CommScope Holding Company Inc (COMM) 2021 Q4 法說會逐字稿

Hello. Thank you for standing by, and welcome to the CommScope Fourth Quarter 2021 Results Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Russell Johnson, Vice President, Investor Relations and Treasurer. Please go ahead.

Good morning, and thank you for joining us today to discuss CommScope's 2021 full year and fourth quarter results. With me on today's call are Chuck Treadway, President and CEO; and Kyle Lorentzen, Executive Vice President and CFO. You can find the slides that accompany this report on our Investor Relations website.

Please note that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.

Before I turn the call over to Chuck, I have a few housekeeping items to review. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website.

All references during today's discussion will be to our adjusted results. All full year and quarterly growth rates described during today's presentation are on a year-over-year basis, unless otherwise noted.

I'll now turn the call over to our President and CEO, Chuck Treadway. Chuck?

Thank you, Russell, and good morning, everyone. Today, I'd like to start with a review of our 2021 full year and fourth quarter business highlights. Then I'll provide an update on our Home Networks spin-off as well as CommScope NEXT. After these opening remarks, I'll turn the call over to Kyle, our CFO, to provide more details regarding our annual and quarterly financial performance. Finally, I'll conclude today's presentation with some additional insights on where CommScope is heading next.

I'm now on Slide 2, starting with annual highlights. For full year 2021, consolidated net sales were $8.59 billion, a 2% increase over the prior year. Consolidated adjusted EBITDA was $1.12 billion, an 8% decline over the prior year. Core CommScope, which, as a reminder, excludes our Home Networks segment, grew sales by 12% versus prior year to $6.74 billion. We achieved this annual top line growth in our consolidated and core business despite significant supply chain-related challenges. Adjusted EBITDA at core CommScope grew about 1% to $1.09 billion.

Turning to the quarterly highlights. For the fourth quarter, net sales for consolidated CommScope were $2.22 billion, up 4% year-over-year, while adjusted EBITDA of $261 million declined 28%. For core CommScope, net sales in the quarter were $1.75 billion, an increase of almost 13%. Fourth quarter core adjusted EBITDA of $254 million declined 21% compared to the prior year as supply chain challenges and input cost inflation significantly impacted profitability.

Our largest business segment, Broadband Networks grew new sales 1% quarter-over-quarter. We saw strong quarterly growth in our Outdoor Wireless Networks segment, up 27%. Our Venue and Campus Networks segment also had a positive quarter, growing at 24%. And in our Home Networks business, which has the most exposure to the ongoing disruption in semiconductor supply, sales declined 18% during the fourth quarter.

I want to emphasize that our entire business was pressured by supply chain disruptions and input cost inflation during 2021, and these pressures remained high during the fourth quarter. Shortages of semiconductor chips have been a major constraint on sales volume across CommScope, with the largest impacts felt in Home Networks, RUCKUS and the active cable hardware product lines within our Broadband segment.

We've also experienced significant inflation in commodity and freight costs, which worsened in the fourth quarter. However, as I noted in our third quarter earnings call, we have responded to these inflationary pressures by undertaking a comprehensive set of price increases, and we are making very good progress in this area.

Taking current input cost levels as a baseline, we expect our pricing actions to recover all of the inflationary cost increases we have experienced by the end of 2022. The P&L impact of raising prices should build gradually through 2022 and then accelerate in the second half of the year.

I'll now share my perspectives on some key factors and trends that drove our business segment performance during the quarter. In our Broadband Networks segment, we saw modest fourth quarter growth overall but considerable diversity in business unit results. The strongest performance came from our Network Cabling and Connectivity business, which grew over 23%.

Within our Network Cabling and Connectivity business, we continue to enjoy the strongest demand environment we've seen in many years. Major telco and cable operators are ramping up fiber expansion investments in order to achieve network efficiencies, pass more homes and compete for customers with faster service. This strong multiyear CapEx cycle is receiving additional support from U.S. and international government funding, much of which is targeting underserved rural areas.

In this regard, we were very encouraged to see a pickup of RDOF funding approvals during the fourth quarter. This is excellent news for CommScope given our strong legacy customer relationships with many of the largest RDOF funding winners. As RDOF funds are dispersed and as government stimulus programs such as American Rescue Act come online, we should see strong order flow from tier 2 and tier 3 service provider markets during '22 and for many years to come.

During the fourth quarter, we also made significant progress to bringing online new production capacity for fiber cabling and connectivity. This new capacity provided some relief from capacity restraints we've been experiencing. We should continue to see significant relief as we commission more lines during Q1 and Q2 of '22. By 2023, this new capacity will drive $350 million to $400 million of organic revenue growth and over $100 million in incremental adjusted EBITDA.

It should be noted that 2021 and 2022 are periods of investment for our connectivity and cable businesses. During this period, we will experience higher operating costs as we prepare ourselves for significant growth over the forecast period. This includes substantial expansion in Mexico, including new facilities. Please note that our CapEx investments we are putting in place have rapid and high payback.

Within the active technology side of Broadband segment, namely Access Technologies and Converged Network Solutions, sales were weaker in the fourth quarter. This was due to a combination of factors, including a difficult compare against a strong fourth quarter of 2020, shifting cable operator spend patterns and key component shortages.

At CommScope, we continue to believe that active cable technology business has 2 primary advantages over our competitors. First, we have a very large installed hardware and active software code running on the HFC networks of a diverse mix of large and small cable operators. And second, we have the extensive product line and industry-leading development capabilities needed to serve each of our customers, regardless of the technology path they might choose.

And for telco and cable operators that we want to -- that want a more rapid transition to an all-fiber network architecture, we are seeing strong interest in our new XGS-PON solution. Product qualification for this technology have commenced during the first quarter of 2022. And by the second quarter, we expect early deployments and field trials to begin.

Turning now to Outdoor Wireless. This segment had a strong quarter-over-quarter performance, in part due to the comparison with a weak fourth quarter in 2020 when 5G spectrum auction slowed U.S. wireless operator spending. Nonetheless, during the fourth quarter of 2021, our Outdoor Wireless segment achieved strong sales in North America, where we saw increased CapEx spending by the major operators as they move to deploy their 5G networks nationwide.

This generated healthy demand for our broad Outdoor Wireless product line, again demonstrating the strength of CommScope's everything but the radio strategy. As we noted during our strategic transformation update in December, we expect our Outdoor Wireless business to grow low to mid-single digits during 2022. Note that our expectation does not assume a significant contribution during 2022 from an important new CommScope antenna technology, our universal active-passive antenna solution or UAPA.

This innovative technology combines active and passive antennas in a unique space-saving form factor and can help solve 5G deployment challenges such as crowding, weight and wind loading at the top of the tower. We're very excited about the prospects for UAPA, and we have multiple U.S. and international trials of this product that are pending.

Now shifting to Venue and Campus Networks. All of the businesses within Venue and Campus saw robust demand and contributed to segment growth during the quarter. We saw particular strength in our Inside Plant Copper business with sales up nearly 40% and in our DAS and Small Cell business unit, which grew 30%.

In our inside plant copper and fiber cabling product lines, we saw strength across the board as enterprise demand continue to grow and data center orders remain strong. Revenues also benefited as we raised prices to cover commodity cost inflation.

Our DAS business saw a significant uptick in shipments in the fourth quarter. Service provider and enterprise customers continue to value our industry-leading ERA DAS platform as an ideal distributed coverage solution for medium and large-sized venues.

And our Small Cell business, which features our OneCell indoor cellular technology, had a strong fourth quarter as well. This innovative technology is an ideal 4G or 5G indoor solution for both public and private networks. We are actively investing in OneCell development and operator acceptance in order to take advantage of these growth opportunities as they materialize.

In the meantime, both our DAS and OneCell business results will continue to reflect a mix of steady run rate business and more sporadic large projects. And as we highlighted during our strategic transformation update in December, we're very well positioned overall in the private network space given our unique portfolio of RUCKUS Wi-Fi, OneCell and CBRS LTE products. Taken together, these products represent a powerful combination of unlicensed, licensed and shared spectrum solutions.

In our RUCKUS business, component shortages for the fourth quarter continued to constrain our ability to ship products against the healthy market demand we are seeing for Wi-Fi access points and switches. Despite these headwinds, RUCKUS sales in the quarter were up versus prior year.

RUCKUS sales benefited from a rebound in orders from service providers. And on the software side of the business, we are highly encouraged by the continued rapid growth in RUCKUS subscription-related software sales. While overall demand from RUCKUS customers remains very strong, our backlog in this business increased materially in the fourth quarter due to shortages of semiconductor chips.

I'll finish up my segment highlights with Home Networks. In the fourth quarter, home sales declined 18% from the prior year. The biggest driver of this decline continued to be the acute shortage of semiconductor chips needed to produce essentially all of the segment's product line, with the impact being most significant to broadband gateway products during the quarter.

I'm now turning to Slide 3. Before I turn the call over to Kyle to discuss our financial results in more detail, I want to update you on our previously announced plan to spin off our Home Networks business during the second quarter of 2022, then I'll provide my thoughts on how our CommScope NEXT transformation initiative is progressing.

Regarding Home Networks, our Board of Directors has determined that it is in the best interest of both CommScope and the future independent Home Networks business that we delay the execution of the spin-off. This decision was not an easy one, but was taken after thorough consideration of the current supply chain environment and its negative impact on Home Networks' business performance.

Although Home Networks ended 2021 with a backlog in excess of $1 billion, the business has been contending with an acute shortage of semiconductor chips and higher input costs that have resulted in revenue and adjusted EBITDA significantly below our expectations for 2021. We now believe that chip shortage will persist throughout 2022.

Given these unique circumstances, we believe the most prudent course of action is to defer the spin-off of Home Networks from CommScope until we see a more normalized and predictable supply environment. I want to emphasize that this delay has no impact whatsoever on our commitment to spinning off the home business. Both CommScope and Home Networks will be stronger and better positioned for success as a separate business -- as separate businesses, and we intend to execute the spin-off as soon as market conditions allow.

Although we will monitor the situation on an ongoing basis, we currently do not have a firm time line for restarting the Home spin-off. In the meantime, we will work to optimize Home's operational and financial performance using principles from the CommScope NEXT playbook. And while Home remains under CommScope's ownership, we will continue to report the financial results for CommScope separately from that of Home Networks.

I also want to share my thoughts on how CommScope NEXT is progressing. During our strategic transformation update in December, we emphasized that CommScope NEXT is designed to drive profitable growth by focusing on 3 key pillars of change: organic growth, cost efficiency and portfolio optimization.

We also provided details about the many CommScope NEXT actions we have in flight to begin this change. And we laid out long-term revenue and adjusted EBITDA target ranges that quantify our plans and give you a scorecard to track our progress. While we still have work to do, I believe that CommScope NEXT is off to a very solid start and is clearly taking the company in the right direction.

On the organic growth side of CommScope NEXT, we've invested in new fiber production capacity that is already driving revenue growth. We have implemented new pricing and quoting tools that allow us to better align our prices with the value of our products and which also provided the foundation for the extensive repricing actions we've taken to offset inflation. And we've expanded our sales force and created key account managers so that our sales organization is now well positioned as a growth engine.

While we're only getting started, we already see signs of progress in 2021 such as 12% year-over-year sales growth in core CommScope and an international growth that exceeded our North American growth. On the cost efficiency side, we took quick actions to reduce period overhead in early 2021.

We launched major initiatives around procurement excellence that are functioning well despite the challenging supply chain environment. And we are now focused on various ways to optimize our manufacturing processes and footprint. These and other NEXT cost actions have helped core CommScope's year-over-year adjusted EBITDA to improve slightly despite extraordinary supply disruptions and cost inflation during 2021.

And finally, regarding portfolio optimization, we have implemented a general manager model to drive focus and accountability for results across our business. We've taken the decision to spin off our Home Networks segment. And as we announced in our press release this morning, we have started to work -- we started work on plan to resegment core CommScope that will make our core business easier for us to manage and clear for our investors to understand and value.

As these and other CommScope NEXT actions gain traction, we continue to uncover new ideas and add to our pipeline of improvement opportunities. While today I've given you an interim view of how things are progressing, we plan to provide you with a more comprehensive readout on CommScope NEXT during our third quarter earnings call in November. This readout will include an assessment of what we have achieved, more details around next steps and updated financial guidepost.

And with that, I'll now turn the call over to Kyle to discuss 2021 full year and fourth quarter financial results in more detail.

Thank you, Chuck, and good morning, everyone. I'll start with an overview of our full year 2021 financial results on Slide 4.

For the full year, consolidated CommScope reported net sales of $8.59 billion, up 2% from the prior year. This performance was driven by solid revenue growth at each of the 3 segments of core CommScope. Consolidated adjusted EBITDA of $1.12 billion was down 8% from prior year and driven primarily by challenges in our Home Networks segment. Adjusted earnings per share of $1.39 was down 11% from the prior year. Demand across our businesses remained strong and, as a result, consolidated CommScope ended 2021 with a book-to-bill ratio of approximately 1.3 versus 1.2 at the end of 2020.

In our core CommScope portfolio, 2021 net sales of $6.74 billion grew approximately 12% from the prior year. Core adjusted EBITDA of $1.09 billion grew approximately 1%. Year-over-year adjusted EBITDA performance across the 3 CommScope segments was mixed, with 8% adjusted EBITDA growth in Venue and Campus Networks, 1% growth in Broadband Networks and a 4% decline in Outdoor Wireless Networks. Rising commodity and freight costs negatively impacted full year EBITDA in all 3 segments. Core CommScope ended 2021 with a book-to-bill ratio of approximately 1.4 versus 1.1 at the end of 2020.

Turning to our fourth quarter results on Slide 5. For the fourth quarter, consolidated CommScope reported net sales of $2.22 billion, an increase of over 4% from the prior year's fourth quarter and driven by growth at the 3 core CommScope segments. Adjusted EBITDA of $261 million declined 28% from the prior year. Approximately half of this decline was attributable to our Home Networks segment.

For core CommScope, net sales of $1.75 billion increased nearly 13% from the prior year. This sales increase would have been larger were it not for the continuing shortage of semiconductor chips, which constrained shipments to varying degrees in all of our core segments.

Core adjusted EBITDA of $254 million declined 21% as an increase in year-over-year performance in Venue and Campus Networks was more than offset by declines in Broadband Networks and Outdoor Wireless Networks. The decline in adjusted EBITDA against the backdrop of rising sales was attributable mainly to cost pressures related to commodity and freight inflation, both of which worsened in the fourth quarter.

During the quarter, we experienced an incremental $40 million of impacts from input cost inflation. As Chuck mentioned earlier, we are making good progress in our efforts to raise prices in order to offset the profitability impacts of inflation. Overall, customer discussions have been very constructive, and we are confident and be able to recover the inflationary cost impacts experienced today by the end of 2022.

As we've noted previously, given our large backlog, the continuing shortage of certain components and the structure of some of our sales contracts, we expect the impact of price increases on our P&L to be modest during the first half of the year and much more material in the second half of 2022. Specifically, we will see continued pressure from rising input and freight costs in our adjusted EBITDA during the first quarter of 2022.

Turning to our segment results and starting with Broadband Networks on Slide 6. Net sales of $782 million increased about 1%, driven by Europe, Middle East and Africa regions. From a business unit perspective, we saw significant growth in our Network Cabling and Connectivity business, but this was offset by declines in all other broadband business units.

Adjusted EBITDA of $142 million declined 33%. In part, this decline was attributable to a difficult compare against the fourth quarter of 2020 when cable operators spent heavily on network upgrades, but worsening pressures from input costs and freight inflation also impacted the Broadband segment during the fourth quarter. In addition, we continue to experience mix shifts in our Broadband segment that are impacting margins.

Overall, within the segment, we are seeing the fastest growth come from fiber cable and connectivity products, which have lower margins than the active portion of the broadband portfolio. And within the segment's portfolio of active cable products, the fourth quarter saw lower sales of higher-margin hardware such as CMTS units and headend optics but growth in sales of lower-margin amplifiers. Amplifier demand remained very strong during the quarter, but a significant portion of amp orders in the quarter went into backlog due to shortages of semiconductor chips.

Finally, as previously noted, we had larger-than-expected software license sales during the quarter, but these were largely timing-driven and not likely to repeat in the first quarter of 2022. Going forward, we expect some cable operators to continue purchasing software license upgrades to augment network capacity. However, the timing and size of these orders will be difficult to predict.

Turning to Venue and Campus Networks on Slide 7. Net sales of $591 million increased 24%, driven by strength across nearly all regions and every business unit. During the fourth quarter, strong demand from enterprise customers drove solid growth in Inside Plant Copper sales. Inside Plant Fiber sales were particularly strong during the quarter with European data centers.

Our DAS and Small Cell business units had a good quarter, in part due to a large onetime project in our DAS portfolio. As Chuck noted, we view our DAS and Small Cell businesses very favorably given the critical importance of indoor coverage in a 5G world. However, for the near future, their results will vary from quarter-to-quarter given the project-oriented nature of sales in this area.

Finally, our RUCKUS business saw good growth during the quarter, both due to higher volume and early implementation of price increases with enterprise customers. RUCKUS growth could have been even stronger, however, semiconductor shortages reduced shipments during the quarter. Looking forward, our visibility into RUCKUS' chip supply remains somewhat limited.

I would also note that our RUCKUS and DAS and Small Cell business units continue to be CommScope's most R&D-intensive areas. Venue and Campus adjusted EBITDA of $59 million increased 21%, driven by higher sales volume as well as price increases, partially offset by rising input and freight costs and higher operating expenses.

Moving on to Slide 8 for our Outdoor Wireless Networks segment. This segment saw its best revenue performance of the year in the fourth quarter as net sales of $374 million increased 27%, with growth across all regions and business units. This quarter-over-quarter growth benefited somewhat from the comparison to the fourth quarter of 2020 when telco operator spending was soft.

At present, we are seeing higher operator spend, particularly in North America, to upgrade cell sites for 5G service. This spend is generating increased demand for multiple Outdoor Wireless products, including both passive antennas and a variety of cell tower infrastructure solutions. Despite this positive sales performance, Outdoor Wireless adjusted EBITDA declined 11% quarter-over-quarter to $54 million. The primary driver of the decline was the high cost of commodities and freight, which rose materially throughout the second half of 2021.

Finishing with Home Networks on Slide 9. Net sales of $477 million declined 18% and across all regions, with the exception of Asia Pacific. While video product sales were up modestly from the prior year, this was more than offset by declining sales of broadband gateways. And as we have previously noted, our Home business continues to experience the largest negative impact from shortages of semiconductor chips. While order entry and backlog remain substantial, the impact of ship availability on sales continues to be very material. Adjusted EBITDA of $7 million declined 84%, driven by higher input costs and decreased volume.

During the quarter, Home also had higher bad debt expense, which was driven by an $18 million charge to fully reserve the accounts receivable balance of a value-added reseller customer of Home Networks. We are no longer doing business with this customer and do not expect any additional charges. Note that the third quarter of 2021 also included a bad debt charge of $13 million related to the same customer. Excluding the bad debt impact, Home Networks EBITDA was up $28 million sequentially versus the third quarter of 2021.

Now turning to our cash flow overview on Slide 10. For the fourth quarter, cash flow from operations was a use of $12 million and adjusted free cash flow was a use of $27 million. For the quarter, inventories increased $186 million and had a significant impact on overall working capital. While increased sales are contributing to increased inventory levels, continued supply chain disruptions were also a major factor. We continue to experience extended shipping transit times for finished products.

Our work-in-progress inventory in some product lines is elevated due to shortages of key components. And in other cases, we are holding higher stocks of key inputs as a means of managing supply volatility. Overall, we expect our levels of inventory to remain higher than normal until supply chain conditions improve.

As we noted last quarter, given supply chain issues and rising input costs, we continue to expect cash flow generation to be lower than normal during the first half of 2022. We are confident that this situation will improve during the second half of 2022 as our price increases take full effect. In the meantime, we will continue to prudently manage cash flow and working capital.

Turning to Slide 11 for an overview of our liquidity and capital structure. During the fourth quarter, our cash and liquidity remained strong. We ended the quarter with over $360 million in cash, total available cash and liquidity of approximately $1 billion and no outstanding draws under our ABL revolver. We made no debt repayments during the quarter beyond the required $8 million of term loan amortization.

The company ended the quarter with net leverage of 7.8x, an increase from 7.1x at the end of the third quarter. With pricing actions taking full effect later in 2022, we remain committed to meeting our year-end target of net leverage in the 6.8x to 7.2x range.

I'm now turning to Slide 12, where I will conclude my prepared remarks with some commentary around expectations for 2022. On the supply chain front, we are not yet seeing evidence of improvement in either commodity or freight inflation or in the supply of semiconductor chips. Given these realities, we believe supply chain pressures will remain high during 2022 and will continue to impact both revenues and margins.

We remain focused on offsetting the margin impacts of inflation through broad-based price increases and cost reduction actions. And to date, those efforts are progressing well. We expect to see a gradual accumulation of P&L benefit from price increases during the first half of 2022 and a significant acceleration of this impact during the second half of the year as we work down backlog levels and ship more products under renegotiated prices.

Given current input cost levels as a baseline, we will continue to believe that we will offset all inflationary impacts through price actions by the end of 2022. In addition, we expect revenue and adjusted EBITDA in the first quarter of 2022 to be sequentially down from the fourth quarter of 2021. The key driver of this sequential softness is input and freight inflation, which worsened in the fourth quarter and will impact first quarter results with only modest offset from price increases.

Also, as we noted earlier, the fourth quarter benefited from approximately $50 million of software licensing revenue in our Broadband Networks segment, which is not likely to repeat in the first quarter. Nonetheless, based on our current visibility into 2022, including pricing actions currently underway, we remain on track to deliver on our expectations communicated during our strategic transformation update of $1.15 billion to $1.25 billion of core adjusted EBITDA for the full year 2022.

In general, because of factors such as the timing of software license sales and the project-oriented nature of some of CommScope's product lines, we expect our quarter-to-quarter business results continue to be quite variable rather than sequentially linear. We also believe that our annual targets and full year financial results are far better indicators of our underlying business performance, and we encourage our investors to focus their attention accordingly.

And with that, I'd like to give the floor back to Chuck for some closing remarks.

Thank you, Kyle. I'm now on Slide 13, and I'd like to conclude our presentation today by describing one more aspect of CommScope's ongoing business transformation.

As we shared with you before, a key pillar of our CommScope NEXT initiative is portfolio optimization. Today, I'd like to give you a preview of the next chapter in that optimization process, which is our plan to reorganize the operating and reporting structure of core CommScope.

Whereas core CommScope today consists of 3 broad business segments, under our reorganization plan, we will transition our business into 4 better focused and more streamlined segments. Internal work on this resegmenting plan is already well underway, and we will be prepared to report our results according to the new segment structure beginning with our first quarter 2022 earnings call in May.

Under the new reporting structure, our 4 core business segments will be: Connectivity and Cable Solutions; Networking, Intelligent Cellular and Security Solutions; Access Network Solutions; and Outdoor Wireless Networks. I'll be prepared to share the final business unit and product line composition of the new segments in May. But what I can tell you today is that the new segments will largely follow the realigned view of our business that we previewed during our strategic transformation update in December.

More specifically, the resegmentation will make the following high-level changes. First, we will combine the inside plant cable and connectivity assets from our current Venue and Campus segment with our Broadband Segment's outdoor cable and connectivity business to form a single Connectivity and Cable Solutions segment. This new segment will unify many industry-leading copper and fiber product lines under one roof and will have market scale that few competitors can match.

Second, we will create a more pure-play Networking, Intelligent Cellular and Security Solutions segment that is dedicated to providing wireless communications solutions for indoor and venue applications. This segment will have a strong focus on developing software and cloud-based functionality and on capturing emerging growth trends in private wireless networking.

And finally, we will create a new Access Network Solutions segment to drive innovation and growth in active broadband, cable and video technologies. At the present time, we are not contemplating any material changes to Outdoor Wireless Networks, which will be the fourth core CommScope segment.

We also do not plan to materially change -- we don't -- we also do not plan material changes to our Home Networks segment, which will remain outside of core CommScope and will continue to be reported separately. Please note, however, that work on designing the new segments is still underway, and we have not yet finalized the exact segment composition.

Overall, the new segment alignment will drive improved financial performance across CommScope by laying the foundation to accelerate growth and deliver greater operational efficiencies. It will be an ideal fit with our new general manager model and will help us drive a culture of managerial focus and direct accountability for segment results. And I also believe that this simplified structure will increase the comparability of our segments to common peers in the market. This should make CommScope easier for investors to understand and to model and, most importantly, to value appropriately.

Thank you very much for your time today and for your continued interest in CommScope. And with that, I'll ask the operator to open up for Q&A. Operator?

(Operator Instructions) Our first question comes from George Notter with Jefferies.

I guess, I wanted to start with some questions about supply chain impacts. I think in the past, you guys have given us the amount of revenue that you're expecting to lose in 2021 due to supply chain impacts. I think you said $600 million, and then $340 million of that would be on the Home segment. Is there an update to those numbers? I'm just curious about where you wound up.

Yes. I mean these are rough numbers. It's about $1 billion in total revenue, half of that coming from -- half of that coming from Home business and half of it coming from the core business.

Got it. Okay. So then it sounds like on the core side of the business, the actual revenue impact was much more significant than you were expecting in Q4. Is that fair to say, $400 million incremental relative to what you thought?

Yes, I think it probably has to do with the mix of the business profile. I mean, I think as we mentioned in the commentary, we're seeing a little bit more pressure on some of our businesses like RUCKUS as it relates to chips and our access technology business and amplifiers that are probably a little bit more heavily weighted toward that in the fourth quarter.

Got it. Okay. And then I also wanted to ask about the pricing increases. I think when we talked last, there was some questions about how readily you could push higher pricing onto some of your service provider customers. I realize that many of those contracts are kind of one-off customer-by-customer contracts.

Can you talk about what kind of success you're having on the service provider side with higher prices? And then -- and also, any sense for what the magnitude of pricing looks like that you're getting from customers right now, both service provider and enterprise?

Well, I'd say, first of all, we have -- as I shared with you before, we have decade-long relationships and sometimes multiple decade-long relationships with our customer base and our service providers as well as our enterprise customers, and we feel very good about where we are with pricing. We've come to good agreements with everyone.

We feel good about where we are, and we're moving, as we said, to cover those costs. And we believe, if you look at our current cost with increases that we've seen up to date, we'll be covering all those cost increases by the end of 2022. So we feel good about where we are there.

Got it. So the service provider pricing increases are going through. It sounds like that's not an issue in the end.

Let's say, it's not an issue yet. But yes, they have gone through, and our contracts should be -- being changed, yes.

Our next question comes from Samik Chatterjee with JPMorgan.

I have a couple of questions. So just on the first one, trying to think about the $100 million of EBITDA improvement that you are now reiterating for 2022 at the midpoint of it, if you can sort of help us think about the big buckets in there. How much is growth related sort of profit growth? How much is pricing versus cost efficiency, which you've been also focusing on as part of CommScope NEXT?

And what's really -- allows you to get to the high end of your guide? Is it really just better pricing? Or is that more growth related sort of profit growth that allows you to get to the high end of the guidance? And I have a quick follow-up.

Yes, I think it's a combination of both. As we've been highlighting in the last couple of calls, the impact in '21 of the inflationary impacts has been significant. And I think as we are signaling, we've been aggressive on price increases.

So price increase is a big component of our improvement. But we're also seeing double-digit growth in our cabling businesses in -- both in our VCN segment and in our Network Connectivity and Cable business. So I mean, I think it's a good mix of the price increases, but we're also seeing a fair amount of growth, particularly in that cabling business.

Got it. And a quick follow-up just on the cash flow, I guess, for Kyle. When we think about the magnitude of the EBITDA improvement from 2021 to 2022 in the core business, I know you mentioned some of the capacity increases that you're planning as well. How much of that EBITDA improvement should we generally be thinking about flowing through into improvement on the cash flow front?

Yes, a lot of it. So the #1 driver of the cash flow is going to be EBITDA. And we're definitely -- the second half of the year is going to be much stronger than the first half of the year. I think the other piece of the cash flow is on working capital with inventory. Now as we talked about, we're managing a little bit higher inventory than we would like to just because of the supply chain challenges that we have.

I think we see some improvement of that in our forecasting for the second half of the year as we put capacity online and we start working through some of the supply chain side. So key driver is going to be the EBITDA improvement, which is second half-weighted. And we're also continuing to work on the working capital side as well, which we feel like we'll get improvement on that through the year.

Our next question comes from Simon Leopold with Raymond James.

A couple of just quick ones first. The CapEx in the quarter was a bit lighter than what we were expecting, and I know you've talked about the investment. I want to make sure I understand. I'm guessing this is more of a timing issue, and I want to see if you could offer some thoughts on your capital spending outlook. That's the first one.

Second is the Home Networks was quite strong in this quarter. Just want to see if we could level set because that was a surprise. And just the last one is more of a trending question, please.

I'm happy to see the added disclosure detail on splitting Broadband Networks out. And I want to get a little bit better understanding of your thinking there because my guess is that Access Networks is fixing challenges due to the architectural shifts, whereas the Connectivity and Cabling is just really strong on all the build-outs, and there's really a strength there that you're trying to highlight. I want to make sure I understand the logic.

So I'll take the first one on the CapEx. The CapEx in Q4 is more of a timing issue. There's nothing that we did to slow down capacity expansion projects. I mean, we continue to spend on those projects, and we'll continue to spend in '22. Forecasting the CapEx, we feel like it will be in line with '21 for '22, maybe up a little bit.

All of those projects that we're investing in have super paybacks to them, and they're -- a lot of those are around cable and connectivity. So we're seeing the double-digit growth. We're investing there. And as that market continues to gain strength, we'll continue to invest there, and we'll do that against the backdrop of very strong payback projects. So forecasting-wise, think about '22 maybe being up a little bit versus '21 and nothing to read into Q4.

In terms of your comments about the resegmentation, I think you're spot on in terms of connectivity and cable. We do see that as a very significant business that we've just been able to not report on effectively because of the way we were structured. So that's the main driver there.

I would say, overall, in general, when you think about the general manager concept, what I was really shooting for -- what we were really shooting for as a team is to have competitors to look at and compare against. And I think, to your point, when we look at active broadband, I want to be -- I want to be able to show everybody what we're doing there. I mean, we do have a very large installed base. It's a lumpy business. And yes, you are right, it is moving more to the edge.

But I mean, there's a very large customer base that we have out there, whether that's small or large players, that have a different path. They have different paths on where they want to go. So our point here is to be able to highlight that business. We understand it is lumpy, but we want to be able to put ourselves against other people so we can compare. We think it will be easier to give a value , and we think it will be easier for us to manage. So that was the drivers there.

Simon, your middle question on Home Networks, I think the answer to the question is yes. The Q4 -- we definitely saw what was a $28 million sequential improvement in EBITDA. That was sort of in line with our forecasts. The challenges in that business, I think, still remain with the supply constraints. We're actually starting to see the inflationary impacts impact that business.

So as we move into '22, I think the improvement in the -- there will be improvement in the business, but it's going to be lumpy as we move through '22 based on supply. As well as just the inflation RTs were -- just like we are in the core business, we're going after price there.

Our next question comes from Sami Badri with Credit Suisse.

Great. I wanted to just come back to pricing. And when we talked to other companies about pricing, they introduced the pricing. There's a couple of months before that works its way into the backlog because there are supply constraints. And then they really only see the translation of increased pricing on the income statement, and it's taking anywhere from as little as 3 months to as long as 9 months for some companies.

Just what is the same conversion rate that you guys are seeing? And it sounds like your conversion rate is much faster than other companies. What's difficult for us to understand when we hear this is that you have very big customers, right, with honored price sheets that have been issued. So we just need to understand the translation time dynamic here and just the honor system in terms of how your customers had a price sheet and how you guys need to work with them. Could we just understand this complex a little bit better?

Yes. I'll start and Chuck can provide some commentary. So clearly, how price gets in, when we've changed price, there is a lag effect. But that differs clearly by business. We've got lots of different types of business with different profile, different contracts. And I'll talk about that in a second. But I think it's important we continue to signal and explain this is going to be back-end loaded. So even though we will see some price changes in the first half, most of these are going to come in full effect in the second half of the year.

With that said, there are some businesses that we have that have lead time and backlogs in the 3- to 4-month range. So we'll see those earlier in places where we have much larger backlogs. So again, this is going to be very second half weighted.

I think the last piece I would say is, in some of our business units, we have actually been successful at repricing backlog. So in the conversations that we've had, which -- with many of our large customers, it is a conversation with every single one of those customers about changing price. And in those conversations, we had conversations about pricing backlog, and some of those conversations, we were successful in repricing backlog.

So it's not a one-size-fits-all for us. It's definitely second half loaded, but there are places where we're getting the price increases a little bit earlier because we've repriced backlog or we're talking about having 3 or 4 months of backlog, which we'll start seeing in -- come in full effect in the second quarter.

The other thing I would add to your comments, Kyle, is that, first, on the enterprise side, I mean, we were attacking this a lot earlier, there's more flexibility there because a lot of these things are not necessarily contractual but more looking at discounts off the list and such.

When you think about our service provider contracts, I mean, we saw this hit us pretty hard in the third quarter. I mean we were endeavoring to get all these new contracts done, so where they were signed and online for January 1. So that's where we're targeting. Most of them got completed by then or targeted and started to come into effect in the beginning of January. We got a little bit coming in February, but majority, we got done already and in place.

Got it. One clarification and then one follow-up. And the clarification is, are your price increases keeping up with the rate of cost increases right now? Like is there a peg that you guys are able to lock down? Or is there like a delay, which is creating a bit of a drop-off? Is this -- as in right now, real-time, going into -- or going through 1Q '22 and into 2Q '22, is this surgically happening?

And then the second thing is, you talked about -- sorry, you talked about new guideposts that are going to be introduced next quarter. I'm sorry if this was asked earlier, but maybe you could expand on that a little bit.

Yes. I guess, I'll take your second question first, and we're not going to give a new guidepost in the second quarter. I mean what we said is we have the guidepost for the year that we showed you in December. And then in the third quarter of this year, we'll be able to say exactly how we're going to finish and give you the guidepost for the next year. So that's what we're looking at. In terms of the first question, which was...

Are you able to match cost increases with price increases? Are they pegged? Like surgically, is that happening real time right now?

Yes. What we put in place during our value pricing processes with CommScope NEXT really allowed us to look at it on a SKU-on-SKU level year-over-year. And then we're also looking at pricing -- cost in terms of input inflation. So we're combining those 2 things to work with our teams, and we're addressing those as we see them.

So we're really tight on what we're looking at in terms of inflation and be able to go back where we see these things continuing to go up or hopefully flatten out. But yes, we are addressing them as they come up. And we're watching them on a monthly basis in terms of cost increase, yes.

Our next question comes from Jim Suva with Citigroup.

On the price increases, I understand there are raw materials, components, ship costs and such, are they also inclusive of shipping costs? Or is that like a separate line item on the invoices to customers? Or how do shipping costs work with your customer reaction -- interactions?

In general, our freight costs would be included in the price increases we're providing. So we went out -- when we go out and change prices, we're changing our price, not individual line items for the majority of our business. So when we talk about the inflationary impacts, it would include what we've seen on the freight side as well as what we've seen on the raw material input side.

Our next question comes from Steven Fox with Fox Advisors.

A couple of questions. First, on international growth. You highlighted you're growing faster internationally. Obviously, part of that's plan, part of it's circumstance, I guess. I'm just trying to understand what specifically you did, say, in broadband to grow faster in Europe, Middle East, Africa, like you mentioned. And then on the inside plant side with the European data center, how much of that was sort of CommScope directed versus market trends? And then I had a quick follow-up.

Well, I'd start by saying our growth internationally is coming from Japan and Europe and Middle East and Africa as well as Latin America in the year. And I think it's tied to our key account management. If you think about Japan, we got a new customer, not naming them, but that's an account that could be $50 million to $100 million account going forward, and it's now already $15-plus million. That's just one example.

But we have key accounts in place. In fact, as we provide solutions to the largest players around the world, and we can look at those solutions, and most people are having those same problems. As we get in front of those customers, we're finding solutions to their problems, and we have references all over the world. So that's really helping us in a tremendous way.

But getting that direct contact is critical and getting relationships at the highest level is also critical. Of course, there's also some opportunities that we wouldn't have seen before with Huawei getting moved out of places in Europe. That opened the door for us to get in. And these are things, obviously, that are happening in our favor.

And I would say that's the largest cable and connectivity -- or one of the largest cable and connectivity players in the world. I mean, we have opportunities that other people don't have, and we're leveraging our position and capacity to take advantage of that. And of course, a lot of that could be macro driven.

Great. That's helpful. And then, Kyle, more just a clarification. So when you say you have confidence on your -- on pricing and freight costs being passed through to customers by year-end, have you incorporated like escalators and de-escalators into these contracts so that if there's a change between now and then, that it's reflected fairly in your end price to customers? Or is that -- has to be negotiated further?

Yes. And so I would -- some of our contracts have escalators. I think how we should think about it is -- or you should think about it is if we saw a dramatic increase with the inflationary environment as we go through '22, we would have to go out and have continued negotiation with many of our customers.

And our last question comes from Meta Marshall with Morgan Stanley.

Great. Just a couple of quick questions. One, if you could just give a general or a rough split of the cost headwinds that you're seeing this quarter and what you would identify as more freight versus commodity costs.

And then second, just whether there is any of the NEXT initiatives you laid out in December that you feel like are being postponed kind of while you wait to kind of get through this supply chain environment? Just are there any initiatives that are being delayed because of that? That's it.

Yes, on the inflationary side, even though we've seen a lot of movement in our freight cost, that would -- it's probably a slightly more driven by raw material and input than it is shipping, but shipping is significant.

I think to answer your second question, we have a balance of projects in CommScope NEXT. Our pipeline has some overdrive in it. So I think we have some room there. What I would say on projects, I think the only place that we would say that the current environment is impacting us is around procurement. This is not a fantastic time to be going out and taking advantage of some of the procurement opportunities that we see medium term. But other than that, I don't think there's really anything in CommScope NEXT that is being impacted by what we're seeing here from a supply chain perspective.

I would now like to turn the call back over to Chuck Treadway for any closing remarks.

Yes. I'd just like to say thank you again for your support of CommScope and for your time today, and we look forward to talking to you soon. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.