CommScope Holding Company Inc (COMM) 2014 Q1 法說會逐字稿

Good morning my name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the CommScope first-quarter 2014 earnings release.

(Operator Instructions)

I would now like to turn the conference over to Mr. Phil Armstrong, Senior Vice President of Corporate Finance. Sir, you may begin.

Good morning, and thank you for joining us today to discuss CommScope's first-quarter 2014 results. With me on the call today are Eddie Edwards, CommScope's President and CEO; Mark Olson, CommScope's Executive Vice President and Chief Financial Officer; and Mark Huegerich, Director of Investor Relations. I would also like to take this opportunity to welcome Jennifer Crawford to the Investor Relations team, working with Mark Huegerich.

You can find the slides that accompany this review on our Investor Relations website, and before we begin the presentation, I will cover a few housekeeping items. On slide 2 of the presentation, 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 first-quarter 2014 10-Q 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.

Also, 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 measures, 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 the morning. Mark Olson will provide an overview of the quarter, highlight our three segments' performance, discuss balance sheet, cash flow, and capital structure, and then provide our outlook for the second quarter and calendar year 2014. He'll then turn the call over to Eddie Edwards for comments, before we open the line for Q&A.

To make sure everyone has an opportunity to ask a question on today's call, we request that you ask one question, with no more than one follow-up. Please return to the queue for additional questions. I'll now turn it over to Mark Olson. Mark?

Thanks, Phil, and good morning to everyone joining us on the call this morning. Now, let's turn to slide 4 for our first-quarter 2014 summary.

We're very proud to deliver record operating results and earnings in the first quarter. Sales increased 16% year-over-year to $935 million. Record wireless growth and a recovery in our enterprise business drove the strong year-over-year performance.

Orders booked in the first quarter increased 30% year-over-year to $1.1 billion, providing a book-to-bill ratio of 1.2 times. Our book-to-bill ratio was positive in all segments, with wireless posting particularly strong order growth.

GAAP operating income in the quarter rose 94% year-over-year, to $147 million. Adjusted operating income, which excludes the amortization of purchased intangible assets and other special items, rose 45% year-over-year to $192 million. We achieved a record adjusted operating income margin of 21%, due mainly to our exceptionally strong wireless performance.

For the quarter, the Company reported net income of $64 million or $0.34 per diluted share. Excluding special items, non-GAAP adjusted net income increased 74% year-over-year to $95 million, or $0.50 per diluted share.

Adjusted EPS increased 43%, despite an increase of 34 million shares in our diluted share count, primarily as a result of our recent IPO. Diluted earnings are based on 191 million shares for the first quarter. Adjusted net income and adjusted EPS rose substantially year-over-year, due mainly to higher sales volumes, a very favorable regional sales mix, as well as a favorable mix of products sold, and the benefit from ongoing cost savings initiatives.

I will now discuss each of our three segments' first-quarter performance, starting with the wireless segment on slide 6. In wireless, we are the global leader in merchant RF wireless network connectivity solutions, and small cell DAS solutions. Our solutions, which are marketed primarily under the Andrew brand, enable wireless operators to deploy macro cell sites and small cell DAS solutions, to meet 2G, 3G, and 4G cellular coverage and capacity requirements.

Wireless segment sales increased 26% year-over-year to $627 million. The sales increase was primarily driven by higher spending by operators in the US, and in the Europe, Middle East and Africa region.

Investment in LTE coverage and capacity remains a priority in the US, while operators outside the US are focused on network modernization. For example, we saw solid year-over-year growth in Europe during the first quarter, as operators upgrade networks to begin to deploy LTE. In the quarter, wireless adjusted operating income rose 63% year-over-year to $154 million, or 25% of sales.

The Company continues to benefit from higher sales volumes, and a favorable regional mix of sales, as well as a favorable mix of products sold. Sales of our ION-branded small cell DAS and tower top cellular solutions in the quarter were particularly robust.

Wireless orders in the quarter were also very strong. Operators appreciate our RF technology and expertise, and increasingly trust CommScope to address their wireless network challenges. We continue to believe that CommScope is very well-positioned to benefit from positive global trends in the wireless market.

Moving to slide 7, I will discuss our enterprise segment. We're the global leader in enterprise connectivity solutions for data centers and commercial buildings. Our comprehensive solutions, sold primarily under the SYSTIMAX and Uniprise brands, include optical fiber and twisted pair structured cabling solutions, intelligent infrastructure software, network rack and cabinet enclosures, intelligent building sensors, advanced LED lighting control systems, and network design services.

Enterprise sales increased 5% year-over-year to $202 million, the first quarter of year-over-year growth since 2011. Sales increased in the US and Central and Latin America, and in the Asia-Pacific regions. We delivered growth in essentially all product areas.

In the quarter, enterprise adjusted operating income increased 5% year-over-year to $36 million, or 18% of sales. Increases in sales volume and the positive shift in mix for products sold offset continued investments in the iTRACS and Redwood Systems growth initiatives. We are pleased with our progress as we position these solutions for long-term growth.

While we believe it is still early to call for a broad-based enterprise recovery, due to ongoing global economic uncertainty, we are pleased with what we are seeing in the market, and hearing from our customers. While spending in this market has been cautious the last two years, enterprise has continued to create more data and consume more bandwidth. We believe we have maintained our global market position and state-of-the-art fiber and copper connectivity, and we remain optimistic regarding our long-term growth opportunities.

I'll now turn to slide 8 to discuss our broadband segment. We are a global leader in providing cable and communications products to support the multichannel video, voice, and high-speed data services provided by multiple system operators, or MSOs. We believe we are the leading global manufacturer of coaxial cable for hybrid fiber coax networks globally, and the leading supplier of fiber-optic cable for North American MSOs.

The broadband segment is our smallest and most mature business. Sales declined 9% year-over-year to $108 million. The decline was primarily driven by lower sales in Central and Latin America.

In the quarter, broadband adjusted operating income declined year-over-year to $2 million, or 2% of sales. However, performance improved sequentially, and cost reduction activities were initiated in the fourth quarter of last year, to better align this segment's cost structure with customer demand.

As a result, we expect adjusted operating income improvement as we move through 2014. We also continue to evaluate alternatives to improve the performance of the broadband segment.

Next, I will discuss cash flow and liquidity on slide 10. The first quarter is historically one of the weakest cash flow generation quarters of the year. CommScope used $35 million in cash from operations, and invested $7 million in capital expenditures in the quarter.

Cash flow from operations improved year-over-year despite increases in working capital. We expect to generate cash from operating activities for the remainder of the year. We paid cash taxes of $16 million and cash interest of $52 million during the first quarter.

Adjusted free cash flow for the 12 months ending March 31, 2014 was $271 million. We ended the quarter with $305 million in cash and cash equivalents, and had availability under our credit facility of $345 million, which combined with our cash balance provides total liquidity of $650 million.

I'll now discuss our capital structure on slide 11. Since the take-private in January of 2011, we have reduced our net leverage ratio 2 times. We accomplished this by growing earnings and reducing debt.

We are currently reviewing options available to refinance the $1.1 billion of 8.25% notes. Based on our credit profile and current market rates, we believe we have an opportunity to substantially reduce interest costs.

The current redemption premium is a little more than $100 million, but declines in a linear fashion to around $45 million on the first call date in January of 2015. We will continue to monitor our options closely.

Finally, I will cover our second-quarter and full-year 2014 outlook on slide 13. While global economic conditions remain uncertain, our business trends remain positive. For the second quarter, we expect revenue to be in the range of $1 billion to $1.050 billion, or up 9% year-over-year at the midpoint of the range.

We expect adjusted operating income of $215 million to $235 million, up 22% year-over-year at the midpoint of the range, and we expect adjusted earnings of $0.58 to $0.62 per diluted share on 192 million diluted shares. Our calendar year 2014 outlook has also strengthened, excluding special items, and assuming business conditions remain relatively stable.

We now expect sales growth in the high single digits to low double digits. We expect sales growth to moderate somewhat in the second half of the year, as North American operator spending patterns appear to be a bit more weighted to the first half of the year. We expect adjusted operating margin expansion, and adjusted effective tax rate trending down toward our long-term target of 35% to 37%, and we now expect significant adjusted net income and adjusted EPS growth.

We also expect to generate strong free cash flow, which reflects growing net income, disciplined working capital management, cash taxes that are below the effective tax rate, and modest capital spending. And with that, I will turn the call over to Eddie to cover CommScope's investment highlights before the operator opens the call for Q&A. Eddie?

Thank you Mark. First, I want to thank the CommScope team for their outstanding performance in the first quarter of this year. Our wireless growth is a testament to the hard work over a multiyear period to increase our relevance with the end-user.

We believe that our radio frequency expertise, integrated solutions, manufacturing flexibility, and reputation for customer service provide us a fundamental advantage over our competitors in the wireless market. I'm also pleased to see that the enterprise market shows initial signs of recovery, after two years of cautious IT spending, its good to see sales growth. And as we move through the year, we expect our investment in iTRACS and Redwood Systems to begin to provide more sales growth opportunities. I'm also confident that our broadband team will execute profit improvement initiatives that we have discussed, that will help us return this segment to a low double-digit adjusted operating margin profile.

Overall it was a great quarter, and a very strong start to 2014. We are working hard to build on this momentum, and we remain focused on positioning the Company for long-term success. Now, Mark and I will be happy to answer your questions. I will turn it back over to the operator.

(Operator Instructions)

Amir Rozwadowski with Barclays.

I was wondering if we could touch upon some of the trends in the wireless business a bit here. Clearly, for the last several quarters, we have seen better than expected results out of the business. It seems as though in the US, the competitive environment is lending itself to ongoing investment. Just trying to assess how we should think about the progression through the course of the year, and effectively, how much is left in terms of the spending trends that you're seeing, or the favorable trending spends that you are seeing?

Amir, we have come from making calls in September where LTE was going to fall off a cliff, to a position now where the LTE spend, certainly here in North America, is at a pace that is faster than we have seen in the past. So as the capacity portion and the duplication portion of the LTE spend certainly happens with the two larger carriers, and as the other carriers here in North America continue to spend, we see that demand continuing, and we are very optimistic about what we see in the near to medium term within the wireless segment.

We also see a transition from stadiums and arenas in the end building space to the towers, the high-rise towers, and I think that will be a focus, not just the end of this year but in the years to come. As we have said publicly, there is only about 2% coverage in the large towers around the globe. This is not a North American business for us.

While more than half of it is here in North America, we sell to every carrier in the world as best we can tell. And we think that this business is -- we talked about waves and one of those waves is growth cycle so we are very optimistic across the board broad-based support for our wireless business.

And then if I may, just one follow-up there. If we are contrasting what you folks are seeing versus some of the other suppliers to the telecom operators, you folks have made a concerted effort to move much more towards systems-oriented products over the last couple of years. Has that served as providing a tailwind for the business, in that carriers are spending a bit more on the types of products that you folks may provide, versus some of what others may provide to the marketplace?

I think we have transitioned, we are not optimized yet, certainly not in wireless. Enterprise, as you know, has been a solution seller for a long time.

I think the solution sale does a couple of things. It makes our discussion with the carriers different. It also as we have talked earlier, or before, about the margin profile, it's a better margin profile for providing solution than it is providing only products, which can lead to commoditization, which we have seen in other business units.

We think we will also gain market share during the course of the last three years, as we have focused on dealing with our end-user customers in a more precise way. Our expertise, the solutions and what is happening in the densification and small cell I think are all examples.

I think lastly, we have talked about our customer in the Middle East where we are doing really solution-based site cell site builds, has changed the dynamics of that market. We're starting to see that business model be the talked about in other parts of the world, more developed parts of the world, where you probably wouldn't expect it from someone like us. So our experience and what we have is a broad product and solutions portfolio, as well is what we think is our share gain, has helped us all around.

Great, thank you very much for the incremental color.

Brian Modoff with Deutsche Bank.

A couple things. First, on the enterprise side, you are seeing a recovery there. Can you talk more about -- is that new building -- new builds you are seeing, is that the cloud, is it a combination?

Second is a follow-up on cable side. You obviously, it's good to see you back at profitability there. You talked about other measures to prove profitability. Can you give us a little more granularity?

And finally on the balance sheet, you've got this note that you have talked about perhaps refinancing $871 million, refinancing that note, that's 8.25%. Can you give us an update on that occurring this year? Thank you.

Sure, do you want Eddie, with enterprise?

I will start with enterprise. We are seeing good growth in the data center market. It's growing faster than the other part of the business, which we have talked about over the last couple of years, even in a down market.

But we are seeing the size of the orders also or the projects that we are winning grow. That is a big incentive, as to why we feel good about the future, in enterprise.

Historically this has been the most profitable -- until this year, historically, this is been the most profitable business that we have had, so we are very excited about the recovery from several years of slow to no growth in the enterprise market. So we see a whole different level of exuberance within our enterprise sales teams, and our people within that segment. So we are excited about what it brings us in the future.

From a broadband standpoint --

Broadband. The other alternatives. We are in the middle of process of evaluating what products we sell.

It is the most product-oriented business that we have by far. And so we are evaluating -- we have an 80/20 process that we are underway. We are evaluating what products we sell there, and who we sell to, and how we sell, to make sure that we can maximize the products in a very competitive price environment.

So those are underway, not finished. And we are also evaluating the direction of that we're going to go in the portfolio that we have, so a lot of different things. We are gaining traction with our restructuring, that involves both the wireless cable as well as broadband.

It was delayed by about six months, because of a slow down in selling our BiMetals business. That is now done and well underway, and I think we will start seeing the benefit of that during the course of late Q2 and the balance of the year. So I think we may be delayed somewhat at 12/31, as to where our target was, but we are certainly trending in that direction, and we have high confidence that we will get to that level.

You're final question, Brian, on the notes, we carried $1.5 billion of 8.25% for some time, we paid down about $400 million of those notes with IPO proceeds, and we are now studying very intently the opportunities to refinance the remaining $1.1 billion. And if you consider current market rates, and we have been actively engaged with a number of institutions to discuss alternatives here, there could be as much as 300 basis points of opportunity in the rate on those notes. And that would put material reductions into our cash interest costs, as well as improvements in earnings-per-share.

We have a first call date on those of January of next year. There is a redemption premium that today is still fairly rich, that will diminish in a linear fashion here, as we move throughout the second half of the year. We are encouraged by what the opportunities are, given the current market conditions.

Good luck.

Rod Hall with JPMorgan.

Just a couple. I wanted to, Eddie, maybe get you to talk a little but more about the phasing of capital spending in the US. I guess, it's a question and my mind is whether we're looking at project-oriented spending here early in the year, which is going to really result in this tilt toward the front end of the year, or are we alternatively looking at capacity spending, which could actually result in higher spending overall through the full-year?

I just wonder if you have thought through that, and what you think there is a possibility the latter scenario is actually what we're seeing playing out because we are seeing some pretty aggressive pricing on data plans and so on, which is probably driving higher and higher usage. I would be interested in your commentary on that and I have a follow-up.

Okay. I think what we are seeing, the stuff that we sell to carriers, it is the same antennas and other apparatus that we sell them that they use for coverage or capacity. We are indifferent to that, so we are selling the Hex Port antenna products and also the project-oriented business within DAS, has certainly grown rapidly, as it has in the past. I think we are seeing a broad based spend.

What they tell us is that -- and I guess they told us last year, is that much of that coverage is done and I think there is still spending there. And capacity is -- from our standpoint, is of equal value to us, it is up the antenna, and it's the same sort of thing. The Metro sale and the smaller sale applications for indoor are starting, but they're not at the pace of what you see for the macro environment.

I am just wondering, you guys are obviously surprised and we are too at how strong things are up to this point in the year. Is there any reason to think that we won't be just as surprised as we get into the back end of the year? I know, everybody right now is thinking, well it surely has got to decelerate, but maybe not.

We have good order influence right now. That makes us feel more comfortable. We are not expecting a collapse of any sort.

And we have a 1.2 book-to-bill. I think it says that we have strength in the marketplace. And it takes a while to supply all the products that we have in our order book right now.

Rod, just to keep it in perspective, of course, when we talk about moderating growth, that's coming off a 26% rate of growth in Q1.

I know its been extremely high. I appreciate that. My follow-up is on I&E could you give us a little bit of an update? I know its still pretty early, but help us understand what is going on with the pipeline and trials and so on.

Okay, first of all, advertising we think is going to be a big game changer in what this will market is as to how CapEx is spent and the capabilities of something that has ease-of-use and ease of deployment. I think, as you know and the people that were in Barcelona, we introduced this in Barcelona at Mobile World Congress, introduced only in Europe, for the time being. And what we said that we would undergo trials in the second and third quarter.

Those trials are beginning, not underway, but we have selected the participants. It's going to be two major European carriers as well as two customers. And our enterprise business partner is extremely excited about what this poses for them in Europe right now. And I think what we have seen in our conversations with the carriers we are very excited about the -- what we sell and is purported ease of installation and deployment.

So having an enterprise oriented sale and a wireless technology marries the two larger segments of us together in that sale. We think that's a great thing from our standpoint, to have coverage when we introduce this on a more global basis. But all in all, right now, we are on target with where we thought we would be.

We don't expect material revenue from this solution during the course of the first three quarters. And would expect orders to come later in the year. I think that's what we have been consistent with. It's not going to be a game changer for 2014, but we think for 2015, it's going to be a meaningful solution for us.

Would you launch it by the end of 2014 in North America, Eddie?

I think what we have said that we will launch it in other areas of the world as we get the bugs out in Europe. A lot of our support people are there, and so we want to have a successful launch, to make sure that make sense. And then we will launch it in other parts of the world, as appropriate.

Rod, we need to move on.

Thanks a lot.

Tal Liani with Bank of America Merrill Lynch.

Of morning. My question is about seasonality. I'm trying -- I have a few questions, but you grew 10.5% this quarter, and the last few years, you declined on a sequential basis. The last few years, you declined anywhere from 1% to 5%, and that's what I'm modeling actually, for the next few years.

So how much of this quarter's growth is project-based? Meaning, one-time project or some concentration of orders that caused such a big increase, or do I have my assumptions wrong and the seasonality could change in the first quarter? Thanks.

Seasonality, Tal, we're typically heaviest in the second and third quarter and lighter, a little bit later in the first and the fourth. And so overall, we do not expect a change in broad seasonal patterns.

But in response to your other question with regard to any major projects we don't have any major projects that we would point to in our revenue stream in the quarter. Any different from historically what we have.

I think in relation to wireless only, the work that we have done over the past several years to be more relevant to the end user, and the technological advances, I think we have made in some of the designs in our active wireless businesses, has helped us be in a position much better than what we were in the past.

So how do I see it in the numbers? Meaning is this -- is the growth related to LTE projects? What is the attach rate, not the attach rate, what is driving up the numbers in such a big magnitude this quarter?

Is it about certain LTE projects, global trend of LTE, or it's more about what you just said, which is you are selling new things into the same customer base? How do I fit in the numbers?

I think it is two different answers. In North America LTE is a key driver. And then the rest of the world, we are 70% 3G right now, and we are deploying full systems in 3G in other parts of the world. Not necessarily Europe, but other parts of the world.

We have talked about Ooredoo a lot, they are now a major customer in our definition, and theirs is a full 3G network that they are deploying in multiple places in the world. So that's a critical part, so some places will -- 4G will not be there for a long, long time. And so having the capability to support all of the technology is important to us.

And the last question about this topic is how much visibility do you have into the next few quarters, in the sense that this LTE cycle in the US or the cycles you have in Europe, I am not looking for guidance, but how long can they continue, and is it a new level from the Company which you grow normally from that level? Or is there some kind of cyclicality built into your expectations longer-term?

From a cyclicality standpoint we tend to think about wireless rolling out in waves of technology. And so, when you think about LTE being deployed now in the US, it is really now beginning in Europe, and outside the US, we had very good growth in the international markets this quarter, as well.

But we use the baseball analogy of being in the early innings of a major technology rollout, that maybe began for us 1.5, 2 years ago. And so we think that while US operators now are in full stride with deployment there's still a lot of room for densification and capacity additions there. We think voice over LTE is something that hasn't yet begun in earnest to affect the US spending, we see that as more of a 2015 phenomenon.

Outside the US we expect Europe to follow the US, as they have now begun with LTE deployments. And as Eddie has just mentioned, we see very good activity in 3G network modernization activities outside the US. In particular in the Middle East and Asia. We have Africa out there, too, as well as an untouched -- virtually untouched area with Nigeria beginning to show signs of life. It is broad brushed around the world.

Great, thank you.

George Notter with Jefferies.

Congratulations on a terrific quarter. I wanted to ask about manufacturing. Obviously, there is a lot of demand right now.

If I go back to two or three quarters ago, you were talking about closing up some manufacturing and rationalizing some facilities. Where are you in that? And then how are you dealing with all this incremental growth?

Are you adding capacity in certain areas? I'd just love an update on manufacturing and utilization rates, and how you are dealing with all this demand.

George, I think we have in specific about rationalizations in our North American coaxial cable manufacturing, which is both wireless and broadband. We have consolidated -- we're in the process of consolidating two facilities into one. Where in other parts of the world, now that's not a loss of revenue in wireless, because we are -- the coax is maybe going down and fiber is coming up -- so it is a neutral thing for us, but fiber is made in North America in another location.

In the other product areas, we are adding capacity, whether it people or redefining what the floor space is used for, so where demand supports building for the longer-term, we're certainly doing that. We're looking at needs that we have, more than just for this year, what may be coming, and we will adapt to that as appropriate and when appropriate. We're doing all that stuff that our people are excellent at doing.

We have done it every year I think in the history of the Company. As to making sure that we're in the right places.

Got it. Just one quick follow-up. I also wanted to ask about margins and profitability.

If I look at your guidance for the June quarter, I think it translates at the midpoint into roughly 22% operating margin. What you think about the sustainability of that operating margin? Obviously, the volume is helping you a ton, but what other things structurally are going on inside the Company that are new in the last couple of quarters, that might be helping you on that front, or is it just purely a volume story? Thanks.

George, we typically point to four drivers of margins. And first to your point is volume. As we grew 16%, a lot of that concentrated in wireless, we did great leverage from that, not only within manufacturing, but also within the SG&A areas.

The second factor is geographic mix. And we had a heavy mix of North American business, we were about 60/40 North America versus international markets in the quarter. That may moderate a bit, shift back to its more historical pattern of low-mid 50s in the US as European LTE and further 3G modernization occurs outside the States. And that can put a lot of pressure on margins as we move outside the US.

Solution selling is one of the keys for us though. And that is, we talk about solutions in the macro cell sites, and the tower top SiteRise solutions. In particular, in our small cell DAS solutions, and we see positive trends in those areas.

And finally is cost reduction, and that is something that is part of our bread-and-butter, and Eddied has already commented on some of the programs underway in broadband in particular. Those are the four drivers for us. And they can move the needle a little bit either way, but volume is one that over arches all of those.

Got it, thank you.

Mark Delaney with Goldman Sachs.

Congratulations on a good quarter and thanks very much for taking my question. I was hoping, first, you could elaborate a little bit more on the more recent question on how mix impacts the margins of the Company, and I'm hoping specifically you can help us understand the effects of growth in your DAS business, and how hopeful that can be to your operating margins going forward, if DAS increases as a percentage of total sales for the Company?

We have not quantified that before, Mark, but what we do point to, though, is across our three segments, broadband today is a component sale, and that is apparent in its relative margins. Enterprise has always been a solutions sale. And that has had margins that are literally twice the data points we can find in the industry.

And then wireless, you can really watch the evolution of that. Over the last three or four years we have expanded operating margins by 600 to 700 basis points, as we have been able to shift from being a component supplier to a solution provider, and that is both at the macro cell site as well as within the DAS business.

Eddie has commented on our ION-E solution that we believe will contribute to a higher mix of solutions sales within wireless. And we are optimistic as to the impact that can have on margins over time.

That is helpful, thank you and for my follow-up question, can you provide an update on inventory levels and distribution, and then what you're seeing in terms of order rates from the distributors?

Sure, our days of inventory, I think you're referring to the enterprise segment in particular, but our days of inventory in the channel are at normal, if not perhaps even a notch below what would be considered normal levels there. And that gives us encouragement around the enterprise business, hopefully being the start of a trend, as opposed to a one quarter event.

Thank you very much.

Mark Sue with RBC Capital Markets.

I was trying to get a sense of the breadth of some of the projects that you are seeing in Europe, that we are starting to deploy the LTE. Maybe across a range of customers, some color there. Just the ramp, and how we should think about seasonality in that region. Thank you.

I'm not going to talk specifically about any individual customer, Mark, but we are seeing, I think as the other Mark sitting next to me said is that this is a broad-based demand that we are seeing from many of our customers. We had large growth in Europe from select customers there that are among the largest, and we see that continuing. We are positioned very well with the people that are deploying LTE, certainly the ones that have done trials, and then the ones that are doing further deployments.

It is a different market for us. They have over 40 providers there. And so we have a coverage that is different than what we see here in North America, but we feel good about the prospects, we think our portfolio of what we have to sell them is appropriate.

Some things we have to adapt from what we sell here in North America for LTE, but all those things are underway. And our people are on top of what is necessary to see that growth, whatever that demand, and whatever pace it comes at.

Okay, that is helpful. Within data centers, still doing quite well with some of the copper and with the fiber. Maybe the mix between the two how you see the transition from copper to fiber, and the change in how we should think about that maybe, as we move to the balance of the year.

I think we said many times the copper part of the data center is declining relative to fiber, and that process is continuing. One of the benefits that we have in CommScope is the iTRACS acquisition that we made, is going to help us sell other things in that discussion. And it can be fiber or copper, doesn't matter.

Our Envision Intelligence within the enterprise market is also helping us have another dialogue, and we have merged the capability in the box that iTRACS sells now. That was done, I think, a couple weeks ago. And we think that is going to continue to bring traction certainly in the data center, whether it be an owned or co-located capability. So I think as Mark said, one quarter is not a trend, but what we see from our enterprise folks and what they are hearing in the marketplace and some of the recent wins that we've gotten for data centers around the globe, both in fiber and copper, is heartening to what we expect to see in the future.

That is helpful. Good luck gentlemen, thank you.

Jess Lubert with Wells Fargo Securities.

Congratulations on a nice quarter. A couple quick ones here, first, I had a follow-up on the wireless business, and with North American strength expected to moderate in the second half, I was hoping to better understand how we should be thinking about gross margin, and should that also moderate during the second half? And then if you can also comment on what, if any, benefit you're seeing from activity in China, what kind of remaining growth you are seeing from some of these 3G modernization efforts going on in emerging markets, that would be helpful.

And finally on the broadband business returned to profitability this quarter. I was hoping you could update us on your efforts to right size the cost structure there, and to what extent you still think you can get back to double-digit adjusted operating margins? And the timeline there, I think that would be helpful. Thanks.

That's about five questions. I will try to cover some of them. In broadband, I think that we're working hard to get to that level, I think, as I said earlier, it will probably take a few months longer than what we have anticipated, and as we got started late because of the sale of our BiMetals business. But I think they will exit the year close to that trend. And we will take the steps necessary to ensure that we get the maximum profitability out of the unit as we possibly can.

From a margin standpoint, Jess, we may have touched on that earlier, but when you look ahead to the next several quarters in the US, and we talk about perhaps moderating growth, again, that is off of a 26% growth in the wireless segment in Q1. So we don't expect to maintain 26 points of growth in the ensuing quarters, but we do expect to continue to see growth, certainly.

As the US carriers have shifted a bit from coverage to capacity, we talked about the importance that solutions play in our gross margin profile. And so that will be a positive. We see all of that again at the midpoint, we made the comment about 22% operating margin at the midpoint, and we are comfortable with that, as far as guidance for Q2.

Your last two questions, one is on China and how much impact does that have in what we're seeing as far as growth. I think we have been very clear repeatedly of what our position selling into the Chinese market is. We have relationships with all three carriers and both domestic OEMs that do business in China, and we sell to them.

We sell in a different -- not a broad-based approach there. Our expectation is that we will make a profit, and what we see certainly in cable is that's a very hard thing to do, so our cable business in China is small. Very small.

In the case of other things that go into the macro environment, we bid on all jobs. We win a few. But for the most part, that is a market that is highly price competitive, and from our standpoint, to a point that is not profitable.

So we are very selective as to orders that we take. We do maintain relationships with those customers, and they do buy in select areas, but it's not something that is a needle mover, as far as what we see in our projections. If the market shifted, certainly that would be different.

In the case of 3G modernization, we are well-positioned in that, with the carriers in the developing countries. Those areas that are dominantly 3G. We have talked about the solution sale with sectorization or factory-built sectorization of antennas up the tower, all the things that go on the tower. That is continuing.

As we said earlier we think that the experience that we have had with our Middle Eastern customers will be transferable to other parts of the world. So we're excited about that. We are agnostic as to the technology. We cover them all, and so we are happy to supply products or solutions to our customers, irregardless of what the need is.

Thanks, Jess. We need to move on here.

Kulbinder Garcha with Credit Suisse.

Two of my questions have been addressed, but there is one maybe that -- to put the outperformance in revenues, versus some of the infrastructure companies in perspective. It doesn't look like they are going to grow much more than 5% or 6% this year. You're clearly going to grow faster than that. You clearly did in Q1.

In terms of the additional let's say wallet share that you are having, is that a market share shift against your traditional RF type competitors you're seeing. Is a mix shift within CapEx, which means you are outperforming it, or is it just all the solutions, comments you have made. Can you try and break that down or I'd be curious how you would answer that.

My other question is just on the guidance for this year. Even if I put in the 20% op margin with 10% sales growth, your guiding for op income to be down in the second half.

Given your order book, given that you talk about this being a multiyear technology investment wave, it just feels very conservative. I would be curious about your comments there. Many thanks.

I will answer the easy part and the answer is yes. We think that we have gained share, we think that our solutions that we have today puts us in a unique spot, given what the customers are wanting right now. And we think that all of the money that we have spent on technology in the past years and developed new products, certainly, for the outdoor side, and now coming with indoor in Europe with I&E is creating a lot of dividends for what we have done in the past.

This is not something that we think is a flash in the pan, we have worked hard at it. The relevance that we have with our customers is certainly different than what we have seen over the past years.

And as I said, we plan to build on that momentum. And I will let Mark answer the second question.

Kulbinder, as far as the guidance for the full year, I think I followed your comment. I don't know that we gave it in specific enough terms to get it down to a first-half versus second-half comparison of an operating income margin, but we have expanded nicely, as you know, up over 500 basis points over the last three years. We have continued to expand margins for the factors I had addressed previously in the first quarter, and it will be the mix of those factors as we move through the year, that will continue to drive our op income margins. So we remain optimistic.

Steven Fox with Cross Research.

My two questions are as follows. First of all, can you talk about the book-to-bill by business segment, at least relative to the corporate average that you talked about? And then secondly, can you give us an update on the two small acquisitions that have been a slight drag on earnings, what kind of progress you're making there in improving profitability and sales growth.

I'll take the last part of that Steve. And then Mark can talk about the book-to-bill question.

We are still excited about what iTRACS and Redwood offer us. We are getting traction in both. I guess the one thing that we underestimated was the sales cycle and how long it takes from introducing ourselves to actually closing a transaction, and so we have adjusted to that. And so things will come at a slower pace than anticipated at least early on.

It has -- it has created a lot of excitement in being able to talk about these two capabilities to our enterprise customers, or to our broadband customers that happen to use enterprise products. So that's all good. So we are still investing, but less, and we think that we will be on track to see growth in the second part of the year. Maybe not to the level that we first anticipated but certainly directionally correct. And are excited about that.

I think the other one that we don't talk about as much maybe is data center on demand, we're seeing a lot of interest in that, for this modular data center capability that we have, and we expect those three, within the enterprise market, to be big sales increases for us in the future.

Steve, relative to the book-to-bill ratio, it was nicely above one for each of our three segments in the quarter. We continue to see that trend as we begin the second quarter.

Operator we've got time maybe for two more questions.

Matthew Hoffman with Mizuho.

Our calculations shows both inventory days and DSOs up sequentially and year-on-year. Are those metrics that need to increase to support the much higher order book, or is there some one-time effects in those working capital items that might cause the growth in days to level off, even if sales continues to expand. Thanks.

Thanks for the question Matt. With respect to DSOs, you are calculating them, of course, off the face of the balance sheet. We do a little bit more scientific calculation internally, but we calculated 66 days at the end of the March quarter.

Which is down about two day's from the end of the December quarter, and about four days favorable to the year-ago period. And so our days of sales are more driven geographically, so they are down a bit, largely because of a little bit heavier mix of sales coming from North America.

And with respect to inventories, we turn our inventories about 5 times. We carry a little over two months inventory on hand, and that profile has really been steady for us now over quite a lengthy period of time.

Good, thanks for the color. And you have given I guess a 60/40 split on North America versus the international component. You may not want to do it, that I will ask anyway, would you like to break down the components into -- you made it sound like wireless obviously was a driver there, but can you talk about the enterprise and broadband splits too? Thanks.

We don't typically disclose quite that level of detail, but as you know, Matt, our broadband business is a little bit more US-centric, and the other two segments tend to follow more the corporate average.

Thank you.

Mark McKechnie with Evercore.

The horse has fully not been beaten yet on the Q&A but I've got a couple here for you. Congrats on the numbers. But first is, you have talked about 3G as being 70% of your international business, still.

Can you break out how much is 3G versus 4G in the US? And when you talk about your double-digit growth for the year, are you anticipating a 3G fall off and acceleration in 4G overseas?

And then second is, Nokia talked about component tightness that constrained some of their shipments in Q1, and into Q2. Given that ramp, are you seeing any of that, either with your own products or with any of the other products that go into these networks? Thanks.

The last one is a very good question, and the first one, I think the 70% numbers are our total wireless business, it's not just not North America, so I think you can see by that, the bulk of the world outside of North America is still primarily 3G. Even in Europe, for the most part, except in urban areas. I don't think we break out in the US. I don't have that number with me as to what that breakout would be, but 4G is predominantly what we are selling today going forward. And if it's important, we can get it to you after the call.

And the question about components is a good one. I think China's gobbling up a lot of components that are out there because of their build. We have seen delays or been notified of delays, we have adapted to that, and generally have coverage. We don't think right now it's going to be concerning to us.

We have -- we buy a lot from a lot of different people, and so we have feelers out to make sure that we can access components. It may cost us a little more, but that's not a material cost increase, but we don't see anything right now that stops us.

And I am sure that Nokia Siemens, they buy lots more than we do, and the complexity of their products is generally different, and so they probably see this, as do other electronic companies like that. So we are making do, our supply team has been hard at work at this for some period of time. And we have something that is workable for us in the near to medium term.

Eddie thanks. Definitely a high-class problem, but can you share with us, is there anything specific that might be tight or is it a bit more broad-based?

We don't want to share that.

Perfect thanks.

Thanks for your call, man, and Eddie, any final?

We had a lot of questions, good questions this morning. We appreciate it. We're very happy at the quarter we turned in.

And we are equally excited about the guidance that Mark has given you for Q2. And we look forward, as I said earlier, to building on this momentum, and appreciate your interest and your time. Thanks very much.

Thanks all.

Ladies and gentlemen this does conclude today's conference. Thank you all for joining and you may all disconnect.