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ARRIS Announces Preliminary and Unaudited First Quarter 2016 Results

SUWANEE, Ga., May 4, 2016 /PRNewswire/ -- ARRIS International plc (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the first quarter 2016.

First Quarter 2016 Financial Highlights

  • Revenues were $1,614.7 million
  • GAAP net income (loss) was $(1.06) per diluted share
  • Adjusted net income (a non-GAAP measure) was $0.47 per diluted share
  • End-of-quarter cash resources were $676.2 million
  • Order backlog was $1,335.1 million
  • Book-to-bill ratio was 1.24
  • Repurchased approximately 6.4 million shares for $150 million

"We are off to a good start to 2016.  Our first quarter came in stronger than our non-GAAP guidance and we entered the second quarter with positive momentum.  With respect to the second quarter 2016, we expect revenues will be in the range of $1,675 million to $1,725 million, with adjusted net income per diluted share in the range of $0.65 to $0.70 and GAAP net income per diluted share in the range of $0.09 to $0.14.  We are increasingly confident that we are on track to meet the full year targets we laid out at our recent Investor Day," said Bob Stanzione, ARRIS Chairman and CEO. 

On January 4, 2016 the Company completed the acquisition of Pace plc (the "Combination") and, as a result, comparisons to prior periods are materially affected.  First quarter 2016 results include several acquisition related items that significantly impact GAAP earnings and cash flow.

Revenues in the first quarter 2016 of $1,614.7 million were up $399.5 million, or 33%, as compared to first quarter 2015 revenues of $1,215.2 million.  First quarter revenues were also up $513 million, or 47%, as compared to fourth quarter 2015 revenues of $1,101.7 million

GAAP net income (loss) in the first quarter 2016 was $(1.06) per diluted share, which includes the impact of various items related to the Combination: 1) withholding tax of $55 million, 2) restructuring costs of $51 million, 3) integration/other deal costs of $40 million, and 4) the impact of revaluing Pace's inventory from historical cost to fair market value as required in purchase accounting of $30 million.  First quarter 2015 GAAP net income was $0.13 per diluted share and fourth quarter 2015 GAAP net income was $0.20 per diluted share.    

Adjusted net income (a non-GAAP measure) in the first quarter 2016 was $0.47 per diluted share, as compared to $0.44 per diluted share for the first quarter 2015, and the fourth quarter 2015 adjusted net income of $0.62 per diluted share.  

A reconciliation of adjusted net income per diluted share to GAAP net income per diluted share is attached to this release and also can be found on the Company's website (www.arris.com).

Cash & Cash Equivalents - The Company borrowed $800 million in the quarter to complete the Combination using $639 million to satisfy the cash portion of the purchase price and retiring $240 million of Pace debt.  At close, $298 million of cash was acquired as part of the Combination.  $225 million of cash was used for operating activities during the first quarter 2016, primarily the result of reducing the acquired accounts payable from Pace.  The Company ended the first quarter 2016 with $676 million of cash resources, while down $203 million from the end of the fourth quarter 2015, the reduction included the repurchase of 6.4 million ordinary shares for $150 million.

Order backlog at the end of the first quarter 2016 was $1,335.1 million as compared to $725.7 million and $715.8 million at the end of the first quarter 2015 and the fourth quarter 2015, respectively. The Company's book-to-bill ratio in the first quarter 2016 was 1.24 as compared to the first quarter 2015 of 1.08 and the fourth quarter 2015 of 1.14.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, May 4, 2016, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4209 or 617-213-4863 for international calls prior to the start of the call and providing the ARRIS International plc name, conference pass code 11922388 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 May 11, 2016, by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24260601. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arris.com.

Forward-Looking Statements

Statements made in this press release, including those related to:

  • revenues and net income for the second quarter 2016, and beyond;
  • integration of the recently acquired Pace business;
  • 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 and full year 2016, as well as the general outlook for 2016 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;
    • the strengthening U.S. Dollar may adversely impact our international customer's ability or willingness to purchase products and the pricing of our products;
    • we may fail to realize the expected benefits of the recently completed Pace acquisition and may incur significant additional transaction costs and/or unknown liabilities;
    • regulatory changes, including those related to tax, could have an adverse impact on our operations and results of operations;
    • our customers operate in a capital intensive consumer based industry, and volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness  to purchase the products that we offer;
    • because the market in which we operate 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; and
    • announced and recently completed transactions within our customer base, including the proposed acquisition of Cablevision by Altice, and the announced acquisition of Time Warner by Charter, may have an impact on the amount and/or timing of customer's spending.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: rights to intellectual property, including related litigation; the impact of rapidly changing technologies; market trends and the adoption of industry standards.  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 the Company's reports filed with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2015. 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.

About ARRIS
ARRIS International plc (NASDAQ: ARRS) is a world leader in entertainment and communications technology. Our innovations combine hardware, software, and services across the cloud, network, and home to power TV and Internet for millions of people around the globe. The people of ARRIS collaborate with the world's top service providers, content providers, and retailers to advance the state of our industry and pioneer tomorrow's connected world. For more information, visit www.arris.com.

For the latest ARRIS news:

  • Check out our blog: ARRIS EVERYWHERE
  • Follow us on Twitter: @ARRIS

ARRIS and the ARRIS Logo are trademarks or registered trademarks of ARRIS Enterprises, LLC. All other trademarks are the property of their respective owners. © ARRIS Enterprises, LLC. 2016. All rights reserved.

 

 

ARRIS INTERNATIONAL PLC


PRELIMINARY CONSOLIDATED BALANCE SHEETS


(in thousands)


(unaudited)


























March 31,


December 31,


September 30,


June 30,


March 31,



2016


2015


2015


2015


2015












ASSETS






















Current assets:











Cash and cash equivalents


$659,181


$863,582


$673,346


$490,939


$499,482

Short-term investments, at fair value


17,069


15,470


107,777


128,852


129,073

Total cash, cash equivalents and short term investments


676,250


879,052


781,123


619,791


628,555












Accounts receivable, net


972,540


651,893


647,726


785,869


819,918

Other receivables 


31,868


12,233


8,684


11,268


15,054

Inventories, net


662,287


401,592


367,536


389,556


372,379

Prepaid income taxes


22,349


25,624


29,071


26,413


13,380

Prepaids


37,285


19,319


26,430


36,746


31,814

Current deferred income tax assets


-


-


104,345


105,384


115,926

Other current assets


123,858


120,490


148,385


102,987


73,842

Total current assets


2,526,437


2,110,203


2,113,300


2,078,014


2,070,868












Property, plant and equipment, net 


369,255


312,311


319,443


324,154


325,727

Goodwill


2,068,274


1,013,963


1,016,696


1,017,430


938,645

Intangible assets, net


2,036,791


810,448


868,054


923,837


919,876

Investments


72,115


69,542


74,924


75,381


76,492

Noncurrent deferred income tax assets


221,315


185,439


70,557


87,291


88,366

Other assets


18,849


21,610


26,843


27,842


28,185



$7,313,036


$4,523,516


$4,489,817


$4,533,949


$4,448,159























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











Accounts payable


$818,494


$514,877


$558,371


$608,133


$594,690

Accrued compensation, benefits and related taxes


97,346


111,389


97,326


78,333


75,849

Accrued warranty


58,812


27,630


35,488


29,176


36,824

Deferred revenue


144,603


137,606


97,490


107,632


107,230

Current portion of LT debt & financing lease obligations


94,119


43,591


43,506


43,446


75,685

Current income taxes liability


65,543


8,368


13,139


9,587


13,092

Other accrued liabilities


248,812


169,169


168,870


155,482


167,430

Total current liabilities


1,527,729


1,012,630


1,014,190


1,031,789


1,070,800

Long-term debt & financing lease obligations, net of current portion


2,242,071


1,496,243


1,507,172


1,518,063


1,487,547

Accrued pension


55,287


64,052


67,570


68,865


68,060

Noncurrent income taxes payable


68,974


42,197


38,145


43,586


42,282

Noncurrent deferred income tax liabilities


385,690


503


329


332


412

Other noncurrent liabilities


126,330


66,930


71,560


92,544


90,428

Total liabilities


4,406,081


2,682,555


2,698,966


2,755,179


2,759,530












Stockholders' equity:











Ordinary shares


2,824


-


-


-


-

Common stock


-


1,790


1,819


1,814


1,811

Capital in excess of par value


3,204,853


1,777,276


1,762,111


1,765,804


1,745,345

Treasury stock at cost


-


(331,329)


(331,329)


(331,331)


(331,331)

Accumulated other comprehensive loss


(20,476)


(12,646)


(20,236)


(12,664)


(12,966)

Retained earnings 


(324,667)


358,823


328,782


302,525


285,768

Total ARRIS Group Inc. stockholders' equity


2,862,534


1,793,914


1,741,147


1,726,150


1,688,629

Stockholders' equity attributable to noncontrolling interest


44,421


47,047


49,704


52,620


-

Total stockholders' equity


2,906,955


1,840,961


1,790,851


1,778,770


1,688,629



$7,313,036


$4,523,516


$4,489,817


$4,533,949


$4,448,159












 





 ARRIS INTERNATIONAL PLC

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)






For the Three Months


Ended March 31,


2016


2015





Net sales

$1,614,705


$1,215,158

Cost of sales

1,230,801


878,602

Gross margin

383,904


336,556

Operating expenses:




Selling, general, and administrative expenses

120,158


100,324

Research and development expenses

161,488


132,469

Amortization of intangible assets

98,493


57,147

Integration, acquisition, and restructuring costs

90,919


898


471,058


290,838

Operating (loss) income 

(87,154)


45,718

Other expense (income):




Interest expense

19,626


13,367

Loss on investments

1,959


1,709

Loss on foreign currency

12,241


20

Interest income

(783)


(721)

Other (income) expense, net

(1,014)


7,063

(Loss) income before income taxes

(119,183)


24,281

Income tax expense 

86,013


5,154

Consolidated net (loss) income

(205,196)


19,127

Net loss attributable to noncontrolling interests

(2,623)


-

Net (loss) income attributable to ARRIS International plc

($202,573)


$19,127





Net (loss) income per common share (1):




Basic

$         (1.06)


$           0.13

Diluted

$         (1.06)


$           0.13





Weighted average common shares:




Basic

191,743


145,350

Diluted

191,743


148,986





(1)  Calculated based on net income attributable to shareowners of ARRIS International plc

 

ARRIS INTERNATIONAL PLC

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)










For the Three Months











Ended March 31,











2016


2015















Operating Activities:











Consolidated net (loss) income






$      (205,196)


$         19,126




Depreciation






23,871


19,884




Amortization of intangible assets






99,766


57,852




Amortization of deferred finance fees and debt discount






1,787


2,181




Deferred income tax provision (benefit)






(36,913)


(18,189)




Stock compensation expense






14,276


13,974




Provision for doubtful accounts






845


267




(Gain) loss on disposal of fixed assets






(16)


5,877




Loss on investments






1,959


1,709




Excess tax benefits from stock-based compensation plans






(2,354)


(16,437)



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












Accounts receivable






130,461


(221,582)




Other receivables






13,261


(6,995)




Inventory






166,177


28,786




Income taxes payable/recoverable






72,959


(1,409)




Accounts payable and accrued liabilities






(535,651)


55,950




Prepaids and other, net






29,929


(4,257)





Net cash used in operating activities






(224,839)


(63,263)















Investing Activities:











Purchases of investments






(4,778)


(11,063)



Sales of investments






2,093


10,169



Purchases of property, plant & equipment, net






(9,140)


(10,919)



Proceeds from sale-leaseback transaction






-


24,960



Acquisition, net of cash acquired






(340,118)


-



Purchases of intangible assets






(1,310)


(34,340)



Other, net






2,932


2,904





Net cash used in investing activities






(350,321)


(18,289)















Financing Activities:











Proceeds from issuance of debt






800,000


-



Proceeds from sale-leaseback financing transaction






-


58,729



Repayment of accounts receivable financing facility






(12,042)





Payment of financing lease obligation






(164)


-



Payment of debt obligations






(252,625)


(13,750)



Repurchase of shares






(150,003)


(24,999)



Excess income tax benefits from stock-based compensation plans






2,354


16,437



Repurchase of shares to satisfy employee minimum tax withholdings






(14,045)


(21,194)



Fees and proceeds from issuance of shares, net






(2,716)


21





Net cash provided by financing activities






370,759


15,244


















Net decrease in cash and cash equivalents






(204,401)


(66,308)


Cash and cash equivalents at beginning of period






863,582


565,790


Cash and cash equivalents at end of period






$       659,181


$       499,482















 

ARRIS INTERNATIONAL PLC

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

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




























(in thousands, except per share data)

Q1 2015


Q4 2015


Q1 2016





Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Net income (loss) attributable to ARRIS International plc

$      19,127


$           0.13


$      30,041


0.20


$   (202,573)


$          (1.06)















Highlighted items:













Impacting gross margin:













Stock compensation expense

1,791


0.01


2,219


0.01


2,239


0.01


Acquisition accounting impacts related to inventory valuation

-


-


-


-


30,292


0.16




























Impacting operating expenses:













Integration, acquisition and restructuring costs

898


0.01


8,281


0.06


90,919


0.47


Amortization of intangible assets

57,147


0.38


56,377


0.38


98,493


0.51


Stock compensation expense

12,183


0.08


15,443


0.10


12,037


0.06


Noncontrolling interest share of Non-GAAP adjustments

-


-


(1,357)


(0.01)


(776)


-















Impacting other (income) / expense:













Recovery on previously impaired investment

-


-


(159)


-


-


-


Debt amendment fees

-


-


291


-


-


-


Credit facility - ticking fees

-


-


1,022


0.01


-


-


Foreign exchange contract losses related to cash consideration of Pace acquisition 

-


-


13,699


0.09


1,610


0.01


Loss on sale of building

5,142


0.03




-


-


-















Impacting income tax expense:













Foreign withholding tax

-


-


-


-


54,741


0.28


Net tax items

(30,533)


(0.20)


(32,363)


(0.22)


3,417


0.02















Total highlighted items

46,628


0.31


63,453


0.42


292,972


1.51


Net income excluding highlighted items

$      65,755


$           0.44


$      93,494


$           0.62


$      90,399


$           0.47















Weighted average common shares - basic



145,350




147,109




191,743


Weighted average common shares - diluted



148,986




149,842




193,591



























 

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:

Stock-Based Compensation Expense: We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income (loss) 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 restricted stock units. 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 Accounting Impacts Related to Inventory Valuation:  In connection with the accounting related to our acquisition, business combinations rules require the inventory be recorded at fair value on the opening balance sheet.  This is different from historical cost.  Essentially we are required to write the inventory up to end customer price less a reasonable margin as a distributor.  We have excluded the resulting adjustments in inventory and cost of goods sold.

Integration, Acquisition and Restructuring Costs:  We have excluded the effect of acquisition, integration, and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income (loss) measures. We incurred expenses in connection with the ActiveVideo and the Pace acquisition, which we generally would not otherwise incur in the periods presented as part of our continuing operations. Acquisition and integration expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. Restructuring consists of employee severance and abandoned facilities. 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 (loss) 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.

Noncontrolling Interest share of Non-GAAP Adjustments:  The joint venture formed with Charter for the acquisition of ActiveVideo is accounted for by ARRIS under the consolidation method.  As a result, the consolidated statement of operations include the revenues, expenses, and gains and losses of the noncontrolling interest.  The amount of net income (loss) related to the noncontrolling interest are reported and presented separately in the consolidated statement of operations.  We have excluded the noncontrolling share of any non GAAP adjusted measures recorded by the joint venture, as we believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance. 

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). 

Debt Amendment Fees: In 2015, the Company amended its credit agreement.  This debt modification allowed us to improve the terms and conditions of the credit agreement, extend the maturities of certain loan facilities, increase the amount of the revolving credit facility, and add a new term A-1 loan facility.   We have excluded the effect of the associated fees in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this item in our other expense (income).

Credit Facility - Ticking Fees:  In connection with our acquisition of Pace, the cash portion of the consideration was funded through debt financing commitments.  A ticking fee is a fee paid to our banks to compensate for the time lag between the commitment allocation on a loan and the actual funding. We have excluded the effect of the ticking fee in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this item in our other expense (income). 

Loss on Sale of Building:  In the first quarter of 2015, the Company sold land and a building that qualified for sale-leaseback accounting and was classified as an operating lease.  A loss has been recorded on the sale.  We have excluded the effect of the loss on sale of property in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.

Foreign Withholding Tax:  In connection with our acquisition of Pace, ARRIS US Holdings, Inc. transferred shares of its subsidiary ARRIS Financing II Sarl to ARRIS International plc.  Under U.S. tax law, based on the best available information, we believe the transfer constituted a deemed distribution from ARRIS U.S. Holdings Inc. to ARRIS International plc that is treated as a dividend for U.S. tax purposes.  A deemed dividend of this type is subject to  U.S. withholding tax to the extent of the current and accumulated earnings and profits (as computed for tax purposes) ("E&P") of ARRIS U.S. Holdings Inc., which include the E&P of the former ARRIS Group, Inc. and subsidiaries through December 31, 2016.  Accordingly, ARRIS U.S. Holdings Inc. remitted U.S. withholding tax in the amount of $55 million based upon its estimated E&P of $1.1 billion and the U.S. dividend withholding tax rate of 5 percent (as provided in Article 10 (Dividends) of the United Kingdom-United States Tax Treaty).  We have excluded the withholding tax in calculating our non-GAAP financial measures.

Income Tax Expense (Benefit): 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 tax and legal restructuring, state valuation allowances, research and development tax credits and provision to return differences.

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/arris-announces-preliminary-and-unaudited-first-quarter-2016-results-300262965.html

SOURCE ARRIS

Bob Puccini, bob.puccini@arris.com, Investor Relations, +1.720.895.7787