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

Vijay Bhagavath - Deutsche Bank Securities, Inc. Meta A. Marshall - Morgan Stanley & Co. LLC Gausia Chowdhury - Longbow Research LLC Stanley Kovler - Citigroup Global Markets, Inc. Amir Rozwadowski - Barclays Capital, Inc. Mark Delaney - Goldman Sachs & Co. LLC Jeffrey Thomas Kvaal - Instinet LLC Victor W. Chiu - Raymond James & Associates, Inc. George C.

Notter - Jefferies LLC Walter Piecyk - BTIG LLC Avi Silver - Silver Point Advisors LLC.

Good day, ladies and gentlemen, and welcome to the CommScope Q3 2017 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 follow at that time. As a reminder, this call maybe recorded. I would now like to introduce your host for today's conference, Ms.

Jennifer Crawford, Director of Investor Relations. You may begin..

Thank you, Katherine. Good morning and thank you for joining us today to discuss CommScope's third quarter 2017 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.

I'm also pleased to announce that Dan Whalen has joined the CommScope's Investor Relations team. Dan has both buy-side and sell-side experience and we welcome his perspective and support. You can find the slides that accompany this review on our Investor Relations website. Now to our housekeeping items.

On slide 2, you'll 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 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 3 is our agenda for this morning.

Mark will review the details of our third quarter results, review segment performance, discuss cash flow and capital structure, review our corporate allocation priorities, and then provide our outlook for the fourth quarter and full-year 2017. Eddie will then provide 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 the call over to Mark.

Mark?.

first, to reinvest in the business through R&D, CapEx, and M&A; second, to reduce debt until we reach our target range of two times to three times net leverage; and third, return capital to shareholders. So we're investing about $200 million in R&D and about $70 million in CapEx annually.

We acquired Airvana in October of 2015 for about $45 million to enhance our small cell portfolio, and Cable Exchange in August of this year for about $120 million, to enhance our data center portfolio. We accomplished all of this while reducing our debt by $840 million in slightly over two years.

In fact, we've repaid an additional $100 million of debt in October, and we expect to achieve our goal of $1 billion of debt reduction, post the BNS acquisition, by the end of this year. We continue to believe that reducing leverage benefits all stakeholders.

In addition, during 2017, we repurchased 4.8 million shares for $175 million, to both reduce dilution and provide a return of capital to our shareholders. Based on these priorities and our current outlook, we expect to end the year with net leverage in the low-4-times range.

Turning to slide 9, I'll discuss our fourth quarter and full-year 2017 outlook. For the fourth quarter, we expect revenue of $1.09 billion to $1.14 billion, GAAP earnings per diluted share of $0.09 to $0.14, based on 195 million weighted average diluted shares, and adjusted earnings per diluted share of $0.43 to $0.50.

And for the full-year, we now expect revenue of $4.53 billion to $4.58 billion, GAAP earnings per diluted share of $0.80 to $0.85, based on 197 million weighted average diluted shares, adjusted earnings per diluted share of $2.10 to $2.17, and cash flow from operations greater than $500 million.

Overall, we expect to end the year around the midpoint of our previous revenue guidance, but slightly weaker on the bottom line, with the third quarter coming in a little better than expected and fourth quarter earnings a little weaker than expected.

Specifically regarding the fourth quarter, our mix of revenue is a little different than previously anticipated, which has an impact on margins. Our outlook for softer fourth quarter revenue in the U.S. and slightly stronger international revenue leads to unfavorable geographic mix. Our book-to-bill at the end of the third quarter in the U.S.

was slightly less than 1 times, while our book-to-bill internationally was stronger. This is due to continued weakness at a large North American service provider, with strengthening trends in India.

As I had mentioned, we expect sales to this customer to improve once they have closed a large acquisition, and have begun to implement a major plan to network build next year. And while the margin profile is different in India than in North America, we are pleased to see that market returning to growth.

In addition, material costs have continued to rise. We have taken actions to raise pricing on certain enterprise products, and we expect to benefit from these actions as we move through 2018. Looking ahead to next year, we remain optimistic and expect a return to growth.

While we haven't completed our 2018 plan yet, despite the current challenging environment, we see a number of positive signs in our markets. We expect solid wireless growth in North America, with spending for FirstNet beginning in the first half of next year.

While we are still cautious on the international markets, we are currently seeing positive signs out of India in our Mobility business. Additionally, we expect strong indoor fiber growth to more than offset the decline in the indoor copper business.

We also expect a recovery of outdoor network solutions sales, driven by ongoing builds by telecommunication service providers in North America. Regarding ongoing cost management and synergies, we're on track to achieve the two-year cumulative target of $170 million of BNS cost synergies by the end of this year.

We also expect to deliver an additional $30 million of BNS cost synergies in 2018 and further reduce SG&A costs as we move through the year. However, we're also mindful of headwinds related to higher material costs, higher variable incentive compensation expense and general inflationary costs, like wages and healthcare.

We're dedicated to positioning the company for long-term success and value creation. And a final note regarding potential tax reform. For calendar year 2017, we expect an adjusted effective rate of about 35% due mainly to the global mix of earnings as well as our active cash repatriation program.

Under virtually any tax reform, we expect to benefit significantly. Our rough estimate is that our adjusted effective tax rate could decline by 500 basis points or more, obviously dependent upon the final reform measures that may be passed. And with that, I'll turn it over to Eddie for closing remarks..

Thank you, Mark. We're pleased to have delivered third quarter results at the upper end of our expectations, despite a volatile industry environment.

As you've heard from many of our peers, our markets remain challenging, but we are confident that consumer demand requires service providers to push fiber deeper into their networks and that we will begin to see higher customer connection rates, which will benefit our Connectivity business solutions segment.

We also expect service providers to continue densifying (17:11) their wireless networks through the ongoing investment in macro, metro and small cells.

Additionally, we continue to make progress in our indoor fiber solutions business with yesterday's announcement that the high-speed migration platform is now available for both single-mode and multi-mode fiber.

We continue to focus on successfully completing the integration of BNS and look forward to completing the vast majority of our international ERP implementation in the fourth quarter of this year.

As we look ahead to 2018, we are particularly encouraged by our opportunities in North America with wireless and fiber deployments, as well as growth opportunities within the hyperscale data centers.

We will continue to build upon our strong global channels to market, invest in innovation and agility, and take action to increase operational and financial performance to ensure our continued long-term success. And with that, I will turn it back over to Katherine, so she can start the Q&A.

Katherine?.

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

Yeah, hey. Good morning..

Good morning..

Yeah, good morning. My question is around CommScope as a demand-driven story. So the question is really around, are there a set of projects or customer initiatives that we need to kind of focus on in the new year? And then also do you have a dedicated sales team in place to look for these new design wins at hyperscale clouds? Thanks..

Yeah, Vijay, we have restructured our sales team for hyperscale, and specifically to focus on that and also emerging cloud customers. So, it's 20-or-so plus customers in that category that that is their sole directive, to take our new capabilities into that market. So, we would expect to see improvement of that.

I think also in what we're seeing in that market specifically is there's a move afoot among the hyperscales to have more than one source. I think that they appreciate the footprint that CommScope has.

Also appreciate the investments that we're making to become a more agile supplier in that marketplace, which is what they demand, certainly, in the quick-turn business. So, we feel good about the hyperscale separately and what we're doing with product innovation and with coverage that we have in the market.

As it relates to projects, a large part of our business is project-driven. And we see, of-late, new projects that are coming on. This is one of the things that creates volatility within our business, and very hard to forecast.

But I think we're starting to see people thinking about spending in different areas than they have maybe in the last several months. And we feel very positive about what could be in 2018 as we said before, so nothing has changed in our mind there..

Perfect. Thank you..

Thank you. Our next question comes from Meta Marshall with Morgan Stanley. Your line is open..

Hi. I just wanted to ask a question about you had mentioned kind of unfavorable geography as being kind of part of the reason for weak margins in the quarter, but it was still a pretty high percentage of U.S.

And so, should we expect that Q4 is skewed more international or just want to get a sense of that commentary?.

Yeah, sure Meta. First off, we're proud to have over-delivered on our expectations for Q3. The margin pressure that we're referring to with respect to geographic mix is really a Q4 phenomenon..

Okay..

And it's driven more by continued softness in the U.S. market coupled with higher growth in India. And so, when you think about U.S. mix versus international, it's really emerging market versus developed markets.

And so India is a good market for us, it delivers good profit and cash flow, but the margin profile is different than what it is in North America. And so that is one of the two factors we had pointed to that will affect operating margins in the fourth quarter. The other is material costs.

And so think about the impact on gross margin or adjusted operating income margin as being about equally split between geographic mix, U.S. versus emerging markets, and the impact that higher material costs are having in the fourth quarter. We have reacted, by the way, to those higher material costs with price adjustments.

It typically takes us a couple of quarters to get those fully in place and we expect to see the benefit of those in 2018..

Okay. Great. And then, you were mentioning kind of seeing more activity in international markets. I just want to get a sense of, are these sizeable projects, are they kind of one-off projects? Sometimes the international projects tend to be smaller so is that an accumulation or just kind of the tone of the international activity would be helpful..

Sure. I think it varies by which particular international market. Within Europe, for example, we are seeing European operators deploying new bands of spectrum, which requires more complex antennas from CommScope. Within that, the UK market, though, has been soft. We think Brexit will be an overhang there for a bit.

We also have very good train activity, there's a refresh cycle on the TETRA or the DAS solutions that provide coverage to the train systems in Europe. Latin America has been soft for us for the last couple of years. There are a few bright spots, Brazil would be one that we would point to there.

And then to your point, Southeast Asia is very much project-driven. Some smaller projects are underway there currently and while we do have some degree of optimism around the return to more meaningful growth, it's still a little bit too soon for us to call that in its entirety..

Great. Thanks. I'll pass it on..

Thank you..

Thank you. And our next question comes from Shawn Harrison with Longbow Research. Your line is open..

Hi, good morning. This is Gausia Chowdhury calling on behalf of Shawn.

With regards to the return of growth in 2018, does that mean more low single-digit or mid single-digit? And then you've provided some color, but if you could bifurcate a little bit more on, between fiber and indoor and outdoor activity, and wireless, and the timing related to FirstNet, which areas are you the most bullish in and any other color would be helpful.

Thank you..

Sure. Well, first in the aggregate, our outlook right now would be for mid single-digit growth in 2018.

And if we talk through that a bit by segment, within Mobility, I've given a brief overview on how we see the international markets at this point, but within North America clearly we believe that we have the winds at our back right now with respect to FirstNet. The exact timing around that, of course, is a variable right now.

And that will play out here over the next several months as we move into 2018. Within our Connectivity business, we're very pleased with the progress that we've made with enhancing our product portfolio.

Our recent announcement yesterday, yet another new set of products that further flesh out our high-speed migration platform as well as the acquisition at Cable Exchange in what we see as a continued growth market in hyperscales. So, we're optimistic about growth there.

As we've talked before our indoor copper business is not a growth market albeit nicely profitable and cash flow generative. And one of the key variables for us is the U.S. FTTx market. And so, we remain enthused about the long-term fundamentals, although we have seen the MSOs starting out a little bit slower than what we had expected earlier this year.

So, we now see them coming out of their planning stages and the rate at which connections are made versus fiber is deployed. The pace of that is something that is still yet to be determined..

Yeah, I think maybe a little more color on FirstNet. As I said earlier, we now have orders. They will be delivered either late in Q4 or early in Q1. That's not yet determined exactly. The 27 states that have deployed, we have people touching each of the AT&T engineering locations for where we will play.

You know, it's been talked about as far as the tower guys as to not planning on that. It's not apparent to them, really, what is a FirstNet antenna.

These antennas look no different on the outside than our traditional high-port antennas, and so we feel very comfortable with where we are relative to others, and we feel good about our approval rate and the coverage that we have.

So, we still think it will be a meaningful part of our business, but it's not yet determined exactly when it will start in earnest, but certainly during the course of the first part of 2018..

Great. Thank you. One more, if I may. If you could speak a bit to the margin dynamic, the price increases that you mentioned within enterprise, is it more on the structured cabling side or coaxial products? Thank you..

It would be primarily as you had suggested within the enterprise market, and more so on the structured copper cabling side. Yeah, this is a phenomenon that we have managed very well over decades. The price of input costs or some of the commodities that go into these products does tend to be volatile.

Last year was a little bit of an exception; they were fairly stable throughout 2016. But typically the pattern is, is they rise. We will in turn increase price. It takes a couple of quarters for that to catch up, and then we realize the equilibrium for a period of time until, at some point they tend to decline, in which case there's a lag factor there.

So, think of it in terms of a couple of quarters..

Katherine, can we have the next question, please?.

Thank you. Our next question comes from Stanley Kovler with Citi Research. Your line is open..

Hi, good morning, everyone. Thanks very much. I just wanted to ask you about one of your top customers, one of the things that they mentioned when they reported recently was growing their fiber presence from, I think, something like 34 million locations to 50 million locations.

And I'm curious if you interpreted that as being incremental or in line with their prior expectations? And then also with this customer, you received orders that you'd talked about as a function of your book-to-bill, is that really the FirstNet opportunity coming through, or is the outdoor business improving there as well? Thanks..

Well you know, we sell to them in most every category of what they use on the wireless side, and so it would be a combination of both. We provide a lot of coverage for their metro deployments, a lot of the densification that all the carriers are doing.

We're a prime provider of – whether it be consumer or the full instrumentation within a pole as to what's provided out there, we do. We do expect FirstNet to be different than what we've seen of the other special antenna, but it really – the channel – the 14 band is in pretty much all of our sophisticated antennas.

So, it's something that is just an adaptation of other antennas, more complicated. But it is starting, and we've been waiting, as all of you have.

But it has started, we do have orders, we do have delivery expectations, and we think that that will increase in earnest over the next few months, as their understanding of where the deployments will happen, and at what pace they will happen..

Thanks. And if I could just follow-up on margins, actually. If I look at the implied guidance into next quarter, there's something like a 140 basis point decline in operating margin. You referenced the mix between U.S. and international, and also the input costs.

Can you help us quantify how much of each of these factors is affecting this decline in margins? And I'm assuming this all comes in the gross margin line C (31:15)? Thank you..

Yeah, that's the right way to think about it, Stan. When you think about the drivers behind our margins, first is sales volume. So, albeit that the seasonal patterns in 2017 have been a little bit atypical, we do expect the fourth quarter to be the lightest of the four.

And so that is one of the overarching factors, but then we point second is to geographic mix, and it's really the mix between developing and developed markets. And so, when we think about a lighter U.S. and a heavy Indian mix, think about that as about 100 basis point impact on the quarter. And then finally, material costs.

Again, we haven't had to deal with this much throughout the last period of time. Most commodities have been much more stable than what we've seen them (32:04) as we move through, in particular, the back half of 2017. But we are now having to adjust prices to react to higher prices within the commodities.

And so that imbalance between price and cost on commodities is about 100 basis points in the quarter. And so we expect that both of those things will be correcting, if you will, as we move into 2018, as pricing catches up to input costs and as we, with the growth in the U.S.

market, move back to a more normalized mix between developed and developing markets..

Thank you..

Thank you. Our next question comes from Amir Rozwadowski with Barclays. Your line is open..

Thank you very much and good morning, folks..

Morning, Amir..

Morning, Amir..

I was wondering if we could drill down a bit on North America Mobility. You folks mentioned, obviously, a large service provider was particularly impactful, and it seems based on your geographic mix commentary for the fourth quarter you expect that tempered backdrop to persist.

But it also seems clear that you're getting orders from FirstNet, and that carrier seems to be on the record saying they expect to be spending on that spectrum deployment in the first quarter of 2018.

Given with the initiative stance, can you provide us with an assessment of the size and scope of this opportunity? It feels like they've been holding back in upgrading or deploying spectrum for some time.

Is there a way to sort of at least qualify sort of how you think about sort of the opportunity set? Are there any changes in the competitive landscape, either positive or negative, for your positioning to capitalize on this?.

Well, Amir, we meet with this particular customer a lot, and certainly on a quarterly basis, to understand exactly where we're at from a Mobility standpoint. We've seen no negative reaction whatsoever from our position with them.

I said before we feel very good about our position on FirstNet and the approvals that we have for multiple designs of the product. And as they start to order, we will get a share.

I think we have proven to this customer time in and again as to our ability to react to demand spikes or the opposite of a spike, which we've seen this year, I think, in magnitude of what Mark has talked to.

But we do anticipate that there will be a resurgence of demand versus this year, not just from what FirstNet may bring us, but also in order to improve the networks.

They have been very open about not wanting to touch the tower but once, and I think that's been impactful for us, it's probably as well as their customers, as to waiting to go out to a tower and only climb that tower once or have people climb it for them once and defray the cost of deployment. So we feel good about when that starts.

We've waited patiently and it's given us time to fully implement our designs, and we feel great about that, and we feel good about our position. We think there's been zero deterioration. I think the relationship is very positive, and we look forward to 2018 coming..

Thanks very much. And just one quick follow-up. You mentioned mid single-digit growth in 2018. One would assume, given the prospects for a more favorable geographic mix, bottom line growth would outperform top line.

Is that an appropriate assumption at this juncture?.

Amir, that would be an appropriate assumption, and we do expect earnings to grow faster than sales next year, absolutely..

Any chance you could cage that level of growth for us?.

At this point, Amir, we are still working through our 2018 operating plan. We'll be able to share the details of that on the next call with you. But you should think of, yeah, mid single-digit revenue growth and double-digit earnings growth..

Thank you very much for the incremental color, gentlemen..

Thank you. Our next question comes from Mark Delaney with Goldman Sachs. Your line is open..

Yes, good morning, and thanks for taking the question. I was hoping you could elaborate a bit more on your outlook for SG&A as you go into next year. Mark, you talked about some tailwinds in terms of some of the additional synergies and just (36:44) that the company has been doing.

Also, you mentioned things like healthcare costs and just normal expense growth that we have to be thoughtful about.

So maybe you can just kind of help us 2018 SG&A versus 2017, how we should be thinking about that?.

Yeah, sure, Mark. There's a number of variables there, of course. When you consider how we manage cost, you look at a 13% revenue decline in the third quarter and a 16% decline in SG&A. So, you've known us for a long time and you know that we manage cost very carefully. So, we still have incremental BNS synergies to be realized next year.

We are taking incremental actions around SG&A in light of the current market conditions. We are very thoughtful, though, as to how we prosecute those. We want to continue to be very well prepared for when the markets return to growth next year. So, how we cut is something that is very strategic. Beyond that, again, we are still working through our plan.

We will return variable incentive compensation to a more normalized level, but we will continue to address our cost structure in a very aggressive way..

This integration that we've gone through has been very complicated, and it doesn't lend itself to near-term efficiency. And we will see a lot of improvement there from a standpoint of having one system throughout the company and the ability to understand, on a very quick, instantaneous basis, sort of where we are. So, we look forward to that.

And then the other thing maybe more clear. We sized our company to be larger than what we are today, and we have to look at that to make sure that we have the right balance. And so that's an ongoing process that we go through, so we'll be doing some of that as well..

So, obviously, a follow-up on a comment the company made in the prepared comments around better momentum in small cells and metro cells, partly with the Airvana product line. And I think you said you're now sampling that with a North American operator.

Could you just give a sense for what type of revenue opportunity may be associated with that sampling that's going on? Thank you..

So far it's been very small because we've had the successful build-out in the UK and we're doing others with that customer now. We're very near the finalization of approval here in North America. That's a longer process than probably anybody can appreciate.

But our device does transmit data back and forth with the network, and so the carriers want to make sure that it works seamlessly. We believe that our OneCell has a lot of capabilities that are not present in other small cell devices that are currently in the market.

And I think the reaction that we've seen from the European carrier and I think the reaction that we're seeing from the people that are doing trials today bear that out. So I think as we get into the market, it will be a very good seller for us, but it's not going to be instantaneous gratification.

It's going to take some time over the next few months to get it in the market. But so far the reaction is positive and good and I think in line with what our expectations are..

Thanks, Mark.

Katherine, can we have the next question, please?.

Yes. Our next question comes from Jeff Kvaal with Nomura Instinet. Your line is open..

Yes, thanks very much. I would like to delve into that book-to-bill a little bit, if possible, gentlemen. The first part of it is it doesn't seem as though your revenues particularly in the fourth quarter are all that much above seasonal, still down a little bit.

Should we interpret that book-to-bill of 1.04 times as building visibility for 2018 rather than necessarily about the fourth quarter? And then secondly, just to confirm, it sounds like there isn't FirstNet as part of that 1.04 times. It sounds like the FirstNet orders have come in subsequently to the end of the third quarter..

Yeah, I think that's the right way to think about that, Jeff. The FirstNet orders that we had talked about were a post-quarter end event. But we carry about six weeks to eight weeks of backlog at any point in time. So as we enter a quarter, we typically have about half of that quarter's revenue in backlog and the other half is on a book and ship basis.

So, we are enthused by the fact that we had an unnaturally strong book-to-bill. And then when you read between that, thinking about it we know the North American market and we're very optimistic that the North American market is coming back next year. We believe very nicely. So the fact that what we're seeing these higher order growth outside the U.S.

is what gives us the cautious optimism around 2018. So, hopefully that addresses your point..

Not only does it address the point, Mark, but it also anticipated my follow-up question, so I will pass it on. Thank you very much..

Thanks, Jeff..

Thank you. Our next question comes from Simon Leopold with Raymond James. Your line is open..

Hi, this is Victor Chiu in for Simon Leopold. The $120 million that you disclosed for Cable Exchange was a bit more than we expected for the purchase price, I guess, at almost a quarter of your cash balance. And based on your outlook, the addition doesn't seem to have an extremely material impact to the overall top-line with profitability.

So can you just speak some to what the acquisition brings to the table that you were missing before and maybe what your expectations are for the contributions there in 2018?.

I think the acquisition has brought us benefits well beyond what the revenue expected from Cable Exchange are. It enables us to have a story in the hyperscales of agility – ability to respond within days, not weeks, to deliver connectivized (43:23) product to them.

It's enabled us to have conversations with the hyperscale community beyond where we were before. I'll remind you that we were in one hyperscale. We are now in three or four. And so it's brought us the ability to do that. So we think it was well worth the value that we paid.

We think this contribution is going to be, as I said, beyond just what Cable Exchange revenue is. It's also going to enable us to take a huge CommScope, our SYSTIMAX product category and be able to learn from the acquisition as to how to better deliver to our customer base in a more timely fashion.

And we would see it as a foothold to get into transitioning to other parts of the world and a way to go to market different than what we've done in the past..

And Victor, just to size Cable Exchange, its annual revenues are approximate (44:30) consolidated CommScope revenue. And the transaction itself closed in August. So, the impact on the third quarter is immaterial..

Okay. Got it.

So, the rebound that you're anticipating next year, in terms of your data center business, is that contingent on the relationships that you talked about gaining traction?.

Well, we think that it is going to be the result of a number of things. It's improving or enhancing our product portfolio, two meaningful additions to that portfolio in the last two quarters, it's the capability that Cable Exchange brings us. It's the fact that the market itself is growing, we believe, in the high single digits.

And, you know, all of those things together, coupled with the fact that, as Eddie had mentioned, we see several of the larger hyperscales adopting more of a multi-vendor approach to how their needs are served. So we think it's a culmination of all of those things..

Okay. Great.

And just one quick housekeeping question, the large North American service provider that you singled out for weakness this quarter, was that strictly Mobility, or was there weakness in Connectivity, impact to Connectivity and Mobility, from that?.

That was weak in the Connectivity segment..

Connectivity, okay. Okay..

I'm sorry, you're asking about the hyperscale or....

The North American service provider..

Oh, the North American service provider, I'm sorry. That covered both of our segments..

Okay, so that covered both. Okay. Got it. All right. Great. Thank you..

Thank you. Our next question comes from George Notter with Jefferies. Your line is open..

Hi. Thanks a lot, guys. I guess I wanted to go back to the discussion on the fiber Connectivity business. Purview to what (46:26) you said earlier about fiber cabling growing slower than fiber connectivity. I think you guys made that comment a quarter ago as well.

But can you just confirm, in terms of the inventory, I guess if you go back a quarter or two ago, you guys were talking about an inventory correction that was going on in that area, are you convinced that that's now behind us, and how do you think about inventory going forward? Thanks..

Yeah, George, first just for clarification, what we had commented on was that fiber cable for us, which is not the biggest component, but fiber cable within our outside plant product offering grew at or greater than the – we would call industry averages here. It's the apparatus, or the actual connectivity itself, that was declining in the quarter..

And then, I think we also said that the Connectivity business lags behind the cable side. I think what you just said was the opposite of that. But Connectivity comes after. And we are not the primary cabler in the Fiber-to-the-x market for the – outside of the MSO market, so that would be something that someone else is involved in..

Got it. Okay. Thank you very much..

Thank you. Our next question comes from Walter Piecyk with BTIG. Your line is open..

have you seen any new activity in that book-to-bill that's up for the first time, I guess, since 2016, from any North American service providers that you haven't seen a lot of activity from in recent years?.

No, we wouldn't point to anything in the quarter, Walter, that would be out of the ordinary. We sell to all of them. One that you're referring to that has been perhaps slower in deploying than others is one that we continue to provide products to, but nothing materially different in the third quarter..

Thank you. And then, if you could maybe help us understand this kind of question, I guess chicken and egg, in terms of tower companies versus you guys.

Obviously, they have to actually get the antenna before they can hang them on towers, but – and I know I'm asking you about, like, what other companies do, but maybe you have some insights that we don't.

If a tower company is getting applications for FirstNet or whatever, are you getting – would you suspect you're getting orders at the same time, shortly thereafter, or do you think you might have gotten the orders ahead of when the applications for amendments to the tower companies are being received? Again, as it relates to FirstNet, Sprint, or whoever..

Yeah, I think, now that you're getting a mass of opt-ins, that's what's going to start driving the orders. These are deployed by other people, not the end user, and so that's – we would flow through that process. So ours would be in advance of what a tower company might say is activity on its tower.

The radios and everything that goes along with making that network viable would have to come as well. So, you would package all this in stages, and – the cabling, the filtering, the radios, our antennas, all those sorts would go into it. No different than the traditional network builds.

And what I said earlier is that we would see traditional network enhancements go alongside the FirstNet deployment, because these antennas are going to be side-by-side on the tower, and they want to do this all in concert to make sure that they don't have to send crews out multiple times.

And the economics of that are extreme, if they would have to do that, so it would be done in concert. So, we would see orders, and then the tower companies would see amendments..

Got it. And if you don't mind, just one last question on Connectivity. In the prepared remarks, you had mentioned, I think, quote – you wanted to – there was an opportunity to connect new customers to monetize their fiber investments. That wasn't clear to me whether you were referring to a new customer to you, or your customer's customer.

And, I guess, as it relates to that, when you talk about this weakness in the North American customers for wireless, obviously it's clear who that was.

Are you seeing that same weakness on the Connectivity side from that same customer? So, is the theory here that deal closes, CapEx starts flowing from both the Connectivity segment as well as Mobility? And were you referring to them when you were talking about this connect new customer to monetize their fiber investments?.

Yeah, Walter, some of the past calls we've talked about this at some length. So, for our Connectivity to be used, the cable has to be in the ground or on pole, wherever it's going to be. And so the cable provider would see that first. They have some Connectivity outside of what we do.

And then, as it's deployed, final deployed to their customer, that's when we would see our Connectivity in a bigger way. So that would be what we would see as the delay from the Connectivity side versus the wireless side..

Thanks, Walt..

Got it. Thanks for your time. Thank you very much..

Thanks.

Katherine, can we have the next question, please?.

And our last question comes from Avi Silver with Silver Point Advisors. Your line is open..

Hi, thank you very much for squeezing me in. I had a question on growth in 2018.

The three customers that impacted three quarters of the CCS revenue decline – as you're guiding toward 2018 – and, again, this is for CCS specifically, do you expect all three to grow next year for that segment? Or two out of three, whatever it may be? And if yes, I guess, what gives you confidence on the outdoor fiber business in 2018, especially in the U.S.? Thank you..

Yeah, the answer to your question, Avi, is yes, we do expect to see growth in each of those three. Eddie, you can speak to the North American piece, but outside the U.S., we had also pointed to a Southeast Asian carrier. That is a particularly large government-sponsored project in Southeast Asia.

They were deploying in earnest in 2016, and so the year-over-year comparison is a bit tough. We do see a return to growth. They're about mid-way through a five-year program right now, and we expect to see continued activity to that moving into 2018.

The large hyperscale account that we had pointed to is one that – for all the reasons we had discussed previously, there was a large project that gave us a tougher comparison. We think we're in much better position now to address not only that one, but many others within that hyperscale domain. And then the final, Eddie, was on the fiber..

Yeah, and that's – Avi, I think my answer – in part of my answer to Walt before is that the deployment will happen, they will get fiber in the ground or on pole. The parts that we play a part in will then come later. We think that is happening, and we would expect a more normalized deployment plan going forward.

We think the same from that customer relative to FirstNet that it is now starting to happen. We are positioned well with that customer, not just for FirstNet, but for their normal deployments. And so, we would expect growth there as well..

Okay. Thanks so much..

Thank you. And I'd now like to turn the call back to Mr. Eddie Edwards for any further remarks..

Yes. Thank you, Katherine. Even though 2017 has been a difficult year for the market, we're still firmly believe significant opportunity lies ahead for us and that CommScope has strong earnings power and cash flow characteristics. We continue to work every day to position CommScope for long-term commercial and financial success.

But we thank you today for joining us on our earnings call. We do appreciate your continued interest in CommScope, and we look forward to talking to you next time. Thank you..

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