2014

ARRIS Announces Preliminary And Unaudited Second Quarter 2012 Results

SUWANEE, Ga., July 25, 2012 /PRNewswire/ -- 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,


March 31,


December 31,


September 30,


June 30,



2012


2012


2011


2011


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








Per Diluted








Per Diluted








Amount


Share






Amount


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





Per Diluted




Per Diluted




Per Diluted





Per Diluted



Amount


Share


Amount


Share


Amount


Share



Amount


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.  

SOURCE ARRIS Group, Inc.



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