Vistance Networks, Inc.: Form 10-Q for the period ended Mar 31, 2024

The following narrative is an analysis of the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The discussion is provided to increase the understanding of, and should be read in conjunction with, the unaudited condensed consolidated financial statements and accompanying notes included in this report as well as the audited consolidated financial statements, related notes thereto and management’s discussion and analysis of financial condition and results of operations, including management’s discussion and analysis regarding the application of critical accounting policies and the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report).

We discuss certain financial measures in management’s discussion and analysis of financial condition and results of operations, including adjusted EBITDA, that differ from measures calculated in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.). See "Reconciliation of Non-GAAP Measures" included below for more information about these non-GAAP financial measures, including our reasons for including the measures and material limitations with respect to the usefulness of the measures.

Overview

We are a global provider of infrastructure solutions for communication, data center and entertainment networks. Our solutions for wired and wireless networks enable service providers, including cable, telephone and digital broadcast satellite operators and media programmers, to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant wireless and wired connectivity across complex and varied networking environments. Our solutions are complemented by services including technical support, systems design and integration. We are a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. Our global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale.

CommScope NEXT

Since 2021, we have been engaged in a transformation initiative referred to as CommScope NEXT, which is designed to drive shareholder value through three pillars: profitable growth, operational efficiency and portfolio optimization. We believe these efforts are critical to making us more competitive and allowing us to invest in growth, de-leverage our indebtedness and maximize stockholder and other stakeholder value in the future. In 2022, CommScope NEXT generated positive impacts on net sales, profitability and cash flow from our execution on pricing initiatives, capacity expansion and operational efficiencies. In 2023, we experienced headwinds related to a slow-down in spending by our customers as discussed further below, but we continued to execute under CommScope NEXT to improve our profitability and cash flows by continuing to drive operational efficiencies and focusing on portfolio optimization. In the first quarter of 2024, we continued to focus on driving operational efficiencies and other cost savings initiatives as well as portfolio optimization, all of which should enable us to take advantage of the expected recovery in demand in the second half of 2024. To that end, we incurred $30.6 million of net restructuring costs and $8.5 million of transaction, transformation and integration costs during the three months ended March 31, 2024, respectively, primarily related to CommScope NEXT initiatives. We expect to continue to incur such costs during the remainder of 2024 as we continue executing on CommScope NEXT initiatives, and the resulting charges and cash requirements could be material.

On January 9, 2024, we completed the sale of our Home Networks (Home) segment and substantially all of the associated segment assets and liabilities (Home business) to Vantiva SA (Vantiva) pursuant to the Call Option Agreement entered into on October 2, 2023 and the Purchase Agreement dated as of December 7, 2023. In the fourth quarter of 2023, we determined the sale of our Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with accounting guidance. All prior period amounts have been recast to reflect the discontinuation of our Home business. Unless otherwise noted, the following discussions relate solely to our continuing operations. For further discussion of the discontinued operation related to our Home business, see Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements.

The results of our recast continuing operations do not align with our historical “Core” measures, which excluded the Home segment. Our continuing operations results for the prior year period include general corporate costs that were previously allocated to the Home segment. These indirect costs, reflected on the corporate and other line item within our segment information below, are classified as continuing operations for the prior year period presented, since they were not directly attributable to the discontinued operations of the Home segment. Beginning in the first quarter of 2024, these costs have been reallocated to our remaining segments and partially offset by income from our transition services agreement with Vantiva.

As a result of the divestiture of the Home business, we are now reporting financial performance based on the following remaining four operating segments, which excludes our Home business: Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS) and Access Network Solutions (ANS). For the prior year period presented, amounts have been recast to reflect these operating segment changes.

As of January 1, 2024, we shifted certain product lines from our CCS segment to our ANS segment to better align with how the businesses are being managed. All prior period amounts have been recast to reflect these operating segment changes.

Impacts of Current Economic Conditions

In 2023, macroeconomic factors such as higher interest rates, inflation and concerns about a global economic slow-down softened demand for our products, with certain customers reducing purchases as they right-size their inventories and others pausing capital spending. This industry recession has continued to negatively impact our net sales in all segments for the first quarter of 2024. We currently do not expect to begin to see a recovery in demand until the second half of 2024.

In 2023, we began implementing additional cost savings initiatives to improve profitability, and we continued to implement further initiatives during the three months ended March 31, 2024. These initiatives should enable us to take advantage of the expected recovery in demand in the second half of 2024. If the expected recovery in demand of our products does not occur in 2024, our outlook will be materially impacted.

For more discussion on risks related to our customers, see Part I, Item 1A, “Risk Factors” in our 2023 Annual Report.

CRITICAL ACCOUNTING POLICIES

There have been no changes in our critical accounting policies as disclosed in our 2023 Annual Report.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2024 WITH THE THREE MONTHS ENDED MARCH 31, 2023

(dollars in millions, except per share amounts)

(1) See “Reconciliation of Non-GAAP Measures” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.

Net sales

(dollars in millions)

Net sales for the three months ended March 31, 2024 decreased $496.0 million, or 29.8%, compared to the prior year period primarily driven by decreased sales volumes as certain customers have continued their reduced purchasing as they right-size their inventories and others have continued their pause in capital spending. The decrease in net sales for the three months ended March 31, 2024 was driven by lower net sales of $216.4 million in the CCS segment, $113.0 million in the ANS segment, $104.2 million in the NICS segment and $62.4 million in the OWN segment. For further details by segment, see “Segment Results” below.

From a regional perspective, for the three months ended March 31, 2024 compared to the prior year period, net sales decreased in the U.S. by $390.5 million, the Europe, Middle East and Africa (EMEA) region by $61.1 million, the Caribbean and Latin American (CALA) region by $21.7 million, Canada by $13.7 million and the Asia Pacific (APAC) region by $9.0 million. Net sales to customers located outside of the U.S. comprised 35.2% and 31.1% of total net sales for the three months ended March 31, 2024 and 2023, respectively. Foreign exchange rate changes did not have a material impact on our net sales during the three months ended March 31, 2024. For additional information on regional sales by segment, see “Segment Results” below and Note 8 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein.

Gross profit, TSA income, SG&A expense and R&D expense

(dollars in millions)

Gross profit (net sales less cost of sales)

Gross profit decreased by $228.0 million for the three months ended March 31, 2024 compared to the prior year period primarily due to lower net sales volumes, partially offset by favorable product mix and lower material costs.

Transition service agreement income

Transition service agreement (TSA) income is related to the TSA we entered into with Vantiva in conjunction with the closing of the transaction to divest of the Home business in January 2024. Under the TSA agreement, we are providing (and in some instances receiving) certain post-closing support on a transitional basis. The TSA has varying terms for duration up to sixteen months, depending on the service, and provides for options to extend services for up to two renewal terms of three months each. The majority of the services are expected to cease by the end of 2024.

Selling, general and administrative expense

For the three months ended March 31, 2024, selling, general and administrative (SG&A) expense decreased by $32.3 million compared to the prior year period primarily due to cost savings initiatives and lower variable incentive compensation expense of $4.3 million. During the three months ended March 31, 2024, these favorable impacts were partially offset by higher transaction, transformation and integration costs of $8.2 million due to ongoing CommScope NEXT initiatives. We expect to continue to incur these costs during the remainder of 2024, and the resulting charges and cash requirements could be material.

Research and development expense

Research and development (R&D) expense decreased by $21.2 million for the three months ended March 31, 2024 compared to the prior year period primarily due to lower spending across all segments. R&D activities generally involve ensuring that our products are capable of meeting the evolving technological needs of our customers, bringing new products to market and modifying existing products to better serve our customers.

Amortization of purchased intangible assets and Restructuring costs (credits), net

(dollars in millions)

Amortization of purchased intangible assets

For the three months ended March 31, 2024, amortization of purchased intangible assets was lower compared to the prior year period because certain of our intangible assets became fully amortized.

Restructuring costs (credits), net

The net restructuring costs recorded during the three months ended March 31, 2024 and 2023 were primarily related to CommScope NEXT. For the three months ended March 31, 2024, our restructuring costs were $30.6 million, and we paid $9.3 million to settle restructuring liabilities. We expect to pay an additional $9.1 million during the remainder of 2024 related to restructuring actions that have been initiated. Additional restructuring actions related to CommScope NEXT are expected to be identified, and the resulting charges and cash requirements could be material.

Other income (expense), net

(dollars in millions)

Foreign currency loss

Foreign currency loss includes the net foreign currency gains and losses resulting from the settlement of receivables and payables, foreign currency contracts and short-term intercompany advances in a currency other than the subsidiary’s functional currency. The change in foreign currency loss for the three months ended March 31, 2024 compared to the prior year period was primarily driven by certain unhedged currencies.

Other income (expense), net

The change in other income (expense), net for the three months ended March 31, 2024 compared to the prior year period was primarily driven by a gain of $7.5 million on the early extinguishment of debt related to our debt repurchases in the prior year period. There were no debt repurchases during the three months ended March 31, 2024.

Interest expense, Interest income and Income taxes

(dollars in millions)

Interest expense and Interest income

The increase in interest expense for the three months ended March 31, 2024 compared to the prior year period was driven by the increased variable interest rate on our senior secured term loan due 2026 (2026 Term Loan) as a result of the Federal Reserve’s increases in interest rates. Our weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap contracts and the amortization of debt issuance costs and original issue discount, was 7.21% at March 31, 2024, 7.22% at December 31, 2023 and 7.06% at March 31, 2023.

Our interest expense and payments on our variable rate debt will continue to increase if the Federal Reserve increases interest rates in 2024. See Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk” in our 2023 Annual Report for further discussion of our interest rate risk.

Income tax (expense) benefit

For the three months ended March 31, 2024, we recognized income tax expense of $99.8 million on a pretax loss of $162.3 million. Our tax expense for the three months ended March 31, 2024, was unfavorably impacted by additional valuation allowance related to current year federal and state interest limitation carryforwards and U.S. anti-deferral provisions, partially offset by tax benefits related to federal tax credits.

For the three months ended March 31, 2023, we recognized an income tax benefit of $4.0 million on pretax income of $25.8 million. This tax benefit was primarily due to a reduction in tax expense of $8.3 million related to the release of various uncertain tax positions, partially offset by the unfavorable impacts of U.S. anti-deferral provisions and non-creditable withholding taxes.

Segment Results

(dollars in millions)

(1) The prior year period includes general corporate costs that were previously allocated to the Home segment. These indirect costs have been classified as continuing operations for the prior year period, since they were not directly attributable to the discontinued operations of the Home segment. Beginning in the first quarter of 2024, these costs have been reallocated to our remaining segments and partially offset by income from our transition service agreement with Vantiva.

(2) See “Reconciliation of Non-GAAP Measures” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Connectivity and Cable Solutions Segment

Net sales for the CCS segment decreased for the three months ended March 31, 2024 compared to the prior year period primarily due to lower sales volumes as certain customers have paused spending as they right-size their inventory levels. From a regional perspective, for the three months ended March 31, 2024, net sales decreased in the U.S. by $174.7 million, the EMEA region by $14.2 million, the CALA region by $13.9 million, Canada by $7.7 million and the APAC region by $5.9 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our CCS net sales during the three months ended March 31, 2024.

For the three months ended March 31, 2024, CCS segment operating income and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes, partially offset by lower SG&A costs, favorable product mix and lower material and R&D costs. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. CCS segment operating income for the three months ended March 31, 2023 was also favorably impacted by a $20.2 million gain in restructuring costs related to the sale of an international manufacturing facility. Restructuring costs are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

Outdoor Wireless Networks Segment

For the three months ended March 31, 2024, OWN segment net sales decreased compared to the prior year period primarily due to lower sales volumes as a result of reductions in spending by certain North American operators. From a regional perspective, for the three months ended March 31, 2024, OWN segment net sales decreased in the U.S. by $63.2 million, Canada by $0.8 million and the EMEA region by $0.7 million, but increased in the APAC region by $2.1 million and the CALA region by $0.2 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our OWN net sales during the three months ended March 31, 2024.

For the three months ended March 31, 2024, OWN segment operating income and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes partially offset by lower SG&A costs. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. See “Reconciliation of Segment Adjusted EBITDA” below.

Networking, Intelligent Cellular and Security Solutions Segment

For the three months ended March 31, 2024, NICS segment net sales decreased compared to the prior year period primarily due to lower sales volumes of our Ruckus products. From a regional perspective, for the three months ended March 31, 2024, NICS segment net sales decreased in the U.S. by $67.5 million, the EMEA region by $25.0 million, the APAC region by $8.7 million, the CALA region by $2.3 million and Canada by $0.7 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our NICS net sales during the three months ended March 31, 2024.

For the three months ended March 31, 2024, NICS segment operating loss increased and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes and lower pricing, partially offset by favorable product mix and lower R&D and SG&A costs. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. See “Reconciliation of Segment Adjusted EBITDA” below.

Access Network Solutions Segment

For the three months ended March 31, 2024, net sales decreased in the ANS segment due to lower sales volumes compared to the prior year period primarily due to lower sales volumes as certain customers have paused spending as they right-size their inventory levels. From a regional perspective, for the three months ended March 31, 2024, ANS segment net sales decreased in the U.S. by $85.1 million, the EMEA region by $21.2 million, the CALA region by $5.7 million and Canada by $4.5 million, but increased in the APAC region by $3.5 million compared to the prior year period. Foreign exchange rate changes did not have a material impact on our ANS net sales during the three months ended March 31, 2024.

For the three months ended March 31, 2024, ANS segment operating loss increased and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes but benefited from lower freight, favorable product mix and lower SG&A and R&D costs compared to the prior year period. The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives. For the three months ended March 31, 2024, ANS segment operating loss was negatively impacted by increases of $27.6 million in restructuring costs and $4.8 million in transaction, transformation and integration costs. These negative impacts were partially offset by a reduction of $23.9 million in amortization expense. Restructuring costs, transaction, transformation and integration costs and amortization expense are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes certain key measures of our liquidity and capital resources (in millions, except percentage data):

(dollars in millions)

(1) Working capital is net of assets and liabilities held for sale and consists of current assets of $2,407.4 million less current liabilities of $1,048.9 million as of March 31, 2024 and current assets of $2,584.1 million less current liabilities of $1,102.2 million as of December 31, 2023.

(2) Total capitalization includes long-term debt, including the current portion, Series A convertible preferred stock (the Convertible Preferred Stock) and stockholders’ deficit.

Our principal sources of liquidity on a short-term basis are cash and cash equivalents, cash flows provided by operations and availability under our credit facilities. On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of additional equity and/or debt.

The primary uses of liquidity include debt service requirements, voluntary debt repayments, redemptions or purchases on the open market, working capital requirements, capital expenditures, business separation transaction costs, transformation costs, restructuring costs, dividends related to the Convertible Preferred Stock if we elect to pay such dividends in cash, litigation settlements, income tax payments and other contractual obligations.

We currently believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our Revolving Credit Facility, will be sufficient to meet our presently anticipated future cash needs. However, we may be required to obtain additional financing in the future to address our liquidity needs, and, subject to market conditions, we may from time to time seek to amend, refinance, restructure, exchange or repurchase our outstanding indebtedness and/or raise additional equity or other financing. Any debt we incur in the future may have terms (including cash interest rate, financial covenants and covenants limiting our operating flexibility or ability to obtain additional financings) that are not favorable to us, and any such additional equity financing may dilute the economic and/or voting interests of our existing stockholders, may be preferred in right of payment to our outstanding common stock or confer other privileges to the holders and may contain financial or operational covenants that restrict our operating flexibility or ability to obtain additional financings. Furthermore, our failure to obtain any necessary financing, amendment, refinancing, restructuring, exchange or repurchases could have a material and adverse effect on our results of operations, cash flows, financial condition and liquidity.

We may experience volatility in cash flows between periods due to, among other reasons, variability in the timing of vendor payments and customer receipts. We may, from time to time, seek to obtain alternative sources of financing, by borrowing additional amounts under our senior secured asset-based revolving credit facility (Revolving Credit Facility), issuing debt or equity securities or incurring other indebtedness, if market conditions are favorable, utilizing trade credit, selling assets (including businesses or business lines) or securitizing receivables to meet future cash needs or to reduce our borrowing costs. Any issuance of equity or debt may be for cash or in exchange for our outstanding securities or indebtedness, or a combination thereof.

Our outstanding debt securities and debt under our credit facilities are currently trading at substantial discounts to their respective principal amounts. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase such debt for cash, in exchange for common or preferred stock or debt, or for a combination thereof, in each case in open-market purchases and/or privately negotiated transactions, tender offers or exchange offers and upon such terms and at such prices as we may determine. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions and applicable regulatory, legal and accounting factors. Whether or not we engage in any such transactions will be determined at our discretion. The amounts involved in any such transactions, individually or in the aggregate, may be material.

Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in the “Reconciliation of Non-GAAP Measures” section below, but also give pro forma effect to certain events, including acquisitions, synergies and savings from cost reduction initiatives such as facility closures and headcount reductions. For the twelve months ended March 31, 2024, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $903.3 million, which included annualized savings expected from cost reduction initiatives of $65.0 million so that the impact of cost reduction initiatives is fully reflected in the twelve-month period used in the calculation of the ratios. In addition to limitations under these indentures, our senior secured credit facilities contain customary negative covenants based on similar financial measures. We believe we are in compliance with the covenants under our indentures and senior secured credit facilities as of March 31, 2024.

Cash and cash equivalents decreased during the three months ended March 31, 2024 primarily driven by cash used in operating activities of $177.7 million. As of March 31, 2024, approximately 64% of our cash and cash equivalents were held outside the U.S.

Working capital, net of assets and liabilities held for sale and excluding cash and cash equivalents and the current portion of long-term debt, increased during the three months ended March 31, 2024 compared to the fourth quarter of 2023 primarily due to lower accrued liabilities due to the pay-out of our 2023 variable incentive compensation and interest payments. During the three months ended March 31, 2024, we sold accounts receivable under customer-sponsored supplier financing agreements. This had an impact of approximately $45 million on working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of March 31, 2024. Under these agreements, we are able to sell certain accounts receivable to a bank, and we retain no interest in and have no servicing responsibilities for the accounts receivable sold. The net reduction in total capitalization during the three months ended March 31, 2024 reflected the net loss for the period.

Cash Flow Overview

(dollars in millions)

32

Operating Activities

(in millions)

During the three months ended March 31, 2024, the increase in cash used in operating activities compared to the prior year period was primarily driven by better operating performance in the first quarter of 2023 compared to the first quarter of 2024, partially offset by lower variable incentive compensation paid in the first quarter of 2024 compared to the first quarter of 2023.

Investing Activities

(in millions)

During the three months ended March 31, 2024, the decrease in cash generated by investing activities compared to the prior year period was primarily driven by $41.0 million of proceeds from the sale of property, plant and equipment received during the three months ended March 31, 2023, partially offset by an $8.4 million decrease in capital expenditures. The proceeds on the sale of property, plant and equipment in the prior year period primarily related to the sale of an international manufacturing facility that was closed as part of CommScope NEXT. The cash received from other investing activities in both periods related to the sale of certain nonfinancial assets.

Financing Activities

(in millions)

33

During the three months ended March 31, 2024, we paid the quarterly scheduled amortization payment of $8.0 million on the 2026 Term Loan. We did not borrow under our Revolving Credit Facility. As of March 31, 2024, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $550.5 million, reflecting a borrowing base subject to maximum capacity of $645.1 million reduced by $94.6 million of letters of credit issued under the Revolving Credit Facility.

During the three months ended March 31, 2023, we repurchased $47.4 million aggregate principal amount of our 8.25% senior notes due 2027, $3.1 million aggregate principal amount of our 7.125% senior notes due 2028 and $7.0 million aggregate principal amount of our 6.00% senior notes due 2025, for total cash consideration paid of $50.0 million. We also paid a quarterly scheduled amortization payment of $8.0 million on the 2026 Term Loan during the three months ended March 31, 2023.

During the three months ended March 31, 2024, employees surrendered shares of our common stock to satisfy their tax withholding requirements on vested restricted stock units (RSUs) and performance share units (PSUs), which reduced cash flows by $0.2 million compared to $5.0 million in the prior year period.

Reconciliation of Non-GAAP Measures

We believe that presenting certain non-GAAP financial measures enhances an investor’s understanding of our financial performance. We further believe that these financial measures are useful in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We also use certain of these financial measures for business planning purposes and in measuring our performance relative to that of our competitors.

We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term "non-GAAP adjusted EBITDA" may vary from that of others in our industry. These financial measures should not be considered as alternatives to operating income (loss), net income (loss) or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance, operating cash flows or liquidity.

We also believe presenting these non-GAAP results for the twelve months ended March 31, 2024 provides an additional tool for assessing our recent performance. Such amounts are unaudited and are derived by subtracting the data for the three months ended March 31, 2023 from the data for the year ended December 31, 2023 and then adding the data for the three months ended March 31, 2024.

Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in this section, but also give pro forma effect to certain events, including acquisitions and savings from cost reduction initiatives such as facility closures and headcount reductions.

Consolidated

(in millions)

(1) In 2024 and 2023, primarily reflects transaction costs related to certain CommScope NEXT initiatives.

(2) In 2023, reflects ARRIS acquisition accounting adjustments related to reducing deferred revenue to its estimated fair value.

(3) In 2023, primarily reflects costs of the identification, investigation, defense and recovery efforts related to a cyber incident that occurred in late March of 2023.

Reconciliation of Segment Adjusted EBITDA

Segment adjusted EBITDA is provided as a performance measure in Note 8 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein. Below we reconcile segment adjusted EBITDA for each segment, individually, to operating income (loss) for that segment to supplement the reconciliation of the total segment adjusted EBITDA to consolidated operating income in Note 8.

Connectivity and Cable Solutions Segment

(in millions)

Outdoor Wireless Networks Segment

(in millions)

36

Networking Intelligent Cellular and Security Solutions Segment

(in millions)

Access Network Solutions Segment

(in millions)

Note: Components may not sum to total due to rounding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views with respect to future events and financial performance. These forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “potential,” “anticipate,” “should,” “could,” “designed to,” “foreseeable future,” “believe,” “think,” “scheduled,” “outlook,” “target,” “guidance” and similar expressions, although not all forward-looking statements contain such terms. This list of indicative terms and phrases is not intended to be all-inclusive.

These forward-looking statements are subject to various risks and uncertainties, many of which are outside our control, including, without limitation, our dependence on customers’ capital spending on data, communication and entertainment equipment, which could be negatively impacted by a regional or global economic downturn, among other factors; the potential impact of higher than normal inflation; concentration of sales among a limited number of customers and channel partners; risks associated with our sales through channel partners; changes to the regulatory environment in which we and our customers operate; changes in technology; industry competition and the ability to retain customers through product innovation, introduction, and marketing; changes in cost and availability of key raw materials, components and commodities and the potential effect on customer pricing and timing of delivery of products to customers; risks related to our ability to implement price increases on our products and services; risks associated with our dependence on a limited number of key suppliers for certain raw materials and components; risks related to the successful execution of CommScope NEXT and other cost saving initiatives; potential difficulties in realigning global manufacturing capacity and capabilities among our global manufacturing facilities or those of our contract manufacturers that may affect our ability to meet customer demands for products; possible future restructuring actions; the risk that our manufacturing operations, including our contract manufacturers on which we rely, encounter capacity, production, quality, financial or other difficulties causing difficulty in meeting customer demands; our substantial indebtedness and restrictive debt covenants; our ability to incur additional indebtedness and increases in interest rates; our ability to generate cash to service our indebtedness; the divestiture of the Home segment and its effect on our remaining businesses; the potential separation, divestiture or discontinuance of another business or product line, including uncertainty regarding the timing of the separation, achievement of the expected benefits and the potential disruption to the business; our ability to integrate and fully realize anticipated benefits from prior or future divestitures, acquisitions or equity investments; possible future additional impairment charges for fixed or intangible assets, including goodwill; our ability to attract and retain qualified key employees; labor unrest; product quality or performance issues, including those associated with our suppliers or contract manufacturers, and associated warranty claims; our ability to maintain effective management information technology systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches, ransomware or computer viruses; the use of open standards; the long-term impact of climate change; significant international operations exposing us to economic risks like variability in foreign exchange rates and inflation, as well as political and other risks, including the impact of wars, regional conflicts and terrorism; our ability to comply with governmental anti-corruption laws and regulations worldwide; the impact of export and import controls and sanctions worldwide on our supply chain and ability to compete in international markets; changes in the laws and policies in the U.S. affecting trade, including the risk and uncertainty related to tariffs or potential trade wars and potential changes to laws and policies, that may impact our products; the costs of protecting or defending intellectual property; costs and challenges of compliance with domestic and foreign social and environmental laws; the impact of litigation and similar regulatory proceedings in which we are involved or may become involved, including the costs of such litigation; the scope, duration and impact of disease outbreaks and pandemics, such as COVID-19, on our business, including employees, sites, operations, customers, supply chain logistics and the global economy; our stock price volatility; income tax rate variability and ability to recover amounts recorded as deferred tax assets; and other factors beyond our control. These and other factors are discussed in greater detail in our 2023 Annual Report and may be updated from time to time in our annual reports, quarterly reports, current reports and other filings we make with the Securities and Exchange Commission. Although the information contained in this Quarterly Report on Form 10-Q represents our best judgment as of the date of this report based on information currently available and reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date made. We are not undertaking any duty or obligation to update this information to reflect developments or information obtained after the date of this Quarterly Report on Form 10-Q, except to the extent required by law.

There have been no material changes in the interest rate risk, commodity price risk or foreign currency exchange rate risk information previously reported under Item 7A of our 2023 Annual Report, as filed with the Securities and Exchange Commission on February 29, 2024.

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

Reference should be made to our 2023 Annual Report for additional information regarding discussion of the effectiveness of the Company’s controls and procedures. During the quarter ended March 31, 2024, the Company completed the sale of substantially all of the systems and related processes of the Home business. Except for the completion of the Home business asset migration to Vantiva, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company’s business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary from recent results or from anticipated future results. There have been no material changes to our risk factors disclosed in Part I, Item 1A, "Risk Factors" of our 2023 Annual Report.