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8-K - FORM 8-K - ARRIS GROUP INCg27002e8vk.htm
EXHIBIT 99.1
         
FOR IMMEDIATE RELEASE
  Contact:   Jim Bauer
 
      Investor Relations
 
      (678) 473-2647
 
      jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
FIRST QUARTER 2011 RESULTS
Suwanee, Ga. (April 27, 2011) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the first quarter 2011.
Revenues in the first quarter 2011 were $267.4 million as compared to first quarter 2010 revenues of $266.7 million and as compared to fourth quarter 2010 revenues of $266.2 million.
Adjusted net income (a non-GAAP measure) in the first quarter 2011 was $0.16 per diluted share, compared to $0.24 per diluted share for the first quarter 2010 and $0.19 per diluted share for the fourth quarter 2010.
GAAP net income in the first quarter 2011 was $0.09 per diluted share, as compared to first quarter 2010 GAAP net income of $0.15 per diluted share and fourth quarter 2010 GAAP net income of $0.09 per diluted share. Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, restructuring charges, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per share is attached to this release and also can be found on the Company’s website (www.arrisi.com).
Gross margin for the first quarter 2011 was 36.3%, which compares to the first quarter 2010 gross margin of 42.2% and the fourth quarter 2010 gross margin of 36.2%.
The Company ended the first quarter 2011 with $619.6 million of cash, cash equivalents and short-term investments, down in the aggregate by approximately $41.5 million from the end of the first quarter 2010, reflecting approximately $93 million of repurchases of stock and debt retirement in 2010, and down $0.5 million from the end of the fourth quarter 2010. The Company used $3.6 million of cash for operating activities during the first quarter 2011, which compares to $48.2 million generated during the same period in 2010.
Order backlog at the end of the first quarter 2011 was $177.5 million as compared to $195.1 million and $140.4 million at the end of the first quarter 2010

 


 

and the fourth quarter 2010, respectively. The Company’s book-to-bill ratio in the first quarter 2011 was 1.14 as compared to the first quarter 2010 of 1.19 and the fourth quarter 2010 of 1.08.
“First quarter financial results came in within our range of guidance,” said Bob Stanzione, ARRIS Chairman & CEO. “I am very pleased with the progress we are making with customers for our new higher density C4 line cards which will be shipping in the second quarter. Additionally, the recent announcement of our first customer for our new IP Home Gateway product is an indicator of our traction in the strategy to expand into the video based products market.”
During the quarter the Company announced a number of new products as well as a resale agreement with Ruckus Wireless which the Company expects will ramp in the second half of 2011. In February, the Company announced that its Whole Home Solution Media Gateway will be offered by Oregon-based MSO BendBroadband throughout its network. The ARRIS Whole Home Solution consists of the ARRIS Media Gateway, a converged multi-services platform that provides integrated multimedia entertainment to the entire home, and ARRIS Media Players connected to each television. Also during the quarter the Company announced that the ARRIS VIPr™ video transcoding platform with Digital Video Broadcasting (DVB) functionality will be available in April. The transition from analog to digital continues to accelerate, expanding the addressable market for DVB-capable devices.
“With respect to the second quarter 2011, we now project that revenues for the Company will be in the range of $260 to $280 million, with adjusted net income per diluted share in the range of $0.16 to $0.20 and GAAP net income per diluted share in the range of $0.06 to $0.10,” said David Potts, ARRIS EVP & CFO. “Our guidance reflects initial sales of our new C4 CMTS line card capacity upgrade which we anticipate will gain momentum in the second half of 2011, but also reflects higher than usual start-up expenditures related to new products.”
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, April 27, 2011, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4217 or 617-213-4869 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 99866058 and Jim Bauer as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the conference call. A replay of the conference call can be accessed approximately two hours after the call through Tuesday, May 4, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 42579746. A replay also will be made available for a period of 12 months following the conference call on ARRIS’ website at www.arrisi.com.

 


 

About ARRIS
ARRIS is a global communications technology company specializing in the design, engineering and supply of technology supporting triple- and quad-play broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver converged IP video solutions, carrier-grade telephony, demand driven video, next-generation advertising, network and workforce management solutions, access and transport architectures and ultra high-speed data services. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; Wallingford, CT; Waltham, MA; Cork, Ireland; and Shenzhen, China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
    growth expectations and business prospects;
 
    revenues and net income for the second quarter 2011, full year 2011 and beyond;
 
    start up costs;
 
    expected sales levels and acceptance of new ARRIS products; and
 
    the general market outlook and industry trends
are forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Among other things,
    projected results for the second quarter 2011 as well as the general outlook for 2011 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management’s control;
 
    ARRIS’ customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that the Company offers; and
 
    because the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.
In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the uncertain

 


 

current economic climate and its impact on our customers’ plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; and consolidations within the telecommunications industry of both the customer and supplier base. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company’s business. Additional information regarding these and other factors can be found in ARRIS’ reports filed with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2010. In providing forward-looking statements, the Company expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise.
# # # # #

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
                                         
    March 31,     December 31,     September 30,     June 30,     March 31,  
    2011     2010     2010     2010     2010  
 
                                       
ASSETS
                                       
 
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 358,747     $ 353,121     $ 351,894     $ 370,932     $ 500,044  
Short-term investments, at fair value
    260,862       266,981       288,463       292,421       161,012  
 
                             
Total cash, cash equivalents and short term investments
    619,609       620,102       640,357       663,353       661,056  
 
                                       
Restricted cash
    4,176       4,937       4,480       4,478       4,476  
Accounts receivable, net
    149,976       125,933       133,915       139,673       139,207  
Other receivables
    5,275       6,528       2,654       6,368       3,057  
Inventories, net
    105,787       101,763       89,203       78,830       79,907  
Prepaids
    12,115       9,237       8,934       10,196       10,546  
Current deferred income tax assets
    20,450       19,819       28,585       30,469       37,324  
Income taxes recoverable
    23,633       21,907       17,094       5,943        
Other current assets
    10,239       11,147       11,253       15,386       14,328  
 
                             
Total current assets
    951,260       921,373       936,475       954,696       949,901  
 
                                       
Property, plant and equipment, net
    56,617       56,306       56,816       56,128       56,223  
Goodwill
    233,471       234,964       235,109       235,122       235,256  
Intangible assets, net
    159,672       168,616       177,560       186,529       195,551  
Investments
    32,787       31,015       29,591       29,485       25,435  
Noncurrent deferred income tax assets
    10,183       6,293       6,560       6,127       6,298  
Other assets
    5,798       5,520       6,129       6,755       8,050  
 
                             
 
  $ 1,449,788     $ 1,424,087     $ 1,448,240     $ 1,474,842     $ 1,476,714  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current liabilities:
                                       
Accounts payable
  $ 35,796     $ 50,736     $ 52,011     $ 72,652     $ 44,523  
Accrued compensation, benefits and related taxes
    26,278       28,778       25,913       20,696       23,639  
Accrued warranty
    2,931       2,945       3,504       3,539       3,632  
Deferred revenue
    43,019       31,625       36,029       44,913       53,024  
Current portion of long-term debt
                12       50       87  
Other accrued liabilities
    17,594       18,847       25,891       24,476       42,978  
 
                             
Total current liabilities
    125,618       132,931       143,360       166,326       167,883  
Long-term debt, net of current portion
    205,447       202,615       204,053       212,914       214,131  
Accrued pension
    17,472       17,213       17,383       17,058       16,733  
Noncurrent income taxes payable
    21,844       17,702       16,509       16,523       16,248  
Noncurrent deferred income tax liabilities
    25,827       29,151       32,193       28,705       33,577  
Other noncurrent liabilities
    18,271       15,406       14,926       15,704       16,871  
 
                             
Total liabilities
    414,479       415,018       428,424       457,230       465,443  
 
                                       
Stockholders’ equity:
                                       
Preferred stock
                             
Common stock
    1,438       1,409       1,406       1,405       1,402  
Capital in excess of par value
    1,219,615       1,206,157       1,199,184       1,194,829       1,187,854  
Treasury stock at cost
    (145,286 )     (145,286 )     (115,248 )     (99,645 )     (79,019 )
Unrealized gain (loss) on marketable securities
    1,244       392       (374 )     217       2  
Unfunded pension liability
    (5,813 )     (5,813 )     (6,041 )     (6,041 )     (6,041 )
Accumulated deficit
    (35,705 )     (47,606 )     (58,927 )     (72,969 )     (92,743 )
Cumulative translation adjustments
    (184 )     (184 )     (184 )     (184 )     (184 )
 
                             
Total stockholders’ equity
    1,035,309       1,009,069       1,019,816       1,017,612       1,011,271  
 
                             
 
  $ 1,449,788     $ 1,424,087     $ 1,448,240     $ 1,474,842     $ 1,476,714  
 
                             

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
                 
    For the Three Months  
    Ended March 31,  
    2011     2010  
Net sales
  $ 267,436     $ 266,697  
Cost of sales
    170,490       154,186  
 
           
Gross margin
    96,946       112,511  
 
               
Operating expenses:
               
Selling, general, and administrative expenses
    36,838       35,117  
Research and development expenses
    36,040       34,365  
Restructuring charges
          52  
Amortization of intangible assets
    8,944       9,022  
 
           
 
    81,822       78,556  
 
           
Operating income
    15,124       33,955  
Other expense (income):
               
Interest expense
    4,225       4,430  
Gain on investments
    (570 )     (146 )
Loss (gain) on foreign currency
    888       (268 )
Interest income
    (1,108 )     (374 )
Other (income) expense, net
    (113 )     (42 )
 
           
Income from continuing operations before income taxes
    11,802       30,355  
Income tax expense (benefit)
    (99 )     11,364  
 
           
Net income
  $ 11,901     $ 18,991  
 
           
 
               
Net income per common share:
               
Basic
  $ 0.10     $ 0.15  
 
           
Diluted
  $ 0.09     $ 0.15  
 
           
 
               
Weighted average common shares:
               
Basic
    122,297       125,967  
 
           
Diluted
    125,732       129,975  
 
           

 


 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                 
    For the Three Months  
    Ended March 31,  
    2011     2010  
Operating Activities:
               
Net income
  $ 11,901     $ 18,991  
Depreciation
    5,855       5,359  
Amortization of intangible assets
    8,944       9,021  
Amortization of deferred finance fees
    163       180  
Non-cash interest expense
    2,832       2,883  
Deferred income tax provision (benefit)
    (7,844 )     (4,495 )
Stock compensation expense
    5,284       4,521  
Provision for doubtful accounts
          295  
Loss on disposal of fixed assets
    34       11  
Gain on investments
    (570 )     (146 )
Excess tax benefits from stock-based compensation plans
    (3,700 )     (2,486 )
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
               
Accounts receivable
    (24,043 )     4,206  
Other receivables
    534       2,420  
Inventory
    (4,024 )     15,944  
Income taxes payable/recoverable
    2,410       9,167  
Accounts payable and accrued liabilities
    (7,048 )     (24,935 )
Other, net
    5,701       7,274  
 
           
Net cash provided by (used in) operating activities
    (3,571 )     48,210  
 
               
Investing Activities:
               
Purchases of investments
    (99,361 )     (42,436 )
Disposals of investments
    105,949       2,100  
Purchases of property & equipment, net
    (6,251 )     (4,654 )
Cash proceeds from sale of property & equipment
    42       240  
 
           
Net cash provided by (used in) investing activities
    379       (44,750 )
 
               
Financing Activities:
               
Payment of debt obligations
          (37 )
Repurchase of common stock
          (3,059 )
Excess income tax benefits from stock-based compensation plans
    3,700       2,486  
Repurchase of shares to satisfy employee tax withholdings
    (8,245 )     (5,993 )
Fees and proceeds from issuance of common stock, net
    13,363       2,622  
 
           
Net cash provided by (used in) financing activities
    8,818       (3,981 )
Net increase (decrease) in cash and cash equivalents
    5,626       (521 )
Cash and cash equivalents at beginning of period
    353,121       500,565  
 
           
Cash and cash equivalents at end of period
  $ 358,747     $ 500,044  
 
           

 


 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
                                 
    Q1 2011     Q1 2010  
            Per Diluted             Per Diluted  
    Amount     Share     Amount     Share  
Net income
  $ 11,901     $ 0.09     $ 18,991     $ 0.15  
Highlighted items:
                               
Impacting gross margin:
                               
Stock compensation expense
    437             433        
Impacting operating expenses:
                               
Acquisition costs, restructuring and other
                52        
Amortization of intangible assets
    8,944       0.07       9,022       0.07  
Stock compensation expense
    4,847       0.04       4,088       0.03  
Impacting other (income) / expense:
                               
Non-cash interest expense
    2,832       0.02       2,883       0.02  
Impacting income tax expense:
                               
Adjustments of income tax valuation allowances, research & development credits and other
    (3,583 )     (0.03 )     1,222       0.01  
Tax related to highlighted items above
    (5,024 )     (0.04 )     (5,505 )     (0.04 )
 
                       
Total highlighted items
    8,453       0.07       12,195       0.09  
 
                       
Net income excluding highlighted items
  $ 20,354     $ 0.16     $ 31,186     $ 0.24  
 
                       
Weighted average common shares — diluted
            125,732               129,975  
 
                           
With respect to stock compensation expense, ARRIS records non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, this non-cash compensation expense may vary significantly. With respect to amortization of intangibles, the intangibles being amortized relate to our acquisitions. The acquisition costs, restructuring, and other reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides investors with a greater ability to project ARRIS’ future performance. With respect to the convertible debt non-cash interest, ARRIS records non-cash interest expense related to the 2013 convertible debt . Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash. In the first quarters of 2011 and 2010, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits.
In assessing operating performance and preparing budgets and forecasts, ARRIS’ management considers performance after making these adjustments and believes that providing investors with the same information provides greater transparency and insight into management’s analysis.