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ARRIS Announces Preliminary and Unaudited Second Quarter 2011 Results

SUWANEE, Ga., July 27, 2011 /PRNewswire via COMTEX/ --

ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the second quarter 2011.

Revenues in the second quarter 2011 were $265.8 million as compared to second quarter 2010 revenues of $280.4 million and as compared to first quarter 2011 revenues of $267.4 million. Through the first half of 2011 and 2010, revenues were $533.2 million and $547.1 million, respectively.

Adjusted net income (a non-GAAP measure) in the second quarter 2011 was $0.24 per diluted share, compared to $0.24 per diluted share for the second quarter 2010 and $0.16 per diluted share for the first quarter 2011. Year to date, adjusted net income was $0.40 per diluted share for 2011 as compared to $0.48 per diluted share in 2010.

GAAP net income in the second quarter 2011 was $0.13 per diluted share, as compared to second quarter 2010 GAAP net income of $0.15 per diluted share and first quarter 2011 GAAP net income of $0.09 per diluted share. Year to date, GAAP net income was $0.23 per diluted share in 2011 as compared to GAAP net income of $0.30 per diluted share in 2010. Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, restructuring charges, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per share is attached to this release and also can be found on the Company's website (www.arrisi.com).

Gross margin for the second quarter 2011 was 40.2%, which compares to the second quarter 2010 gross margin of 40.4% and the first quarter 2011 gross margin of 36.3%.

The Company ended the second quarter 2011 with $591.5 million of cash, cash equivalents and short-term investments, down in the aggregate by approximately $71.9 million from the end of the second quarter 2010, and down $28.1 million from the end of the first quarter 2011. During the second quarter 2011, the Company repurchased approximately 5.1 million shares of ARRIS common stock for $57.6 million. The Company generated $31.4 million of cash from operating activities during the second quarter 2011 and $27.8 through the first six months of 2011, which compares to $35.2 million and $83.4 generated during the same periods in 2010.

Order backlog at the end of the second quarter 2011 was $154.2 million as compared to $174.1 million and $177.5 million at the end of the second quarter 2010 and the first quarter 2011, respectively. The Company's book-to-bill ratio in the second quarter 2011 was 0.91 as compared to the second quarter 2010 of 0.92 and the first quarter 2011 of 1.14.

"I am pleased with our second quarter financial results," said Bob Stanzione, ARRIS Chairman & CEO. "I am particularly gratified by the high level of customer acceptance of our new higher density C4 CMTS line cards and software upgrades and the increasing interest and demand for our Home Media Gateway. The strong level of interest and traction with these and other new ARRIS products bodes well for the remainder of 2011."

During the quarter the Company announcedthat Shaw Communications Inc., Canada's largest television provider with over 3.4 million subscribers, launched the ARRIS Whole Home Solution in its Calgary system, to be followed by a nationwide launch in its other markets. Marketed as the Shaw Gateway experience, the platform will initially feature the solution's multi-room Personal Video Recorder (PVR) functionality -- consisting of a six-tuner, multi-room HD PVR with 500 GB storage; customized, intuitive User Interface; 4 port Ethernet home networking router; MOCA® 1.1+ home networking technology; and 802.11n capabilities.

"With respect to the third quarter 2011, we now project that revenues for the Company will be in the range of $270 to $290 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," said David Potts, ARRIS EVP & CFO. "Our guidance reflects the continued rollout of our new C4 CMTS line card capacity upgrade as well as the new Home Gateway."

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, July 27, 2011, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4214 or 617-213-4866 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 59411438 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 August 3, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 42579746. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com.

About ARRIS

ARRIS is a global communications technology company specializing in the design, engineering and supply of technology supporting triple- and quad-play broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver converged IP video solutions, carrier-grade telephony, demand driven video, next-generation advertising, network and workforce management solutions, access and transport architectures and ultra high-speed data services. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; Wallingford, CT; Waltham, MA; Cork, Ireland; and Shenzhen, China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at www.arrisi.com.

Forward-looking statements:

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

  • growth expectations and business prospects;
  • revenues and net income for the third quarter 2011, full year 2011 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 2011 as well as the general outlook for 2011 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control;
  • ARRIS' customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that the Company offers; and
  • because the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the uncertain current economic climate and its impact on our customers' plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; possible acquisitions and dispositions; 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 March 31, 2011 Form 10-Q. 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,



2011


2011


2010


2010


2010












ASSETS






















Current assets:











Cash and cash equivalents


$ 360,281


$ 358,747


$ 353,121


$ 351,894


$ 370,932

Short-term investments, at fair value


231,254


260,862


266,981


288,463


292,421

Total cash, cash equivalents and short term investments


591,535


619,609


620,102


640,357


663,353












Restricted cash


3,646


4,176


4,937


4,480


4,478

Accounts receivable, net


152,436


149,976


125,933


133,915


139,673

Other receivables


406


5,275


6,528


2,654


6,368

Inventories, net


113,020


105,787


101,763


89,203


78,830

Prepaids


10,272


12,115


9,237


8,934


10,196

Current deferred income tax assets


22,681


20,450


19,819


28,585


30,469

Other current assets


25,216


33,535


33,054


28,347


21,329

Total current assets


919,212


950,923


921,373


936,475


954,696












Property, plant and equipment, net


57,100


56,617


56,306


56,816


56,128

Goodwill


233,440


233,471


234,964


235,109


235,122

Intangible assets, net


150,728


159,672


168,616


177,560


186,529

Investments


34,237


32,787


31,015


29,591


29,485

Noncurrent deferred income tax assets


9,839


10,183


6,293


6,560


6,127

Other assets


5,878


5,798


5,520


6,129


6,755



$ 1,410,434


$ 1,449,451


$ 1,424,087


$ 1,448,240


$ 1,474,842























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











Accounts payable


$ 27,825


$ 35,796


$ 50,736


$ 52,011


$ 72,652

Accrued compensation, benefits and related taxes


20,832


26,278


28,778


25,913


20,696

Accrued warranty


3,300


2,931


2,945


3,504


3,539

Deferred revenue


47,166


43,019


31,625


36,029


44,913

Current portion of long-term debt


-


-


-


12


50

Other accrued liabilities


17,805


17,594


18,847


25,891


24,476

Total current liabilities


116,928


125,618


132,931


143,360


166,326

Long-term debt, net of current portion


208,336


205,447


202,615


204,053


212,914

Accrued pension


17,730


17,472


17,213


17,383


17,058

Noncurrent income taxes payable


21,845


21,844


17,702


16,509


16,523

Noncurrent deferred income tax liabilities


24,808


25,827


29,151


32,193


28,705

Other noncurrent liabilities


17,367


18,271


15,406


14,926


15,704

Total liabilities


407,014


414,479


415,018


428,424


457,230












Stockholders' equity:











Preferred stock


-


-


-


-


-

Common stock


1,443


1,438


1,409


1,406


1,405

Capital in excess of par value


1,228,729


1,219,615


1,206,157


1,199,184


1,194,829

Treasury stock at cost


(202,933)


(145,286)


(145,286)


(115,248)


(99,645)

Unrealized gain (loss) on marketable securities


1,530


1,244


392


(374)


217

Unfunded pension liability


(5,813)


(5,813)


(5,813)


(6,041)


(6,041)

Accumulated deficit


(19,352)


(36,042)


(47,606)


(58,927)


(72,969)

Cumulative translation adjustments


(184)


(184)


(184)


(184)


(184)

Total stockholders' equity


1,003,420


1,034,972


1,009,069


1,019,816


1,017,612



$ 1,410,434


$ 1,449,451


$ 1,424,087


$ 1,448,240


$ 1,474,842

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



For the Three Months


For the Six Months


Ended June 30,


Ended June 30,


2011


2010


2011


2010









Net sales

$ 265,799


$ 280,355


$ 533,235


$ 547,052

Cost of sales

158,901


167,077


329,391


321,263

Gross margin

106,898


113,278


203,844


225,789

Operating expenses:








Selling, general, and administrative expenses

35,868


34,458


72,706


69,576

Research and development expenses

36,629


35,538


72,669


69,903

Restructuring charges

-


21


-


73

Amortization of intangible assets

8,944


9,022


17,888


18,043


81,441


79,039


163,263


157,595

Operating income

25,457


34,239


40,581


68,194

Other expense (income):








Interest expense

4,180


4,765


8,405


9,195

(Gain) loss on investments

(334)


114


(757)


(31)

Loss on foreign currency

79


457


967


189

Interest income

(886)


(696)


(1,664)


(1,070)

Gain on debt redemption

-


(115)


-


(115)

Other (income) expense, net

(419)


(131)


(532)


(173)

Income from continuing operations before income taxes

22,837


29,845


34,162


60,199

Income tax expense

6,147


10,071


5,908


21,434

Net income

$ 16,690


$ 19,774


$ 28,254


$ 38,765









Net income per common share:








Basic

$ 0.14


$ 0.16


$ 0.23


$ 0.31

Diluted

$ 0.13


$ 0.15


$ 0.23


$ 0.30









Weighted average common shares:








Basic

121,800


126,584


122,047


126,277

Diluted

123,711


129,717


124,720


129,848

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)






For the Three Months


For the Six Months






Ended June 30,


Ended June 30,






2011


2010


2011


2010













Operating Activities:










Net income


$ 16,690


$ 19,774


$ 28,254


$ 38,765



Depreciation


5,813


5,697


11,668


11,056



Amortization of intangible assets


8,944


9,022


17,888


18,043



Amortization of deferred finance fees


163


177


326


357



Non-cash interest expense


2,889


2,884


5,721


5,767



Deferred income tax provision (benefit)


(3,559)


2,154


(11,403)


(2,341)



Stock compensation expense


5,925


5,752


11,209


10,273



Provision for doubtful accounts


-


(3)


-


292



Gain on debt retirement


-


(115)


-


(115)



Loss on disposal of fixed assets


(1)


21


33


32



Loss (gain) on investments


(334)


115


(757)


(31)



Excess tax benefits from stock-based compensation plans


453


(161)


(3,247)


(2,647)


Changes in operating assets & liabilities, net of effects of

acquisitions and disposals:











Accounts receivable


(2,460)


(463)


(26,503)


3,743



Other receivables


5,583


(3,590)


6,117


(1,170)



Inventory


(7,233)


1,077


(11,257)


17,021



Income taxes payable/recoverable


10,321


(12,175)


12,591


(3,008)



Accounts payable and accrued liabilities


(8,432)


5,312


(15,480)


(19,623)



Other, net


(3,382)


(281)


2,649


6,993




Net cash provided by operating activities


31,380


35,197


27,809


83,407













Investing Activities:










Purchases of investments


(43,480)


(188,650)


(142,841)


(231,086)


Disposals of investments


73,482


53,054


179,431


55,154


Purchases of property & equipment, net


(6,296)


(5,611)


(12,547)


(10,265)


Cash proceeds from sale of property & equipment


1


3


43


243




Net cash provided by (used in) investing activities


23,707


(141,204)


24,086


(185,954)













Financing Activities:










Payment of debt obligations


-


(37)


-


(74)


Early redemption of long-term debt


-


(4,800)


-


(4,800)


Repurchase of common stock


(57,647)


(20,626)


(57,647)


(23,685)


Excess income tax benefits from stock-based compensation plans


(453)


161


3,247


2,647


Repurchase of shares to satisfy employee tax withholdings


-


(432)


(8,245)


(6,425)


Fees and proceeds from issuance of common stock, net


4,547


2,629


17,910


5,251




Net cash used in financing activities


(53,553)


(23,105)


(44,735)


(27,086)
















Net increase (decrease) in cash and cash equivalents


1,534


(129,112)


7,160


(129,633)

Cash and cash equivalents at beginning of period


362,747


500,044


357,121


500,565

Cash and cash equivalents at end of period


$ 364,281


$ 370,932


$ 364,281


$ 370,932

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION

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




Q1 2011


Q2 2011


First Half 2011





Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Net income

$ 11,564


$ 0.09


$ 16,690


$ 0.13


$ 28,254


$ 0.23















Highlighted items:













Impacting gross margin:













Stock compensation expense

437


-


557


-


994


0.01















Impacting operating expenses:













Amortization of intangible assets

8,944


0.07


8,944


0.07


17,888


0.14


Stock compensation expense

4,847


0.04


5,368


0.04


10,215


0.08















Impacting other (income) / expense:













Non-cash interest expense

2,832


0.02


2,889


0.02


5,721


0.05















Impacting income tax expense:













Adjustments of income tax valuation allowances,

research & development credits and other

(3,583)


(0.03)


-


-


(3,583)


(0.03)















Tax related to highlighted items above

(5,024)


(0.04)


(4,915)


(0.04)


(9,939)


(0.08)















Total highlighted items

8,453


0.07


12,843


0.10


21,296


0.17


Net income excluding highlighted items

$ 20,017


$ 0.16


$ 29,533


$ 0.24


$ 49,550


$ 0.40















Weighted average common shares - diluted



125,732




123,711




124,720










































Q1 2010


Q2 2010


First Half 2010





Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Net income

$ 18,991


$ 0.15


$ 19,774


$ 0.15


$ 38,765


$ 0.30















Highlighted items:













Impacting gross margin:













Stock compensation expense

433


-


481


-


914


0.01















Impacting operating expenses:













Acquisition costs, restructuring and other

52


-


21


-


73


-


Amortization of intangible assets

9,022


0.07


9,022


0.07


18,044


0.14


Stock compensation expense

4,088


0.03


5,272


0.04


9,360


0.08















Impacting other (income) / expense:













Non-cash interest expense

2,883


0.02


2,884


0.02


5,767


0.05


Gain on retirement of debt

-


-


(115)


-


(115)


-















Impacting income tax expense:













Adjustments of income tax valuation allowances,

research & development credits and other

1,222


0.01


(351)


-


871


0.01















Tax related to highlighted items above

(5,505)


(0.04)


(6,170)


(0.05)


(11,675)


(0.09)















Total highlighted items

12,195


0.09


11,044


0.09


23,239


0.18


Net income excluding highlighted items

$ 31,186


$ 0.24


$ 30,818


$ 0.24


$ 62,004


$ 0.48















Weighted average common shares - diluted



129,975




129,717




129,848














With respect to stock compensation expense, ARRIS records non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, this non-cash compensation expense may vary significantly. With respect to amortization of intangibles, the intangibles being amortized relate to our acquisitions. The acquisition costs, restructuring, and other reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides investors with a greater ability to project ARRIS' future performance. With respect to the convertible debt non-cash interest, ARRIS records non-cash interest expense related to the 2013 convertible debt. Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash. In the first quarter of 2011 and in the first and second quarters of 2010, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits.

In assessing operating performance and preparing budgets and forecasts, ARRIS' management considers performance after making these adjustments and believes that providing investors with the same information provides greater transparency and insight into management's analysis.

SOURCE ARRIS Group, Inc.