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8-K - FORM 8-K - ARRIS GROUP INCd385577d8k.htm

Exhibit 99.1

 

FOR IMMEDIATE RELEASE    Contact:    Bob Puccini   
      Investor Relations   
      (720) 895-7787   
      bob.puccini@arrisi.com   

ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED

SECOND QUARTER 2012 RESULTS

Suwanee, Ga. (July 25, 2012) ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the second quarter 2012.

Revenues in the second quarter 2012 were $349.3 million as compared to second quarter 2011 revenues of $265.8 million and as compared to first quarter 2012 revenues of $302.9 million. Through the first two quarters of 2012 and 2011, revenues were $652.2 million and $533.2 million respectively.

Adjusted net income (a non-GAAP measure) in the second quarter 2012 was $0.25 per diluted share, compared to $0.19 per diluted share for the first quarter 2012 and $0.24 per diluted share for the second quarter 2011. Year to date, adjusted net income was $0.44 per diluted share for 2012 as compared to $0.40 per diluted share in 2011.

GAAP net income in the second quarter 2012 was $0.13 per diluted share, as compared to second quarter 2011 GAAP net income of $0.13 per diluted share and first quarter 2012 GAAP net income of $0.05 per diluted share. Year to date, GAAP net income was $0.18 per diluted share in 2012 as compared to GAAP net income of $0.23 per diluted share in 2011. Significant GAAP items that have been adjusted in computing adjusted net income and adjusted net income per diluted share include: purchase accounting impacts related to acquired deferred revenue; amortization of intangible assets; long-term investment impairment; loss on the sale of a product line; equity compensation; non-cash interest expense; acquisition and restructuring charges; and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per diluted share is attached to this release and also can be found on the Company’s website (www.arrisi.com).

Gross margin for the second quarter 2012 was 33.9%, which compares to the second quarter 2011 gross margin of 40.2% and the first quarter 2012 gross margin of 36.0%.

The Company ended the second quarter 2012 with $576.3 million of cash resources, which includes $539.6 million of cash, cash equivalents and short-term investments, and $36.7 million of long-term marketable security investments, as compared to $567.2 million, in the aggregate, at the end of the first quarter 2012. During the second quarter 2012, the Company repurchased


approximately 1.4 million shares of ARRIS common stock for $15.2 million. Year to date the Company has repurchased 3.7 million shares for $41.6 million. The Company generated $30.6 million of cash from operating activities during the second quarter 2012 and $65.9 million through the first six months of 2012, which compares to $31.4 million and $27.8 million generated during the same periods in 2011.

Order backlog at the end of the second quarter 2012 was $251.9 million as compared to $154.2 million and $277.7 million at the end of the second quarter 2011 and the first quarter 2012, respectively. The Company’s book-to-bill ratio in the second quarter 2012 was 0.93 as compared to the second quarter 2011 of 0.91 and the first quarter 2012 of 1.43.

“I am very pleased with our second quarter and first half results. Sales were up over 15% in the second quarter 2012 compared to the first quarter 2012. On a year-to-date basis, sales were up 22% during the first half of 2012 as compared to the first half of 2011” said Bob Stanzione, ARRIS Chairman and CEO. “These results confirm that our investments over the past few years have positioned ARRIS with a portfolio aligned extremely well with our customers’ demands. I remain very encouraged as I look to the balance of 2012.”

During the second quarter ARRIS announced advances to its Media Gateway product that support advanced web services and application development. Additionally, the Company achieved a world record 4.7Gbit/s downstream throughput speed at Kabel Deutschland with the EuroDOCSIS™ 3.0-based ARRIS C4® CMTS and 12 ARRIS Touchstone® Cable Modem CM820’s.

ARRIS will be hosting an Investor and Analyst Conference in New York at the NASDAQ headquarters the morning of August 8.

“Our second quarter results were strong, with sales at the upper end of our guidance and adjusted net income above guidance” said David Potts, ARRIS EVP & CFO. “With respect to the third quarter 2012, we now project that revenues for the Company will be in the range of $348 to $368 million, with adjusted net income per diluted share in the range of $0.19 to $0.23 and GAAP net income per diluted share in the range of $0.09 to $0.13, reflecting strong demand, particularly for our DOCSIS 3.0 CPE products”

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, July 25, 2012, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4218 or 617-213-4870 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 75540304 and Bob Puccini 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 August 1, 2012 by


dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 22051173. 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, GA, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Lisle, IL; Kirkland, WA; State College, PA; Tel Aviv, Israel; 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 third quarter 2012, and beyond;

 

   

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 third quarter 2012 as well as the general outlook for 2012 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-Q for the quarter ended March 31, 2012. 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)

 

     June 30,
2012
    March 31,
2012
    December 31,
2011
    September 30,
2011
    June 30,
2011
 

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 199,395      $ 215,808      $ 235,875      $ 354,659      $ 360,281   

Short-term investments, at fair value

     340,166        298,539        282,904        220,318        231,254   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents and short term investments

     539,561        514,347        518,779        574,977        591,535   

Restricted cash

     3,942        3,943        4,101        3,647        3,646   

Accounts receivable, net

     179,371        183,427        152,437        165,821        152,436   

Other receivables

     1,414        5,071        8,789        5,296        406   

Inventories, net

     102,361        105,114        115,912        116,769        113,020   

Prepaids

     12,124        12,436        10,408        10,692        10,272   

Current deferred income tax assets

     21,972        22,068        22,048        24,239        22,681   

Other current assets

     16,766        16,792        27,071        21,695        25,216   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     877,511        863,198        859,545        923,136        919,212   

Property, plant and equipment, net

     56,175        57,810        61,375        57,619        57,100   

Goodwill

     194,626        195,267        194,542        233,430        233,440   

Intangible assets, net

     110,000        117,444        124,823        141,784        150,728   

Investments

     70,967        82,968        71,095        47,221        34,237   

Noncurrent deferred income tax assets

     47,228        42,106        38,433        9,637        9,839   

Other assets

     10,575        11,699        10,997        5,400        5,878   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,367,082      $ 1,370,492      $ 1,360,810      $ 1,418,227      $ 1,410,434   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 44,800      $ 54,576      $ 40,671      $ 38,918      $ 27,825   

Accrued compensation, benefits and related taxes

     28,165        31,081        36,764        25,320        20,832   

Accrued warranty

     2,995        3,094        3,350        2,933        3,300   

Deferred revenue

     63,023        60,129        43,746        39,094        47,166   

Other accrued liabilities

     23,980        31,054        33,325        19,653        17,805   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     162,963        179,934        157,856        125,918        116,928   

Long-term debt, net of current portion

     215,823        212,765        209,766        206,825        208,336   

Accrued pension

     25,696        25,739        25,260        17,989        17,730   

Accrued severance liability, net of current portion

     3,758        3,884        4,191        —          —     

Noncurrent income taxes payable

     26,676        26,676        24,450        22,471        21,844   

Noncurrent deferred income tax liabilities

     340        352        337        21,117        24,808   

Other noncurrent liabilities

     21,039        22,371        22,745        16,253        17,367   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     456,295        471,721        444,605        410,573        407,013   

Stockholders’ equity:

          

Preferred stock

     —          —          —          —          —     

Common stock

     1,473        1,467        1,449        1,446        1,443   

Capital in excess of par value

     1,259,946        1,247,763        1,245,115        1,237,852        1,228,729   

Treasury stock at cost

     (295,960     (280,724     (254,409     (220,034     (202,933

Unrealized gain (loss) on marketable securities

     211        149        (267     26        1,530   

Unfunded pension liability

     (10,231     (10,231     (10,231     (5,813     (5,813

Accumulated deficit

     (44,468     (59,469     (65,268     (5,639     (19,351

Cumulative translation adjustments

     (184     (184     (184     (184     (184
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     910,787        898,771        916,205        1,007,654        1,003,421   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,367,082      $ 1,370,492      $ 1,360,810      $ 1,418,227      $ 1,410,434   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2012     2011     2012     2011  

Net sales

   $ 349,327      $ 265,799      $ 652,228      $ 533,235   

Cost of sales

     230,801        158,901        424,794        329,391   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     118,526        106,898        227,434        203,844   

Operating expenses:

        

Selling, general, and administrative expenses

     40,135        35,868        79,678        72,706   

Research and development expenses

     42,881        36,629        87,028        72,669   

Acquisition costs

     102        —          709        —     

Loss on sale of product line

     —          —          337        —     

Restructuring charges

     1,039        —          6,242        —     

Amortization of intangible assets

     7,444        8,944        14,823        17,888   
  

 

 

   

 

 

   

 

 

   

 

 

 
     91,601        81,441        188,817        163,263   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     26,925        25,457        38,617        40,581   

Other expense (income):

        

Interest expense

     4,422        4,180        8,772        8,405   

Loss (gain) on investments

     356        (334     (605     (757

Loss on foreign currency

     540        79        1,348        967   

Interest income

     (729     (886     (1,484     (1,664

Other (income) expense, net

     (226     (419     (662     (532
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     22,562        22,837        31,248        34,162   

Income tax expense

     7,561        6,147        10,448        5,908   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 15,001      $ 16,690      $ 20,800      $ 28,254   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic

   $ 0.13      $ 0.14      $ 0.18      $ 0.23   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.13      $ 0.13      $ 0.18      $ 0.23   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares:

        

Basic

     113,842        121,800        114,457        122,047   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     115,111        123,711        116,352        124,720   
  

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2012     2011     2012     2011  

Operating Activities:

        

Net income

   $ 15,001      $ 16,690      $ 20,800      $ 28,254   

Depreciation

     6,982        5,813        14,177        11,668   

Amortization of intangible assets

     7,444        8,944        14,823        17,888   

Amortization of deferred finance fees

     160        163        320        326   

Non-cash interest expense

     3,058        2,889        6,057        5,721   

Deferred income tax provision (benefit)

     (5,085     (3,559     (9,720     (11,403

Stock compensation expense

     7,867        5,925        14,516        11,209   

Provision for doubtful accounts

     —          —          54        —     

Loss on sale of product line

     —          —          337        —     

Loss (gain) on disposal of fixed assets

     3        (1     6        33   

Loss (gain) on investments

     356        (334     (605     (757

Excess tax benefits from stock-based compensation plans

     (806     453        (2,460     (3,247

Changes in operating assets & liabilities, net of effects of acquisitions and disposals:

        

Accounts receivable

     4,056        (2,460     (27,743     (26,503

Other receivables

     3,700        5,583        7,393        6,117   

Inventory

     2,753        (7,233     9,996        (11,257

Income taxes payable/recoverable

     2,087        10,321        8,452        12,591   

Accounts payable and accrued liabilities

     (17,262     (8,432     5,136        (15,480

Other, net

     279        (3,382     4,327        2,649   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     30,593        31,380        65,866        27,809   

Investing Activities:

        

Purchases of investments

     (62,587     (43,480     (140,353     (142,841

Disposals of investments

     31,253        73,482        83,161        179,431   

Purchases of property & equipment, net

     (5,494     (6,296     (9,256     (12,547

Cash proceeds from sale of property & equipment

     —          1        —          43   

Cash proceeds from sale of product line

     —          —          3,249        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (36,828     23,707        (63,199     24,086   

Financing Activities:

        

Repurchase of common stock

     (15,236     (57,647     (41,551     (57,647

Excess income tax benefits from stock-based compensation plans

     806        (453     2,460        3,247   

Repurchase of shares to satisfy employee tax withholdings

     (19     —          (8,052     (8,245

Fees and proceeds from issuance of common stock, net

     4,271        4,547        7,996        17,910   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (10,178     (53,553     (39,147     (44,735

Net increase (decrease) in cash and cash equivalents

     (16,413     1,534        (36,480     7,160   

Cash and cash equivalents at beginning of period

     215,808        358,747        235,875        353,121   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 199,395      $ 360,281      $ 199,395      $ 360,281   
  

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)

 

(in thousands, except per share data)    Q2 2012                 YTD 2012              
     Amount     Per Diluted
Share
                Amount     Per Diluted
Share
             

Sales

   $ 349,327            $ 652,228         

Highlighted items:

                

Purchase accounting impacts of deferred revenue

     663        0.01            1,921        0.02       
  

 

 

         

 

 

       

Sales excluding highlighted items

   $ 349,990            $ 654,149         
  

 

 

         

 

 

       
     Q2 2012     Q2 2011     YTD 2012     YTD 2011  
     Amount     Per Diluted
Share
    Amount     Per Diluted
Share
    Amount     Per Diluted
Share
    Amount     Per Diluted
Share
 

Net income

   $ 15,001      $ 0.13      $ 16,690      $ 0.13      $ 20,800      $ 0.18      $ 28,254      $ 0.23   

Highlighted items:

                

Impacting gross margin:

                

Purchase accounting impacts of deferred revenue

     663        0.01        —          —          1,921        0.02        —          —     

Stock compensation expense

     809        0.01        557        —          1,559        0.01        994        0.01   

Impacting operating expenses:

                

Acquisition costs

     102        —          —          —          709        0.01        —          —     

Restructuring

     1,039        —          —          —          6,242        0.05        —          —     

Amortization of intangible assets

     7,444        0.06        8,944        0.07        14,823        0.13        17,888        0.14   

Loss of sale of product line

     —          —          —          —          337        —          —          —     

Stock compensation expense

     7,058        0.06        5,368        0.04        12,957        0.11        10,215        0.08   

Impacting other (income) / expense:

                

Non-cash interest expense

     3,058        0.03        2,889        0.02        6,057        0.05        5,721        0.05   

Impairment of investment

     466        —          —          —          466        —          —          —     

Impacting income tax expense:

                

Adjustments of income tax valuation allowances and other

     —          —          —          —          —          —          (3,583     (0.03

Tax related to highlighted items above

     (6,749     (0.06     (4,915     (0.04     (14,870     (0.13     (9,939     (0.08
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total highlighted items

     13,890        0.12        12,843        0.10        30,201        0.26        21,296        0.17   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income excluding highlighted items

   $ 28,891      $ 0.25      $ 29,533      $ 0.24      $ 51,001      $ 0.44      $ 49,550      $ 0.40   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares - diluted

       115,111          123,711          116,352          124,720   
    

 

 

     

 

 

     

 

 

     

 

 

 

See the Notes to GAAP / Adjusted Non-GAAP Financial Measures


Notes to GAAP to Adjusted Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP” or referred to herein as “reported”). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Purchase Accounting Impacts Related to Deferred Revenue: In connection with our acquisition of BigBand, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and post contract support in our purchase accounting. The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues. We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business. We have historically experienced high renewal rates related to our support agreements and our objective is to increase the renewal rates on acquired post contract support agreements; however, we cannot be certain that our customers will renew our contracts.

Stock-Based Compensation Expense: We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods.

Acquisition Costs: We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income measures. We incurred significant expenses in connection with our recent acquisition of BigBand, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. We believe it is useful to understand the effects of these items on our total operating expenses.

Restructuring Costs: We have excluded the effect of restructuring charges in calculating our non-GAAP operating expenses and net income measures. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses.

Loss on Sale of Product Line: We have excluded the effect of a loss on the sale of a product line in calculating our non-GAAP operating expenses and net income measures. We believe it is useful to understand the effects of these items on our total operating expenses.

Amortization of Intangible Assets: We have excluded the effect of amortization of intangible assets in calculating our non-GAAP operating expenses and net income measures. Amortization of intangible assets is non-cash, and is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Non-Cash Interest on Convertible Debt: We have excluded the effect of non-cash interest in calculating our non-GAAP operating expenses and net income measures. We record the accretion of the debt discount related to the equity component non-cash interest expense. We believe it is useful to understand the component of interest expense that will not be paid out in cash.

Impairment of Investment: We have excluded the effect of an other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income).

Income Tax Expense: We have excluded the tax effect of the non-GAAP items mentioned above. Additionally, we have excluded the effects of certain tax adjustments related to state valuation allowances, research and development tax credits and provision to return differences.