Yes, sir.

Our next question comes from the line of Daryl Armstrong from Smith Barney.

Thank you, very much. Congratulations on the quarter.

Thank you, Daryl.

Starting off on the enterprise side. I know a lot of other companies with enterprise exposure, they saw weak demand starting in February, and it seems to be extending all the way into the month of April. Could you give us any color in terms of why you haven't experienced this? Any commentary, even anecdotal, from your customers why they're still progressing with their connectivity projects as opposed to some of their other network expansion products? That would be the first question. And then --

Daryl, let me give you kind of the 50,000-foot level, and then we'll give it to Brian for more of the details.

Okay.

We entered an agreement with our shareholders last year that was the strategy we would have two offerings -- a high-level offering, comprised of the existing SYSTIMAX properties that we acquired; and then, more or less, lower entry-level offering from the enterprise opportunity, and by taking the hardware into the enterprise line. Brian's team and Randy's team have executed that so well that I think we're gaining substantial market share in the market. And I think that strategy allows us to attack the market as the absolute technical leader in 10-G. And then we also uncover a more price-point opportunity that exists with the distribution channels. Our relationship has never been stronger with our distributors. We meet with them every quarter. And I feel very comfortable that this strategy is working. It's still evolving, but I believe it's working. Brian?

Yes, I think, Daryl, I'll agree with what Frank says. I mean, a lot of it has to do with this developing strategy that we rolled out to everyone. And it's part of why Uniprise is doing so well at the moment. But in response to one of your comments, I mean, all of this business is project-driven substantially for us. There have been comments from our marketing and salespeople that some of these projects are not going away, but they're being delayed and the project cycle is extending. I think that's a fair representation of the market. But I'll tell you, the -- just the reputation that SYSTIMAX has globally, in terms of its history of R&D, the credibility that's associated with the brand, I think is helping us immensely in closing a disproportionate part of these 10-G products that are coming out. And so, from that perspective I think it will give you some understanding of why we're outperforming everyone in this space.

Our international strength, particularly with the SYSTIMAX brand, has been helpful, particularly the first quarter.

Thank you. That's very helpful. And then, lastly, given the ease in which you have been able to push through the price increases from earlier this year, even though, by your numbers, you don't really need to at that point, I mean, do you foresee any additional price increases from a products side, on the enterprise side, if, let's say, your current cost structure stays roughly the same in terms of commodity costs and so forth.

I appreciate your comment it was easy, but it certainly wasn't easy. No, in fairness, the ability to raise prices on all of our products was driven generally by our customers understanding the cost of materials that we incurred in producing these products. And as you know, they finally started to stabilize and are showing some minor cracks of weakening. So hopefully, we will begin to enjoy the margin improvement going forward if these materials fall and we can maintain the current pricing level we have. I don't think we have any current plans to raise prices. Maybe a few selected products that we haven't finished, but nothing globally yet.

As we said a little earlier, Daryl, we do expect to see some higher costs than --- in the second quarter compared to the first. But with a little higher volume, we think we can overcome those without further price increases near term.

And I appreciate, Daryl, your comments. We have really worked hard at the whole pricing discipline in this Company.

Great, thanks, again.

Yes, sir.

Our next question comes from the line of Larry Harris from Oppenheimer.

Yes, thank you. The tax rate for the year, what should we be planning for that?

Larry, we haven't -- wouldn't change that, the 30%. Our tax rate, depending on where our income is sourced around the world has some volatility to it, but 30%, we believe, is a good planning rate, even though it was only about 24, 25% in the first quarter. We still think 30% for the full year is a reasonable estimate currently.

I understand. And with respect to accounts receivable that they did go higher this quarter, was there the conclusion of a special program, or were sales more heavily concentrated towards the end of the quarter? Maybe if you could discuss that.

Sure. I think the answer is really a sum of all that. We did change our cash discount terms. They are less favorable, if you will, to take prompt pay discounts. And that has one-time effect as some customers make that change. Also, our revenues, sequentially, were up. And we do see some seasonal trends where DSOs typically go up in the first quarter versus the fourth quarter. So we had some of all those factors. The 40 million was not -- we would not expect to see those kind of trends continue into further quarters.

Larry, it was -- in particular it was some very major customers that, in part of our price increase for the Company, was to change the terms that turn much more favorable to us. And so, they're taking a little bit longer in [indiscernible]. Net-net, those margins are much more beneficial to CommScope, and, again, shows the strength that we have in our ability to do that.

Yes, yes. And in terms -- just refresh my memory in terms of the -- what your long-term operating-margin-type planning assumption will be. I understand, of course, you re-affirmed 5 to 5.5% for this year. But where do you think, going out a couple years, assuming we have stability in commodity costs and you successfully execute -- complete -- the plans in Omaha, what type of operating margins do you think we should be able to expect long term?

Well, I mean, again, that's a broad question, but we are not happy with operating margins we are at, at this point. It's certainly better than we've been. We're managing the business much tighter than we ever have before, given what's happened to materials. When historically, we've been [indiscernible]. So, I tell you that we know that we can take this long term into higher operating margins. For us, right now the most person thing, Larry, is to make sure we execute the strategy and the integration of these mergers and execute the strategy of price increases and our market position, which is number one in the world in both of these platforms, and then begin to inch away at the margin improvement.

All right, I understand. All right. Thank you.

Yes, sir. Thank you.

Our next question comes from the line of Daniel Ernst from Hudson Square Research.

Good afternoon, thanks for taking the call. A couple questions, if I might. First, given that last year there was two tranches of price increases, can you give us what the average price increase across the three categories was? And then, also trying to drill down into the gross margins, normalizing them. In the third quarter, you had a reversal of a warranty expense around 6 million. Did that flow through to the income statement, and, therefore, to gross margin? In other words, that 25% gross margin you reported in the first quarter, if I were to -- would I take that reversal out in order to come up with a normalized gross margin? And then, last question, could you give us what the overall capacity utilization is of the Company?

The last question I'll help answer, easily. We're basically at 50% of capacity across the Company. So we have plenty of capacity to go forward with anything that would happen out there. And then I'll let Brian and Jearld talk to the more detailed margin issue.

Yes, I'll -- the price increase is a difficult one, Danny, because --

Oh, yes.

-- one, it was different amounts in different regions, different product lines. I think you would be pressed to get above 10%, substantially above 10%, with an average all products, all regions throughout the course of the year.

Dan, on your warranty question, we did not -- the warranty reserve was reduced in the third quarter. But it was really an opening balance sheet. It did not flow -- that reduction did not flow through our earnings or income statement last year, and was an opening balance sheet adjustment. As we finalized the opening balance sheet of the acquired business, we determined that the warranty that we initially booked was too large. And so we fine-tuned it in the third quarter. And it was not a P&L impact. So if that was part of your model for the P&L in the third quarter, it really was not that significant on a P&L basis.

Okay. And so then on the average price increase around 10%, and understanding it probably varies by product and geography.

Right.

If we were to back that out and look at what gross margins might have been, given the materials cost increase, and then you're expecting a little additional increase in materials cost in the second quarter relative to the first, don't expect the ability or at least the willingness to initiate another price increase, what should we think about, then, as medium-term gross margins for the next year and a half, and, then, assuming longer-term that the material cost might be able to alleviate it.

I think we've been able, just looking back historically, and I'll tell you where we're mentally calibrated. We need to be in the mid-20s in terms of gross margins. And we get up in the upper 20s, I'd say we're outperforming, and the low 20s we're under-performing. So you look at what happened in the quarter, certainly, good news. You look at where that is relative to year-end expectations, I think you're going to end up with mid-20s-type of numbers in terms of gross margin, which, hopefully, are sustainable.

And I think part of our profit improvement is, A, obviously, the price increase. And we were able to work through these materials, but we probably are still not getting all the benefit as we work through these contracts with the price increases that we have put out. So I didn't want to leave the statement that we would raise prices. I think it's more important for you to understand that the prices are still working their way in to these projects. Some of the projects are still being finished at the original pricing, older pricing. So you do have a momentum of a price increase working its way through the next two quarters, and possibly for the whole year. So, I think to take that 10% away would be kind of a crucial look at it.

Well, I was only trying to do it in order to normalize it and try to look at what the organic change was, relative to your operating efficiencies being at 50% capacity and demand still being, while improving, still being generally light, that's what we're trying to understand. But from your perspective, you think you can get into that mid-25% range -- in the mid-20% range with the existing price increases working their way through into the new contract. Is that what you're expecting?

Well, we didn't give a gross margin outlook. As we said, we expect operating margins to be in the 5 to 5.5% range. What that covers, obviously, is some of our SG&A spending, differently or in addition to the gross margin. We would like to piece more efficiency in SG&A and continue to work on that. We haven't really -- we didn't realize any from the fourth quarter to the first quarter, but we think we have some potential to become more efficient as percent of sales, certainly, in a year, and that should help our operating margin lift as well. And maybe just to clarify one of the comments that we -- Celeste's question at first, we really trying to say that we still expect, certainly, the second half of the year to be stronger than the first half of the year, but the first half is what we see improving.

Okay. Thank you, very much.

Yes, sir.

Our next question comes from the line of Marcus Kupferschmidt from Lehman Brothers.

Good afternoon, guys.

Good afternoon.

A couple questions. I wanted to ask about the restructuring progress in Omaha. I think when you announced the program initially it was about a $25 million of annual savings that were expected?

20 to 25, correct.

So I think you mentioned you made about $5 million of progress on a sequential basis in 1Q '05 here?

Right. Not all of that is attributable to this lean initiative. But, go ahead.

Well, I'm trying to get a sense of kind of, how do you -- where do you think you are in terms of making the moves that you plan to do and realizing the cost benefits? And what do you think we can expect in terms of an improvement in Q2? That's my first set of questions.

Well, just in terms -- the first quarter had the benefit of larger-than-anticipated volumes, in the -- particularly in the cabinet space, where we are focusing a lot of the cost-reduction initiative. But the -- I'll tell you, relative to the plan and in terms of what we communicated to you at the outset, I would expect something in the neighborhood of a $2 million improvement in Omaha relating to the lean initiative quarter-over-quarter sequentially.

And then you have, kind of, the full benefits in the restructuring?

Yes, we need -- we need to be doing -- when the project's fully mature, we need to be doing 5.5, $6 million a quarter improvement in costs. And in the first quarter, we weren't at that full run rate.

Sure.

By the end of the second quarter, we will be almost entirely at that rate. That help you out?

Definitely. And then on a separate subject, looks like the coax business was basically -- the broadband businesses were basically flat-ish, sequentially, flatter than what you guys would have been thinking. Can you give us a little more sense of where the -- kind of the incremental strength is right now in the business? And I think your guidance for 2Q talked about a typical kind of uptick in enterprise, but I didn't hear you mention the broadband business.

Well, let me attack the broadband. All of our customers in broadband took more product this quarter than the first quarter of '04. Admittedly, there was a price increase in there, so you have to factor that in. But even with that, and given the fact that we moved some of the broadband products out of cable TV and put them into the carrier, and there were some dollars that went through that point, that we now have a look at the pricing is almost fully in effect throughout the broadband businesses. And, again, also, you have -- still not have the impact that were expecting from Adelphia, although, finally, the Adelphia situation looks like it will close. And they have been public on their capital expenditure number for the next three years for Adelphia at approximately 800 million. 650 million, I believe, was coming from Time Warner and 150 million from Comcast. 15% of the Adelphia plant is still not upgraded to 750 megahertz. So putting all that in the package, we see a very stable, very, very stable broadband and growing market. It's not going to be explosive, but very stable and it's generating good returns for us. And we see upticks around the world and a lot of opportunities.

Great. And then one other final question, too. Did you see any signs of pre-buying into your price increase at the beginning of the year? Because my sense is probably not, given where the business is performing.

No. I think if you look, sir, at our turns and our modest backlog. I mean, we operate a very tight operation. There might have been some, but it would be very, very modest. Just the velocity that we turn our inventory and serve customers, it couldn't have been very much. Now, you do have, of course, projects that are working their way through that were protected by some price, but I don't think there would be early buy.

Great. Thank you.

Yes, sir.

Our next question comes from the line of Alan Bezoza from Friedman, Billings.

Hey, good evening, guys, how are you?

Fine, Alan.

A couple questions. First, on the bookings. Can you give us any color on the bookings as far as segment break out? And within that, do you have any better visibility into either business, the broadband or the enterprise business and lead times to your customers, or was it pretty status quo within the two? And then I have one follow-up after that.

Well, first of all if you look at book to bill across all the segments, they're essentially unity. And to Frank's comment, I mean, that really has to do with the velocity of this business. Rarely do we build backlog. And the second part of your question was related to --

Visibility. I mean, how close are we to -- I think what's he's statement is, is that we appear to be doing better than the competition. So what visibility do we have to the customer base that makes it different from what other suppliers are saying. We have -- we're the biggest in the world, so we should have the highest visibility.

But then within that, either is the broadband or the enterprise business give you better visibility, just relative to each other?

Well, they're two different -- that's a great question. And, but they're two different channels. Broadband is a direct channel to the customer, so we have exactly the visibility -- the customers are tell us what they're going to do, but sometimes they change their mind. That's a one on one. The enterprise business goes through a distributor level, and so you have what the distributors believe they're going to do, and they're very honorable partners of ours.

Plus our pipeline.

Plus our pipeline. And then putting the pull through with those. So we're calling on the end customer. So in both cases we're talking to, quote, the end customer. And we're factoring through what these projects should do. But, again, we serve this customer base so well, and they are so comfortable with our ability to serve, given the 50 -- we're operating at 50% capacity, there's virtual no risk in these customers waiting until the last moment to order. If that helps explain it.

Sure. No, sure. That's good. And, Frank, one question on broadband, or, however. On drop versus T&D, have you seen any changes within that over the last couple quarters? And within that, has voice and/or high definition been a driver for more drop relative to D&D -- T&D? Clearly, the upgrades have slowed down at Adelphia and Comcast, but is voice and HD driven any kind of increase in drop? And then, my last question on that -- with Adelphia, have you seen any changes? I know it's early, but you guys are pretty quick to see things, is any changes that you've seen out of Adelphia and their spending habits?

Well, let me -- let me take your first question. Yes, we've seen, not a change in the product mix in particular, but we've seen a change in somewhat of the demand matrix, especially where Verizon is beginning to over-build an existing operator. These operators are getting in front of those over-builds and really tightening up their plan. Some of them are even going in and offering customers long-term package deals for a year or two years, sort of like the cellular marketing trick. And the operators are going in there and making sure they have absolutely bullet-proof pictures. So it's interesting to watch what competition does. To your second question, we are clear now on what needs to be done at Adelphia. We haven't seen any direct impact on those orders because it's still waiting for the final bankruptcy hearings and judge -- finalize on. But they are losing subscribers, they report that. And they need to get in there and tighten it up because they don't want to have a net subscriber loss.

But they haven't slowed down, at the same token, I'm assuming they still buy Connex for maintenance.

No. Exactly. What they're doing is what they have been doing. What the court was allowing them to do, they continue to do. I mean, as far as we can see. And I can't imagine that they don't have a bridge plan in place to keep doing that, to keep the business cash flow in as tact as possible to hand it to the pricing point that they've made with Comcast and Time Warner.

Yes. Okay. Hey, great. Thank you.

Yes, sir.

[OPERATOR INSTRUCTIONS]. Our next question comes from the line of Jeff Beech from Stifel Nicolaus.

Yes. Good morning -- or good afternoon.

Hi, Jeff.

A couple of things. The price realizations that you got in the first quarter, and looking back now, are they pretty much in line with what you had expected to achieve for the first quarter?

I assume you're talking about across the board, right?

On average. Did you get the prices that you hoped to get?

Yes.

Okay. And the cost, the raw material costs, that are beginning to flatten out and plastic compound prices are declining, I don't know what's happening with -- I don't get a rate on Teflon, maybe you could talk about that. But if the current prices that are there today stay in the market for the second quarter, will there be -- begin to be any benefits from raw material costs in the second quarter? And if not, if there's a lag because you're buy under contracts, will you start to see a benefit from this as early as the third quarter?

Brian just says that there's a Teflon god, so I'll let him talk.

Okay. No, I think what we're telling everyone, our expectation for -- and we are just talking broadly, not just a couple commodities, Jeff. I know you see weakness near term in copper. But broadly, with all of our materials in aggregate, there is a -- there is an increased cost in the second quarter over the first quarter. That being said, that's just one metric. I mean, there are other things that influence our cost, volume, that Jearld alluded to, which will be an offset. Plus we're always active in cost-reduction activities that land every quarter, which also offset that. So, no, the hope is that we'll see some softening after the second quarter and --

And I think to the point you raised, both in your question, this is the lowest increase we've looked at for the last multiple, multiple months. So it's finally losing some of its wind in the sails.

But it's hard for us to model, even internally, softening commodities, it's just -- it's such a dicey subject. Really don't want to lead anyone in that direction. I think it would be dangerous at this time.

Okay. The other question I wanted to ask, earlier, I heard somebody mention that project activity is softening. Every company I follow is exposed to construction and project activity in the U.S., and including your largest distributor. I'm hearing that project activity is actually picking up. What are you seeing in the market?

I think that comment is the most current one, in terms of things picking up. But in the context of the quarter, I think many people saw in the first part of the quarter projects being delayed. I think that's just a broad industry statement, not necessarily representative of what we are able to close in terms of projects between SYSTIMAX and Uniprise. Our outlook for the second quarter and the remainder of the year is an environment of improvement. So in January and February, may have gotten a slow start in terms of some projects, but I think we see the market as improving throughout the year. And I'll say that as it relates to North America. EMEA hit the ground running this year.

All right, great, thank you.

Yes, sir.

Our next question comes from the line of David Daglio from Boston Company.

Hi gentlemen. Just one more question about the second half. Is there anything in your backlog or visibility that gives you caution around the second half? Or is just you being conservative, knowing that the cell side still has not raised numbers up to where you've guided to in the past?

Well, they don't give rewards from this --

Come on.

They do, but it's usually the CEO's job. So, our view is, I keep trying to bring everyone back to one statement that you can hang on to. We're number one in the world in these two markets. We have the best visibility, whatever that visibility is, we should have the very best of what's happening. We are executing a strategy to own the last mile in these products. It's been our desire, it's been everything that we built CommScope on for the 25 years all of us have been together. Our view is that the strategy is working, and not to push a rope, as my Navy father used to say. You've got to let this thing pull itself through, you have got to own these markets. We have the technology, we have the distribution, we have the cost. And so getting in front of the stock price is not attractive to us as being right for the long-term, for the long-term investors that stayed with us.

Okay. That helps, thank you.

Yes, sir.

Our next question comes from the line of Alan Mitrani from AMCAM.

Hi, thank you.

Hi, Alan.

Can you talk about the inventory turns? You guys have stabilized inventory turns pretty well. The old CommScope used to turn business 10 to 14 times. I realize you have a lot of work to do with Avaya. Can you give us some of the sense of what improvements you're making in the carrier business and others to help inventories improve? And where can that go in the back half of the year?

That's a tough one, Alan. I would -- to date, you look at the legacy business versus the ACS business, the traditional ACS businesses, it's still in excess of a two-to-one ratio in terms of inventory dollars. There's still substantially more inventories in the traditional ACS businesses. We'll make improvements from this point. But I -- they're part of a much slower, longer-term plan. And I think it's complicated by the fact that we're, particularly in the first quarter, we just had enormous growth in our cabinet business. And so it's a -- how do I put this? We're seeing high growth in a segment that has substantially lower turns performance than the corporate average. So it's very difficult for me to project any specific numbers for you.

That's fair. Can you also, tell us how much in the next 12 to 15 months, to execute on your plan to get carrier business basically break even or close to break even, how much of that, in your opinion, is in your control versus external control in terms of issues needing to happen in the market?

Well, I think in the cabinet business, I think we have a great deal of control. And I would say we got very, very close to that objective in the first quarter. And the opportunities for continuing improvement in that cabinet business are very visible to us. So I think we're clearly on the right path, and I think we've got an attractive outcome. In the ExchangeMAX space, it's very, very difficult. And we're continuing to work diligently on that business segment, but our position to you and everyone else is unchanged, and that is, we are going to fix it near term, or we're going to sell it, one or the other.

Thank you, nice quarter.

Thank you. Ayesha, we'd like to take one more question if there is one out there.

We have one question from the line of Curtis Jensen from Third Avenue Funds.

Hey, guys.

Hi Curtis.

Last but not least, could you share with us, you mentioned in the press release 50 projects. Maybe you want to use a range here, but how many end customers would that relate to? One to five?

That'd be a big a big number, essentially.

That would normally be the same customer base. I mean, if you have 50, there are 50 different distinct projects.

You're saying it's 50 different customers?

Largely, largely. I mean, if we were doing your facility and you were in two buildings, we would say that that's one project.

Okay.

Is that what confuses?

No, that's fine.

We are not talking numbers of buildings or number of floors, we're talking projects, which is largely customers, different customers.

Yes, that's fine. And the -- can you just give me a flavor for the range of the project sizes?

Well, I'd say half a million to million dollars type projects over their life. I mean, that's the scale of them.

Okay.

I mean, you can't take 50 times a million and say we had $50 million worth of orders, but a project over its life is half a million to a million dollar type of numbers.

Okay, fair enough.

And -- the reference in 50 was projects won, that's not projects sold. It doesn't necessarily represent orders or sales in the quarter.

Got it. Keep up the good work.

Thank you. I want to thank again all of our projects lean employees who bring helped bring Omaha to this outstanding results for the first quarter. I'd like to welcome back Eddie Edwards as Executive VP of Mergers and Acquisitions. Eddie did a wonderful job standing in in the Omaha transition. And I'd like to especially thank, since we had so many of our employees on these calls, Gene Swithenbank, who is retiring, is one of our founders, after 30 years of finding every order we needed when we only had 5 million in sales. So, Gene, I hope you're listening. And enjoyed having you for the 30 years. And with that, we'll cut it off. And thank you, shareholders.

Ladies and gentlemen, that does conclude the conference call for today, we thank you for your participation and ask that you please --