Jennifer Crawford - CommScope Holding Co., Inc. Mark A. Olson - CommScope Holding Co., Inc. Marvin S. Edwards, Jr. - CommScope Holding Co., Inc..

Amir Rozwadowski - Barclays Capital, Inc. Rod B. Hall - JPMorgan Securities LLC Meta A. Marshall - Morgan Stanley & Co. LLC Vijay Bhagavath - Deutsche Bank Securities, Inc. Daniel Joseph Bartus - Bank of America Merrill Lynch Steven Fox - Cross Research LLC Shawn M.

Harrison - Longbow Research LLC Avi Silver - CLSA Americas LLC Jess Lupert - Wells Fargo Securities LLC George C. Notter - Jefferies LLC Mark Delaney - Goldman Sachs & Co. Victor W. Chiu - Raymond James & Associates, Inc. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC (Broker) Walter Piecyk - BTIG LLC.

Good day. My name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone to the CommScope Third Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

At this time, I would like to turn the show over to Jennifer Crawford, Director of Investor Relations. Please go ahead..

Thanks, Carmen. Good morning and thank you for joining us today to discuss CommScope's third quarter 2016 results. With me on the call are Eddie Edwards, CommScope's President and CEO; Mark Olson, CommScope's Executive Vice President and CFO; and Phil Armstrong, CommScope's Senior Vice President of Corporate Finance.

You can find the slides that accompany this review on our Investor Relations website. Now to our housekeeping items. On slide two, you will find our cautionary language related to forward-looking statements.

During this conference call, we will make forward-looking statements regarding our financial position, plans, and outlook based on information currently available to management, management's belief, and a number of assumptions concerning future events.

Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, which could cause the actual results to differ materially from those currently expected.

For a more detailed description of factors that could cause such a difference, please see our third quarter 10-Q filed earlier this morning and other SEC filings. In providing forward-looking statements, the company is not undertaking any duty or obligation to update these statements as a result of new information, future events or otherwise.

Please note all dollar figures and percentages are approximations. In addition to GAAP information, we will provide certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides additional meaningful information to investors.

Detailed reconciliations of GAAP to adjusted measures can be found in the appendix to our slide presentation. In addition, we will be discussing pro forma BNS results for the third quarter of 2015 as though the acquisition had been completed on January 1, 2015. This pro forma information has not been prepared in accordance with U.S.

Generally Accepted Accounting Principles. Accordingly, the pro forma financial information may not be indicative of the results that would have been realized. Slide three is our agenda for this morning.

Mark will review the highlights of our third quarter, discuss quarter results, review our two segments' performance, discuss cash flow, liquidity, and capital structure, review our BNS integration progress, and then provide our outlook for the fourth quarter and calendar year 2016.

Finally, Eddie will make closing comments before we open the line for Q&A. To make sure everyone has the opportunity to ask a question on today's call, we request you ask one question and return to the queue for any additional questions. I will now turn it over to Mark.

Mark?.

Thanks Jennifer and good morning all. Turning to slide four, you'll see the highlights of our third quarter results. We're proud of our third quarter performance. Revenue on a pro forma basis for the BNS acquisition increased 4% year-over-year, driven by strength in our North American fiber-to-the-X.

In addition to top-line growth, we generated strong margins in the quarter. Our gross margin for the second consecutive quarter was a robust 42%, while our adjusted operating margin for the current quarter was a healthy 23%. This speaks to our ability to execute on our integration while continuing to manage cost effectively.

Due primarily to these strong margins, our adjusted EPS was up 53% year-over-year and cash from operations increased 128% year-over-year. We're using our strong cash generation to continue to repay debt, and we voluntarily repaid $650 million over the last year.

Our net leverage ratio is now below 4 times, which is a reduction of more than one full turn since the end of last year. Lastly, we're pleased to increase our full year 2016 adjusted EPS expectations to $2.57 to $2.62 per share which is a year-over-year increase of 40% at the midpoint.

Now let's turn to slide 5 for a further detail on our third quarter results. We're pleased to report third quarter sales of $1.29 billion, which was consistent with our guidance and an increase of 33% year-over-year.

On a pro forma basis for the BNS acquisition, revenue increased 4% year-over-year, driven primarily by strong North American growth in both segments. The benefit of an extra week of BNS results in the current quarter was effectively offset by ongoing product rationalization and foreign-exchange rate changes.

International weakness partially offset North American growth. Orders were $1.23 billion during the third quarter, which provided a book-to-bill ratio of 0.95 times. The book-to-bill in the Mobility Solutions segment was 1.03 times and the book-to-bill in the Connectivity Solutions segment was 0.91 times.

This book-to-bill reflects typical seasonality and a weak international economic environment. The Connectivity Solutions book-to-bill was also affected by timing of project driven fiber-to-the-X spending in the Asia-Pacific region. For the second consecutive quarter, we delivered gross margin of 42%, a significant increase over prior year.

The increase was driven by higher margin BNS products and ongoing focus on cost management and favorable changes in geographic and product mix. For the quarter, GAAP operating income was $181 million.

Excluding intangible amortization and other special items, non-GAAP adjusted operating income increased 48% year-over-year to $297 million or 23% of sales. This increase was also driven by higher margin BNS products, cost reductions and favorable mix. For the quarter, GAAP net income increased to $94 million or $0.48 per diluted share.

Excluding special items, non-GAAP adjusted net income increased to $159 million or $0.81 per diluted share, up 50% year-over-year. I'll now discuss our third quarter performance in both of our segments, starting with the Connectivity Solutions segment on slide 6.

Connectivity Solutions segment sales increased 68% to $819 million due to incremental revenue from the BNS acquisition.

On a pro forma basis for the BNS acquisition, Connectivity Solutions segment sales grew 9% year-over-year, primarily due to strong double-digit fiber-to-the-X growth in both the North American and Asia-Pacific regions and an extra week of BNS results in the current quarter.

This growth was partially offset by slower spending in other major geographic regions, foreign exchange rate changes and product rationalization. Clearly, North American outdoor network solutions were a bright spot for us again this quarter.

North American service providers continue to drive fiber deeper into their networks for both residential and commercial applications. We're still in the midst of adding to our fiber capacity and expect to continue doing so for the remainder of the year. We believe that we are on a multiyear build in the U.S.

and expect solid growth in this portion of our business for the next several years. The results of our indoor network solutions business were mixed. Our indoor solutions which are found in commercial buildings, data centers, central offices and cable TV headends, continue to be affected by the overall economic environment.

While our North American enterprise business grew slightly year-over-year, we saw cautious spending outside of the U.S., particularly in the Middle East and Latin America. As you may recall, the enterprise market is our most economically sensitive business.

Longer term, we expect improved performance in our enterprise business as we complete integration activities and as data center growth continues. In the quarter, Connectivity Solutions segment adjusted operating income increased 86% year-over-year to $189 million or 23% of Connectivity sales.

A more than 200 basis point year-over-year increase in adjusted operating income margin was due primarily to higher margin BNS products and benefits from cost reduction initiatives. We are proud of our Connectivity Solutions segment third quarter results.

The team is working hard to integrate BNS effectively and efficiently drive synergy realization and expand capacity. Let's turn to slide 7 to discuss a few highlights of our fiber-to-the-X portfolio. Our customers are pushing fiber deeper into every network. They are investing in broadband to deliver higher-speed data to a home or business.

They're investing in fiber to macro cell towers, metro cells and small cells. And they're investing to enable network virtualization in wireless networks. These networks are capital intensive with a high portion of deployment costs related to labor in the field. We create innovative solutions to reduce the time and expense of deployment.

This slide reflects our broad fiber-to-the-X product portfolio, which includes solutions for central office headend in both feeder and distribution sides of the network.

These passive products include a robust fiber distribution hub portfolio, fiber-optic splice closures, multi-port service terminals, optical terminating enclosures and fiber optic cabling. For example, on the right side of the slide, you'll see our recently introduced fiber distribution hub that we believe is the smallest footprint in the industry.

The smaller size allows for more flexible installation sites. The lighter weight supports faster installation. In addition, it has the capability to be buried in ground. The ability to bury the hubs provides security against vandalism and can eliminate the need for the municipal permitting process.

As an industry leader in fiber distribution hubs with over 40 patents related specifically to the hubs, our broad portfolio enables us to help customers identify the most effective and cost-efficient solution for their deployment needs.

Another example of our innovation to address fiber network deployment difficulties is our broad offering of plug-and-play hardened Connectivity Solutions. We offer both OptiTAP compatible solutions as well as DLX hardened connector solutions, which maintain a smaller form factor for space constrained network deployments.

As you can see by the middle picture on this slide, the DLX hardened connector system is a smaller connector, adapter and terminal allowing for higher density fiber in a smaller space. While the DLX multi-port service terminal accommodates 12 connector ports in the same footprint as the current four port OptiTAP compatible solution.

Again another innovation that focuses on smaller, higher density hardened connectivity that's flexible and easier to install. We're focused on enabling solutions for our customers to build an effective and efficient fiber-to-the-X network.

With our technological capabilities and diverse portfolio, we can help service providers lower CapEx by creating solutions that shift labor from the field to the factory.

We're proud of the breadth of our technologically advanced fiber-to-the-X portfolio which we believe positions us well to capitalize on the expected fiber growth for the current and upcoming fiber network builds. Moving on to slide eight, I will now discuss our performance in the Mobility Solutions segment.

Mobility Solutions segment sales declined 2% year-over-year to $475 million, primarily due to weaker international spending and product rationalization. On a pro forma basis for the BNS acquisition, Mobility Solutions segment sales declined 4% year-over-year.

Sales were negatively impacted by ongoing product rationalization and foreign-exchange rate changes. North America again remained a bright spot for Mobility Solutions as well. Ongoing investment and densification by certain North American service providers drove low double-digit pro forma sales growth in the U.S.

despite ongoing product rationalization within the BNS wireless portfolio. However, this solid performance was offset by declines in other major geographic regions. Sales were particularly slow in India due mainly to the impact of the Indian spectrum auction which was recently completed.

We're pleased with our Mobility Segments' profitability in the quarter. Adjusted operating income increased 8% year-over-year to $107 million or 23% of sales.

The approximate 200 basis point year-over-year increase in adjusted operating margin was primarily driven by favorable geographic and product mix and product pruning, partially offset by lower sales volumes and increased R&D ending, as we continue to invest in small cell technology.

Over the near-term, we remain cautious in the international markets given global economic uncertainties. Longer-term, we expect demand for Mobility Solutions to be positively affected by wireless coverage and capacity expansion in emerging markets and the increasing demand for mobile broadband in developed markets.

As a leader in the industry, we continue to assist operators in transitioning over to a more flexible and efficient network, including adapting to network virtualization, cloud RAN and 5G. Next, I'll discuss cash flow and liquidity on slide nine.

During the third quarter, CommScope generated $257 million of cash from operations, invested $15 million in capital expenditures, net of $2 million CapEx related to the BNS integration and we paid $17 million in integration and transaction costs, primarily related to the BNS acquisition.

We also paid an $8 million debt redemption premium to redeem the remaining $237 million of our PIK notes in August. Adjusted free cash flow for the quarter was $266 million, a 73% increase over the prior-year period.

This increase was driven by the BNS acquisition, the year-over-year improvement in profitability, favorable geographic mix and an ongoing focus on improving working capital performance. Adjusted free cash flow for the 12 months ended September was $671 million, up 94% year-over-year.

We ended the quarter with $948 million of total liquidity, comprised of $517 million of cash and cash equivalents and availability under our credit facility of $431 million. We're very pleased with our strong cash flow performance. As we've often noted, we focus on bottom-line results.

We continue to prune less profitable product lines which dampen top-line growth but drive enhanced profitability and cash flow. Turning now to slide 10, I'll discuss our capital structure.

The left side of the slide shows our capital structure and net leverage ratio of 3.97 times at the end of the quarter, down from 5 times on a pro forma basis for the BNS acquisition at the end of last year. We're proud that our net leverage is now below 4 times.

We have repaid $650 million in debt during the past year which is a testament to our strong cash generation. We expect continued improvement in our net leverage in the fourth quarter. The right side of the slide shows our major debt maturities. In October we re-priced our term loan debt due 2022, lowering the interest rate by 50 basis points.

We're very pleased with the repricing results which will save us approximately $6 million in annual cash interest. Finally, our outlook is shown on slide 11 and I'll highlight a few items. For the fourth quarter, we expect revenue of $1.14 billion to $1.19 billion.

GAAP earnings per diluted share of $0.18 to $0.20 based on 197 million in weighted average diluted and adjusted earnings of $0.54 to $0.59 per diluted share, up 35% year-over-year at the midpoint. For the full year, we now expect revenue of $4.885 billion to $4.935 billion.

GAAP earnings per diluted share of $1.03 to $1.05 based on 196 million weighted average diluted shares and adjusted earnings per diluted share of $2.57 to $2.62 per share and finally cash flow from operations of more than $550 million. We're pleased with our full-year 2016 expectations.

You'll recall that when we started the year we expected 2016 revenue of around $5 billion and an adjusted EPS midpoint of $2.30 per share. While we currently expect revenue to be slightly below $5 billion, we have significantly outperformed on the bottom line, delivering almost $0.30 more in adjusted earnings per share at the current midpoint.

Driving this performance is healthy adjusted operating income, which we expect to rise nearly $300 million or 41% year-over-year at the midpoint. We expect adjusted EPS to grow a strong 40% year-over-year. And we also expect cash from operations to increase over 80% year-over-year.

These expectations are a result of the dedication of the entirety CommScope team. They highlight our focus on delivering solid bottom line results and cash generation and speak to the power of portfolio management and product rationalization.

And with that, I'll turn the call over to Eddie to discuss his thoughts on the quarter before Carmen opens the call for Q&A.

Eddie?.

Thank you, Mark. Turn to slide 12, I'll summarize our quarter. We're pleased to deliver strong third quarter results that exceeded our expectations. We're particularly proud of our robust cash profile that allowed us to pay down additional debt and drive our net leverage ratio below 4 times.

Additionally, we continue to focus on integrating the BNS acquisition quickly and effectively. Year-to-date, we have achieved approximately $75 million in cost synergy realization and continue to ramp this number.

We're well on track to achieve our current synergy plan of greater than $100 million in 2016, and greater than $200 million by the end of 2018. While early integration activities have been successful, we still have much hard work in front of us.

We're in the midst of a significant IT systems cut-over, which will continue over the next several quarters. Early progress has been encouraging. And we are focused on continuing to execute on our integration plans to drive significant shareholder value.

As Mark discussed, we believe we're in the early stages of a multiyear fiber network build cycle with North America leading the way. Our customers are pushing fiber deeper into the networks. As a result, we saw strong double-digit growth rates in our FTTX business in the third quarter. And we expect a healthy FTTX market for the foreseeable future.

We are well positioned to benefit from the expected FTTX growth because of the breadth of our technologically advanced portfolio. North America, once again proved to be the bright spot for our Mobility Solutions segment as we saw low double-digit growth on a pro forma basis in North America, despite ongoing product rationalization.

In contrast, weak macro economic conditions still persists throughout Europe and Latin America. This uncertainty has dampened international spending. Despite the lukewarm international environment and overall lumpiness of the wireless business, we remain confident in our long-term position.

Overall, we're well positioned to help customers transition to the networks of the future with our robust fiber portfolio and technology-leading wireless solutions.

Smartphones, social networks, cloud computing, big data, mobile video and network connected every-day gadget are changing how we connect to each other and creating a future filled with even more promising connected lifestyle and business innovation.

This insatiable demand requires better network coverage, greater broadband access and increased data storage, creating a distinct need for fiber optic and wireless connectivity. We believe fiber and wireless technologies will be the essential building blocks of virtually all bandwidth intensive networks of the future.

Our customers are investing in all aspects of their networks, into core, access and edge including wireless network virtualization that requires fiber fronthaul, crosshaul and backhaul, fiber to the home, or fixed wireless as the last mile.

5G networks that will require densification with small cells, backhauls with fiber, and hyper-scale data centers to support cloud computing and big data. With our broad fiber and wireless portfolio we're well-positioned to enable customers to transition their networks to respond to the ever-growing demand for bandwidth.

We remain focused on positioning the company for long-term success, by delivering profitable growth while managing cost effectively. Now I'd be happy to answer – Mark and I would be happy to answer any questions you may have and I turn the call back over to Carmen..

Your first question comes from the line of Amir Rozwadowski with Barclays..

Thank you very much and good morning folks..

Morning..

Amir..

I was wondering if we could touch on a couple of quick things. You had mentioned in the past that your businesses were being impacted by capacity constraints, and so would love to hear an update in terms of where you stand with respect to that capacity constraints.

And then if I take a look at your revenue outlook, you folks have moved up the midpoint of the sales guidance but it looks like you had trimmed the higher end, where are you seeing more strength versus less strength relative to your prior expectations? Thanks so much..

So, Amir, I'll take the first one. We made progress during the third quarter and I think toward the end we saw some of our shipping days decrease and I think that helped us push out revenue, maybe at a little higher than you'd anticipated, certainly in the Connectivity business. We also saw some improvement on the mobility side as well.

We're still in an expansionary mode. I think we will continue that into the first quarter, certainly to meet initial expectations for next year in the fiber side of the business. But we have made a lot of progress. You know this doesn't happen by magic.

We have a lot of acquisition of equipment, training of people, securing supply from our vendors to make sure all this works in an efficient way. And I think we're well under way to get into the point we need to be..

On the revenue side, Amir, we're about where we thought we would be for the calendar year. You'll recall that we had guided to approximately $4.9 billion at the end of last quarter, and so sometimes given some of the project-oriented nature of our revenue we can see a little bit of movement between quarters.

From an incremental standpoint, we remain enthused about the U.S. fiber-to-the-X market and what we expect will be a growing trend in the data center market as we move into 2017. But as you look ahead to the full year of next year, while we aren't positioned yet, we're still in our planning cycle.

You might consider Q3 as a good blueprint for how 2017 could look as far as a roadmap to get to mid-single-digit organic growth..

Great. Thanks so much for the incremental color..

Thank you..

Your next question comes from the line of Rod Hall with JPMorgan..

Yeah. Good morning guys. Thanks for the question. I had a couple I guess, I wanted to – this BNS extra week that you called out, I guess we didn't anticipate that, maybe we should have.

So just wondered if you could talk about why it came in and if you can quantify, Mark, the impacts at all, the revenue impacts and/or the margin impacts, it'd be helpful. I mean we're calculating maybe in the ballpark of $40 million of revenue, I'd just be curious to know what you guys think.

And then I just wanted to go back to the Mobility growth in North America, that's really solid.

Is that still being driven by the small cell deployments or can you just give us a little bit more color on what's going on there and how sustainable that is? Do you expect that to just continue right on through next year? And then I might have a follow-up. Thanks..

Yeah, Rod. The way to think about that additional week within BNS is in the range of 2%. And you think about it from an organic standpoint and so we had about 1% to 2% impact negatively due to product rationalization in the quarter. We had an FX headwind of about 1% in the quarter and this additional week was about 2%.

So you put those three together, they wash. And so, we point to the 4% growth that we saw on a pro forma basis as truly being an organic growth rate. And it was considered in our guidance. So, it is a difference from a year ago period, but very much a part of what we had guided to and expected in the quarter..

And Mark, can you just say why it came in? Was it just a calendar issue or it's just unclear why did BNS have an extra week but it doesn't appear to (27:52)...?.

Yeah, you'll recall, Rod, that until we transition all of our IT systems over onto the CommScope platform, that utilizing transition service agreements with TE. They continue to do the bookkeeping for us, if you will. And so TE is on a fiscal year that ends September 30. And every six years they have a 53rd week in their fiscal year.

And that 53rd week happened to fall into the September quarter. And so, it is just a fall through of the fact that TE under transition service arrangements continues to do the accounting for us for most of the BNS businesses..

And Rod, I think the important thing and as Mark said, we guided with this number. We also had about the same amount of elimination of products through the rationalization program, so it's not just a free gift, so..

Right. Okay, thanks Eddie..

Your question about North America in the Mobility side, it was pretty much across the board from that. The antenna business was strong, a very strong DAS business during the quarter, and including small cells.

So we're starting to see traction in ION-E, the Airvana work we're doing to be ready by the first quarter is underway and I think still on target. And so, we feel good about what the future brings there..

And your next question comes from the line of Meta Marshall with Morgan Stanley..

Hey, great. Thanks guys. A couple of questions.

The first is just, as you look at product rationalization; how far are you through that process through the BNS rationalization? And then on the second – or a second question is just, on the Sprint small cell announcement that they made in the last quarter, do you think that that could spur further small cell investment in 2017? You could finally see some of the site acquisition issues that have kind of held up small cell growth in the recent years kind of dissolve or just some commentary there? Thanks..

Yeah. What we said in the integration, this year will be about half of what the cost savings are expected to be from a synergy standpoint, if that's your question. What we've said is something slightly greater than $100 million this year out of a number that's greater than $200 million.

So, we've raised the number, but the percentage is about the same as where we thought we would be. But, the integration, as Mark said earlier in his comments, we're in the midst right now of North America. And Europe and Asia, we will do in the new year. So, it is so far going well.

We're taking orders, we're making product, we're shipping and invoicing, so all of that's good. We feel good about our start, but as I said, we have a lot of hard work yet to come..

And Meta, maybe just back on the product line rationalization and progress there. You may recall from our Analyst Day that we estimate that we take out about 1% of our top line revenue each year on an ongoing basis to rationalize our product portfolio.

We're very active not only in launching new products, but also in pruning those that are no longer profitable to us. In 2016, we raised that outlook instead of from a traditional 1% to 2%. That incremental 1% is primarily the acquired BNS DAS business, as well as a few smaller product lines within our Connectivity Solutions segment.

So we have done a significant portion of the pruning of the acquired BNS business and next year you should expect to see us return to our more traditional 1% or so in pruning..

I guess you – the last question you asked was about Sprint and the growth. I think they have publicly announced that they're beginning their small cell deployment. We are part of that so that would be some of what we sell to them..

Great. Thanks, guys..

Your next question comes from the line of Vijay Bhagavath with Deutsche Bank..

Yeah. Thanks. Yeah, hi, Mark, Eddie..

Morning, Vijay..

Hi, Vijay..

Hi, yeah. Yeah, my question is on what data points should we track for improvement in your overseas business heading into the new year? Would it be primarily antenna orders from the India spectrum auctions that just concluded? Would it be any new optical orders from the European telcos? And then I have a follow-up..

Well, I think you have touched on maybe a couple of them, Vijay, within the Mobility segment. We do expect that over time Europe will begin to heal. We did say that about the second half of 2016 when we started the year. Of course, we haven't yet seen that.

But we do believe that the pent-up demand will begin to break through the macro economic conditions in Europe to an extent next year.

To your point on the Indian spectrum auction, that went off at a somewhat lower price point than what was initially indicated and we think that that is a positive as far as having additional CapEx dollars to invest in building out that spectrum.

And then on the Connectivity Solutions side, we see the beginnings of fiber builds in the UK and on the continent with carriers such as British Telecom. So those would be some of the data points that we would look to as providing some optimism around a little bit better outlook for international markets next year..

Yeah. Perfect. And then just a bigger picture question. We're starting to see 5G materialize here in the U.S., lot of 5G field trials. Keysight and others are starting to see 5G orders.

So my question is how would you see 5G starting to impact your wireless business here in North America over the next year or two? Would it be primarily driving sales of any new 5G products? Would it also kind of like bootstrap or pull forward optical connectivity into small cells and micro cells? Thanks..

I think as they prepare, this part of densification will be this and as they prepare, in a metro cell much of the product is very similar to the macro that we sell, as they go into the – more densified in the building, the Airvana-type or ION-E products, our traditional DAS will be used. On a 5G-specific product, we're still ways off.

I don't think anybody has expectations of any deployed networks for the next several years, other than trials. So we'll participate in those as they come about, but I don't think it's going to – it'd be hard to define what is a 5G sale versus a normal sale because it's today mostly the same product set..

Perfect. Thanks..

Your next question comes from the line of Tal Liani with Bank of America Merrill Lynch..

Hi, guys. This is Dan Bartus on behalf of Tal. Thanks for taking my question. I was hoping to dig into the Connectivity segment outlook a bit more. First, Google Fiber has been pretty clear about pulling back fiber-to-the-X buildouts.

Just wondering how you guys expect that to impact the pace of North American builds in general? And then, separately I was wondering if you guys could refresh our memory on your copper portfolio. What percent of your Connectivity revenue is exposed to the legacy portfolio and how do you think about growth there? Thanks..

So, I'll take the first part of that, Dan. It's Eddie. We don't believe that the Google announcement is going to impact materially the other customers that we talked to. They have their fiber builds pretty much underway and planned. They still have a insatiable need for bandwidth expansion.

So from feelers that we have out and what either they're going to do from a new capacity or what they're obligated to do from acquisition-related obligations, we think that's going to be well underway. So I don't think it's going to materially change what the competitor market is going to do.

And then, Dan, the other part of your question, on the split of copper versus fiber, broadly within the Connectivity segment, it's about a 50-50 mix of copper versus fiber products.

It's the fiber side that is growing very nicely for us, in particular, in the North American market with fiber-to-the-X deployments, but as well in datacenter applications. Longer term, we do not view copper as a necessarily a growth business. But, it is a very profitable and cash flow generative part of the portfolio.

Some of the applications that we do see is ongoing for copper are in the in-building cellular deployments, where we think that is still a fairly nascent market and having power over Ethernet to fuel small cell deployments and an in-building application would be one of the nice areas for us..

Great. Thanks..

Your next question comes from the line of Steven Fox with Cross Research..

Thanks, good morning. Just further on the enterprise connectivity side of the business, can you just talk little about the competitive dynamics during the quarter? It seemed like there was a lot of different puts and takes, whether it was with your larger distributor, I'm not sure if you outperformed or performed in line with them.

You had also one of your large competitors had trouble servicing all their customers. So I guess I was curious if you can sort of breakdown where maybe you did better versus worse across fiber? And also within copper where I think one of your competitors has also been redirecting some resources recently. Thanks..

You know, we think that we fared very well versus competition from the data that we can see. I think in high-end copper, we are the major player in that market, not just here in North America, but other parts of the world. So it is what Mark says, it's not a growing part of the business. It is still important.

And the margins that it generates generate a lot of cash for us to do other things. So, I don't think that we lost any position there, here in North America, if that's your question. On the fiber side, we've talked about strong growth in that that we believe that does continue in the enterprise, certainly in the outside part.

We had some weakness on the inside cabling, and that's more economically driven. We've talked about for years that this is really macroeconomic driven revenue and the economy other than here is not exactly vibrant. So we were impacted by that on a global basis, maybe more so than what we saw here..

Great.

And just to clarify two comments you just made, when you say high-end copper, you're talking about Cat6a?.

Yes..

And then in terms of just projects that you're doing on the data center side, would you say that they proceeded normally or did you see any push outs in North America forward (40:10)..

Yeah. I wouldn't say that we saw anything in terms of abnormal behavior or patterns there, Steven. As you know noted, these are projects and they will ebb and flow and we accommodate customers when they need the products, so nothing unusual though..

These projects are not dissimilar from what we see in the DAS business. When you can count revenue is determined by the accountants, and so that's something that's more of a challenge to forecast..

Thanks very much..

Your next question comes from the line of Shawn Harrison with Longbow Research..

Hi. A clarification first to the earlier comment in terms of how to think of this setup of 2017 using the third quarter as a proxy. Were you inferring that the 9% growth or 5% organic in Connectivity and negative growth in wireless continues in 2017? I wanted to make sure that I heard you correctly.

And then second was more focused then on with debt refinancing occurring and debt paydown this quarter, how do you think about deploying capital in the fourth quarter in 2017, because it doesn't look like there's much, I guess, cost efficient or appreciative efficient manners to pay down debt at least here in the near term?.

Sure. Let me start in the first one, Shawn. And to clarify there, the thought was that we have achieved and we're pleased with mid-single-digit organic growth in the third quarter. I wasn't guiding to any specifics beneath that as far as performance by either one of the particular segments.

But that that is what we view is somewhat of a benchmark as we move into 2017, as far as top line growth in the aggregate. And then with the expectation that we will continue to grow earnings faster than sales as we did in the third quarter and to generate strong cash flow. With respect to our use of cash, we will continue to pay down debt.

We get the point that our highest cost PIK notes are now behind us. But deleveraging down into our target range of 2 to 3 times is something that we've been encouraged by investors and we are also conservative people by our nature.

So we think that there is accretive value for the company as far as continuing debt pay down, albeit somewhat lower cost debt. So we'll stay focused on that until we're comfortably in that 2 to 3 times range.

But as we move down that path, as you've heard us comment before, reinvesting in the company is a top priority for us and we will continue to evaluate what is a very full pipeline of acquisition activity..

I guess if I may follow-up just on the first point.

Do you expect wireless to be down again in 2017? I know it's very early and budgets aren't set, but just a gut feeling if you may?.

Just to clarify there, Shaw, we're still very much in the midst of our 2017 planning cycle. And so my commentary was at a 10,000-foot consolidated view, not necessarily considering either one of the two segments.

But, rather that we have a clear roadmap toward achieving mid-single-digit organic growth with an earnings profile that's growing faster than the top line..

That's fair. I figured I'd want to just try again..

Thanks, Shawn..

Your next question comes from the line of Avi Silver with CLSA..

Hey, good morning. Thank you. A question first on gross margin. I understand that there's seasonality in the business on a sequential basis.

But when we think about year-on-year trends in the next few quarters, should both mix and synergies continue to be a tailwind for gross margin going forward? And could you address that both individually for mix as well as synergies just separately? And then, a follow-up question on India as well as fiber, how should we think about the timing and magnitude of the revenue ramp post the India spectrum auction and the revenue from the fiber investments you made to alleviate capacity constrains? Thank you..

Let me start with the gross margin question Avi. And again, we're pleased, we've now achieved two consecutive quarters of 42% in gross margin.

And if you do the triangulation on the guidance that we gave for the fourth quarter, you would see, albeit a little bit of an impact due to seasonally lower volumes still in the 40-point range in the fourth quarter. So Eddie had commented on now having achieved about $75 million in cost synergies through the first nine months.

About half of those synergies go into our COGS line and the other half, plus or minus, into SG&A. And so we are seeing the benefit within gross margin of synergy realization and that will continue as we move into 2017 and beyond.

The mix question is getting back to the fact; we are seeing an unusually, based on historical standards, heavy mix of North American business. So, typically we are more of a 50% North America, 50% international. We've been in the 55/45 mix over the last several quarters and we are benefiting from that.

So as we move into the years to come, we expect that mix over time, will go back to a more traditional 50/50, and that can create a little bit of a headwind compared to what you're seeing today, so....

Avi, your questions about spectrum and CapEx and fiber, we're currently selling now India, as they start deploying. It's not at the same pace that we've seen last year which was a more vibrant year but, it is starting.

I'll go back to Mark's answer a few minutes ago, we are very early in the budget process and so we're not going to get any qualification or quantification of where that's going. But that process of getting stuff in the field for their new spectrum is happening.

In regards to the CapEx, as I said, in the earlier comments, it is well underway but it's not yet finished and I would think it would be into the first quarter, maybe into the second, before we finalize that. We have a lot of training yet to do and hiring in some places and so it's an ongoing process.

Part of that would just be part of our normal 2017 budgetary process of our normal CapEx spend which everyone would be vying for money to expand..

Your next question comes from the line of Jess Lupert with Wells Fargo Securities..

Hi guys, two questions.

First, can you just discuss the breadth of the strength you saw in your North American wireless business? Was it all of the big four? Was it concentrated amongst one of two? And perhaps help us understand what you're sharing from these customers with respect to their antenna requirements looking out to 2017? What some of the puts and takes are influencing your thought process there? And then I was hoping you could update us on the IT system cutover.

Sounds like that process has already started. How is it going? And maybe you can help us understand some of the challenges you're anticipating there and to what degree that might be baked into your forecast here? Thanks..

Okay. I think on the who buys our Mobility products, it's the same people that did last quarter and probably the same, sort of, relationship as they did before, so the larger ones buy a lot more at a faster pace and that continues. As I said earlier, the DAS spend did speed up.

It was a very good quarter for revenue there and mostly traditional product, including the part of the BNS portfolio that we haven't made redundant. But, so that – and I think that has some strength going forward as we see projects during the course of the balance of this year being finalized.

But nothing strange or different as to what the buying patterns are. I said earlier also, the expectation of small cell deployment from our acquisition is – still be commercialized sometime in Q1, and so what we're seeing there are more on the small cell. DAS has a place in that.

We're still seeing that as the strength of that business in addition to ION-E introductions here in North America and Europe..

And then just from an IT standpoint, you'll recall that we began the IT conversions back in the January timeframe, when we converted, literally 10,000 BNS employees onto our payroll and HRIS systems within four months of having completed the transaction.

We have recently taken kind of the next milestone step as far as converting the balance of the North American operations onto our IT platform. That's going well, and really it's a good opportunity to do a call out to the entire CommScope team on the effort and the quality of work that has gone into that.

It has been just tremendous as far as not only the work effort but the success that the team has had in pulling that off. And you'll see us continue that pattern as we move into the first and second quarters of next year, as we do the same with Europe and Asia..

Your next question comes from the line of George Notter with Jefferies..

Hi. Thanks very much, guys. I guess I wanted to kind of dig in on the North American wireless business a little bit more. If I go back three months ago, you guys were talking about some real softness from two of the larger customers in the U.S.

And then also excess inventory being around and here we're now talking about double-digit growth rates in that business, and I guess I just want to see if anything has changed in terms of your outlook here or the trends you're seeing or how do you kind of reconcile that? Thanks..

Yeah, George. As far as calling for softness, our outlook in the North American wireless market was for mid-single-digit growth as we started the year. It was maybe a little bit stronger in the first quarter, little bit less so in the second. We're seeing it back in the low-double-digit range.

So we're still calling North American wireless revenue up for the year in the mid-single-digit-type range, not much different from when we started the year.

What is different for us though is in the international markets, which as we had started 2016, we said that we had expected that we would begin to see some lift out of areas like Europe, which we have not yet seen.

And so, with the delay in the India spectrum auction, that has created some incremental softness for us in the international wireless market. But, North America by and large has continued on par for what we saw at the start of the year..

Your next question comes from the line of Mark Delaney with Goldman Sachs..

Yes, good morning everyone, and thanks very much for taking the question. I was hoping for a bit more clarification on some of your comments around fiber-to-the-home.

In the prepared comments, there was the point about book-to-bill and connectivity being down to 0.91 and there was some seasonality to that but also projects in Asia, but at the same time the company was giving optimistic comments for fiber going forward and needing that capacity.

So I was just hoping you could maybe better square those near-term comments with the positive intermediate term outlook?.

Yes. Sure, Mark. On the book-to-bill, we had commented that it was 0.91 times for the Connectivity segment in total. Within that, it was stronger in the U.S. and in Europe and a bit weaker outside of those two geographies.

In particular, in Asia, there is one project in Australia with one large carrier that while we saw nice project revenue in the quarter, the activity level there will slow going forward and so that has influenced the book-to-bill ratio there a bit.

But other than that you're seeing a seasonal pattern here in the fourth quarter as well; typically it's below 1 for the company in the fourth quarter and in the first – or the third rather. So, nothing out of the ordinary there that would be different from our commentary around continued significant strength in the U.S.

and a close to 1 book-to-bill in Europe as well within that segment..

Your next question comes from the line of Simon Leopold with Raymond James..

Hi, guys. This is Victor in for Simon. I just wanted to take another stab at the Mobility business for next year.

Can you speak generally about how you're thinking about it? How you're thinking about the dynamic from I guess a geographic perspective, I guess? More specifically, it seems reasonable to think that the international business improves at some point during the year, but could we see some moderating from the North American spending environment given the recent strength that we've seen?.

Yeah, Victor, again, I'll have to preface any comments with the fact that we are still in our 2017 planning cycle. And so we don't have specifics to offer by segment or geographic market at this point. There are factors to consider in both the U.S. and the international markets relative to our Mobility segment.

We have talked about the AWS-3 spectrum that carriers here have begun to build on. Starting this year, we think that we'll see more of that next year. But, there will be puts and takes by project.

In the international markets, you're seeing that an Indian spectrum auction having been completed, we would expect there to be some activity now as carriers begin to build on that next year. So we'll have more color to offer by segments and by geography as we move into our fourth quarter earnings call here in a few months..

Your next question comes from the line of Kulbinder Garcha with Credit Suisse..

Thanks. Just a couple of clarifications for me.

With respect to the Connectivity side, can you just remind me how diversified the fiber business is amongst the customers? And what specifically would you say is your revenue exposure of that segment to fiber-based build out? And then the second question is, the growth rate organically is quite good obviously in that business, at 9%.

Is that above the long-term average, below the long-term average, especially with the visibility you're talking about? And then the second thing is that obviously I'm sure you're seeing the reports from some of the infrastructure vendors in the last few weeks, there seems to have been a marked deterioration in visibility.

Now maybe that's more outside of the U.S., and your revenue exposure is different, so when both vendors that have more than half the market (56:28) talk about this, it seems that we're heading for prolonged downturn in that segment, probably through 2017.

Have you seen something really change in your business in the last 90 days or would you disagree with that? Thanks..

Okay. I'm going to talk about the OEMs first. It used to be a huge part of our Mobility business. It is not any longer. It's a $300 million thereabouts in total for the company is what we sell to all the OEMs, so it's not a meaningful number. It's not like it used to be. So we do monitor that and we understand that they've had some challenges.

We like our diversification, we like our direct to the end-user that we've changed to over the past five or six years. So that's something I think we'd planned for and we're pleased at where we are but those guys are still important customers of ours and we continue to serve them well. I think, you had a question about fiber portfolio.

We sell to virtually every telecom operator in the world. A big part of our business here is in North America, so those would be larger customers, generally, but it is a very diverse multinational, multi-continent portfolio and product offerings that we have for whatever they need in these various areas. So it's not something that is occupied by one.

We did have some that are larger but we're not going to talk about them..

But we don't see capital intensity here diminishing at all, Kulbinder. So having access to both sides of the CapEx budget, whether that be through the wireless side or through our fiber side is important to us..

Your final question comes from the line of Walter Piecyk with BTIG..

Great, thanks and thanks for that growth rate for North American wireless operators. I wonder if you can also maybe give us some sense of the growth rate in the Connectivity business for this North American.

You were mentioning the outdoor was very strong, can you give us a sense of that? Is that also a double-digit growth rate for those, I guess you call it the North American outdoor segment of the wireless business? And then, also on – you talk about I guess your leverage ratios earlier and the deal pipeline being active.

I realized that you'd like to get the leverage down lower, but if Ruckus is available to you at an attractive price, is that something, or any large acquisitions that you'd be willing to take leverage up to, to much higher levels on, at least for the near-term given the success you've had in driving free cash flow and taking leverage down after acquisitions? Thanks..

Well, thanks for the question, Walter. With respect to growth in the outside plant or fiber-to-the-X business in North America, we said that we did see good double-digit growth in the quarter.

That has been ramping as we've moved over the past several quarters and we expect it to say strong here in North America and then begin to get some legs in Europe as we look forward into 2017. With regard to our net leverage ratio, we are pleased to now be below four times.

Our commitment is to continue to pay down debt and generate cash and delever into the two to three times range, while at the same time being mindful of opportunities to reinvest in the company. So beyond that, we wouldn't offer any further color.

Our outlook for cash generation and deployment of cash is unchanged from what we've talked about now for some time..

Okay. I'd like to thank each of you for taking the time to join us in our earnings call today. We appreciate your continued interest in CommScope. Also like to thank the global CommScope team for all of their hard, as Mark has said, particularly with respect to the integration efforts.

CommScope's information technology team and other leaders have been diligently working to integrate the BNS assets efficiently and effectively. We're very proud of all of our employees for delivering the strong results we saw in the third quarter, all while continuing to focus on the integration efforts.

We're also extremely pleased with our performance during the first three quarters of the year. We've delivered strong gross margins, robust cash flow and stronger than expected bottom line results that have allowed us to accelerate our debt pay down schedule all while continuing to deliver our cost synergy plan.

We feel confident in our market position and we expect to build over it over the long-term. Thank you all and will join you next quarter..

Thank you again for joining us in today's CommScope conference call. You may now disconnect..