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Operator: Good morning, ladies and gentlemen, and welcome to the CommScope’s Fourth Quarter 2022 Earnings Conference Call. . Please note that today’s conference is being recorded. I will now hand the conference over to your host, Mick McCloskey, Head of Investor Relations. Please go ahead.

Michael McCloskey: Good morning, and thank you for joining us today to discuss CommScope’s 2022 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.

Charles Treadway: Thank you, Mick, and good morning, everyone. I’ll begin on Slide 2. 2022 was a solid year of execution against our CommScope NEXT plan that we shared with you in December 2021. That plan outlined a comprehensive set of actions to streamline our business and invest in profitable growth. Despite the many challenges throughout the year, substantial supply chain shortages, and high inflation across many of our input costs, I’m very proud of our strong execution across our team to deliver against our CommScope NEXT targets. Our ability to adapt to these challenges speaks to the success of our implemented general manager model and helped return Core CommScope to a growth trajectory and restore margins to be more in line with historical levels.

From a financial perspective, for the full year 2022, consolidated CommScope net sales of $9.23 billion increased 7% and adjusted EBITDA of $1.28 billion, increased 14% from the prior year. Core CommScope delivered net sales of $7.52 billion, increasing 12% from the prior year. The strong revenue and aggressive execution on our cost programs resulted in core adjusted EBITDA of $1.25 billion, an increase of 15% from the prior year. Importantly, we met the high end of our CommScope NEXT guidepost of $1.15 billion to $1.25 billion of core adjusted EBITDA. Additionally, we reduced our net leverage ratio to 6.9x, nearly a full turn of improvement from where we began the year and within the lower end of our targeted range. Shifting to the fourth quarter, consolidated net sales of $2.32 billion increased 4% and adjusted EBITDA of $376 million increased 44% from the prior year.

For Core CommScope, fourth quarter net sales of $1.93 billion increased 10% and adjusted EBITDA of $381 million increased 50% from the prior year. Core adjusted EBITDA margin for the quarter was a healthy 20%. And as expected, our second half EBITDA led to a meaningful improvement in our cash generation as we generated $364 million in free cash flow during the fourth quarter. Our record core adjusted EBITDA performance in the fourth quarter is a testament to our continued execution of our CommScope NEXT transformation initiatives across our core portfolio, including our efforts to recover inflationary pressures through pricing initiatives in the back half of the year. Specifically, we view the substantial growth contributed by our CCS and NICS segments as the foundation to CommScope’s future.

As expected, our book-to-bill declined in the fourth quarter. However, we are in constant dialogue with our customers and expect this pause to last a couple of quarters as medium- and long-term fundamentals remain strong. We believe the short-term adjustment will give way to strong long-term demand as the network and fiber build-out is in early innings. We feel the strength in our business continues to be evidenced in our backlog, which for the Core business ended the year at over $2.9 billion. For additional context, over the last 2 years, our core backlog has grown 110%. Our book-to-bill over that time was 1.11. And in 2022, we delivered a full year book-to-bill of 1.0. Suffice to say, our business is in a significantly better position than we were 2 years ago.

With this splitting in mind, as we look to 2023, we are once again reaffirming our core adjusted EBITDA guidepost of $1.35 billion to $1.5 billion. As indicated in our third quarter call, our full year 2023 adjusted EBITDA range considers the potential for flat to low top line growth for the year. And regarding pacing throughout 2023, we expect to see a stronger second half than the first half. In addition, we expect typical seasonality, project timing and customer inventory adjustments to negatively impact our first quarter of the year. Before turning the call to Kyle, I’d like to talk about our business position to start the new year. As we’ve indicated throughout last year, we believe CCS has strong market tailwinds and that we are at the beginning of a multiyear build-out of fiber cable and connectivity.

Over the past 18 months, we have aggressively invested in our internal capacity to enable CommScope to take full advantage of carrier footprint expansion driving fiber deeper. In addition, we are all well positioned to serve demand for billions of dollars in expected government subsidies to help close the digital divide. And our innovation engine is fully engaged to deploy the products that will enable all of this to come to fruition, specifically designed to reduce installation complexity, save time and train the labor force faster. We continue to design our connectivity and cabling portfolio with these themes in mind, and we believe our innovations are driving strategic wins in the market. And more recently, we’ve continued to demonstrate our innovation and technology leadership in the market with key participants in programs like the Rural Digital Opportunity Fund.

All said, in the years to come, we view our continued technology innovations, capacity investments and customer demand will drive incremental opportunity for CCS growth. Turning to NICS. We eclipsed an important milestone in the third quarter of 2022, driving the business to significant improvement and anchoring on a trend of profitability that we expect to continue going forward. Again, evidenced in the $56 million of adjusted EBITDA delivered in the fourth quarter. While chip supply constraints remain, we continue to see signs of loosening in the market and expect gradual relief throughout 2023. Additionally, NICS ended the year with over $777 million in backlog and already representing over 80% of the revenue produced in 2022. We also continue to invest in services and recurring software as part of the segment’s transformational growth initiatives.

For the remaining core CommScope businesses, OWN and ANS, while their overall growth potentials may be more muted, our innovation engine isn’t slowing down. In OWN, as we mentioned in the latter part of 2022, we fully contemplated a decline in the U.S. carrier capital spending into our overall Core CommScope guidepost. And while this may present headwinds for 2023 revenue and EBITDA performance in the business, we expect some level of offset driven by share gains from our new technologies. This includes the MOSAIC antenna solution as well as opportunities to deliver lower power passive antennas in energy cost-conscious regions such as Europe. Finishing with ANS, we’ve discussed throughout 2022, the profitability headwinds the segment continues to face as a higher concentration of our product revenue shifts to the edge of networks.

Yet, our strong installed base and leading technologies continue to position us as a market leader. Just another example of our leadership was highlighted recently in our press release announcing a significant milestone of building and shipping more than 1 million amplifiers to top cable operators in 2022. With that, I will now turn the call over to Kyle to talk more about the year and the quarter.

Kyle Lorentzen: Thank you, Chuck, and good morning, everyone. I’ll start with an overview of our full year 2022 financial results on Slide 3. For the full year, consolidated CommScope reported net sales of $9.23 billion, an increase of 7% from the prior year. This performance was driven by growth in all core businesses with the exception of ANS and was also offset by a decline in Home. Growth in top line includes a headwind of approximately $150 million or 2% associated with the year-over-year change in FX rate. Excluding this impact, net sales grew over 9% organically. Consolidated adjusted EBITDA of $1.28 billion increased 14% from the prior year. Adjusted EBITDA growth for the full year occurred across all segments with exception of ANS.

Adjusted earnings per share of $1.66 increased by 19% from the prior year. As a result of our annual goodwill impairment testing, we reported a $1.12 billion impairment charge during the fourth quarter, which is excluded from the adjusted earnings per share calculation. For the full year, Core CommScope reported net sales of $7.52 billion an increase of 12% from the prior year. Net sales growth was led by a significant year-over-year increase in CCS, followed by NICS and OWN, while partially offset by a decline in ANS. Core adjusted EBITDA for the full year was $1.25 billion, an increase of 15% from the prior year and at the high end of our expected range for the full year 2022. Similar to net sales, core adjusted EBITDA growth was driven by increases in CCS, NICS and OWN, while being partially offset by a decline in ANS.

Turning to our fourth quarter results on Slide 4. For the fourth quarter, consolidated CommScope reported net sales of $2.32 billion, an increase of 4% from the prior year. Net sales growth was driven by our CCS, NICS and ANS businesses, partially offset by declines in OWN and Home. For the quarter, the year-over-year change in FX rates negatively impacted net sales by $44 million or 2%. Excluding this impact, fourth quarter net sales grew 6% organically. Adjusted EBITDA of $376 million increased approximately 44% from the prior year, driven by the growth in CCS and NICS. Fourth quarter adjusted earnings per share of $0.49 increased by 58% from the prior year. Core CommScope net sales of $1.93 billion increased 10% from the prior year, driven by strength in CCS, NICS and ANS.

Core adjusted EBITDA of $381 million increased 50% from prior year, driven by the strong performance in CCS and NICS. As expected and indicated throughout the second half of 2022, we continue to work through our backlog to more manageable levels as supply chain conditions have begun to stabilize, and our capacity enhancements have significantly reduced lead times. In addition to supply chain and lead time, as Chuck mentioned earlier, we saw a meaningful reduction in order input at the end of the third quarter and again during the fourth quarter, primarily related to customers adjusting inventory levels. We expect this to persist into the early parts of 2023. Our short-term visibility remains limited in certain products. Our optimism for strength in the second half of 2023 and beyond is driven by constant dialogue with our customer base.

Core CommScope ended the quarter with $2.9 billion in backlog, 110% above where it began 2021. In our fastest-growing businesses, CCS and NICS, our combined ending backlog for the year was $2.1 billion, up 190% over the last 2 years. However, as expected, the slowdown in orders during the fourth quarter yielded a fourth quarter book-to-bill of 0.63 for Core CommScope. As Chuck previously mentioned, these lower order rates have been incorporated into our expectation to deliver full year 2023 core adjusted EBITDA within the range of $1.35 billion to $1.5 billion. Looking to the first quarter, we expect sequential net sales and adjusted EBITDA to be down more than the typical seasonal decline in the Core business. Despite the sequential decline, however, on a year-over-year basis, we would expect a significant improvement in core adjusted EBITDA performance.

And similar to 2022, we would expect to see a strong improvement sequentially from the first half to the second half of 2023. Turning to our fourth quarter segment highlights on Slide 5. Starting with CCS, net sales of $957 million increased 19% from the prior year. Fourth quarter growth in fiber once again drove the segment performance, increasing 40% across the entire fiber portfolio. And for the full year 2022, fiber products grew 41%. As indicated on our third quarter call, we saw weakness in our structured copper cable business on a year-over-year basis and sequential basis, mainly attributable to inventory builds within distributor channels and project delays. CCS adjusted EBITDA of $188 million grew 93% and as the segment benefited from increased volume, price and operational efficiencies.

Looking forward into 2023, we expect the business to improve on a year-over-year basis driven by continued market growth and a full year impact of the inflation-related pricing. Sequentially, in the first quarter, we expect CCS to be down given typical seasonality in addition to continued inventory adjustments in the channel. However, as mentioned earlier, CCS customer conversations remain bullish on medium- and long-term growth. Despite chip constraints, NICS’ net sales of $289 million grew 20% from the prior year, driven by volume and price. NICS growth was once again led by Ruckus, growing significantly year-on-year as well as sequentially, delivering another record quarter of revenue. And as Chuck mentioned, we are exiting the year with $777 million of backlog in NICS.

Although improving semiconductor chip constraints will continue to impact the business in 2023. NICS’ adjusted EBITDA of $56 million increased by $50 million from the prior year. This strong performance is representative of the team’s successful execution and the challenging chip supply environment, all the while continuing to invest in future product offerings. Additionally, the fourth quarter performance included onetime benefits to profitability that we do not expect to occur going forward. In addition to chip availability impacting EBITDA, we also expect to maintain a healthy level of investment in R&D. OWN net sales of $305 million declined 19% from the prior year. OWN adjusted EBITDA of $41 million declined 23% from prior year, primarily driven by the decline in volume, in addition to a $21 million bad debt charge related to one specific OWN customer.

As previously indicated, we view the long-term opportunity for OWN as having low single-digit growth. That said, 2023 presents anticipated headwinds that will position OWN’s top line to decline in the year. This is primarily driven by the expected reduction in North American operator capital expenditures. Offset, to some extent, with new product innovations discussed throughout the last few quarters, such as our MOSAIC antenna solution. It’s also important to highlight that this potential outcome has been previously contemplated in our full year 2023 core adjusted EBITDA guideposts. In our ANS business, net sales of $375 million, increased 15% from the prior year, primarily driven by growth in Access Technologies. Adjusted EBITDA of $95 million declined approximately 2% from the prior year driven by the negative mix impact of operator spend shifting to the edge, discussed at length in previous calls.

However, as expected, the fourth quarter performance represents better mix sequentially from the third quarter, given the timing of certain projects and software license purchases at the end of the quarter. For ANS, we would expect 2023 adjusted EBITDA margins to be in line with full year 2022 EBITDA margins, reflecting a higher concentration of lower-margin edge products such as nodes, amplifiers and tabs. In addition, on a sequential basis, we would not expect the same impact of project timing and higher-margin product mix to benefit the segment during the first quarter. Finishing up our segment highlights with Home Networks. Home net sales of $392 million, declined 18% from the prior year and across both video and broadband businesses given weak demand.

Adjusted EBITDA of negative $5 million declined $12 million from the prior year, primarily driven by lower volume. While we expect Home Networks to be profitable for the full year 2023, performance improvements will be significantly weighted to the second half of the year. Home will likely remain challenged with profitability during the first quarter given the expectation of weak demand and customer inventory adjustments. We maintain the belief in the strategic rationale to separate Home from Core CommScope. However, we continue to focus on implementing transformation initiatives to improve their current performance, which will take multiple quarters. Turning to Slide 6 for an update on cash flow. As indicated on our prior call, the fourth quarter delivered a substantial improvement in our cash flow generation.

Cash flow during the fourth quarter was driven by strong EBITDA and improving supply chain conditions that allowed us to moderate inventory growth. We generated approximately $387 million in cash from operations, free cash flow of $364 million adjusted free cash flow of $403 million during the fourth quarter. As a result, also indicated on prior earnings calls, this significant cash generation drove our full year positive with cash from operations, free cash flow and adjusted free cash flow to $190 million, $89 million and $198 million, respectively. Looking forward, while we expect to generate meaningful improved cash flow for the full year 2023, I’d remind you that the first quarter is historically a significant use of cash to start the year.

specifically because it is our second highest interest-paying quarter and the timing of our annual incentive payouts. As we indicated during the fourth quarter, we would expect the midpoint of our EBITDA guidepost for 2023 to deliver $400 million to $500 million of free cash flow for the year. This contemplates a more normalized conversion of EBITDA to cash. Turning to Slide 7 for an update on our liquidity and capital structure. During the fourth quarter, strong cash generation notably improved our overall liquidity position. We ended the quarter with $398 million in global cash. Total cash and liquidity for the quarter was $1.31 billion, a 41% improvement from the prior quarter. As previously disclosed during our third quarter release, this cash position reflects a full repayment of the $105 million drawn on the ABL at the end of the prior quarter, which was made in late October.

Other than the full ABL revolver repayment, we made no incremental debt repayments outside of our required $8 million of term loan amortization. The company ended the quarter with net leverage of 6.9x, nearly a full turn improvement from the prior quarter end and prior year-end of 7.8x also within the lower end of our previous provided range of 6.8x to 7.2x for the full year 2022. I’ll now turn it over to Chuck to provide some closing remarks and perspective on 2023.

Charles Treadway: Thank you, Kyle. I’m now on Slide 8. Throughout 2022, CommScope has demonstrated strong execution in an extremely dynamic environment and delivered on our previous commitments to grow our core profitability, reduce our net leverage ratio and put us on the right path to enhanced shareholder value creation. The current economic environment that we operate in today is highly uncertain. However, based on conversations with our customers about 2023 and our backlog position, we are reaffirming our expectations to deliver full year 2023 core adjusted EBITDA in the range of $1.35 billion to $1.5 billion. The midpoint of this range assumes relatively flat year-on-year top line growth. Despite the uncertain near-term economic environment, as Kyle and I have mentioned during our prepared remarks this morning, we believe that our significant backlog to start the year and CommScope NEXT initiatives provide a strong foundation for the company to continue to grow and create value.

We’ve invested in driving organic growth, including capacity expansions, restored our core margins in line with historical levels, implemented a general manager model to enhance our accountability and visibility, captured efficiencies throughout the organization and continue to invest in growth and innovation to fuel our future. CCS and NICS are a testament to the progress we’ve made in 2022, given their combined 21% year-over-year net sales growth and combined adjusted EBITDA improvement of $262 million. I’d like to thank you for your interest in supporting CommScope and belief in our ability to continue to drive transformative change, which we believe will continue to unlock significant value for our shareholders. And with that, we’ll now open the line for questions.

Operator: . And our first question coming from the line of Tal Liani with Bank of America.

Tal Liani: I have two questions. First is, can you go over kind of your plans for debt reduction you gave guidance about a year ago and just speak about your plan? And where are you on this plan? The second is we know CapEx is slowing for service providers, which is the majority of your target market and we are also seeing your comments about orders. What gives you the confidence that second half is going to be better than first half?

Kyle Lorentzen: Okay. I’ll take the first question and Chuck can get the second one. Just as we start generating cash and dealing with our debt, I mean we continue to be focused on de-levering I think as we made — as we said in our prepared remarks, Q1 is a use of cash as we think about the payment of our incentive plans and the higher interest quarter. I think as we move through the year, we’ll finalize the technical plan as we start moving into the second quarter. And we continue to be committed to using the cash to de-lever. We don’t have necessarily a detailed plan now, but the intent is just to continue to de-lever as we generate the cash.

Charles Treadway: Tal Liani, I’ll take your second question and our confidence to achieve the point, the $1.35 billion to $1.5 billion, and our strength, saying the second half will be stronger than the first. I would start by saying, confidence in the $1.35 billion to $1.5 billion is that we built in a low growth into our model. The second thing is we have $2.9 billion of backlog and significant progress with CommScope NEXT. We have initiatives that are already in place that we’ll see the full run rate of those initiatives flowing through in ’23 as well as new initiatives that are coming in, in ’23. And I’d close by just saying we have — we’re in constant conversations with our customers and everyone seems to be bullish, medium, long term. They do have to get through this project delays and inventory adjustments, but everybody remains bullish longer term.

Kyle Lorentzen: Yes. The only thing that I would comment on that as well is when we think about our guidepost on EBITDA, the $1.35 billion to the $1.5 billion, we — as Chuck mentioned, we have sort of flattish to very little growth built into that model. And in that model, we’re assuming that our book-to-bill is going to be less than 1 for the year, actually to achieve sort of in the midpoint of that range, we could — our book-to-bill could be 0.8, and we feel comfortable that would still get us within the guidepost.

Operator: . And our next question coming from the line of Shannon Cross with Credit Suisse.

Shannon Cross: Good to speak with you. I’m wondering, relative to maybe a quarter or 2 ago, how are your thoughts progressing regarding all of the government funding that’s coming? As you talk to some of your partners, do you feel like the timing is still where you thought it would be? Or maybe is it pushed out a little bit? And then I have a follow-up.

Charles Treadway: I would say the timing is still where we thought it would be. I would say that we’re still in the early innings. But we’re in a constant dialogue, both at the state level and the federal level as funds are starting to be allocated or already flowing. So we think that, that’s actually in pretty good shape.

Shannon Cross: Okay. Great. And then just with regard to working capital, as you think about cash generation this year and maybe as you look forward, is inventory still a significant generator of working capital? How are you thinking about it given the ongoing supply constraints and timing of that coming through?

Kyle Lorentzen: I think as we’ve mentioned in the past, clearly, the supply constraints, particularly on the chip side have resulted in higher inventory levels for us as we think about 2023, although we think it will be a little bit improved. We feel like the chip environment is still going to be challenged, and we don’t really expect to see a lot of cash flow coming from a reduction in inventory. I think we’re not there yet based on what we’re seeing from a continued supply challenges in chips, although, as I said, better, still a little bit challenged.

Shannon Cross: Okay. It seems like you have a pretty conservative outlook to ’23 given what you’ve done in ’22.

Kyle Lorentzen: I wouldn’t comment on that. I mean our model is our model.

Operator: . And our next question coming from the line of Steven Fox with Fox Advisors.

Steven Fox: I had two questions. First of all, Chuck, I know you mentioned with the guidance that there’s a lot of projects underway that you get the full benefit of and then new initiatives. I’m just wondering how much further you think you could control your destiny in 2023 should sales may be slightly disappoint sort of the flattish outlook given that you also have projects. I know that would help you in years beyond this year? And then I have a follow-up.

Charles Treadway: Yes. I feel good where we are, Steve. And as Kyle just mentioned, that 0.8, if we get the 0.8 book-to-bill, which we feel pretty confident in, then we’ll have enough backlog to kind of cover through this adjustment period. And as I mentioned, everybody feels — remains bullish mid- to long-term. In terms of CommScope initiatives, I mean, this is something we put in place. We’ve been running this program now for more than a year. And we’re seeing — the team is really starting taking not to use initiatives again, but they’re taking an initiative here to find opportunities to save money to cut waste, to find opportunities for growth. And I’m really proud of where the team is and what we’ve dealt with this year. I remain confident in the $1.35 billion to $1.5 billion. Frankly, I thought we’d be a lot further ahead of this. It’s just — we had just a lot of disruptions.

Steven Fox: Great. That’s helpful. And then just in terms of your own fiber cable expansion plans, can you just sort of update us on where you’re at, has anything changed and how we look at that vis-a-vis your largest competitor in terms of impacting lead times and stuff like that?

Charles Treadway: Yes. I really appreciate that question because I believe the capacity that we installed and we installed earlier than everyone else allowed us to grow faster than the market. I think that also has an impact on book-to-bill because I believe we were able to ship out a lot more of our backlog than others and our growth higher than the market in many — in those segments. And so — again, I feel good about our guidepost and where we are.

Operator: . And our next question coming from the line of Simon Leopold with Raymond James.

Simon Leopold: I imagine this might be a bit sensitive, but lucky Charter had announced a large network upgrade strategy back in December. And I’m trying to get a good sense of how you view the opportunities and the implications. And if you want to speak generically about cable trends, that’s great, but love to really gain insight on the Charter impact for you guys? And then I’ve got a quick follow-up.

Charles Treadway: As you would expect, I mean, we’re in constant dialogue with our customers about new opportunities and new products. Obviously, we’re not going to go and mention specific customers or products. But I would comment that as a leader in this space, we’re involved in most, if not all, bids. And as the network moves more to the edge, we’re focused on maintaining our market-leading position with those products. And you think about the amplifiers and the nodes, the hardware as well as you’re aware, we announced that we’re going to support our customers, whichever path they go, whether that’s with Remote MACPHY, Remote PHY, with virtual CMTS or E6000, we’re here to support them whichever way they go. So that’s how I’d leave it.

Simon Leopold: Okay. And then I just wanted to follow up. On the performance for gross margin in December, when you discuss segments, there are a number of segments, you mentioned, had some outperformance that may not be sustainable. But I guess what I’m really trying to get a better sense of which of the segments really drove the sequential improvement in your gross margin for the fourth quarter versus September. It does look like something or some elements must have taken some pretty big jumps. I want to make sure I’m quantifying those.

Kyle Lorentzen: Yes. So clearly, as we have been — as we went through 2022, quarter sequentially, as we implemented our price changes to offset inflation. We saw in many of the businesses, an improvement in EBITDA sequentially through the year. As we think about the fourth quarter, the performance in the NICS business has been helpful to us as that is a — on a gross margin basis, that’s one of our higher gross margin segments. So I mean I think it’s a trend of sort of all the businesses generating improvement through the price increases. And then we clearly had a strong result in our NICS business, which again helps us from a margin standpoint.

Operator: And our next question coming from the line of Matthew Niknam with Deutsche Bank.

Matthew Niknam: I want to go back to backlog. By my math, it looks like total backlog for the Core was down roughly $1 billion this quarter. I’m just wondering if there’s any additional color you can share here, just in terms of orders and backlog, especially for the Core business. And then on OWN, just curious how long you’d anticipate these depressed trends continuing? And if the revenue trend here continues, how would margins trend for this segment in ’23?

Kyle Lorentzen: Yes. Yes. So on the backlog side, clearly, we’ve indicated that where our book-to-bill was. And I think as we’ve made comments in previous calls, we expected our backlog to come down, right, as we brought capacity on. So I don’t — I think the backlog reduction that we’ve seen is not something that is surprising to us. And to be honest with you, I think we’d expect that to continue to come down to more normalized levels as supply chains get better and as our capacity comes online and our lead times improve. Customers just — they don’t need to go out and get in line because our lead times are now weeks, whereas earlier in 2022, we were talking about multi-month lead times. So I think that’s on the backlog question, that’s our answer there.

I think on the OWN side, clearly, we’re seeing a reduction in the North American carrier spend that has an impact on us. We’ll see that in ’23 and we’ll continue to monitor that as they move into ’24. I think offsetting that, as I think we made comments in the prepared remarks, we’re aggressively going after new products to offset some of that as we think about opportunities to increase our market share with our MOSAIC antenna. We’re working on antenna solutions that are more energy efficient. So I think even though we see some reduction in the carrier spend in North America, we also are combating that with some of the new products that we’re launching.

Matthew Niknam: Got it. If I could just follow up real quick on sort of a normalized backlog. We obviously can follow sort of the total Core numbers you provided in the . But is that sort of assumed to be like a $2 billion-ish number that you were at the end of 2020 before a lot of these supply chain issues began to really pick up?

Kyle Lorentzen: At the end of 2020, our backlog was about $1.4 billion. Just to give you an order of magnitude.

Matthew Niknam: And that’s the Core business, correct?

Kyle Lorentzen: That was for Core.

Operator: And our next question coming from the line of with Morgan Stanley.

Karan Juvekar: This is Karan Juvekar on for Meta. So I just wanted to touch on the NICS segment. Just — I just wanted to get an idea of how supply chain is resolving there? And has it come closer to resolution? And generally, I appreciate sort of your demand commentary there and maybe a little bit of a slowdown. But generally, how is the pipeline looking there? And sort of how — how do you expect the pipeline to trend across the year? And then I have a quick follow-up.

Charles Treadway: Yes. So we — in terms of supply chain, I would say that things are loosening up. They’re still the 1 ship in some cases that we’re waiting for and looking for, but I’m very proud of our teams, specifically in engineering and product management and in procurement to just get ahead of the curve and just be extra quick on substitutions, testing and redesigns to design in parts that are available. I would say the most encouraging piece for me and for you would be the backlog of NICS, which is $777 million, which we’re really, really happy about. And when we get parts, I mean this thing could go really well. We’re not seeing demand slowdown. In fact, in many of the places we are, I mean, there’s still very strong interest in getting parts early if we have them and try to help them do more with the projects they have ongoing right now. So we feel good about that business.

Karan Juvekar: Okay. Got it. And then just a follow-up on sort of the price increases. I know just generally some of the commodity prices have come in — so are there any — are you getting any pushback? Or there are price increases still holding in as some of those prices have come in? Or any updated thoughts around price increases?

Charles Treadway: Well, in terms of price, I would say — let’s just talk about costs for a minute. I would say our costs are pretty constant in terms of where we are. I mean we have some costs that actually have gone down. We have some costs that have gone up. But I’d say, overall, we’re more flat. In terms of we’re hearing about there’s still price increases going on in the marketplace, and we feel good about where we are with our pricing. I don’t know if you’d add anything to that Kyle?

Kyle Lorentzen: No. I mean to Chuck point, I think that as we think about — as we roll up the inflation curve, even though there are some things that are down, there’s also other things that are up. And I think we still feel like the level of our input costs are high, and we haven’t seen, on a net basis, a significant change in that. So I think our — we feel like our pricing is in line with where the input costs continue to be.

Karan Juvekar: Okay. Got it. That’s helpful.

Operator: And our next question coming from the line of Tim Savageaux with Northland Capital.

Timothy Savageaux: Just wanted to follow up on Simon’s question a little bit on the ANS front and without commenting specifically on very large upgrade opportunities. I think you mentioned an expectation for flat EBITDA margins in ANS in the year. I don’t know if you discussed growth potential. I mean you grew double digits in Q4. Can that continue into next year? Or what kind of overall growth expectations would you give us for ANS?

Kyle Lorentzen: Yes. I think as we talked going back to our Investor Day in that business, there’s a lot of moving parts in the business as it goes from head end to the edge. I mean I think we still think that, that business is a lower growth business relative to maybe CCS and NICS. So — I mean we don’t expect a lot of top line growth, at least in ’23 in that business. I mean, I think we feel like it probably be in line with our overall guide, which is flat to low growth.

Operator: And our next question coming from the line of Amit Daryanani from Evercore ISI.

Amit Daryanani: I have 2 as well. First, I was hoping you could maybe spend a little bit more time talking about how do you do free cash flow stack up in versus the $200 million number in ’22. I know you talk of EBITDA going up by about $125 million. So do you think a lot of that or maybe you can talk about what percentage that do you think can flow into those free cash flow number? Is there any range that we give on ’23 free cash flow would be really helpful. And then I hold you on Q1 being negative for all the reasons we outlined. Last year, as I recall, I think Q2 was also negative. So should we think of free cash flow being more H1 negative, H2 positive and then any rate any you could quantify the numbers of ’23 would be really helpful.

Kyle Lorentzen: Yes. So in our prepared remarks, we talked about our free cash flow projection for ’23 is in the $400 million to $500 million range. And Q1 will be a lower number than Q2, Q3 and Q4, which is a normal — is the normal trend last year, as we talked about, was impacted from some of the inventory builds driven by the supply chain issues that we had, particularly in the semiconductor chips.

Amit Daryanani: Got it. I missed that disclosure from clearly. And then if I think about the ’23 EBITDA numbers that we’re talking about, right, and I think the $125 million of uplift EBITDA dollars year-over-year, is there a way to think about how much of that is driven by just from a segment or mix perspective versus benefits from CommScope NEXT? I’m just trying to get a sense of how much of this is self-help levers versus maybe one of the segments which is higher margin, like NICS is going to grow for you. Is there any color on kind of self-help versus revenue-driven tailwinds for EBITDA growth in ’23 would be helpful.

Kyle Lorentzen: Yes. like anything, it’s a blend of the CommScope NEXT actions that we’ve undertaken, and it’s not just the ones that we’re going to do in ’23, it’s the full year run rate of the things that we did in ’22 and then I think in our guidepost, we’ve talked about the fact that we’ve built into those guideposts from ’22 to ’23, flattish to low growth revenue within that band. And I think when you think about that, a minute, we’ve provided some context on the call about, “Hey, our OWN segment is going to be impacted by some of the carrier spend.” And I think we feel like some of the other businesses have better growth opportunities. So net-net, it’s flat, but there’s going to be some businesses that are down and some that are up.

And I think when you think about what’s being driven by CommScope NEXT, there’s not a specific number, but we should think about, yes, some of the actions that we’re taking in — have taken in ’22, we’re now starting to get the full year impact of that, which is helping the overall EBITDA number improved from ’22 to ’23.

Operator: I will now turn the call back over to Mr. Chuck Treadway for any closing remarks.

Charles Treadway: Well, I would like to thank everyone for your support and interest in CommScope, and I hope everyone has a great rest of the week. Thank you.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.