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

Vijay Bhagavath - Deutsche Bank Securities, Inc. Amir Rozwadowski - Barclays Capital, Inc. Rod B. Hall - JPMorgan Securities LLC Stanley Kovler - Citi Investment Research (U.S.) Jess Lupert - Wells Fargo Securities LLC Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC Avi Silver - CLSA Americas LLC Meta A. Marshall - Morgan Stanley & Co.

LLC Shawn M. Harrison - Longbow Research LLC Mark Delaney - Goldman Sachs & Co. George C. Notter - Jefferies LLC Simon M. Leopold - Raymond James & Associates, Inc. Steven Fox - Cross Research LLC.

Good day, ladies and gentlemen, and welcome to the CommScope Q4 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded.

I would now like to turn the call over to Jennifer Crawford, Director of Investor Relations. You may begin..

Thanks, Michelle. Good morning and thank you for joining us today to discuss CommScope's fourth 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 2016 10-K 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 that all dollar figures and percentages are approximations. In addition to GAAP information, we'll provide certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides additional meaningful information to investors.

Detailed reconciliations of GAAP to adjusted measures can be found in the appendix to our slide presentation. Slide three is our agenda for this morning.

Eddie will provide an overview and then Mark will review the details of our fourth quarter results, review our two segments' performance, discuss cash flow, liquidity and capital structure, and then provide our outlook for the first quarter and full year 2017. We'll then 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 the call over to Eddie.

Eddie?.

Thank you, Jennifer, and good morning. Slide four highlights why I'm so proud of our team's execution in 2016. We once again delivered strong quarterly results that exceeded our bottom line expectations.

Even though we started the year slowly as is often the case given the timing of our customer's budget cycles and spending patterns, we gained momentum as we moved through the year with North American fiber-to-the-X remaining a bright spot.

We also finished the year with the strongest year-over-year wireless growth we've had since the third quarter of 2014, driven by an unusually strong North American market.

We posted 3% top line growth in the fourth quarter and reported our third straight quarter with gross margins of 42% and we delivered adjusted earnings of $0.61 per diluted share, up 45% year-over-year. Our full year 2016 results were just as good.

Sales grew a robust 29% year-over-year due to the BNS acquisition which has been truly transformational for CommScope. We are now better positioned to accelerate industry innovation, solve more wired and wireless network challenges with an enhanced fiber connectivity portfolio, and better service to our customers.

As with any major and complex transaction, there were challenges. However, we worked hard to minimize the impact to our customers and have successfully completed the first full year of our three-year BNS integration plan.

During 2016, we established the new organizational structure, streamlined manufacturing and distribution facilities, delivered more than $100 million in synergies and completed the North American phase of information technology system integrations.

Complicating the integration was the ongoing strong market demand for fiber-to-the-X solutions particularly in North America. We spent 2016 adding production capacity to support our customers and believe we'll be substantially complete with these capacity additions within the next quarter.

We will continue to modify global operations to adapt to changing market demands. For full year 2016, we posted $2.64 in adjusted earnings per diluted share, up 42% year-over-year. We are particularly pleased to have more than doubled our cash flow from operations to $606 million. This strong cash flow allowed us to repay debt and reduce our leverage.

Now I'd like to turn the call over to Mark Olson for a detailed review of financial results.

Mark?.

Thanks, Eddie, and good morning, all. Turning to slide five, you'll see the details of our fourth quarter results. And as Eddie noted, we are pleased with our performance. Revenue increased 3% year-over-year to $1.18 billion, despite a challenging macroeconomic environment, foreign exchange headwinds and ongoing product pruning.

This growth was driven by strong double-digit growth in our North American wireless and fiber-to-the-X businesses. Orders were $1.07 billion in the quarter which provided a book-to-bill ratio of 0.91 times. This book-to-bill reflects unusually strong wireless sales in the fourth quarter and a weak international economic environment.

The book-to-bill in Mobility Solutions segment was 0.84 times, while the book-to-bill in our Connectivity Solutions segment was 0.95 times. For the third quarter consecutive quarter, we delivered a 42% gross margin.

The strong margin performance was driven by higher sales volumes, favorable changes in geographic and product mix, and cost reduction initiatives. For the quarter, GAAP operating income increased significantly to $119 million.

Excluding intangible amortization and other special items, non-GAAP adjusted operating income increased 28% year-over-year to $252 million or 21% of sales. This performance reflects higher sales volumes, favorable mix and a little more than $25 million in incremental integration synergies as well as higher variable compensation costs.

GAAP net income also increased significantly to $54 million or $0.28 per diluted share. Excluding the special items, non-GAAP adjusted net income increased to $121 million or $0.61 per diluted share, up 45% year-over-year.

I'll now discuss our fourth quarter performance in each of our segments starting with the Connectivity Solutions segment on slide six. Connectivity Solutions segment sales increased 1% year-over-year to $681 million.

Strong double-digit fiber-to-the-X growth in North America was offset by slower spending in other major geographic regions, foreign exchange rate changes and product rationalization. Outdoor network solutions, mainly fiber-to-the-X deployments, accounted for a little less than half of total Connectivity Solutions sales.

These fiber-to-the-X deployments are project-oriented with relatively long lead times. Throughout 2016, we had seen strength with the North American service providers as they drive fiber deeper into their residential and commercial networks.

In addition, with deployments of outdoor metro cells and small cells, we expect these same service providers to begin to utilize the common physical layer infrastructure to provide connectivity to these wireless access points.

Operators are moving toward converged or multi-use network architectures to increase efficiency and capability of the network, improve asset utilization and reduce cost.

North American fiber-to-the-X continues to be a strong tailwind for CommScope, and we expect these deployments to remain one of the largest growth drivers for the industry over the next several years. Outside of North America it was a mixed bag.

We generated good growth with several projects in the Middle East and Africa as well as the Asia Pacific region. We also had mixed results with our indoor network solutions business which is the most economically sensitive part of our Connectivity Solutions segment.

Our indoor solutions are found in commercial buildings, data centers, central offices and cable TV headends. The North American enterprise business posted mid single-digit growth, driven primarily by strong fiber sales into data centers. However, it was more than offset by weaker sales in other geographic regions.

In the quarter, our Connectivity Solutions segment adjusted operating income increased 19% year-over-year to $140 million or 21% of connectivity sales. The nearly 300-basis point year-over-year increase in adjusted operating margin was primarily due to integration synergies, favorable geographic and product mix, and higher sales volumes.

In addition, we've seen a rise in input costs early in 2017 and we've begun adjusting prices for selected products in order to begin recovering these higher costs. So now let's discuss the results of our Mobility segment found on slide seven.

Mobility Solutions segment sales increased 6% year-over-year to $498 million, primarily due to unusually strong North American sales. North America remained a bright spot. Its ongoing investment and densification by North American service providers drove strong double-digit sales growth for the region.

Operators are densifying, centralizing and virtualizing their networks in order to support the exponential growth in video and universal mobility the consumers demand. In addition to adding new spectrum, densification is a key growth driver as operator's transition toward 5G networks.

Densification includes enhanced sectorization at macro cell sites, building new metro level or small cell sites including fiber backhaul and establishing better in-building coverage.

We also continue our leadership in large venue wireless deployments which includes world class fiber infrastructure and intelligent distributed antenna systems to support complex end-to-end capacity and coverage.

For example, we have deployed intelligent infrastructure solutions at stadiums for five of the last seven Super Bowls and we've provided smart flexible solutions for about three quarters of all NFL stadiums in the U.S. Large venue wireless deployments were also a big driver of sales growth during the fourth quarter.

While we also saw healthy growth due to projects in Asia and the Middle East, it was more than offset by sales declines in Europe, India and China. We're delighted with our Mobility segment's profitability in the quarter. Adjusted operating income increased 43% year-over-year to $113 million or 23% of sales, a nearly 600-basis point increase.

The year-over-year increase in adjusted operating margin was driven by increased sales volumes, favorable geographic and product mix, and product pruning, although it was partially offset by continued investment in small cell technology. We continue to invest in our OneCell technology which complements our industry leading DAS business.

OneCell is a technology that utilizes a single cell Cloud RAN architecture. This unique approach multiplies system capacity without creating interference through a CommScope pioneered, advanced known as cell virtualization. Overall, our Mobility segment remains a vibrant yet lumpy business.

And over the near-term, we remain cautious in the international markets given global economic uncertainties.

Over the longer-term, we expect demand for Mobility Solutions to be positively affected by wireless coverage and capacity expansions in the emerging markets, transition toward 5G and the increasing demand for mobile broadband in developed markets.

The bottom line is that denser wireless networks require deeper fiber networks and we stand ready to help our customers with both. Next, I'll discuss cash flow and liquidity on slide eight.

During the fourth quarter, CommScope generated $81 million of cash from operations, invested $17 million in capital expenditures, net of $1 million of CapEx related to BNS integration and we paid $17 million in integration and transaction costs, primarily related to the BNS acquisition.

Adjusted free cash flow for the quarter was also $81 million, a 36% decline from the year ago period. This decrease was primarily driven by increased investment in working capital due to sales growth. Adjusted free cash flow for the full year 2016 was $627 million, up 77% year-over-year.

We ended the quarter with $869 million of total liquidity, comprised of $428 million of cash and cash equivalents and availability under our credit facility of $441 million. Our cash flow performance continues to be a strength. Relentless focus on the bottom line and cash generation is ingrained in our DNA and drives our business decisions.

For example, during 2016, we focused on improving our days payables outstanding metrics which were admittedly below peer averages. Through the excellent work of our supply chain team, we moved DPO metrics much closer to industry averages. Turning now to slide nine, I'll discuss our capital structure and debt maturities.

The left side of the slide shows our capital structure. We finished 2016 with net debt of $4.2 billion and adjusted EBITDA of $1.13 billion for a net leverage ratio of 3.75 times, down from 5 times at the start of the year. The 1.3 turn improvement in our net leverage ratio resulted both from increasing EBITDA and deleveraging.

Due to our strong cash flow, we repaid nearly $700 million in debt during 2016 and a total of over $800 million since the BNS acquisition in August of 2015. We're very proud of these achievements and our overall capital structure. The chart on the right shows major debt maturities over the next eight years.

We have limited near-term requirements and continue to look at ways to increase flexibility, manage risk and lower costs. Slide 10 highlights the substantial improvement in cash flow as well as the significant improvement in our net leverage ratio.

The chart on the left shows the more than doubling of cash flow from operations from 2015 to 2016 as well as our outlook for 2017.

We expect to generate more than $600 million in cash flow from operations this year which reflects an improvement in operating results, somewhat offset by higher variable cash compensation payments as well as the one-time benefit of DPO improvement in 2016.

As we've consistently noted, the primary use of our cash flow will be to reinvest in the business. We believe we have a great platform on which to build. And so we intend to invest more than $200 million in research and development, and about $80 million in capital expenditures this year, while actively looking for value-creating acquisitions.

We also intend to continue reducing debt as we move toward our target net leverage range of 2 to 3 times because we believe that reducing leverage benefits all stakeholders. And as you can see from the chart on the right, we executed well on our strategy to reduce leverage, reducing it from 5 times at the end of 2015 to 3.7 times at the end of 2016.

Barring significant acquisition activity, we expect to be in the 3 times range by the end of 2017. At the same time, we will initiate a modest stock repurchase program. The board has authorized the repurchase of up to $100 million of common stock in order to reduce dilution from our various equity-based award programs.

The timing and amount of shares to be repurchased under this 12-month program will depend upon a variety of factors. Turning now to slide eleven, I will discuss our 2017 first quarter guidance. However, first, I'd like to provide some context for the outlook.

The chart at the top of the page shows quarterly 2016 consolidated revenue growth on a pro forma basis for the BNS acquisition. As you can see, we got off to a slow start in 2016 but built momentum as we moved throughout the year. We believe that 2017 will come together in a very similar fashion.

And for the first quarter, we expect revenue of $1.1 billion to $1.15 billion, down slightly year-over-year at the midpoint of our guidance. We expect GAAP operating income of $105 million to $120 million, adjusted operating income of $205 million to $225 million, up slightly at the midpoint of our guidance.

We expect GAAP earnings per diluted share of $0.18 to $0.22 based on 199 million weighted average diluted shares. We expect an adjusted effective tax rate of approximately 35% and adjusted earnings of $0.49 to $0.54 per diluted share, up 7% year-over-year at the midpoint. And the turning to slide twelve, I'll review our full year 2017 guidance.

We expect revenue of $5 billion to $5.15 billion or up 3% at the midpoint of our guidance. We are planning for mid single-digit organic revenue growth, partially offset by the negative impact of foreign exchange rate changes and continued product rationalization.

We expect organic revenue growth to continue to be driven by strong demand in North America in the fiber-to-the-X and data center markets. While we may see some improvement in selected international markets, we remain cautious given global economic uncertainties and expectations for a strengthening U.S. dollar.

And we expect GAAP operating income of $730 million to $770 million, adjusted operating income of $1.11 billion to $1.16 billion or up 8% at the midpoint of guidance, GAAP earnings per diluted share of $1.66 to $1.73 based on 199 million weighted average diluted shares and adjusted effective tax rate of approximately 35%, adjusted earnings per diluted share of $2.90 to $3.00 or up 12% at the midpoint of guidance, and as discussed earlier, we expect cash flow from operations of more than $600 million.

And finally, our 2017 planning assumptions do not reflect the impact from any potential tax or trade policy changes currently being discussed in congress. And so, with that, I'll turn it over to Eddie for a few comments before we start Q&A.

Eddie?.

Thanks, Mark. We're optimistic about 2017 and our future. We have five top level product (20:31) 2017 which we believe will propel us toward continued success. These are, number one, to become the preferred partner to customers.

We plan to expand our industry leadership positions in fiber and wireless by developing value-creating partner relationships with our customers, suppliers, distributors as well as our channel and technology partners. Secondly, we are going to relentlessly focus on integration to solve critical problems for our customers.

We plan to build on our legacy of innovation and our worldwide portfolio of patents and patent applications by continuing to invest in research and development. We also intend utilize our deep industry expertise to offer unique perspectives to solve customer challenges. We intend to focus our investment on high growth markets.

Thirdly, to expand our culture of excellence. We strive to be viewed as a top employment destination where premier talent is hired, developed and retained. We also intend to make high performance and operational excellence a standard throughout the company, while prioritizing collaboration and zero tolerance for quality issues.

Fourthly, to complete the integration of CommScope and BNS. We have successfully completed the first full year of the three-year BNS integration plan. During 2017, we expect to execute system integrations outside of North America and optimize our new organizational structure, while streamlining our manufacturing and distribution operations.

And we remain on pace to achieve our plan of greater than $200 million by the end of 2018. And finally, to meet our financial commitments. While we operate in a dynamic market, it makes forecasting challenging. We will work tirelessly to meet our commitments. And with that, we'll open the floor for questions. And I turn the floor back over to Michelle..

Thank you. Our first question comes from Vijay Bhagavath of Deutsche Bank. Your line is open..

Yeah, thanks. Yeah, good morning, yeah, Eddie, Mark..

Good morning..

Good morning, Vijay..

Yeah, hi. Yeah, howdy.

The question is on – what metrics should we monitor in terms of overseas demand improvement? Would it primarily be like the spectrum auction build-outs in India and maybe some fiber build-outs in Europe? And then back home here, what could be the primary demand drivers? Would it be fiber-to-the-home like an AT&T, metro optical, would it be spectrum auction build-outs here? So I'd like to get some demand color on the U.S.

market as well. Thanks..

Maybe I can take the U.S. market first. We expect fiber to be strong throughout the course of the year. There's a huge built-up demand and probably demand beyond capacity still in the marketplace, fiber globally. So we would expect that to continue and expect our wireless business to be strong as well.

Our customers have talked about – our larger customers here North America have talked about spending at the same level as they did last year. So I think that's promising. I think in our case, we're much better positioned than we have been historically because we have both sides, both wireless and wireline to cover.

So we're not as vulnerable to volatility as we've seen before. In India, the challenge in India -- we felt better about India two months ago than we did today. The intense competition with the carriers in India made that a challenging market in the wireless space.

However, I guess, a day or so ago, it seems that people are actually going to now charge for the service they provide and that might help rationalize the market a bit. We do see strength in India in our fiber business. It remains strong. And we've been India over 21 years, producing. We have a very good installed base, I think, in wireless.

We've sold over $1 billion in that market. And we expect, over the long-term, it will continue to grow. And, Mark, do you have any....

Yeah, perfect..

No, maybe just (25:14). I'm sorry, go ahead..

Yeah, a quick follow-on would be in terms of mix and margin improvements.

Have we capped it out or there is still kind of headroom here for further margin and mix improvements?.

Vijay, we remind folks of what the key drivers are behind our margins. First, of course, is sales volumes. And so you saw that at play here in the back half of 2016 and as we guide toward mid single-digit organic growth moving into 2017, we think that'll continue to be a factor for us. Geographic mix does have an impact.

Historically, we've been a little bit of a 50-50 U.S. international mix. Over the past year, it's been a little bit more U.S. weighted; that has had a positive impact for us. And we expect to see that continue into 2017, and quite honestly, beyond at this point. And then synergy realization, of course, was a good driver.

We exceeded our $100 million target in synergies for 2016. We're targeting $70 million incremental for 2017. So that will continue to be a margin driver for us..

Just so you don't get euphoric, we do have competition and they do impact what we're able to sell – our products and solutions to globally. And so we have to continue to innovate and cut our costs or at least control our costs to make sure that those margins are realized. But I think we're on a good trend at 42% for the last three quarters.

I think that is probably industry-leading as the manufacturer in what we do. And we're very proud of the accomplishments our team has done. But I think as Mark said, we still have some work yet in realizing cost improvement with the integration, and we'll see where that ends up..

Thanks, Vijay. We'll take the next question now..

Our next question comes from Amir Rozwadowski of Barclays. Your line is open..

Thanks very much, and good morning, folks..

Morning..

Good morning..

Wanted to just quickly touch base in terms of some of the strength you saw in wireless in North America. I know that you had chatted about densification, some of the small cell initiatives, but it seems like you characterized as a bit of a surprise.

Any further color in terms of initiatives you're seeing here, and more importantly, whether or not you believe this is sustainable? It does seem as though carriers are priming the pump to deploy additional spectrum over the course of the next 12 to 24 months, or just would love some color from that perspective..

I think what we see is, generally, the carriers have said they will spend at least what they spent last year and I think have indicated in the wireless side slightly up. We are well positioned I think in the – we would say the metro cell, some of the tower operators would call that small cell.

Our new products are very prevalent there in addition to the OEMs' remote radio heads.

I think as you get into the denser environments where you're going to have what we would then call a small cell or our ION-E in a larger maybe a metro environment or in the building and our OneCell as it becomes commercialized, we think is going to be an industry-leading technology at that point in time..

But, Amir, we commented that we did see strong double-digit growth in the U.S. market and that is unusual. So we wouldn't guide toward double-digit growth in U.S. wireless market in 2017, although we do see it remaining a robust market.

What was a positive as well as the overall performance there is that we saw good growth across all the major carriers, not dominated by any one.

And then as we had commented as well, we have within our wireless portfolio, as you know, significant DAS projects that, from a timing standpoint, is a challenge for us to get those forecast into the right 90-day bucket. So those can move from one quarter to the next..

Great. And then just one quick follow-up if I can. I realize that there's lots of moving parts with respect to tax legislation. You had mentioned that there is no factoring of that within your current guidance.

Given the different moving pieces whether it's a lower corporate tax rate or reduction in the cost to repatriate cash or even some level of import taxes, based on what we know today, do you consider yourself as a net beneficiary about what's being discussed in the market?.

Yeah, the answer in a nutshell, Amir, is yes. And I'll just walk you through this for a minute, but – so we've done a lot of modeling around this, still a lot of uncertainty obviously. But as you know, we manufacture both in the U.S.

and in countries around the world and we do that to serve customers, not to serve tax laws, but – so we both import into the U.S. and export out, but we are net-net in importer.

So, if border adjustability were to pass, first, we'd have to evaluate that in an overall economic context, not just from a potential paraffin (30:34) perspective, but we could shift more production into our U.S. factories or we could consider buying more from U.S. third party suppliers.

Or if necessary, we could adjust pricing where we wouldn't make this competitively disadvantaged. But keep in mind that we are a full U.S. taxpayer and that border adjustability is just one component of overall proposed legislation at this point.

So, even if the current version of the house, version of tax reform is passed, we would be a net beneficiary. And we also think the tax reform would benefit our larger U.S. service provider customers and that would be good for CommScope..

Thanks, Amir..

Great. Thanks for the incremental color..

Our next question comes from Rod Hall of JPMorgan. Your line is open..

Yeah, hi, guys, good morning. Thanks for taking the question. I just wanted to start off with M&A in the U.S. I want to understand what sort of M&A you guys are contemplating in the full year guidance? There's been, with the administration change, more talk of wireless consolidation in the U.S.

So wanted to see if you guys are assuming some impact from that or it's – what you think might occur from a spending with respect to your business if more M&A were to occur. And then I also wanted to just follow up on the tax impacts.

Do you guys -- what do you expect the timing of this to be? I mean people are talking about a deal by the end of the year but implementation looks like it could be a couple years off. So just want to understand how quickly you would expect this to impact your business and also, Mark, your comment about the carriers.

How rapidly would they respond to what they generally seem to perceive as positive impacts for them? Do you think you'd see that this year? Do you think they'd probably wait for implementation? Thanks..

So I'm going to take the first one. And there is no M&A in our plan, our guidance or whatever. And we would expect that we'll adapt to that. In customer M&A, if any of that happens, we're uncertain now as to when that would happen and sometimes it's a lull.

We're well positioned with all these people that are talking about adding to or merging with, and over a period of time, we'll even out and we'll be in a good position. They appreciate a customer – a provider of scale, and we have that and we have good relationships with anybody that's in the press today.

But as far as things that we would buy, there's nothing in the plan for that. It's just based upon organic growth within the company as it exists today..

And, Rod, with respect to timing around U.S. tax reform, we wouldn't have any better or different perspective than anyone else. We do think it'll happen. The question, of course, is when and we can't call that. But what we have heard several of our larger U.S. customers comment on is that they do feel that tax reform would stimulate investment.

And so we haven't heard or seen anybody saying that they're going to slow down investment waiting for it. But we do think that it could be stimulative, perhaps we would point to the back half of the year if something happens with tax reform in the first half. But a lot of uncertainty and we'll have to see..

To add on to the first part, Rod, some of our larger customers have publicly said or talked to us and talked about their spending expectations for the year and they are consistent with what we've guided to for the year..

Thank you, Rod.

Michelle, can we have the next question?.

Thanks, guys..

Our next question comes from Stanley Kovler of Citi Research. Your line is open..

Thank you very much for taking my question, and good morning. I just wanted to ask about a couple of point items. Could you discuss the organic growth of the Connectivity business? And then also what it was like ex-BNS and ex any kind of impact from foreign exchange? And then I also wanted to understand the impact of copper prices.

Copper price increases have been in the mid teens quarter-over-quarter. And you mentioned input prices going up. Did that have any impact on your gross margin for Q4? And to what extent are you able to increase prices from a competitive standpoint as well? You mentioned competition.

It is going to affect things across the board and did I miss anything on input prices on the fiber side besides the top (35:38)? Thank you..

Well, those are a lot of questions, Stan, and I'll start. I think you initially let off with organic growth in our Connectivity business. And in the fourth quarter and what we are guiding to for 2017, we saw mid single-digit organic growth, again, led by fiber-to-the-X deployments in the U.S. as well as data center activity.

I think you had asked ex-BNS, but in the fourth quarter of course, that was a pure year-over-year, BNS was in both periods, so what I'm describing includes both..

Our branding has merged. So it's not really discernible as to where it came from..

And then with respect to higher input costs, there was no material impact in our fourth quarter. Again, as these things and this has happened over the years, input costs have gone up and come down. And each time, we respond by adjusting price a bit up or down. Typically, there's a short lead lag of a quarter or so.

But as you know, we sell solutions as opposed to individual component parts and so we don't typically compete on a price per raw material basis..

Thank you, Stan. And Michelle, can we have the next question please..

Our next question comes from Jess Lupert of Wells Fargo Securities. Your line is open..

Hi, guys. Good morning. Thanks for taking my question..

Good morning, Jess..

Hi, Jess..

I also wanted to squeeze two in here.

But first, I wanted to touch base on the mid single-digit organic growth outlook, to what extent you might be able to help us more explicitly frame how you're thinking about mobility versus connectivity, to what extent you expect growth in both or connectivity, so that (37:35) could be the primary driver this year, any help there would be great.

And then in the presentation, you mentioned you expected leverage around 3 times by the end of the year, assuming no M&A. So I was hoping you could update us on how you're thinking about M&A at the moment and to what extent you currently have the appetite to do something larger if it presented itself..

Sure, Jess. Well, I'll tell you I'll give an overview as far as our outlook for 2017 on each of the two segments and then Eddie will address the M&A question. But as I have commented, our overall outlook for 2017 is mid single-digit organic revenue growth and then partially offset by some FX headwinds and continued product rationalization.

We see wireless up modestly, really the same drivers in 2017 as we saw last year. U.S. carriers continuing to invest in their networks, densifying, preparing for 5G and potentially a bit more second half weighted, driven by spectrum builds and possibly initial first net deployments.

Overall, in the international markets, we remain, and this is wireless, a little bit cautious. In Europe, we see certain markets that are beginning to increase investment in their networks. We point to perhaps Italy and France being two of those. In the Asia Pacific region, that continues to be dominated by project activity.

We have good build activity in Vietnam right now that will continue into 2017 as well as several other markets in Southeast Asia. Eddie had already commented on India, a bit volatile as far as carrier competition there and we'll see how that plays out once the dust settles down a little bit.

In our Connectivity Solutions segment, we see that up solid mid single-digits and we expect low teens organic growth in our outside plant business, again led by U.S. fiber-to-the-X demand and we're beginning to see fiber deployments in Europe gain some traction.

And all of that partially offset by some softness in particular in the Asia Pacific region. And then finally, our enterprise business, our overall expectations are consistent with current trends, modest organic growth driven by U.S.

data center activity and we see the local area network or intelligent building market moderating a bit, and of course, that's our most economically sensitive component of our overall portfolio. So all of that we think highlights the power of the diversification of our revenue stream..

From an M&A standpoint, Jess, I think we said for several quarters, we actively are looking at a lot of different things where we stand ready to do something in a moderate range, $100 million to $300 million of companies or technology that would be additive to our existing product lines or complementary to those product lines.

So we would – we are continuing to look at those. We also have larger possibilities on the – in our view and I think we would have to get a little bit further along in the integration of 2017 to make sure that it's going well. But these larger ones take some time. I think we have bandwidth to start looking at some.

But nothing on the plate right now that's active or that's active for us to act upon right now, but certainly something that we're looking at on an ongoing basis..

Thank you Jess.

Michelle?.

Our next question comes from Kulbinder Garcha of Credit Suisse. Your line is open..

connectivity in Q4. And as we go through this year, given where you're starting off in terms of revenue growth, you're going to have to be exiting year-on-year growth rates of probably above mid single-digits like 6%, 7%, 8%, I'm assuming.

Can you talk about the visibility you have to that in terms of whether it's longer-term projects you're discussing? It's obviously not in your order book right now, but I'm just thinking what visibility you have around the back end of the year.

What do you think?.

Sure. Well, I'll start, Kulbinder, with just the brief overview on our Connectivity Solutions revenue in the fourth quarter. As I had commented that, overall, we saw in the range of 3% organic growth year-over-year, led by fiber-to-the-X deployments as well as good data center activity in the U.S.

Within the enterprise market, again, I may be repeating a prior answer, my apologies, but we had modest organic growth, driven by the U.S and Europe in enterprise, again, good data center activity in both of those markets.

It was our local area network or intelligent building activity that had moderated a bit in particular in the international markets. So all of that gave us a mid-single-digit organic growth profile in the quarter and we see that strengthening as we move throughout 2017..

I think from the standpoint of the end of the year and certainly in the CCS business, the Connectivity business, we will have – we're continuing to add capacity on a daily basis. I think we'll have, certainly, as I said earlier, we'll have the capacity that we started last year in place sometime in Q2.

We're adding additional capital in some of the segments of that business to make sure that we can meet demand and insource some of the products now that we buy outside to make sure that our margins continue to improve.

So I think that side of the business, the fiber-to-the-X business, the structured cabling business, feels good about the growth over the course of the year. The middle part of that year is always stronger in that business, and so I think we have a fairly good direction as to how we're going to get there..

Continuing strength in the U.S. and then we see Europe beginning to gain traction in fiber deployments..

Thanks, Kulbinder..

Our next question comes from Avi Silver of CLSA. Your line is open..

Yes, hi, good morning. Thanks for taking my question. First, just kind of a math question related to the EPS guidance. If I were to simply just take $70 million incremental synergies this year, let's say, $30 million to $40 million interest expense reduction, tax effect, though, that's about $0.35.

And that would kind of get to the high end of the EPS range of $3, this assumes no revenue growth, mix improvements or other efficiency gains. I know there are other moving parts, but I just wanted to understand that in the context of your guidance. And just a second question on gross margin, follow-up to something you said earlier.

I know you don't guide here, but as we think about it conceptually, you have a stronger U.S. again this year or it seems like it based on your commentary, and you have half of those incremental $70 million in synergies coming from COGS. My question is, should the bias not be up year-on-year on gross margin in 2017 based on this? Thanks a lot..

Sure, Avi. And I'll take a stab at that. But we've highlighted synergies and some of the tailwinds that we have here with a little bit stronger U.S. mix versus international. But as you know, we do have cost increases throughout the business as well. People get a pay raise once a year and that's a part of the overall earnings mix as well.

We have higher medical costs, and so the synergies and the cost reduction programs, those are necessary to offset cost increases in other line items on the P&L. So we need all those things as well.

We had talked about the fact that we do operate in competitive markets around the world and some of that cost reduction's necessary to offset pricing pressure. So that's why our focus is as much as it is on cost reduction. We have been net-net gainers from that, but we do have cost increases in other parts of our P&L as well..

Our next question comes from Meta Marshall of Morgan Stanley. Your line is open..

Hi. A couple quick questions.

To kind of follow up on Avi's question, does the guidance for 2017 kind of imply staying at more of a 55-45 mix between North America and international markets? And is that kind of necessary to achieve the operating margins laid out? And then the second question is, did you detect any pull forward of demand in Q4 of maybe accelerated timelines on fiber-to-the-home or is it just kind of an extension of more projects being built out that's kind of leading to strong demand? Thanks..

Meta, maybe on the first part of your question, the international versus U.S. mix, that is one of our planning assumptions. And so when you say is it necessary, that's one of the ingredients that goes into the overall range of earnings guidance that we gave. We do point to that as being one of the factors that we talked favorable geographic mix; U.S.

versus international is a component of that. But revenue volumes, cost reduction initiatives and product mix would be three others that we would put in the same camp with geographic mix..

Yeah, I think in the case of pull forwards, some of our business is project related and completion accounting, and so we may have had things that completed in Q4 that we would have expected might have been later. As the level of materiality, that's not something that would be worth mentioning.

But it does ebb and flow, but that would be the only thing that would have been different..

Thank you, Meta..

Our next question comes from Shawn Harrison of Longbow Research. Your line is open..

Clarification if I may before my first question. Mark, did you say fiber-to-the-X is now half of Connectivity, and if so, what was it I guess coming into 2016. And then my real question ends up being just focused in on the synergies.

The $100 million plus that you achieved, is that the run rate number or maybe what is the number on a run rate basis that you exited 2016 with and then that $70 million, is that a fully loaded number or is that a run rate number you'd expect to exit 2017 with?.

Yeah, sure, Shawn. Just to clarify, the slightly over $100 million in synergies achieved during 2016, that is an in-year portion of that, right. So that $100 million resides on our P&L for 2016. What you'll see in 2017 and what we're targeting for is an incremental $70 million. So we would keep the $100 million and add another $70 million to that.

And then with respect to outside plants, yes, I did comment that that is approximately now half of our overall Connectivity Solutions business or in the range of 25% of our overall consolidated revenue..

Thank you, Shawn..

Our next question comes from Mark Delaney of Goldman Sachs. Your line is open..

Yes, thanks very much for taking the question.

Just a question broadly onto the next generation technologies and wireless, is – specifically, Verizon talked about doing some 5G trials this year, can you talk about to what extent CommScope is participating in those? And then more broadly, can you give us an update on how some of your next-generation mobile technologies like the Airvana acquisition, how some of those trials are proceeding? Thank you..

Okay. Yeah, we're in the committee or the body of companies that are OEMs and chip guys and people like us. We are involved in those meetings. We have board membership in them. And so we have an understanding as to where technologies, product needs, those sorts of things are going.

And so we're working with the carriers in the first steps of what deployment could be. Many of our products that are used in LTE here in North America are adaptable. So we would provide those and we're developing new products working with carriers as to what they may need for trial.

We also have or are forming partnerships with people outside of that typical industry that we build in to make sure that we can be involved in technologies that are not inherent within the CommScope portfolio. The second question, Airvana, as I said earlier, we have two installs underway in the U.K. right now.

One is a football stadium, I think 60,000 person football stadium in England. We also have a commercial building that's underway as well. Both will be the OneCell product that we're -- that we bought Airvana for. We expect those deployments to be made within this quarter, I mean within the second quarter. And that will be our first test bed.

And you know what, we've done a lot of trials and those have been exceptionally good so far. So we have high expectations for that. And from that, we would have a proponent of the capabilities that we can then take it to the rest of the world. But all of the development is on target with timing as to what we thought.

We would expect to get into trials in North America sometime in the next quarter or so..

Our next question comes from George Notter of Jefferies. Your line is open..

Hi, guys. Thanks very much. Hey, I wanted to ask about the wireless environment in North America. And it seems like there's a lot of different factors pointing in different directions here. And on one hand, you've got quite aggressive pricing now among your customers, potentially hurting some of the economics of the bigger guys, AT&T and Verizon.

You've got some big cash outflows. I think you're coming on the 600 megahertz side. And then positively, you've got unlimited data plans now becoming of course more prevalent. So how do you kind of think about these different factors and the puts and takes and how it nets out into modest growth for wireless in the U.S.

this year?.

Well, that pressure is not new. This is something that's part of the business for a long time on an ongoing basis. The challenge is the solutions, the products are getting more complicated and harder to make. We have dedicated efforts to cost reduce our products on an ongoing basis, and so that's how we're able to sustain and/or grow margins.

So that's something that the $200 million plus a year that we spend in development, innovation enables us to do with our wireless customers. We also have the benefit of not being geographically linked solely to North America.

So we're used to operating in highly competitive, from a cost standpoint, highly competitive environments and that's, I think, that's made us smarter as to how to develop and have cost competitive, margin earning products that we can sell in every market..

Thanks, George..

Our next question comes from Simon Leopold of Raymond James. Your line is open..

Great. Thank you for taking my questions. First, I just want to get a couple quick clarifications and then a question. You offered us some commentary around the Connectivity segment, the contribution from FTTX.

I'm wondering if we could maybe get a different cut at it, if you could talk about the fourth quarter composition between enterprise customers versus service provider customers how that would split and how that trends?.

Yeah, I don't know, but I have the tails at my finger tips here Simon, but of course, the service provider side being the primary consumers of our FTTX and fiber portfolio as they deploy their fiber networks, more from the enterprise customers' standpoint, overall there, we said that we saw mid single-digit growth year-over-year with U.S.

data center activity driving that. And so it's been more in the large, if not hyperscaled then multi-tenant data center side that we saw nice activity here in the U.S. And then more on the local area network or intelligent building side, primarily outside the U.S. moderating a bit..

Our last question comes from Steven Fox of Cross Research. Your line is open..

Yeah, good morning. On the fiber side, you mentioned that there is a possibility that demand exceeds your capacity later on this calendar year even though you're adding capacity right now insourcing some products.

Can you talk about where you see the most risk for that and what your potential reaction to that situation could be later in the year? Would you have to – would you consider more capital investments, et cetera?.

I think said it constrained maybe – see, we're adding whatever capacity that we believe that we need on a medium-term basis and we had challenges during the course of 2016 and service lag behind where we are used to working. And so we've engaged intimately with our customer base to make sure that we correct that.

And I think we have forecast models that show that we can meet the needs and make them happier than what they saw during parts of the year. I think that other people in this market have talked about industry shortages, it's just not us. And so it's something that the market sees.

But we're at whatever capacity is necessary to support our customer base as long as it's sustainable business. And it's a great problem – it's a much better problem to have than not have anywhere to sell it. So it's something we look forward to taking on the challenge..

There are no further questions. I'd like to turn the call back over to Eddie Edwards for final comments..

Thank you, Michelle. I like to thank each of you for taking the time to join us today on the earnings call. We appreciate your continued interest in CommScope. We believe that we're well positioned to help our customers transition the networks to the networks of the future with our robust fiber portfolio and technology leading wireless solutions.

We look forward to talking to you next quarter. So have a good rest of the week..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day..