CommScope Holding Company Inc (COMM) 2015 Q2 法說會逐字稿

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

(Operator Instructions)

I would like to turn the conference over to Jennifer Crawford, Manager of Investor Relations. Ma'am, you may begin.

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

Before we began the presentation, I will cover a few housekeeping items. On slide 2, you will find our cautionary language related to forward-looking statements. During this conference call, we will make forward-looking statements regarding our financial position, plans and outlook that are based on information currently available to management, management's belief 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 second quarter 2015 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. Please note that all dollar figures and percentages are approximations. In addition to GAAP information, we will provide certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides additional meaningful information to investors. Detailed reconciliations of GAAP to adjusted measures can be found in the appendix to our slide presentation.

Slide 3 is our agenda for this morning. Mark Olson will provide 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 quarter. He will then turn the call over to Eddie Edwards for an update on a planned acquisition of TE Connectivity's Broadband Network Solutions business, which we will refer to as the BNS business. Finally, Eddie will make some closing comments before we open the line for Q&A. To make sure everyone has the opportunity to ask a question on today's call, we request you ask one question and return to the queue for any additional questions. I will now turn it over to Mark Olson. Mark?

Thanks, Jennifer and good morning, all. Let's turn to slide 4 for a summary of our second quarter. Sales in the quarter were consistent with our guidance of 5% sequentially to $867 million but down 19% year over year from the unusually robust second quarter of 2014. Growth in the Broadband and Enterprise segments was offset by lower North American Wireless sales. Additionally, foreign exchange rate changes had a negative impact of approximately 3% in the quarter compared to the prior year period. Orders were $844 million during the second quarter which provided a book-to-bill ratio of 0.97 times. GAAP operating income for the quarter rose 18% sequentially to $109 million but declined 46% year-over-year. Adjusted operating income, which excludes the amortization of purchased intangibles, costs associated with the BNS acquisition and other special items, was $176 million, up 12% sequentially but down 32% year over year. For the quarter, the Company reported net income of $46 million, an increase of 63% year-over-year. Excluding special items, non-GAAP adjusted net income was $95 million or $0.49 per diluted share which was consistent with our guidance for the quarter. Our operating performance declined year-over-year due to weaker North American Wireless results, partially offset by revenue growth and margin expansion in both the Broadband and Enterprise segments.

I'll now discuss each of our three segments second quarter performance starting with the Wireless segment on slide 6. In Wireless, we are the global leader in merchant RF wireless network connectivity solutions, metro cell solutions and small cell DAS solutions. Our solutions which are marketed primarily under the Andrew brand enable wireless operators to deploy macro and metro cell sites and small cell DAS solutions to meet 2G, 3G and 4G cellular coverage and capacity requirements. Wireless segment sales rose modestly sequentially to $515 million but declined 29% year-over-year from the unusually strong second quarter of 2014. The year-over-year decrease was primarily due to lower spending by certain North American wireless operators. Foreign exchange rate changes also negatively affected Wireless sales by 5% in the second quarter of 2015 compared to the prior year period.

Wireless sales were lower in the Europe, Middle East and Africa region partially offset by higher organic sales in the Central and Latin America and Asia-Pacific region. Our Alifabs acquisition which was completed in July of last year, contributed approximately $9 million of incremental sales during the second quarter. In the quarter, Wireless adjusted operating income was $103 million or 20% of sales. We are pleased with the 20% adjusted operating margin despite the mix shift towards international sales and what we believe are trough spending levels at a certain domestic wireless operator. As we have previously highlighted, extraordinarily strong North American sales in the first half of 2014 were an anomaly. Based on current wireless operator spending expectations, we believe that the third quarter 2015 performance will be consistent with the second quarter of 2015. We continue to expect the second half of the year to strengthen over the first half but only modestly. However, we expect longer-term demand for our wireless products to be positively affected by wireless coverage and capacity expansion in emerging markets and increased spending on network densification in developed markets.

Moving to slide 7, I will discuss our Enterprise segment. We are the global leader in enterprise connectivity solutions for commercial buildings and data centers. Our comprehensive solution sold primarily under the SYSTIMAX and Uniprise brands, include optical fiber and twisted pairs 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% sequentially and 2% year-over-year to $222 million. Sales increased year-over-year primarily driven by strong sales of data center fiber solutions and growth in the Asia-Pacific and Europe Middle East and Africa regions, partially offset by a modest decline of sales in North America. Foreign exchange rate changes had a negative impact of approximately 1% on Enterprise segment sales for the second quarter of 2015 compared to the prior year period.

In the quarter, Enterprise adjusted operating income increased 27% year-over-year to $55 million or 25% of sales. The increase is primarily due to higher fiber sales and lower material costs. We are pleased with another solid Enterprise performance and are proud of our position in the market. We remain confident in our long-term growth opportunities and we believe will be enhanced by the BNS acquisition which provides us with a robust fiber portfolio that will enable us to offer broader solutions to better serve our customers.

I will now turn to slide 8 to discuss our Broadband segment. We are a global leader in providing cable and communications products that support the multi-channel 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 coaxial networks and a leading supplier of fiber-optic cable for North American MSOs. Broadband sales increased 11% sequentially and 6% year-over-year to $131 million. Sales increased year-over-year primarily due to increased investment in North America as cable operators continued to expand fiber technology further into their networks to increase the quality of video and broadband offerings. This growth was partially offset by lower sales in the Central and Latin America region. Foreign exchange rate changes had a negative impact of approximately 1% on Broadband segment sales in the second quarter of 2015 compared to the prior year period.

In the quarter, Broadband adjusted operating income increased meaningfully year-over-year to $17 million or 13% of sales. Adjusted operating income increased primarily due to higher sales volumes, lower material costs, a favorable product mix and the benefit from ongoing focus on cost management. Our Broadband team delivered another strong quarter. We expect demand for our Broadband segment products to continue to be influenced by competition among service providers, ongoing maintenance and upgrade requirements and activity in the residential construction market. Additionally, we believe the BNS business will further strengthen our broadband business by providing leading fiber to the x technology. While we are very pleased with Broadband's profit improvement, we do expect a greater impact of sales related to product pruning in the second half of 2015 but continue to expect to manage the business at double-digit adjusted operating margins.

Next I'll discuss cash flow and liquidity on slide 10. During the second quarter, CommScope generated $72 million in cash from operations, invested $9 million in capital expenditures net of spending related to the BNS integration, and paid $12 million in transaction and integration costs primarily related to our planned acquisition of the BNS business. We expect to generate cash from operating activities for the remainder of the year. Adjusted free cash flow for the 12 months ended June 30, 2015, was $393 million which was positively impacted by the timing of interest payments. We ended the quarter with $793 million in cash and cash equivalents and had availability under our credit facility of $319 million, which combined with our cash balance, provided total liquidity of over $1 billion.

On slide 11, I'll discuss out capital structure. During the second quarter, we raised an incremental $2.75 billion to finance, together with cash on hand, our planned BNS acquisition. The financing is made up of a $1.25 billion 7.5 year term loan at LIBOR plus 300 basis points with a 75 basis point floor and a $1.5 billion of 10 year senior unsecured notes at 6%. Additionally, we refinanced a portion of our existing term loans with new $500 million 5 year senior secured notes at 4 3/8%. We are very pleased with the attractive rates we obtained and significant flexibility this long-term capital structure affords us.

Finally, I'll cover our outlook on slide 13. Our guidance excludes the impact of the planned acquisition, amortization of purchased intangibles, restructuring costs, transaction and integration costs and other special items. Our third quarter outlook assumes relatively stable business conditions. For the third quarter, we expect revenue of $850 million to $900 million, adjusted operating income of $160 million to $180 million and adjusted earnings of $0.45 to $0.50 per diluted share.

Because we have not yet seen tangible signs of increased spending by certain North American wireless carriers, we assume revenue will follow normal seasonal trends in the fourth quarter. As a result, on a standalone basis, we expect full-year 2015 earnings of $1.80 to $1.90 per diluted share, assuming stable business conditions. We intend to provide combined Company guidance for the fourth quarter following the close of the BNS acquisition which, as Eddie will discuss, is expected within the next few months. We also plan on giving a full review of the combined Company at a Company hosted Analyst Day in early 2016.

With that, I'll turn the call over to Eddie to discuss the planned acquisition progress and thoughts on the quarter before the operator opens the call for Q&A. Eddie?

Thank you, Mark. Turning to slide 15, I will give you an update of the progress of our planned acquisition of the BNS business which we announced in January. During the quarter, both the CommScope and BNS teams have worked diligently toward the close of the acquisition. We've established a foundational capital structure as Mark has just pointed out, cleared more regulatory hurdles and completed additional integration planning. We're excited to be working with the BNS team led by David Redford who will be leading the CommScope Connectivity Solutions Group following the close of the acquisition. Based on our ongoing work, we have increased the confidence in our ability to create cost synergies from the date we have first talked about it.

On the regulatory front, the European Commission recently granted unconditional clearance to our proposed acquisition. Also pleased to announce that China has unconditionally approved the proposed acquisition as of yesterday. While we're still in the midst of antitrust regulatory process in a couple of other jurisdictions, we currently expect the acquisition to close within the next couple of months subject to remaining regulatory approvals and other customary closing conditions including finalizing details with the seller. I want to thank the global CommScope team for strong sequential performance that was consistent with our outlook for the second quarter of 2015. We executed on our outlook despite slow spending by certain domestic wireless operators and foreign exchange rate headwinds. Additionally, we are pleased with the continued strength of our Enterprise business which benefited from fiber growth in data centers. And we're proud of our Broadband team which delivered significant margin expansion over the last few quarters.

As previously highlighted, we continue to believe the North American wireless carrier spending will modestly strengthen as the year progresses. As we have noted many times, our quarter-to-quarter Wireless business can be lumpy. However, we believe continued global investment in LTD coverage (technical difficulty) and capacity over licensed spectrum over the long-term. As a result, we remain confident in our long-term growth prospects. We remain very excited about our planned BNS acquisition. We believe that the networks of the future will be dependent on wireless and fiber so the acquisition positions CommScope well for the long-term. It creates enhanced scale with a combined diversified portfolio that's ideally positioned to take advantage of fundamental changes in the marketplace. We will be a more diversified organization that can weather challenges in any given segment or geography.

It also positions us to solve more customer challenges and deliver more innovative solutions. We will become a leader in fiber-optic connectivity for wired and wireless networks. Overall, we remain focused on positioning the Company for long-term success by delivering profitable growth while managing cost effectively. Now, I'll be happy to turn to answer any of the questions you may have and I'll turn it back over to Jennifer, our operator.

(Operator Instructions)

Amir Rozwadowski, Barclays.

I was wondering if we could talk a bit more about the environment that you're seeing in the US? When we think about what's going on in terms of spending allocation, certainly you folks had highlighted in your prepared comments that there is been some softening among specific wireless carriers. How should we think about the demand curve? Is anything going on from a structural perspective that you see with the networks where allocations are going to other areas away from the products that you provide? Or is this a pause in spending that you do expect an ultimate recovery in terms of the kind of investment that we've seen previously in order to support initiatives around data growth and stuff along those lines?

I think the question I'll answer in two parts. One is, we have a carrier making final decisions as to what their deployment plan is going to be. We are well-positioned there and I think that those answers will be known in the near-term. I think we would expect orders to come toward the end of the year assuming those decisions are made. In the other large carrier, we think that their spending has been impacted by what we saw as a very, very strong 2014. While we did our normal testing with various parts of the business, their spending patterns have been different than what we understood. We also think that there is a move to the wireline part of the business somewhat. I think what we've seen from BNS and from others in the fiber to the x market of late, those spending trends are expected to grow during the back portion of this year and into 2016.

We don't feel there are any structural changes over the long-term that we see, both from our Wireless standpoint where CommScope currently covers. We do however, anticipate that there is going to be growing these for fiber infrastructure, I think that fits well with what our new acquisition is going to give us. I think is consistent with what we've heard in the last days of expectation of subscriber growth, our subscriber additions in many of the markets because of regulatory reasons. So we are excited about the long-term. We are excited about having a business that in the very near future will be less lumpy. That will be something that hopefully we are able to not use that word as much in the future. And so we look forward to the coming months to get this behind us.

Thank you very much for the incremental color.

Brian Modoff, Deutsche Bank.

I've got a couple questions for you. Can you talk about the other markets? Obviously North America, as you've been saying for awhile has been weak. But what are you seeing in some of the emerging markets in Europe? And then with regards to the deal. It sounds like most of the major regulatory agencies, if not all of them, have approved the deal. So do you really see any further issues outside of the paperwork or processing, the few remaining authorizations that you need?

The first part, the rest of the world I think is pretty consistent with what our expectations were. We're seeing a lot of strength in India. It's come back to, maybe not to where it was a few years ago, but it is strong and we're well-positioned there. Indonesia we've talked about, Miramar as well, the Philippines are all good markets for us today. That part of the world is strong. The other parts of the world outside of Wireless where we compete are good as well. Europe continues to be a good place of business for us as the carriers are starting to build out. It has some fluctuations just like the rest of our Wireless business but it is a growth engine for us.

The transaction timing, we are not finished all of the places. We do have a few left to go. I think some major ones are done. We don't envision any problems there. I think a lot of the work has been completed. From our standpoint, at least my standpoint, it is a lot of cleanup left to do to get the approval processes finalized and that is something that is not in our control. So we have to get it done. We do have other customary things that are dealt with in these transactions. We are finalizing our agreement with TE and so those sort of things are left to the last moment. I'm sure you understand. And so we are working through those. We don't see any stoppers today. Everything is going pretty much as anticipated. I think the promising thing, the factories that we visited, all the people we've talked to, were very enthusiastic about the capabilities of what the BNS people bring us and very excited about starting to work on these synergies. It's going to be a lot of work but we are very excited about what we see.

Great. Thank you.

Jess Lubert, Wells Fargo.

Two questions. First, on the BNS deal. Given some of the strength we're hearing about in the fiber market, TE's own restructuring efforts and what seems like an earlier than expected close, would it be reasonable to think the accretion of the deal might be higher than originally expected?

Jess, there's comments we field fairly frequently around both our outlook on cost synergies and around accretion. The comments that you just made as to what could drive the second one in particular is a valid point. At this time, until close the deal, we aren't going to give any updated quantifiable outlook around either synergies or accretion. But as Eddie had noted, everything that we have seen here since we announced the transaction is a positive.

And then I was hoping you could update us on what you were seeing the DAS business? If that segment saw similar trends to the broader Wireless segment? How you're thinking about that into the second half? Perhaps you can update us on where you are in the rollout of ION-E, some of the challenges there, how impactful that product could be over the next 6 to 12 months?

Okay. I think DAS is impacted in North America no differently than the macro environment. Several of our customers are spending as normal. One is not and so, that is impactful to us. The rest of the world is business as usual. Of INE, we have some rollouts in Europe, as we've talked about earlier. Not to a high level yet. In the US, we have a couple -- we have one install underway right now and we have another one very soon that will happen of size. It has taken us a lot longer. We do not yet have approvals in North America. That is impacted by a couple of different reasons. We do think it is going to be a game changer in the marketplace from what we have seen. The reaction of all the bodies that have used this, so far, are very impressed at the ease of deployment. We do expect during the course of the balance of this year and early next year, that that will be a meaningful product for us.

And Eddie, is DAS still about 20% of the Wireless business? Is that the right way to think about that?

It still remains about 20%.

Thanks, guys.

One thing I'd like to clarify. I had talked about the approvals. We now have India as we sit here. This is real time. That is good to hear.

Can you tell us the ones that are remaining?

Very few.

Thanks.

Rod Hall, JPMorgan.

Thanks for taking my question. This is Ashwin on behalf of Rod. Mark, my first question is for you. How much of an FX headwind are you factoring into your Q3 guidance? Eddie, one question for you. I think you said that in the Enterprise segment demand was weaker than expected in North America. I was hoping you could shed more light on it. Is it more limited to any customer verticals or is it weakness pretty much broad-based? What are your expectations heading into Q3 in the Enterprise segment in North America?

To respond to your first question, when we provide guidance with respect to foreign exchange rates, we typically model them at current rates. For the third-quarter, that would yield an approximate 3% top line impact consistent with what we saw in the first and second quarters.

And I think in the second question, Mark said a modest decline. I think the North American market on the copper side is weaker than what we are seeing in fiber and fiber growth. That is another good reason for this acquisition. Our business today is two-thirds the buildings and one-third the data centers. That mix will shift during the course of the end of this year. I think the primary thing from our standpoint is the Enterprise margins that have held up are very -- we are very proud of what our team has done. We are very proud of the expectation of customers in the quality of our product.

It sounds like you're expecting continued weakness in the North American Enterprise market on revenue front. But it looks like your margins may hold up at current levels. Did I read you guys correctly?

We expect continued growth actually in both the US and the international markets with respect to Enterprise. We had a very modest down tip in the second quarter in the US but nice growth in the international markets for Enterprise. And we expect to see growth in both of those markets in the second half of the year.

What about margins?

From a margin standpoint, we are running at 25 points a margin, which from an operating margin standpoint in Enterprise, that's at the high end of the range. Typically, we have operated more in the low 20s. And from an outlook standpoint, I would encourage you to think more around historical norms than a repeat of what you saw here in the second quarter.

Great. Thank you guys.

Kulbinder Garcha, Credit Suisse.

Just my main question is on the Wireless business again. You have disappointed expectations now for the best part of a year. As you look at that business, can you speak about what you see the long-term growth for is full stop or for the industry, however you want to talk about that? This second thing is to clarify. You said this was a tension, more of a push out I think in Q3 to Q4, but you are taking your full-year guidance down. Assume this got pushed into 2016 as well or is it lost to you permanently? I just want to understand how it might impact 2016 numbers as well. Many thanks.

Thanks for the question, Kulbinder. Any discussion around Wireless is one that should be had on a global basis. We are very pleased to see continued organic wireless sales growth outside of the US and we expect that that will continue. With respect to North American carriers, in simple terms you should think of Wireless growth as being above trend last year and below trend this year and moving back on trend in 2016. That is the nature of the volatile Wireless business. As we had talked before, we don't see any fundamental change in the foundational drivers behind Wireless growth over the long-term.

Okay, great. Can I just clarify one thing on the cost side with respect to the TE connectivity transaction? You guys have identified potentially more cost and we'll get an update on that at some point in later days? Is that what you're trying to inform us? You've obviously got this synergy target. I'm just wondering is there going to be an opportunity to upside that and we'll get our communicate at a later stage?

I think as we said earlier, we are going to talk about that after the acquisition. We have not had absolute openness from the standpoint because of our competitive nature with the BNS business. As we've said though, we do feel very comfortable with what we've seen, the questions we've asked and the answers given. We have a lot of work to do. These synergies, they just don't fall in your lap. We have a lot of work to accomplish the goal we set. Our expectation would be, is we'll set another target that's going to be harder to achieve, which we've historically done. But we'll talk about that later. I think we need to get this transaction closed and then we can be more precise with you.

Okay, thank you.

George Notter, Jefferies.

You were talking about the North American Wireless spending environment. There is a move among one of your larger customers here into Mexico. Can you talk about your exposures there? Is that something that creates some new grow opportunity for you? How do you see that?

We're well-positioned in Mexico.

Okay.

It is incremental, I think, from the standpoint of a new possibility. The operator knows us well, has a high regard for what we provide to that market and we are well-positioned currently with what they are doing.

Just around that same operator. How do you feel about inventory levels? Do you feel like inventory levels are normal and they're just grinding slower as they contemplate these new strategic initiatives? Can you talk about how you feel on inventory? Thanks.

It is less than it was. We feel okay. They still have a little bit to work through with the turfs but I think that's manageable. I think we probably overestimated or underestimated that at the start of the year. We think we have it well in hand now. I think that also leads to what we see for the balance of the year and the guidance that we've given. So I think everything is solid in there as to what they're selling. There is no issue there. It has taken us longer to work through it than we'd anticipated.

Relative to your expectations for Wireless spending previously in North America, is it fair to say, and this is -- is this a one customer issue? Is it a two customer issue? How do you view it?

George, we would probably look at it as a one customer issue and a one customer opportunity. You've got half of the major US carriers that are spending at normalized expected levels. One that we just finished our discussion around in the fourth that would be, in our view, an opportunity. Eddie gave a little bit of color on that earlier in the call as far as signs of life there. No orders in backlog just yet but expectations are that that situation may improve as we move into the back half of the year.

Great. Thanks, guys.

Simon Leopold, Raymond James.

Just wanted to talk to you a little bit about your commentary on the fourth quarter trending. I believe in the prepared remarks, you suggested you thought you'd see normal seasonality. But when I think of the midpoint for the September quarter, it appears that the December quarter should be closer to flat sequentially by implication unless those margins improving or OpEx is coming down. I was just wondering -- I tend to think of that fourth-quarter sequential move as normally a negative 5%. I wonder is at the right number? If you could clarify what you mean by normal seasonality for the fourth calendar quarter?

Actually Simon, you are spot on. Mid single digits historically, has been the sequential decline fourth quarter versus third. And that is what we are seeing right now absent any return to more normal levels as we've discussed with a couple of North American carriers.

And so to achieve the midpoint of your earnings guidance for $1.80 to $1.90 would suggest either OpEx or gross margin has to improve if sales are down mid single digits. Is that an inaccurate assessment?

Well, you have seen us continue to manage our cost base as we move through a somewhat difficult time here in the North American Wireless market and we will continue to do that as necessary to achieve earnings.

And then just one longer-term question. I believe it's longer-term. Earlier this year, US operators bid for the AWS spectrum and it takes some time for that to become available for them to utilize. What are your current thoughts on the project activity related to AWS in terms of timing and contributions to your business? Thank you.

I think it's going to be at a different pace for each one of them. I think some of the people are spending today while the others probably will do it over the next couple of years. So it's going to be a mixed bag. It will improve the business overall as they transition to these other frequencies. It's nothing there at a great volumes right now but it will be coming.

Great. Thank you for taking my questions.

Shawn Harrison, Longbow Research.

A clarification if I may before the other question I have. On Enterprise, just wanted to be clear. Your performance in the quarter being down in North America, which looks to have underperformed LAN side, that was more on the site side of it versus some type of inventory destocking in the channel or anything else and the view is that the North American aspect of the business sees growth acceleration into the back half?

Yes, the decline that we had referred to, Shawn, is very modest in North America. And so that -- we expect will turn to growth in the second half of the year. Keep in mind that two-thirds of that business is LAN, the other third is data center. The data center side of that is growing. It's the LAN side that has a bit of pressure. And while you didn't ask, on the international side, we do continue it to expect to see growth in the second half in the Enterprise business.

And the bit of pressure on the LAN side, is that just a lack of non-risk construction activity or is there market competition occurring?

Of course, there is competition there but we attribute that to more the lack of non-res construction.

And the followup I had, in terms of the carriers, we've gone through a lot of it. Historically, you have been stronger with two carriers, not as strong with two others. There's been talk of opportunities on the two carriers you haven't been historically as strong with accelerating growth. Is there an opportunity for you to gain market share with them in the back half of the year or do you expect more of a status quo share dynamic?

I would first challenge your premise. Our relationship with certainly the larger carriers in the US is, we think, the leader. And we think it continues to be the leader. We don't see any degradation of the wallet that we have with any of them. I think Mark mentioned we have opportunity with one that has historically been more OEM oriented. So we see that as a potential upside. I think the relationships that we have at all of them is at the top of what they consider a provider or vendor or partner being. So I think we see no degradation in our market position. I think it's the volume in the market is the driver of what we saw during this quarter and what we see for the balance of the year.

Thanks, Eddie.

Mark Sue, RBC Capital Markets.

Good morning. Thanks for taking our call. This is Spencer for Mark Sue. Can you talk just a little bit about some of the moving parts and some put and takes and how you're getting to the $1.80 to $1.90 versus the previous expectations? Following up, more broadly, can you talk a little bit about trends that you're seeing in the data center? Thank you.

Sure, Spencer. On the moving parts, you've heard us discuss our outlook on revenue from certain other factors, whether it be foreign exchange rates. We have commented on that. We don't expect an appreciable difference in our tax rate for the second half of the year. All of this of course, is CommScope on a standalone basis without benefit of the BNS acquisition which we expect to close here within the next few months. Without going line by line, I think that kind of captures the headlines as far as what our outlook is for the second half.

Okay.

I think in the data center, the trends are trending more towards fiber. The trends in the market with a hyper scale data centers are growing more rapidly, I think, than the old ones. That will be a strength of BNS is that that is where they operate more so then where we do. So I think together, we'll have both sides of the data center growth covered.

Great. Thanks very much.

Tim Quillin, Stephens.

Good morning. Thank you for taking my call. I know you don't own the BNS business yet, but I wonder if you could just comment on the trends that we are seeing there over the course of this year. It looks like year-to-date revenue is down 9%. What are the factors that are driving that decline?

The single biggest factor which accounts for the predominant, if not all, of that decline is foreign exchange rates. So when we talk about one of the benefits of the transaction being geographic diversification, you are seeing it here in the impact that FX has on the BNS results. They are more exposed to the international markets and sell more in currencies other than the dollar. That is what your seeing predominantly as far as the impact on revenues.

Okay. Second question, as some of your wireless operator customers work on network densification, how are you seeing the shakeout between your DAS technology versus other small cell, more femtocell technologies in supporting those densification efforts. Thank you.

I think DAS is still the largest part of that. In the microcell we have products that are very similar to what we sell in the macro environment. I think we have that well covered. I think that in the small cell, whatever that is, is identified. It's not a market that we play in exactly in the lower end of that. We are looking at opportunities to participate in that marketplace. As I think I've said many times, we have an active acquisition process here at CommScope. We are looking at ways to fill gaps as necessary. If that becomes something we need to do, then that is the area that we will attack.

Thank you.

(Operator Instructions)

Simon Leopold, Raymond James.

Just a real quick one. Interest expenses are moving around a bit with the debt restructuring. What do you expect net interest expenses will be in the third quarter?

Simon, the incremental interest that is driven by the $2.75 billion of capital that we've just raised, is approximately $12 million per month. About $35 million, $36 million per quarter.

Thank you.

And we have no further questions in queue at this time and I would like to turn the conference back over to Eddie Edwards for any closing remarks.

Thanks, Jennifer. Thank you for all the continued support for CommScope. We appreciate your interest and look forward to talking you next quarter.

Thank you for your participation. This does conclude today's conference call and you may now disconnect.