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ARRIS Announces Preliminary and Unaudited Third Quarter 2008 Results
SUWANEE, Ga., Oct. 28 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (NASDAQ: ARRS) , a global technology leader in advanced cable telephony and broadband access equipment, next generation high-speed data, and video applications and operations software solutions, today announced preliminary and unaudited financial results for the third quarter 2008. Third quarter 2008 revenues of $297.6 million represent an increase of $16.5 million, or 6%, as compared to second quarter 2008 revenues of $281.1 million. Third quarter and first nine month 2008 revenues increased $42.9 million, or 17%, and $109.5 million, or 15%, respectively, as compared to the same periods in 2007, primarily as a result of the C-COR acquisition in December 2007. Third quarter 2008 gross margin was $106.1 million, or 35.7%, as compared to $92.9 million, or 33.0%, in the second quarter 2008 and $68.8 million, or 27.0%, in the third quarter 2007. Order backlog decreased to $144.1 million at the end of the third quarter 2008 as compared to $206.0 million at the end of the second quarter 2008. Book-to-bill ratio in the third quarter 2008 was 0.79. GAAP net income in the third quarter 2008 was $0.19 per diluted share, as compared to $0.08 per diluted share in the second quarter 2008 and $0.25 per diluted share in the third quarter 2007. Adjusted (non-GAAP) net income in the third quarter 2008 was $0.24 per diluted share, as compared to $0.15 per diluted share in the second quarter 2008 and $0.21 in the third quarter 2007. Items excluded from the computed adjusted (non-GAAP) net income include amortization of intangibles, certain tax benefits and costs, equity compensation expense and adjustments to restructuring accruals. A reconciliation of GAAP to adjusted (non-GAAP) earnings per share is attached to this release and also can be found on the Company's website (www.arrisi.com). The Company ended the third quarter 2008 with $329.6 million of cash and short-term investments, which compares to $297.8 million at the end of the second quarter 2008. The Company generated $44.9 million of cash from operating activities in the third quarter 2008. The Company also announced that its flagship Cable Modem Termination System (CMTS), the ARRIS C4, continues to ship in record numbers to cable operators around the world. The ARRIS C4 CMTS supports downstream channel bonding capabilities for speeds up to 160 Mbp/s, which enables cable operators to deploy a cost-effective platform for new revenue generating video over IP applications, as well as far greater channel density per rack unit of space. The ARRIS C4 CMTS is deployed by the world's largest cable operators and supports more than 18 million subscribers worldwide. ARRIS C4 DOCSIS 3.0 equipment has already been delivered to operators in the United States, Canada, South America, Europe, and Asia. "Our CMTS business in the quarter was remarkably strong with record shipments as customers began their rollouts of new DOCSIS 3.0 wideband platforms," said Bob Stanzione, ARRIS Chairman & CEO. "Partially offsetting our strong CMTS performance were the expected Access, Transport & Supplies results. Although the current economic climate may present some obstacles in the near term, demand for ARRIS products that enable high speed data and video traffic remains strong as both competition and traffic intensifies. In addition, opportunities in Latin America, Asia and Europe, give me optimism that our international sales will be a bright spot in ARRIS' results in the coming year. ARRIS products for high speed data, VoIP, ad insertion, Operations Support System solutions and on-demand video were well received last month at the International Broadcasting Convention in Amsterdam. Therefore, I continue to be very optimistic about the future of ARRIS because even in light of the macro economic climate, consumers more than ever need to remain connected to the internet." "The ARRIS team delivered strong results in the third quarter in the face of difficult economic times," said David Potts, ARRIS EVP & CFO. "We have made substantial progress toward the financial goals that we established earlier this year. At this point we now project that revenues for the Company in the fourth quarter 2008 will be in the range of $280 to $300 million with GAAP net income per diluted share in the range of $0.16 to $0.21 and adjusted (non-GAAP) net income per diluted share, in the range of $0.22 to $0.27. This guidance reflects a cumulative tax benefit of approximately $0.03 per diluted share associated with the recent passage of the extension of R&D tax credit legislation. ARRIS management will conduct a conference call at 5:00pm EDT, today, Tuesday, October 28, 2008, 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 13270376 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 November 2, 2008 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 63707556. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com. 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 reliable telephony, demand driven video, next-generation advertising and high-speed data services. ARRIS products expand and help grow network capacity with access and outside plant construction equipment, reliably deliver voice, video and data services and assure optimal service delivery for end customers. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Atlanta, Chicago, Beaverton, State College, Wallingford, Ireland and China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at http://www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
-- fourth quarter and 2008 revenues and net income;
-- full year 2008 and 2009 outlook, and
-- the general market outlook;
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 fourth quarter as well as the general outlook for 2009 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; -- we operate in a capital intensive industry, and the recent disruptions in the financial markets may make it more difficult for our customers to expand and update their equipment, thereby, negatively impacting sales of equipment by us; 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 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 and the increasing trend of patent lawsuits being brought by financial investors in patents; 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, 2007 and its Form 10-Q for the quarter ended June 30, 2008. 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.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, June 30, March 31,
2008 2008 2008
(unaudited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $305,987 $290,266 $243,515
Short-term investments, at fair value 23,571 7,503 49,513
Total cash, cash equivalents and
short-term investments 329,558 297,769 293,028
Restricted cash 5,768 7,051 7,186
Accounts receivable, net 168,121 168,664 159,881
Other receivables 5,180 9,067 6,074
Inventories, net 141,564 147,716 125,105
Prepaids 5,156 5,305 5,680
Current deferred income tax assets 37,999 43,749 47,051
Other current assets 20,167 15,707 8,209
Total current assets 713,513 695,028 652,214
Property, plant and equipment, net 60,268 60,823 60,747
Goodwill 449,418 452,398 453,454
Intangible assets, net 236,689 244,575 257,029
Investments 12,784 9,937 10,200
Noncurrent deferred income tax assets 3,312 3,547 3,688
Other assets 11,282 11,383 12,624
$1,487,266 $1,477,691 $1,449,956
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $54,304 $68,476 $60,490
Accrued compensation, benefits and
related taxes 21,831 18,072 14,397
Accrued warranty 7,554 7,566 7,919
Deferred revenue 24,974 28,100 19,901
Current portion of long-term debt 234 314 310
Other accrued liabilities 25,490 23,221 27,980
Total current liabilities 134,387 145,749 130,997
Long-term debt, net of current portion 276,371 276,606 276,686
Accrued pension 10,622 11,362 10,905
Noncurrent income tax payable 10,128 6,250 6,487
Noncurrent deferred income tax
liability 42,337 48,725 47,090
Other long-term liabilities 15,655 18,694 19,704
Total liabilities 489,500 507,386 491,869
Stockholders' equity:
Preferred stock - - -
Common stock 1,360 1,358 1,357
Capital in excess of par value 1,102,112 1,098,581 1,095,716
Treasury stock at cost (75,960) (76,007) (76,007)
Unrealized gain (loss) on marketable
securities (128) 66 151
Unfunded pension liability (3,358) (3,358) (3,358)
Accumulated deficit (26,076) (50,151) (59,588)
Cumulative translation adjustments (184) (184) (184)
Total stockholders' equity 997,766 970,305 958,087
$1,487,266 $1,477,691 $1,449,956
ARRIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, September 30,
2007 2007
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $323,797 $370,708
Short-term investments, at fair value 68,011 217,845
Total cash, cash equivalents and
short-term investments 391,808 588,553
Restricted cash 6,977 3,142
Accounts receivable, net 166,953 130,216
Other receivables 4,330 5,000
Inventories, net 131,792 118,227
Prepaids 5,856 3,626
Current deferred income tax assets 44,939 19,602
Other current assets 4,841 13,703
Total current assets 757,496 882,069
Property, plant and equipment, net 59,156 31,251
Goodwill 455,352 150,569
Intangible assets, net 269,893 115
Investments 6,412 8,916
Noncurrent deferred income tax assets 3,459 16,238
Other assets 10,181 9,084
$1,561,949 $1,098,242
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $58,852 $35,540
Accrued compensation, benefits and
related taxes 26,177 18,857
Accrued warranty 8,298 4,085
Deferred revenue 8,474 6,273
Current portion of long-term debt 35,305 -
Other accrued liabilities 42,121 20,854
Total current liabilities 179,227 85,609
Long-term debt, net of current
portion 276,765 276,000
Accrued pension 10,455 11,810
Noncurrent income tax payable 6,322 5,262
Noncurrent deferred income tax
liability 45,255 -
Other long-term liabilities 18,158 8,404
Total liabilities 536,182 387,085
Stockholders' equity:
Preferred stock - -
Common stock 1,356 1,104
Capital in excess of par value 1,093,498 789,348
Treasury stock at cost (572) -
Unrealized gain (loss) on marketable
securities 20 (151)
Unfunded pension liability (3,358) (4,462)
Accumulated deficit (64,993) (74,498)
Cumulative translation adjustments (184) (184)
Total stockholders' equity 1,025,767 711,157
$1,561,949 $1,098,242
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited)
Net sales $297,551 $254,662 $852,167 $742,633
Cost of sales 191,417 185,828 567,901 532,676
Gross margin 106,134 68,834 284,266 209,957
Gross margin % 35.7% 27.0% 33.4% 28.3%
Operating expenses:
Selling, general, and
administrative expenses 33,012 23,778 107,040 74,408
Research and development
expenses 27,473 17,797 83,257 53,684
Restructuring and impairment
charges 202 - 782 421
Amortization of intangible
assets 9,146 57 34,854 173
69,833 41,632 225,933 128,686
Operating income 36,301 27,202 58,333 81,271
Other expense (income):
Interest expense 1,738 1,683 4,964 5,003
Loss (gain) on investments 37 (3,453) 210 (4,878)
Loss (gain) on foreign
currency 382 (112) (258) 64
Interest income (1,504) (6,307) (5,891) (19,249)
Gain related to terminated
acquisition, net of
expenses - - - (22,835)
Other (income) expense, net (72) 215 (43) 331
Income from continuing
operations before income
taxes 35,720 35,176 59,351 122,835
Income tax expense 11,645 7,654 20,434 34,395
Net income from continuing
operations 24,075 27,522 38,917 88,440
Income from discontinued
operations - 330 - 330
Net income $24,075 $27,852 $38,917 $88,770
Net income per common share -
Basic:
Income from continuing
operations $0.20 $0.25 $0.31 $0.81
Income from discontinued
operations - - - -
Net income $0.20 $0.25 $0.31 $0.81
Diluted:
Income from continuing
operations $0.19 $0.25 $0.31 $0.79
Income from discontinued
operations - - - -
Net income $0.19 $0.25 $0.31 $0.80
Weighted average common
shares:
Basic 122,922 110,178 125,466 109,354
Diluted 125,420 112,085 127,249 111,595
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2008 2007 2008 2007
(unaudited) (unaudited)(unaudited) (unaudited)
Operating Activities:
Net income $24,075 $27,852 $38,917 $88,770
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Depreciation 5,426 2,858 15,521 8,003
Amortization of intangible
assets 9,146 57 34,854 173
Stock compensation expense 2,895 2,676 8,286 8,710
Deferred income tax provision 5,889 4,693 10,461 14,319
Amortization of deferred
finance fees 278 279 835 836
Provision for doubtful
accounts 151 (112) 365 484
Gain related to previously
written off receivables - - - (377)
Gain on discontinued product
line - (330) - (330)
Loss (gain) on disposal of
fixed assets (13) 167 (15) 167
Loss (gain) on investments 37 (3,453) 210 (4,878)
Gain related to terminated
acquisition, net of expenses - - - (22,835)
Excess tax benefits from
stock-based compensation
plans (145) (1,738) (145) (8,269)
Changes in operating assets &
liabilities, net of effects of
acquisitions and disposals:
Accounts receivable 913 (9,424) 143 (15,396)
Other receivables 736 1,845 (4,001) (2,444)
Inventory 6,425 (27,685) (7,994) (24,001)
Accounts payable and accrued
liabilities (8,146) (8,540) (6,642) (32,080)
Other, net (2,791) (2,420) (4,984) (262)
Net cash provided by (used
in) operating activities 44,876 (13,275) 85,811 10,590
Investing Activities:
Purchases of property, plant,
and equipment (4,652) (4,083) (16,444) (11,138)
Cash proceeds related to
terminated acquisition, net of
expenses paid - - - 10,554
Cash paid for hedge related to
terminated acquisition - - - (26,469)
Cash proceeds from hedge
related to terminated
acquisition - - - 38,750
Cash paid for acquisitions, net
of cash acquired (5,094) - (9,513) -
Cash proceeds from sale of
property, plant & equipment 13 3 250 3
Cash proceeds from sale of
short-term investments - - 16 -
Purchases of short-term-
investments (66,111) (97,776) (82,998) (295,626)
Disposals of short-term-
investments 50,006 37,792 122,470 162,902
Purchases of investment
securities (4,000) - (4,000) -
Net cash provided by (used
in) investing activities (29,838) (64,064) 9,781 (121,024)
Financing Activities:
Payment of debt and capital
lease obligations (322) - (35,518) -
Repurchase of common stock 47 - (75,913) -
Excess tax benefits from stock-
based compensation plans 145 1,738 145 8,269
Employer repurchase of shares
to satisfy minimum tax
withholdings - (1,402) (1,035) (3,092)
Fees and proceeds from issuance
of common stock, net 813 3,691 (1,081) 14,347
Net cash provided by (used
in) financing activities 683 4,027 (113,402) 19,524
Net increase (decrease) in
cash and cash equivalents 15,721 (73,312) (17,810) (90,910)
Cash and cash equivalents at
beginning of period 290,266 444,020 323,797 461,618
Cash and cash equivalents at
end of period $305,987 $370,708 $305,987 $370,708
ARRIS GROUP, INC.
SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
Q1 2008 Q2 2008 Q3 2008 YTD 2008
Per Per Per Per
Diluted Diluted Diluted Diluted
Amount Share Amount Share Amount Share Amount Share
Net income $5,405 $0.04 $9,437 $0.08 $ 24,075 $0.19 $ 38,917 0.31
Highlighted
items:
Impacting
gross margin:
Stock
compen-
sation
expense 201 - 245 - 264 0.00 710 0.01
Impacting
operating
expenses:
Integration
costs 427 - - - - - 427 -
Restructuring
charges -
adj to
existing
accruals 405 - 175 - 202 0.00 782 0.01
Amortization
of intan-
gible
assets 13,254 0.10 12,454 0.10 9,146 0.07 34,854 0.27
Stock
compen-
sation
expense 2,350 0.02 2,595 0.02 2,631 0.02 7,576 0.06
Impacting
income tax
expense:
Adj of
income tax
valuation
allowances
and
research &
development
credits
and other - - - - (1,565) (0.01) (1,565) (0.01)
Tax related
to highlighted
items
above (6,294) (0.05) (5,732) (0.05) (4,150) (0.03) (16,176) (0.13)
Total
highlighted
items 10,343 0.08 9,737 0.08 6,528 0.05 26,608 0.21
Net income
excluding
highlighted
items $ 15,748 $0.12 $ 19,174 $0.15 $ 30,603 $0.24 $ 65,525 $0.51
131,981 124,651 125,420 127,249
Q1 2007 Q2 2007 Q3 2007 YTD 2007
Per Per Per Per
Diluted Diluted Diluted Diluted
Amount Share Amount Share Amount Share Amount Share
Net
income $ 37,644 $0.34 23,274 $0.21 $ 27,852 $0.25 $ 88,770 0.80
Highlighted
items:
Impacting
gross margin:
Stock compen-
sation
expense 165 - 229 - 196 0.00 590 0.01
Impacting
operating
expenses:
Gain related
to previously
written off
receiv-
ables (377) - - - - - (377) -
Restructuring
charges -
adj to
existing
accruals 421 - - - - - 421 -
Amortization
of intan-
gible
assets 58 - 58 - 57 0.00 173 -
Stock
compen-
sation
expense 2,491 0.02 3,149 0.03 2,480 0.02 8,120 0.07
Impacting
net income
from
continuing
operations:
Gains
related
to termin-
ated
acquisition,
net of expens-
es (22,835) (0.21) - - - - (22,835) (0.20)
Gain on
invest-
ments - - (1,345) (0.01) (3,519) (0.03) (4,864) (0.04)
Impacting
discontinued
operations:
Gains
related to
previously
written off
receiv-
ables - - - - (330) (0.00) (330) -
Impacting
income
tax expense:
Adjustments
of income
tax valuation
allowances
and research
& development
credits and
other (3,246) (0.03) - - (3,466) (0.03) (6,712) (0.06)
Tax related
to high-
lighted
items
above 7,754 0.07 (670) (0.01) 423 0.00 7,507 0.07
Total high-
lighted
items (15,569) (0.14) 1,421 0.01 (4,160) (0.04) (18,308) (0.16)
Net income
excluding
highlighted
items $22,075 $0.20 $24,695 $0.22 $23,692 $0.21 $70,463 $0.63
110,988 111,698 112,085 111,595
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. ARRIS recognized a gain in both Q1 and Q3 of 2007 associated with previously written off receivables. With respect to amortization of intangibles, the intangibles being amortized relate to our recent acquisition of C-COR. The restructuring charge adjustments 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. In the second quarter of 2007, ARRIS realized a gain before tax of $1.3 million on its deferred compensation asset that had been previously recorded as an unrealized gain on the balance sheet. During the third quarter of 2007, ARRIS bought and sold investments and realized a gain of $3.5 million. In the third quarter of 2007, a tax benefit of approximately $3.5 million was recorded for a reversal of valuation allowances and research and development tax credits related to a tax credit study that was undertaken for prior years (2001 - 2006). During the first quarter of 2007, ARRIS announced that it entered into a transaction agreement with TANDBERG Television ASA, in which ARRIS was to buy all the outstanding shares of TANDBERG. ARRIS was subsequently outbid by another buyer and the transaction agreement was terminated during the first quarter 2007. ARRIS recorded gains, net before tax, of $22.8 million related to the termination of the transaction (termination fee, foreign exchange gains, and expenses). The net termination fee resulted in a capital gain which provided greater access to prior tax capital losses that had previously been viewed as more likely than not unrealizable. As a result, net income tax valuation allowances totaling $3.2 million were reversed in the first quarter 2007. During the first quarter of 2008, ARRIS recorded incremental costs of $0.4 million as a result of the C-COR integration. In the third quarter of 2008, ARRIS recorded a net tax benefit of $1.6 million related to provision to return differences resulting from the filing of the 2007 tax return. 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. ARRIS expects to continue providing similar information in the future with schedules reconciling the differences between GAAP and non-GAAP financial measures.
ARRIS GROUP, INC.
Net Income Reconciliation (unaudited)
Q4 EPS 2008 Guidance
Estimated GAAP EPS - diluted $0.16 - $0.21
Reconciling Items
Amortization of intangibles,
after tax 0.05
Stock compensation expense, after
tax 0.01
Subtotal 0.06
Estimated adjusted (non-GAAP) EPS - diluted $0.22 - $0.27
See the Supplemental Net Income Reconciliation for a discussion regarding
management's reasoning for providing this non-GAAP financial measure
Website: http://www.arrisi.com// |
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