Commscope Holding Co Inc (COMM) Q4 2020 Earnings Call Transcript

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Commscope Holding Co Inc (COMM 6.19%)
Q4 2020 Earnings Call
Feb 17, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, hello, and welcome to the CommScope Fourth Quarter and Full-Year 2020 Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Russell Johnson, Vice President, Treasurer and Investor Relations.

Russell Johnson -- Vice President, Treasurer & Investor Relations

Good morning, and thank you for joining us today, and welcome to our fourth quarter and full-year 2020 earnings call. I'm Russell Johnson, Vice President of Treasury and Investor Relations. And joining me today are Chuck Treadway, President and CEO; Alex Pease, Executive Vice President and CFO; Morgan Kurk, Executive Vice President, CTO and Segment Leader for Broadband Networks; and Bud Watts, Chairman of the Board.

You can find the slides that accompanying this call on our Investor Relations website. Please note that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.

Before I turn the call over to Chuck, just a few housekeeping items to review. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials, and posted on our website. All references during today's discussion will be to our adjusted results, unless otherwise noted. Also note, the full-year 2019 results include historical ARRIS pre-acquisition results, reflecting certain classification changes to align to CommScope's presentation. All quarterly and annual growth rates described during today's presentation are on a year-over-year basis, unless otherwise noted.

I will now turn the call over to our President and CEO, Chuck Treadway. Chuck?

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

Thank you, Russell, and good morning everyone. Today, I'll start with the review of our 2020 highlights, and our fourth quarter results. I'll then provide a preview of our transformational initiatives to drive growth and value creation, which we refer to as CommScope NEXT.

Let's turn to Slide 3. As the COVID-19 pandemic was beginning to unfold, we moved aggressively to keep our people safe, continue delivering for our customers. We pivoted quickly to remote work, put in place robust health and safety system, and initiated a business continuity program. Our team leveraged the diversity of our global manufacturing footprint to mitigate supply chain risk and respond to the evolving regional challenges. Within a matter of weeks, we mitigated the vast majority of our supply chain challenges, and our factories were running at capacity. The management team and I are proud of CommScope's ability to deliver on our promise to meet customer needs in such a challenging time.

In addition, we continued to innovate across the wide range of technologies and business. At CommScope, the future wireless networks, 5G Wi-Fi 6 and 6G are rapidly taking shape. As new CBRS and C-band spectrum is introduced, we are ready to bring all of this to life by developing innovative technologies. One example is our new interleaved passive-active antenna that we developed together with our partner Nokia. Last year, we delivered the largest DAS in the world to AT&T Stadium, home to Dallas Cowboys, to enable 5G services to their fans. We also helped education customers like the New Zealand Ministry of Education meet connectivity demand for their students and faculty with Wi-Fi 6 access points and switches. In the US, the Rural Digital Opportunity Fund or RDOF has generated enormous demand across our portfolio of fiber cable, hardened connectivity and fixed wireless products. We are actively investing in capacity and technologies to meet this demand.

And across our portfolio, virtualization, cloud and analytics are defining a new generation of products and solutions. Whether it is helping operators mitigate the distributed access architecture, manage the network ecosystem through the cloud or optimize performance through self-healing tools and technologies, CommScope is leading the way to the next-generation of networks.

Thanks to the hard work of our dedicated employees, we delivered a solid financial results despite many challenges faced by our Company, industry and broader economy. In the fourth quarter, we delivered $362 million in adjusted EBITDA, up 6% from the third quarter, and 12% from the prior year, despite declines in revenue. We also delivered an adjusted EPS of $0.59 per share, and generated $65 million of adjusted free cash flow. Since the close of the ARRIS acquisition, the team has over-delivered on its synergy commitment of $150 million, one-year ahead of schedule. These results are directly tied to the hard work, discipline and efficiency in 2020, which we will continue to build on in 2021.

While I acknowledge, we need to do more as a Company, I commend the team on delivering consolidated adjusted EBITDA margins up sequentially and year-over-year. It is important to note that these results reflect lower incentive compensation, strong CMTS, license sales and certain COVID-related benefits, such as reduced travel and marketing.

We attribute our performance in 2020 to our strong supply chain and decades of experience supporting our customers through challenging times and periods of network transformation. In 2021 and beyond, we will continue to build on our ability to provide next generation solutions and execute with agility. There is a lot more work to do, and we are not slowing down. As the business environment normalizes from the pandemic, the portion of our cost savings will come back, whether it's through increased travel, resumption of customary sales and marketing activities, or normal inflationary effects. We will also continue to invest in next-generation R&D programs to lead in the markets we serve, and fully realize our growth potential. This is one of the focus area of the CommScope NEXT.

Let's go ahead and turn to Slide 4 for some more perspective on CommScope NEXT. CommScope NEXT, which we launched in January, will focus on driving business growth that outpaces the market, controlling costs, optimizing business performance, and unlocking significant shareholder value. As we shared last quarter, the Board and management team understand that our stock is underperforming. We are confident that executing CommScope NEXT strategy, we will ensure the Company is on the right path for the next level of growth and profitability.

CommScope NEXT will be a defining chapter for the Company, and my highest priority as CEO. It will focus on three primary vectors of value creation. First, we will double down on delivering growth. Even in my first quarter with the Company, our team has uncovered many opportunities for profitable growth. The areas we will explore include, vertical market strategies designed to gain market share, capacity constraints in our factories to deliver more products, where demand already exists, investing in international expansion, enhance channel relationships and development of critical technologies. As we continue to analyze and prioritize these opportunities, I'm confident we will be able to accelerate growth that as we drive commercial excellence, and refine our go-to-market strategies.

Second, we will focus on business optimization, initially evaluating and reducing non-value-added costs. While the Company has a strong history of cost control, we can do more. We will eliminate unnecessary complexity in costs by streamlining duplicative systems and redundant processes that exist today. As we dig deeper into the business units, we discovered unproductive investments that could provide us with additional financial flexibility to reallocate development funds to higher-return projects. We also see opportunities to implement tools to advanced business operations to take the Company to the next level of efficiency through continuous improvement. We will be tackling all this quickly, and we will share more details on the plan and our financial goals as we progress.

Third, we will actively evaluate the health of our full portfolio of products and business. We intend to dynamically reallocate capital to those businesses, where we got winning value proposition, industry-leading technologies, and a clear path to growth and value creation. In our businesses that are more commoditized, who either manage those for cash or where appropriate, evaluate alternative ownership structures that can unlock greater shareholder value. We are confident that by implementing CommScope NEXT, we will create a stronger, more efficient CommScope, and deliver long-term value for all of our stakeholders.

With all of this said, I'd like to manage expectations on timing. We will not see the impact of this initiative immediately. In some cases, it will take quarters and others longer. And it should be expected in the immediate future, as COVID-related restrictions on travel, marketing and other business activities subside, we will see some costs coming back into the business. It will be one of the job of CommScope NEXT to accelerate path to short-term headwind.

In addition to CommScope NEXT, we have take other significant actions. Morgan Kurk was appointed the Segment Leader of Broadband Networks, in addition to continuing responsibility as a Company's Chief Technology Officer. Morgan's strength in technology and business leadership serve broadband and CommScope well, as we develop the next-generation network architectures and drive profitable growth. We've also brought in Jack Carlson, as Chief Commercial Officer, to help CommScope drive above market growth, and Kyle Lorentzen to assist in executing CommScope NEXT. I've worked with both Jack and Kyle in previous companies, and have first-hand experience with their ability to drive go-to-market excellence and achieve sustainable cost efficiency.

Also the team is mobilized enthusiastically delivering strong bottom line results through the end of the year, and we are energized by the opportunities ahead. We've begun to put a foundation in place to shape the future of CommScope to deliver a step change improvement in the shareholder value through our CommScope NEXT initiative. We look forward to providing more detail on the progress we have made, implementing CommScope NEXT during our first quarter earnings call.

And with that, I'd like to turn the call over to Alex to recap the full year and provide more detail on the quarter, and trends we're watching in 2021. Alex?

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Great. Thanks, Chuck, and good morning, everyone. This morning, I'll start of with the recap of 2020 before moving to our fourth quarter results, segment performance and some commentary on our cash flow and our capital structure. I'll finish with some closing thoughts on key industry and technologies trends that we expect to influence CommScope's performance during the coming year, before we open the call up for Q&A.

Turning to Slide 6. The full-year 2020 net sales was $8.44 billion, declined about 14% from the prior year as a combined company. We saw moderate growth in our Broadband Networks segment during 2020. The sales declined across all other segments, most notably Home Networks, which was down 30%. From a geographic perspective, sales declined across all regions.

For the quarter adjusted -- excuse me -- full year adjusted EBITDA of $1.22 billion, declined 11%, while adjusted EBITDA as a percentage of sale improved more than 40 basis points, year-over-year as a combined company. We've over-delivered on our 2020 synergy plan and moved quickly to take additional cost actions, particularly in Home Networks, to help preserve bottom line in response to the challenging business environment.

From a segment perspective, Broadband Networks delivered significant growth and profitability of over 18%, but this was more than offset by adjusted EBITDA reductions in all other businesses. As Chuck mentioned, embedded in these results are the favorable impact of certain COVID-related benefits such as lower level of marketing spending that are likely to return in 2021 before the impact of CommScope NEXT is fully reflected in the financials.

Finishing on Slide 6, adjusted net income for the year was $371 million, or $1.56 per share, compared to $479 million or $2.15 per diluted share in the prior year. The adjusted free cash flow was $415 million, compared to $793 million prior year, noting that in 2019, we generated significant cash flow from working capital as we integrated the ARRIS acquisition. Throughout the year, we faced many unexpected challenges, and our business model has proven remarkably agile and resilient, delivering bottom line results.

Our global supply chain team worked tirelessly to mitigate disruptions caused by the COVID-19 pandemic, while simultaneously priorities safety of our employees. We over-delivered on our original $150 million synergy target, well ahead of our original timeline, and took significant costs out of the Home Networks business in response to increasing pressures within the video segment [Phonetic]. We also leveraged our variable cost structure effectively to reduce operating costs throughout the entire business. As a result, we are in a position to emerge from this cycle, a dynamic and more streamlined company, and one that will be made even stronger with the impact of CommScope NEXT. As the industry tailwinds of 5G, RDOF and DOCSIS 4.0 begin to take shape, we believe we're extremely well positioned to benefit for many years to come.

Now let's move to Slide 7 for a deeper dive into our fourth quarter results. And as a reminder, all of my references to quarterly growth rates are on year-over-year basis, unless otherwise noted.

Net sales for the quarter of $2.13 billion, declined approximately 7% primarily driven by declines in Home Networks. Orders for the quarter were approximately $2.54 billion, with a book-to-bill ratio of 1.18. While we're pleased with the strong order flow, we do not expect to realize all of this backlog immediately, due to capacity constraints, other supply chain related considerations and a portion of these orders that are related to support agreements are multi-year deals. Adjusted EBITDA of $362 million, and adjusted EPS of $0.59 per share increased approximately 12% and 28%, respectively.

Company ended of the year on a positive note with profitability, highlighted by sales strength in the higher margin Broadband Networks products, combined with a laser focus on Companywide cost control. In the quarter, we recorded adjusted operating expenses of $406 million, an 8% reduction from the prior quarter, primarily related to approximately $40 million expense compensation favorability.

Turning to Slide 8, I'll move to our segment results. Beginning with our Broadband Networks segment, net sales were $789 million, grew over 17% primarily driven by growth in North America and Caribbean and Latin American regions. From the business unit perspective, sales grew in the mid-to-high teens in both Network Cable and Connectivity, as well as the Network and Cloud. On a sequential basis, video systems and access technologies revenues were strong, although this was offset by the supply constraints in our outdoor fiber and copper cabling product lines and the acceleration on the large CMTS license deal in the third quarter, which we spoke to you on our last call. Order rates and backlog in the business were both extremely strong and cable operators begin to invest in their networks.

Adjusted EBITDA was $213 million, grew nearly 49% driven primarily by higher volume and strong expense control. During the quarter, our Broadband Networks segment benefited from a continuing trend of network investments as cable operators seek to reduce pressure on upcoming portions of their network created by the new normal of the working from home, video conferencing and virtual learning. The existing networks are not designed to sustain uplink demand in the home alongside continued video demand. To address this, we continue to see more node splitting BOM and DOCSIS 3.1 investments.

Turning to Slide 9 to our Venue and Campus Networks segment. Net sales of $477 million, declined 7% primarily driven by softness across all regions, except China and the Caribbean and Latin America regions. The structured copper cable product line was down significantly year-over-year as COVID-19 had a substantial impact on the commercial real estate market that this product line serves. We also saw moderate declines in our Ruckus business that was somewhat offset by the growth in our hyperscale and multi-tenant data center fiber business as well as our DAS and small cell business.

On a sequential basis, sales were relatively flat in our inside copper and fiber businesses, but declined in our DAS and small cell Ruckus businesses in line with normal seasonality pattern in addition to the completion of the several large venue projects.

Adjusted EBITDA of $48 million, declined 19% driven by lower volumes as well as commodity cost inflation, particularly in copper. Within the Venue and Campus business, we continue to see extremely strong growth in our hyperscale and multi-tenant data center business as we gain share in this highly strategic growth segment of the market. We expect continued future growth as cloud-based professional and social collaboration tools, data storage, and streaming media become more mainstream and reduce reliance on legacy on-prem data centers.

For DAS and small cell business, pipeline remains strong. CommScope ERA digital DAS platform continues to be the wireless infrastructure application choice for some of the world's largest and most demanding public venue applications. As an example, during the quarter, CommScope delivered a suite of solutions to the Grand Hyatt at San Francisco International Airport that integrated our structured cabling, Ruckus access points and switches, and ERA in-building cellular into a seamless ecosystem for their customers with DAS. [Indecipherable] also illustrated, the standard owner operator is taking advantage of lower venue occupancies during the COVID pandemic to proceed with major communication upgrade projects, and prepare for coming 5G revolution and emerge from the pandemic even stronger. We are also optimistic that our ONECELL product line will become an integral part in providing future-ready indoor mobile connectivity for enterprise customers and 5G world.

Closing out on the product line details. As indicated previously, we have experienced significant headwinds in those products having exposure to verticals negatively impacted by COVID, particularly in structured copper cable and Ruckus, given the linkage to commercial real estate and hospitality. This has been offset somewhat by gains in the federal, education and healthcare verticals where stimulus dollars are continuing to drive spend.

Turning to Slide 10 for Outdoor Wireless segment -- Networks segment. Net sales of $295 million, increased modestly at just over 1% driven primarily by the Asia-Pacific, European and North America regions. North American sales increased slightly despite its two of the three major operator indicating a redirection of capital spending priorities toward the recently completed C-band auction. From a product line standpoint, the bulk of growth occurred at the macro layer, particularly in base station antennas and offset by weakness in Metro Cell deployments, which is created by COVID-related permitting and crew delays. Adjusted EBITDA of $60 million, grew nearly 24%, primarily driven by higher sales volume, favorable mix and ongoing strong cost unfold.

From customers standpoint, T-Mobile has begun an aggressive investment cycle to build out their 5G network with their 2.5-gigahertz spectrum. And our base station antenna in cable businesses saw solid benefit from our long and very constructive relationship with T-Mobile during the quarter. Given the very active role taken by the other two carriers in recently concluded C-band auction, we expect the required investment to build out this newly acquired mid-band spectrum will create significant new opportunities for CommScope in 2021 and beyond. However, the timing associated with the 5G ramp, relevant to our product line, likely will be weighted toward later portion of 2021 and beyond as operators shift focus to building out nationwide coverage.

Internationally, the momentum for our active-passive radio solutions in collaboration with Nokia is growing in various global trials and other opportunistic stages of evaluation. During the quarter, we had some large wins with European operators and advanced discussions around several additional opportunity. In other areas of our international portfolio, we have seen positive momentum in key Asia-Pacific market, also driving future growth.

Lastly, while the metro cell business growth was lower than expected during the 2020, due primarily to COVID-19-related municipal office closure and associated zoning and permitting delays, we are optimistic that as COVID recedes and country begins to reopen, this business can return to its prior growth trajectory. As major US carriers proceed with 5G-related buildouts, a new mid-band spectrum, an absolutely critical component will be densification of coverage within macro layer using CommScope's products.

Turning to Slide 11 for our Home Networks segment. Net sales of $571 million, declined 31% and across all regions. While we saw strong growth in broadband gateway business, this was more than offset by declines in video. Adjusted EBITDA of more than $40 million, declined 44% primarily driven by the volume declines in video. During the quarter, Home Networks saw strong and consistent demand for broadband gateways through both the service provider and retail channels, which serve as positive catalysts for growth in this segment, offsetting continued weakness in video market.

New platform wins like the IP 7 provided additional tailwinds for broadband gateway going forward. Broadband products also benefited from international growth trends as illustrated by the Vodafone Germany's recent passing of the 1 million subscribers using CommScope's DOCSIS 3.1 gateway. Lastly, like many other global industries, our Home Networks business is experiencing silicon supply constraints. This recent development has extended lead times across Home Networks ecosystem that may persist throughout 2021, and that likely accelerated revenue from certain key customers in QQ in advance of anticipated shortages in 2021.

Turning to Slide 12 for an update on our cash flow. For the full year, cash from operations was $436 million and adjusted free cash flow was $415 million. For the fourth quarter, cash from operations and adjusted free cash flow were $98 million and $65 million, respectively. For 2019 cash flows significantly benefited from working capital as we integrated the ARRIS acquisition, we experienced some more normalized usage and increased capital investments in 2020. We continue to make progress on expanding our turns with our supply base and remain focused on collecting timely from our customers. For the quarter, working capital was a net use of cash, driven by accounts payable and the timing of certain payments. Looking forward, through the annual improvement targets set within the organization as well as the efforts of CommScope NEXT, we continue to evaluate opportunities to optimize working capital and unlock excess cash, particularly on the inventory front.

Turning to Slide 13, for an overview of our liquidity and capital structure. During the fourth quarter, our cash and liquidity remained strong as it had throughout the prior quarters in 2020. We ended the quarter with $522 million in cash and no outstanding draws under our ABL revolver. Our total available liquidity of nearly $1.3 billion was relatively flat to the prior period. We also repaid $108 million of debt. And as a result, net leverage declined modestly as compared to the third quarter. CommScope has now repaid over $800 million of debt since the close of the ARRIS acquisition in 2019, which speak not only to our ability to generate cash flow even when faced with challenging market conditions, but also to our continuing commitment to reduce leverage as quickly as possible, while maintaining ample financial flexibility in uncertain times.

Before we open the line for Q&A, I'd like to end my -- with my view on how we see the market developing throughout the 2021on Slide 14. Before going market by market, I'd like to remind everyone of our normal seasonality patterns. For all of our businesses, Q1 is typically the weakest quarter of the year, driven by combination of the weather-related factors as well as a general pause in capital spending as budgets are being finalized. For Outdoor Wireless Networks and the portions of Broadband Networks tied to construction spending, they are tend to peak in Q2 and Q3 as operators take advantage of more favorable weather conditions. For the portions of Broadband Networks and Venue and Campus Networks tied to electronics and licenses, such as CMTS and Ruckus product lines, spending tends to ramp toward the back half of the year. Finally, the Venue and Campus Networks business can be very lumpy as large portion of that portfolio are tied to individual project awards. Because of this, it is reasonable to expect a weaker Q1, especially coming off the strength we saw in Q4.

For the individual segments, within Broadband Networks, we are seeing a fundamental change in how networks are being used as a persistent trend. This considerable strain on the uplink will require steady and consistent investment and the pressure on the network is driving more traditional node splitting activity at a higher pace, while deferring some of the next-generation of virtualized investment. There is also a increased demand for ubiquitous high-speed, low-latency broadband funded in part by the Rural Digital Opportunity Fund or RDOF. This represents another significant opportunity for CommScope in the back half of the year, as those investments begin to ramp.

Within Outdoor Wireless, the release of the new mid-band spectrum due to C-band auction is likely to drive the first real wave of 5G spending across US. While this will also be more back half weighted as operators finalize their strategies for deploying the spectrum nationwide, there is an increasing level of urgency as T-Mobile spending continues to ramp. Internationally, we are seeing improved competitive conditions in many of our markets, and had several strong wins in both the Europe and Asia-Pacific regions, which shows that generally favorable trend as 5G spending begin to take shape.

Within the Venue and Campus segments markets, we expect the variety of business conditions to contribute to some choppiness throughout 2021. Commercial real estate spending is likely to remain soft, which will negatively impact both the copper structured cabling volume as well as orders from traditional on-prem data centers. Hospitality, a highly strategic and important vertical for Ruckus, is also likely to remain under pressure, creating challenges for those product lines. Additionally, we are seeing potential headwinds relating to our ability to access silicon used by some of the Ruckus product lines beginning in the second quarter. Offsetting these headwinds will be continued growth in the hyperscale and multi-tenant data center markets, as well as increasing opportunities and growth in the federal, education and healthcare verticals. Lastly, we expect our next-generation ERA DAS platform as well as our industry-leading ONECELL in-building LTE solution begin ramping meaningfully in 2021.

Finally, on our Home Networks segment, work-from-home, virtual learning and increased media consumption continue to fuel the need for high-performing broadband gateway devices. And we see continued growth in this important area. While we have achieved several wins in video streamers, offsetting declines in traditional video set-top boxes, we see continued pressure on the video product line in cord-cutting and cord-shaving momentum continues to create meaningful headwinds. We also recognize that the global silicon shortages mentioned earlier will create a significant headwinds to revenue and adjusted EBITDA, particularly in first half of 2021 as lead times are pushed out and pricing pressures emerge.

Before turning the call back over to Chuck for Q&A, I'll close with a few words on our cost structure in 2021. While Chuck mentioned, CommScope NEXT and the actions we will be driving aggressively in 2021 around both the cost and growth, there will be some inflationary effects we need to contend with, as well as some one-time cost savings we experienced in 2020 that are likely to come back as COVID abates and business activities start to return to normal.

Annually, we realized approximately $70 million in travel and marketing-related savings, directly attributable to COVID, $20 million of which we expect to come back into business in 2021. In addition, we expect approximately $20 million of additional incentive compensation expense in first quarter of 2021 as compared to the fourth quarter of 2020. We are also seeing inflationary effects in many areas, most notably in copper, steel and resins. Finally, we will need to reinvest in core strategic markets and technologies to achieve the growth aspirations that Chuck laid out.

With that, I'll turn the call back over to Chuck for Q&A. Chuck?

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

Thank you, Alex. Before turning the call over to Q&A, I want to close with some final thoughts regarding CommScope NEXT. So while we initially indicated an intention to preserve formal commentary and my plan until Q3, I'm encouraged by what I'm seeing and become increasingly comfortable that we can share certain aspects of the plan in advance of this initial timeline. We started the process today at a very high level, and I anticipate it will begin to communicate certain directional targets when we report our earnings in Q1, with more detail to follow in Q2, culminating with an Investor Day featuring the extended management team later this year.

Thank you very much for your attention. And with that, I'll turn the call over for Q&A. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first response is from Meta Marshall with Morgan Stanley. Please go ahead.

Meta Marshall -- Morgan Stanley -- Analyst

Hi, great. Thanks and congrats on the quarter. Just a couple of questions, just as you start formulating NEXT. You noted international opportunities as an area that you're potentially evaluating. In the past, there has been some volatility there with kind of what the margin opportunity is there. So just kind of how you're thinking about that? And then additionally, just how you're thinking about the strategic makeup of the business and whether there is anything that can be separated? Thanks.

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

In terms of the international market expansion, I mean, when you think about Europe and the Middle East, some parts of Asia, Japan, Korea, there are actually some pretty price -- pretty good price levels we can get there very similar in what we would expect to see in the United States. But we're targeting areas there. However, we also are looking across the board, what can we do in India, we just had to think about completely different design concepts. It's going to take a little more time there, but we have to think about fair amount [Phonetic] things in that particular market. With that, your question about what businesses could we disconnect, whatever, we're going to just hold our comments on that until we finish our analysis of all the different businesses and portfolio of products that we're going to be reviewing. Obviously, we're still in the middle of that. So I'll hold my comments there.

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Meta, let me just pile on a little bit on the international, because you're probably remembering couple of years ago, we talked about exiting certain regions that we're extremely margin sensitive and we felt like we just couldn't compete. I think there's been a bit of a pivot, that strategic pivot, which Chuck alluded to since that time around how do we design a product that are much, much lower cost for those markets where the market with the price is just so depressed. And so that is a bit of a shift from what we communicated previously. But we're pretty excited about the work our teams done to really innovate and drive costs down for those -- cost and functionality down for those more challenging markets.

Meta Marshall -- Morgan Stanley -- Analyst

Great, thanks.

Operator

Thank you. Your next response is from George Notter of Jefferies. Please go ahead.

George Notter -- Jefferies -- Analyst

Hi, guys, thanks very much. I guess I wanted to try to dig into the CommScope NEXT program a little bit more. Chuck, you said a lot about the different aspects of the program, including reallocating capital removal of redundant costs, systems issues, you can kind of hash through. But could you give us some more tangible examples of things you found as you've dug into the Company and realize these opportunities to take cost out? And I guess, frankly, the Company has been restructuring costs for a longer time now, and it feels like a lot of the low-hanging fruit may have been picked. But is that a view you agree with? Walk us through the picture at this point on cost restructuring? Thanks.

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

When you think about duplicative systems, I mean, just think about the acquisition of ARRIS, so we've brought two very large companies together, two $5 billion plus companies. When we put those together, you find a lot of duplicative systems. Great example is what we have in the IT side. I mean once -- one company runs Oracle, one company runs SAP. As we move to one system, we're going to have significant savings from that. We've really dug -- we're starting to do a pretty big deep dive with all of the business units to understand where are we spending money, where are we investing. And we're finding things that we can frankly get on the upside without developing it on our own, so we can take that money and double down on things that are really critical for us. That's just a couple of examples.

I would also say that when we think about discretionary spend, whether that's indirect or [Indecipherable], well, let's just start with discretionary indirect discretionary spend. There is an opportunity when we moved to a general management strategy, where the general managers will be able to look at all those expenses with an eye that -- have a business leader that's saying, I don't want to get allocated to Boston, now they don't have to, they can really make decisions on their own. And we're going to be really giving them a lot of opportunity there, and we can also be finding some oversight there more details and when we think those types of expenses. And then if you think about direct procurement, I mean we doubled what we buy, right. So there should be some opportunity depending on what parties are that we can do more there. So I'd just say there is a lot, and I think as we really start to talk to the team, we got some general managers really getting excited about building deeper, and we're getting into the details there, and we're finding answers to that [Phonetic].

George Notter -- Jefferies -- Analyst

Great. Thank you.

Operator

Thank you. Your next response is from Sami Badri of Credit Suisse. Please go ahead.

Sami Badri -- Credit Suisse -- Analyst

Great, thank you. I just wanted to flip back to the broadband network slide, where you talked about CMTS licensing being strong, and we've seen the same exact bullet point, or this comment come up a couple of times over the last year and a half. Could you just elaborate on what your customers are doing with the CMTS license sales versus actually buying the equipment itself, which was a historic case. Can you kind of unpack this for us, what's going on, and [Indecipherable] customers?

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Let me start and then actually, fortunately Morgan's in here because he runs that portion of the business, so I'll let him pile on. But effectively, what we saw at the early part of the COVID, but there was a desire by the network operators not physically intervene in the network, because there are so much pressure on the network. So the easiest way to do that would be to add capacity virtually basically by adding licenses to be existing E6000 infrastructure that they had in the head end. As we've gotten toward the latter part of the year, what we're seeing is there is some license activity with some of the operators, but a number of the operators, I think, basically exhausted the capacity of the DOCSIS 3.1 investments in their head end. And so rather than invest in the head end infrastructure, they're pushing the investments into the node. So there's a mix shift from the CMTS piece of the business to the node piece of the business, which is where we were talking about the more physical interventions in the network, as we look out sort of this part of the year, and then into 2021. So that's kind of the dynamic that's been going on, but I'll let Morgan talk in more technical level.

Morgan Kurk -- Executive Vice President, Chief Technology Officer and Segment Leader, Broadband Networks

Yeah, Alex, is exactly correct. So the network spend moves between hardware and software, depending on what you have in your network and what your needs are. The COVID has driven us to the point of a breaking, particularly in the uplink, there is so much less spectrum allocated to the uplink at this point that our operator customers have had to split nodes and make smaller user groups that are sharing that uplink capacity that's node splitting and that's largely hardware. And as such, more of the capital has been pushed toward that physical equipment. In addition, there is a depth that goes on between adding more licenses, adding additional capacity to hardware that you have and buying new hardware in the head end, and so that goes on, and you'll see this going back and forth over the years, as they continue to invest in the network. One of the things that they're doing to invest in a network now is there, you're going to what's called a high-split, they're allocating more spectrum to the offline to try to solve this problem. And of course, once they've upgraded the hardware, there will be software upgrades as well.

Sami Badri -- Credit Suisse -- Analyst

Okay. And then, maybe just so we understand some of the dynamics here as there is almost like a built-in expectation at CommScope that these same customers are going to probably come back to you guys a few times with CMTS-related licenses, right, just as they continue to densify and harmonize their infrastructure. Is that a safe assumption from an industry outlook perspective?

Morgan Kurk -- Executive Vice President, Chief Technology Officer and Segment Leader, Broadband Networks

So, they come back to us when they need more capacity in their network. So, they buy physical cards and then they add additional capacity to those cards in effect. It's a software related capacity add over time and they do that until they exhaust the amount of bandwidth that's available to them. So, it is an opportunity to continue to sell additional licenses to them until they reach a certain point and then they go back to buying hardware to increase that available capacity again. That's the dance that's going on. Of course, there is also the upgrade to the network, whether it is to go to DOCSIS 4.0 which expands the amount of spectrum available and thus the amount of both hardware and software that they can buy from us. And also, the change in architecture from the centralized, the CCAP to distributed access architecture, whether it's Remote MAC or Remote PHY which puts more of this equipment out toward the edge of the network to reduce some costs in the headend and to increase the capacity of the backhaul network and to reduce latency. So, all of those things will be going on for the next decade.

Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

Thank you. Your next response is from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold -- Raymond James -- Analyst

Thanks for taking the question. Just want to see first if you could offer just the metrics of headcount, where it was this quarter versus last. And then the longer-term question, I wanted to see if you could maybe unpack C-band comments a little bit. I appreciate the indication around the second half weighting. What I wanted to ask about was how you see the trajectory and timing and scope because you mentioned spending on macro towers this year, I assume, we see that expand off the towers in '22. So, if we could you get some idea how to size this opportunity beyond second half of '21 and maybe help us understand how it gets funded given the amount they're paying for spectrum. Thank you.

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Yeah, so I'll take a swing at that and then Morgan can chime in as well. So, in terms of -- and I think you're asking about headcount. It's a bit of a tough question to answer. In general, we have in the order of 30,000 employees globally. The vast majority of those are in our manufacturing facilities and it's one of the ways we manage our cost structure is by eliminating essentially labor when demand is soft. And so, that number can move between call it 28,000, 29,000 and 32,000. I think really what you're asking is what have we done on period overhead. I think we mentioned we've achieved our $150 million synergy target more than a year ahead of schedule. A significant piece of that was headcount-related costs. In addition in the Home Networks segment, we took out significant costs, particularly in the video side, in the video R&D side, a large portion of that was headcount related as well. So, a significant piece of the improvement you've seen in period overhead is headcount related. I think that total number year-over-year is something like $100 million. So, I think that's what you're getting -- and if not, happy to clarify either in a follow-up question or after the call.

As it relates to C-band, we mentioned that two large operators bid substantially higher than at least our original expectation. I think the total award was $80 million versus the original expectation of something like $50 million. They will be using the first part of the year to -- the first part of the year to basically design their networks and there's some choices that they have to make around what type antenna configuration they want to use. And so, that will carry with it implications for wind modding [Phonetic] and sheer on the towers that will carry with it implications for power going up the tower, all that will benefit us. But that will take through likely the first part of the year before they're ready to move into actual physical power lines which begins in the latter part of the year and then will ramp as we get into 2022. The other piece which you mentioned, which is absolutely right, is the importance of densifying the networks. So, we talked about in the prepared remarks that the integrated solution piece of that business, the Metro Cell piece of that business has been weak in 2020 largely related to permitting delays and crew delays, largely COVID related.

So, as those densification investments return, we expect to see that business return to its normal growth trajectory. So, I think to bring all that together, '21 feels like a modest growth opportunity with the real opportunity is to get out into 2022 and some of these competitive dynamics begin to unfold. Morgan, what did I miss?

Morgan Kurk -- Executive Vice President, Chief Technology Officer and Segment Leader, Broadband Networks

Yeah, so, Alex, you only missed one thing which was that there was $1 billion [Phonetic] that they spent. You said millions and if they only spent $80 million, I think all of our carrier customers would be a lot happier. But clearly, the reason that the carriers have bought this large amount of spectrum is because it is going to make their networks a lot more efficient. So, they're going to want to put this into play as quickly as they can. They have a competitive dynamic where one of the operators is already putting mid-band spectrum into play, but this takes time. It takes time to do the planning and it takes time with new technologies like Massive MIMO. It takes planning because it really is a big network upgrade. One of our customers that has been dealing with this in Europe said this is as big an upgrade as we've seen since 2G, which is a massive upgrade. It's an upgrade to power on the tower, it's an upgrade to potentially architecture in some places and so it takes time to do it, but we expect because there is this competitive dynamic and because this will make the network so much more efficient that the build as it starts to ramp-up will be positive for us, but it will take a little bit longer to ramp up than immediate, which is what everybody would like.

Simon Leopold -- Raymond James -- Analyst

Thank you very much.

Operator

Thank you. Your next response is from Rod Hall of Goldman Sachs. Please go ahead.

Rod Hall -- Goldman Sachs -- Analyst

Yeah, hi, thanks for taking the question. I guess I wanted to come back to the cost structure and the R&D reduction that we saw in the quarter and I know you had alluded to maybe reduce outsourcing things and so on, but I wonder if you could dig a little bit more into how you've reduced that R&D number so much. I guess the color on this is, typically when we see R&D reductions like that, it's not always a good thing, but admittedly, there could be a lot of inefficiency in there we're unaware of. So, just wonder if you could dig into that a little bit more and then, I've got a follow-up.

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Yeah, sure. So, there has been a lot of action on cost and period overhead. A lot of that's just natural synergy capture, which is elimination of redundancies and then a lot of that is, I would say moving to a next-generation operating model. And then the third part of that is R&D optimization. So, I think elimination of redundancies is an obvious one. I am not going to spend any time on that. In terms of moving to a next-generation operating model, we've been looking very aggressively at how we leverage low cost and resourcing across both the back office as well as the R&D functions. So, we recently completed a large system conversion. We ramped our shared services activity in Goa, India as well as in Taiwan and Ireland and Mexico.

A lot of that has allowed us to just run the finance and IT and HR functions more efficiently. So, there's been substantial activity on there and as Chuck talked about CommScope NEXT, that will be a big unlock for us as well as we drive farther system consolidation. On the R&D side, this has been a pool the money call it $700 million or so that historically has not been very, very actively managed. It's been sort of a very disclosed management style, and I think as we've gotten into, what we found is really two things. One, we're making investments in essentially low ROI or no ROI areas. So, there's an opportunity to harvest those investments that aren't yielding the returns that we want and redirect those funds to areas like cloud and analytics and virtualization technologies that we really think of that as tickets to the future. We've also found that historically just by nature of the way these two companies have grown up, a substantial amount of the R&D spending happens in very high cost regions. And so, we've been deploying a playbook that really -- the CommScope team had developed over years of how do we build up R&D capability in lower-cost regions like -- again, like China, like India, like Ireland, places like that where we can just get a lot more bang for our buck and that work has only really just begun. So, again as we start talking about CommScope NEXT, that's one big area of opportunity for us to begin.

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

I'll just add one more thing. I want to be crystal clear that we will not be cutting anything that will hurt our future. I'm working very close with the segment leaders and Morgan to look at every single thing we're working on in the company and anything that's critical to our future. We're either keeping as it is a doubling down on that. So, I don't want you to get any impression that we are anyway looking at this in the short term. This is a long-term play. This is going to be about investing where we see it makes good sense. This is getting closer to our customers and understanding what they need, getting that information back to our R&D teams and developing exactly what we need to take us to the next level. So, I don't want you to take anything away from this that -- we're going to be cutting anything that we don't need. We will be doing everything we can to protect it.

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

And just one last point and I'm sorry to keep piling on, but it's an important one. When you look at the year-over-year decline in R&D, that is driven by home video. And so, really that was the actions that Joe Chow and the team took to scale the R&D appropriate with the size of that business which I think everybody could understand given how dramatic the top line declines were. So there -- at that point, there was not R&D spending harvested from the growth areas.

Rod Hall -- Goldman Sachs -- Analyst

Could you repeat that last part? You broke up when you said what drove that R&D reduction?

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

It came out of the Home Networks segment and in particular, the video piece of that business, which is down 30% year-over-year. Did that...

Rod Hall -- Goldman Sachs -- Analyst

Very clear. Okay, that's helpful. And then my follow-up with on C-band again maybe, Morgan, I guess, this one's aimed at you, but do you know -- I mean I know they are in the process of replanning spectrum now, but do you know -- how confident are you that that spectrum is going to be allocated to macro towers where you guys would benefit more versus smaller cells in metro densification kind of projects. And if it -- is that a wrong perception? If you go into densification and smaller cell sort of deployments for that spectrum, do you guys benefit just as much there? Maybe just talk us through that a little bit.

Morgan Kurk -- Executive Vice President, Chief Technology Officer and Segment Leader, Broadband Networks

Sure. So, I am very confident that this will be used on the macro layer. It is an enormous both capacity add to the network and also an efficiency play and the output power in the technology is certainly available to blanket your network from a macro tower will be the most efficient way for the operators. So, they're certainly going to do this. I believe they're also going to do a metro layer to add additional capacity in cities because just doubling your amount of available spectrum, which is roughly what C-band does to the operators is probably not enough to last through more than the first couple of years. So, I expect them to do a metro layer as well and we do benefit from both. There are a lot more metro cells and there would be macrocells per square kilometer. So, our benefit per area would likely remain very, very similar, although the types of products that we sell are different, the costs of the products are different, the margin profile would be similar regardless of where it is in the network.

Rod Hall -- Goldman Sachs -- Analyst

Great. Okay, thank you.

Operator

Thank you. Your next response is from Samik Chatterjee with JPMorgan. Please go ahead.

Samik Chatterjee -- JPMorgan -- Analyst

Okay, great. Thanks for taking the question. I had a couple. Chuck, I just wanted to ask you one more on the strategic direction here. I think if we rewind to the time of the ARRIS acquisition, there was an argument made for a broader portfolio and more end-to-end solutions, particularly for cable and broadband customers. How are you thinking about the value in terms of that strategic direction. Do you see value in having all end-to-end solution for certain customers that was really the argument behind the ARRIS acquisition and I have a follow up.

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

I think we are absolutely are seeing the value of having end-to-end solutions and what we're going to be doing as we think about our portfolio, there could be some things that will be removed, but there could be also opportunities for us to make acquisitions that are lined up with exactly where we want to play. So, I'd just say that we do feel there's an end-to-end side here and we also think that's there opportunities to add on where we need and we're going to be diligent on what we think is really not creating value.

Morgan Kurk -- Executive Vice President, Chief Technology Officer and Segment Leader, Broadband Networks

So, I'll add in here an example just so that everybody can make it real. One of the real network challenges that will go on in this next decade, one of the ways that you measure the quality of a network will be based on latency and jitter. In other words how snappy your network feels and how reliable it is in that snappiness. And by providing a complete end-to-end solution, all the way through the network from, let's say, the core of the network, all the way through that access layer and even through and into the home through the Wi-Fi access point all the way to the edge is one of the ways that an integrated CommScope can really add value beyond that which somebody who just makes a point source could do. And we think these are the types of areas where it really benefits by having this tight integration.

Samik Chatterjee -- JPMorgan -- Analyst

A follow-up for Alex, if I may. Alex, I think you mentioned weaker 1Q. Just wanted to clarify, you mean weaker year-over-year because I think seasonally we all understand 1Q is weaker. And then just in terms of where consensus expectations are, it looks like consensus expects you grow top line for most part of the year. I know you're not guiding here, but just based on visibility and the constraints that you talked about, do you think that's realistic?

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Yeah, you kind of answered your own question. We're not guiding, so it's a tough question for me to answer. The commentary this year was sequential -- trying to help you understand what the sequential kind of velocity looks like as we think about normal seasonality patterns as well as some of the costs that we see coming back into the business in 2021. And then, I tried to give you some commentary, some qualitative commentary on how we see the markets unfolding, particularly with some of these tailwinds related to RDOFs spending, C-band and the like. Beyond that, I don't think I can really comment on consensus numbers or what our point of view is on that.

Samik Chatterjee -- JPMorgan -- Analyst

Okay. No, thanks for the clarification there. Thank you.

Operator

Thank you. Your final question is from Jeff Kvaal with Wolfe Research.

Jeff Kvaal -- Wolfe Research -- Analyst

Yes. Thank you, gentlemen. I have a couple. I guess, first of all, I was hoping that you could add a little bit of color to the leverage reduction story. There hasn't been as much of a theme on the call as it has been in others. What can you tell us about how we should expect leverage to decline through 2021 or over broader time frame.

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

I thought you're going to have two questions, Jeff. Is that the question you have? Jeff?

Jeff Kvaal -- Wolfe Research -- Analyst

I'm sorry, Alex?

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

I misunderstood. I thought you were going to have two questions. So I didn't want to cut you off.

Jeff Kvaal -- Wolfe Research -- Analyst

Okay. I'll ask them in the same time. Okay. That's fine. And I guess my second question would be on the broadband margins. My sense is that some of that is a little bit one-time, but if you could let us know how much is sustainable improvements and how much you expect to give back to some of the factors you mentioned before. I'd appreciate that. Thank you.

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Sure. So, let me to take the leverage one first. We are absolutely committed to aggressively deleveraging the balance sheet and I think there's obviously two ways we do that. One is by paying down the debt, which we've been doing and the other is by growing EBITDA which we aspire to do certainly through CommScope and really that priority hasn't changed. It's again -- I'm not at liberty to provide guidance so I can't give you an outlook for what 2021 will look like, unfortunately, which is I know what you're asking for. But that's sort of not part of our guiding philosophy at this point.

As it relates to broadband margins, I actually would say that to me margin improvement is absolutely not one side in nature, but it is transitory in nature. And what I mean by that is, as mix shift and the issues that Morgan was talking about previously, as mix shift between a software type of solution for adding capacity or upgrade in the network to a hardware type of solution with physical node interventions in the high split activity that Morgan described, you will see a negative mix trend. And as we look into 2021 and we see more of the activity in the Broadband Networks segment trending toward physical nodes splitting activity, you will see the margin compression. But that's not to say that as the cycle matures and there's a next-level of investment in more virtualized solutions that you won't be that time reverse. It just -- they're sort of -- this is between whether it's physical activity or software-based activity. And hopefully that helps you get a sense for what we see in 2021 as it relates to broadband margin.

Jeff Kvaal -- Wolfe Research -- Analyst

Okay. Thank you, Alex.

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

Thank you. I would now like to turn the call back over to Chuck Treadway.

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

We appreciate your support of CommScope and we hope you have a great day. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Russell Johnson -- Vice President, Treasurer & Investor Relations

Charles 'Chuck' L. Treadway -- President and Chief Executive Officer

Alexander W. Pease -- Executive Vice President and Chief Financial Officer

Morgan Kurk -- Executive Vice President, Chief Technology Officer and Segment Leader, Broadband Networks

Meta Marshall -- Morgan Stanley -- Analyst

George Notter -- Jefferies -- Analyst

Sami Badri -- Credit Suisse -- Analyst

Simon Leopold -- Raymond James -- Analyst

Rod Hall -- Goldman Sachs -- Analyst

Samik Chatterjee -- JPMorgan -- Analyst

Jeff Kvaal -- Wolfe Research -- Analyst

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