EX-99.1 2 g20941exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
         
FOR IMMEDIATE RELEASE
  Contact:   Jim Bauer
 
      Investor Relations
 
      (678) 473-2647
 
      jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
THIRD QUARTER 2009 RESULTS
Suwanee, Ga. (October 26, 2009) ARRIS Group, Inc. (NASDAQ:ARRS), a global technology leader in the development of advanced cable telephony, next generation high-speed data, demand driven video solutions, operations software and broadband access equipment, today announced preliminary and unaudited financial results for the third quarter 2009.
Revenues in the third quarter 2009 were $275.8 million, compared to second quarter 2009 revenues of $278.5 million and third quarter 2008 revenues of $297.6 million. Through the first nine months of 2009 and 2008, revenues were $807.8 million and $852.2 million, respectively.
Adjusted net income (a non-GAAP measure) for the third quarter 2009 was $0.25 per diluted share, compared to $0.27 per diluted share for the second quarter 2009 and $0.24 per diluted share for the third quarter of 2008. Year to date, adjusted net income was $0.69 per diluted share for 2009 as compared to $0.52 per diluted share in 2008. The increased profitability primarily reflects higher gross margins.
GAAP net income for the third quarter 2009 was $0.17 per diluted share, as compared to the second quarter 2009 of $0.18 per diluted share, and the third quarter 2008 of $0.18 per diluted share. Year to date, GAAP net income was $0.45 per diluted share for 2009 as compared to $0.27 per diluted share for 2008. Significant GAAP items in the third quarter 2009 that have been excluded in computing adjusted net income and earnings per shares include: amortization of intangibles, equity compensation expense, restructuring and acquisition-related costs, and non-cash interest related to convertible debt. 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 in the third quarter 2009 was 41.9%, which compares to the second quarter 2009 of 42.1% and the third quarter 2008 of 35.7%. The year over year improvement primarily reflects continued strong CMTS sales.
The Company ended the third quarter 2009 with $577 million of cash resources, which includes $562 million of cash and short-term investments, and $15 million of long-term marketable security investments, up in the aggregate by

 

 

approximately $53 million from the end of the second quarter 2009 as a result of both strong earnings and lower working capital. The Company generated $63 million of cash from operating activities in the third quarter 2009 and $171 million through the first nine months of 2009, which compares to $46 million and $87 million in the same periods in 2008. Order backlog at the end of the third quarter 2009 was $170 million and the Company’s book to bill ratio in the third quarter was 1.01. These amounts compare to order backlog of $166 million and book to bill ratio of 1.04 in the second quarter of 2009.
“The ARRIS team continues to deliver products and services that our customers worldwide need in order to grow, meet the competition and enhance the subscriber experience,” said Bob Stanzione, ARRIS Chairman & CEO. “Rapid increases in internet TV traffic are altering the home video experience and creating demand for the ARRIS high speed data platform. We have taken key steps to grow our current business to include a strong video product suite in order to capitalize on today’s vision of a converged voice, data and video platform.”
During the quarter the Company announced the purchase of substantially all of the assets of Digeo, Inc., which provides products and a rich patent portfolio for video networking and multi-media services platforms as well the purchase of EGT, Inc. which provides video processing technologies that complement the Company’s VOD, ad insertion and switched digital video product offerings. Also during the quarter, the Company announced that two new customers, Bresnan Communications and Kabel Nord, had selected the market leading ARRIS C-4 CMTS product for deployment in their operation areas. International sales represent a growing portion of ARRIS revenues with Cablevison Mexico the third largest customer in the quarter and three Japanese and Canadian customers ranked in the top twenty customers.
“Our third quarter 2009 results reflect continuing strong market acceptance of ARRIS products,” said David Potts, ARRIS EVP & CFO. “Once again, our strong gross margins and cash generation demonstrate the financial strength of our Company. With respect to the fourth quarter 2009, we project that revenues for the Company will be in the range of $265 to $285 million, with adjusted net income per diluted share in the range of $0.22 to $0.26 and GAAP net income per diluted share, in the range of $0.13 to $0.17.”
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Monday, October 26, 2009, to discuss these results in detail. You may participate in this conference call by dialing 888-679-8033 or 617-213-4846 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference passcode 82209148 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 5:00pm EDT conference call. A replay of the conference call can be accessed approximately two hours after the call through

 

 

Friday, October 30, 2009 by dialing 888-286-8010 or 617-801-6888 for international calls and using the passcode 23090362. 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 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; 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;
 
  •   fourth quarter and 2009 revenues and net income;
 
  •   expected sales levels and acceptance of new ARRIS products;
 
  •   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 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;
 
  •   our customers operate in a capital intensive consumer based industry, and the current disruptions in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that we offer; 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 June 30, 2009. 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)
                                         
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2009     2009     2009     2008     2008  
 
                                        
ASSETS
                                        
 
                                        
Current assets:
                                        
Cash and cash equivalents
   $ 461,795     $ 476,846     $ 398,938     $ 409,894     $ 305,987  
Short-term investments, at fair value
     99,917       47,195       25,494       17,371       23,571  
 
                              
 
     561,712       524,041       424,432       427,265       329,558  
 
                                        
Restricted cash
     4,473       4,552       4,550       5,673       5,768  
Accounts receivable, net
     119,125       128,482       155,792       159,443       180,367  
Other receivables
     2,235       5,904       6,636       4,749       5,180  
Inventories, net
     100,024       115,944       120,774       129,752       139,598  
Prepaids
     10,764       7,700       6,994       8,004       5,156  
Income taxes recoverable
     4,212       366       3,232       362       1,896  
Current deferred income tax assets
     32,883       41,166       49,027       44,004       42,714  
Other current assets
     12,981       11,995       15,083       19,420       20,236  
 
                              
Total current assets
     848,409       840,150       786,520       798,672       730,473  
 
                                        
Property, plant and equipment, net
     58,339       60,048       59,438       59,204       60,268  
Goodwill
     234,416       231,684       231,684       231,684       449,418  
Intangible assets, net
     201,351       208,822       218,085       227,348       236,689  
Investments
     30,574       10,317       14,593       14,681       15,086  
Noncurrent deferred income tax assets
     3,593       3,870       3,771       12,157       3,988  
Other assets
     7,648       6,251       5,483       6,576       7,173  
 
                              
 
   $ 1,384,330     $ 1,361,142     $ 1,319,574     $ 1,350,322     $ 1,503,095  
 
                              
 
                                        
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                        
 
                                        
Current liabilities:
                                        
Accounts payable
   $ 42,659     $ 48,859     $ 44,422     $ 75,863     $ 54,304  
Accrued compensation, benefits and related taxes
     27,054       20,753       15,583       27,024       21,831  
Accrued warranty
     5,292       5,185       5,306       5,652       6,354  
Deferred revenue
     35,423       43,727       44,006       44,461       35,986  
Current portion of long-term debt
     148       148       147       146       234  
Current deferred income tax liability
     250       248       241       1,059       —  
Other accrued liabilities
     34,979       35,852       31,922       25,410       30,205  
 
                              
Total current liabilities
     145,805       154,772       141,627       179,615       148,914  
Long-term debt, net of current portion
     208,433       205,710       203,080       211,870       209,340  
Accrued pension
     18,914       19,665       19,289       18,820       10,622  
Noncurrent income tax payable
     10,632       12,386       12,441       9,607       10,128  
Noncurrent deferred income tax liability
     35,188       33,999       42,530       41,598       67,403  
Other noncurrent liabilities
     15,301       15,094       14,391       15,343       18,088  
 
                              
Total liabilities
     434,273       441,626       433,358       476,853       464,495  
 
                                        
Stockholders’ equity:
                                        
Preferred stock
     —       —       —       —       —  
Common stock
     1,385       1,379       1,368       1,362       1,360  
Capital in excess of par value
     1,177,958       1,169,223       1,159,054       1,159,097       1,155,211  
Treasury stock at cost
     (75,960 )     (75,960 )     (75,960 )     (75,960 )     (75,960 )
Unrealized loss on marketable securities
     (60 )     (161 )     (372 )     (274 )     (128 )
Unfunded pension liability
     (8,070 )     (8,070 )     (8,070 )     (8,070 )     (3,358 )
Accumulated deficit
     (145,012 )     (166,711 )     (189,620 )     (202,502 )     (38,341 )
Cumulative translation adjustments
     (184 )     (184 )     (184 )     (184 )     (184 )
 
                              
Total stockholders’ equity
     950,057       919,516       886,216       873,469       1,038,600  
 
                              
 
   $ 1,384,330     $ 1,361,142     $ 1,319,574     $ 1,350,322     $ 1,503,095  
 
                              

 

 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                                 
    For the Three Months     For the Nine Months  
    Ended September 30,     Ended September 30,  
    2009     2008     2009     2008  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Net sales
   $ 275,772     $ 297,551     $ 807,811     $ 852,167  
Cost of sales
     160,299       191,417       479,548       567,901  
 
                        
Gross margin
     115,473       106,134       328,263       284,266  
Gross margin %
     41.9 %     35.7 %     40.6 %     33.4 %
 
                                
Operating expenses:
                                
Selling, general, and administrative expenses
     36,311       33,012       110,782       107,040  
Research and development expenses
     30,909       27,473       89,447       83,257  
Restructuring charges
     73       202       785       782  
Amortization of intangible assets
     9,281       9,146       27,807       34,854  
 
                        
 
     76,574       69,833       228,821       225,933  
 
                        
Operating income
     38,899       36,301       99,442       58,333  
Other expense (income):
                                
Interest expense
     4,356       4,360       13,121       12,672  
Loss (gain) on investments
     (238 )     37       (453 )     210  
Loss (gain) on foreign currency
     1,114       382       3,642       (258 )
Interest income
     (424 )     (1,504 )     (1,172 )     (5,891 )
Gain on debt retirement
     —       —       (4,152 )     —  
Other income, net
     (263 )     (72 )     (887 )     (43 )
 
                        
Income from continuing operations before income taxes
     34,354       33,098       89,343       51,643  
Income tax expense
     12,655       10,664       31,853       17,551  
 
                        
Net income
   $ 21,699     $ 22,434     $ 57,490     $ 34,092  
 
                        
 
                                
Net income per common share
                                
Basic
   $ 0.17     $ 0.18     $ 0.46     $ 0.27  
 
                        
Diluted
   $ 0.17     $ 0.18     $ 0.45     $ 0.27  
 
                        
 
                                
Weighted average common shares:
                                
Basic
     125,326       122,922       124,381       125,466  
 
                        
Diluted
     129,695       125,420       127,916       127,249  
 
                        

 

 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                 
    For the Three Months     For the Nine Months  
    Ended September 30,     Ended September 30,  
    2009     2008     2009     2008  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
 
                                
Operating Activities:
                                
Net income
   $ 21,699     $ 22,434     $ 57,490     $ 34,092  
Depreciation
     5,408       5,426       15,370       15,521  
Amortization of intangible assets
     9,281       9,146       27,807       34,854  
Stock compensation expense
     4,260       2,895       11,714       8,286  
Deferred income tax provision
     9,751       3,856       13,678       2,863  
Amortization of deferred finance fees
     180       190       548       571  
Provision for doubtful accounts
     11       151       1       365  
Loss (gain) on investments
     (238 )     37       (453 )     210  
Gain on disposal of fixed assets
     (76 )     (13 )     (46 )     (15 )
Non-cash interest expense
     2,772       2,710       8,308       7,972  
Gain on debt retirement
     —       —       (4,152 )     —  
Excess tax benefits from stock-based compensation plans
     (1,471 )     (24 )     (2,027 )     (24 )
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
                                
Accounts receivable
     9,830       (1,819 )     40,801       (12,103 )
Other receivables
     2,359       736       539       (4,001 )
Inventory
     16,641       5,182       30,449       (6,028 )
Income taxes payable/recoverable
     (4,800 )     4,972       (2,868 )     (657 )
Accounts payable and accrued liabilities
     (9,757 )     (10,567 )     (32,620 )     9,743  
Other, net
     (2,800 )     285       6,665       (5,117 )
 
                        
Net cash provided by operating activities
     63,050       45,597       171,204       86,532  
 
                                
Investing Activities:
                                
Purchases of property, plant, and equipment
     (3,459 )     (4,652 )     (14,327 )     (16,444 )
Cash paid for acquisition, net of cash acquired
     (7,930 )     (5,647 )     (8,130 )     (10,066 )
Cash proceeds from sale of property, plant & equipment
     207       13       208       250  
Purchases of investments
     (93,079 )     (70,111 )     (151,845 )     (86,998 )
Disposals of investments
     20,479       50,006       54,416       122,486  
 
                        
Net cash provided by (used in) investing activities
     (83,782 )     (30,391 )     (119,678 )     9,228  
 
                                
Financing Activities:
                                
Payment of debt and capital lease obligations
     (49 )     (322 )     (10,677 )     (35,518 )
Repurchase of common stock
     —       —       —       (75,960 )
Excess tax benefits from stock-based compensation plans
     1,471       24       2,027       24  
Repurchase of shares to satisfy minimum tax withholdings
     —       —       (2,180 )     (1,035 )
Fees and proceeds from issuance of common stock, net
     4,259       813       11,205       (1,081 )
 
                        
Net cash provided by (used in) financing activities
     5,681       515       375       (113,570 )
Net increase (decrease) in cash and cash equivalents
     (15,051 )     15,721       51,901       (17,810 )
Cash and cash equivalents at beginning of period
     476,846       290,266       409,894       323,797  
 
                        
Cash and cash equivalents at end of period
   $ 461,795     $ 305,987     $ 461,795     $ 305,987  
 
                        

 

 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
                                                                 
    Q1 2009     Q2 2009     Q3 2009     Sept YTD 2009  
            Per Diluted             Per Diluted             Per Diluted             Per Diluted  
    Amount     Share     Amount     Share     Amount     Share     Amount     Share  
Net income (loss)
   $ 12,882     $ 0.10     $ 22,909     $ 0.18     $ 21,699     $ 0.17     $ 57,490       0.45  
 
                                                                
Highlighted items:
                                                                
Impacting gross margin:
                                                                
Stock compensation expense
     303       —       366       —       394       —       1,063       0.01  
 
                                                                
Impacting operating expenses:
                                                                
Acquisition costs, restructuring, and other
     120       —       592       —       348       —       1,060       0.01  
Amortization of intangible assets
     9,263       0.07       9,263       0.07       9,281       0.07       27,807       0.22  
Stock compensation expense
     3,098       0.02       3,687       0.03       3,866       0.03       10,651       0.08  
 
                                                                
Impacting other (income) / expense:
                                                                
Non-cash interest expense
     2,818       0.02       2,718       0.02       2,772       0.02       8,308       0.06  
Gain on repurchase of debt
     (4,152 )     (0.03 )     —       —       —               (4,152 )     (0.03 )
 
                                                                
Impacting income tax expense:
                                                                
 
                                                                
Adjustments of income tax valuation allowances and research & development credits and other
     1,455       0.01       —       —       (166 )     —       1,289       0.01  
Tax related to highlighted items above
     (3,646 )     (0.03 )     (5,322 )     (0.04 )     (6,218 )     (0.05 )     (15,186 )     (0.12 )
 
                                                                
 
                                                
Total highlighted items
     9,259       0.07       11,304       0.09       10,277       0.08       30,840       0.24  
 
                                                
 
                                                                
Net income excluding highlighted items
   $ 22,141     $ 0.18     $ 34,213     $ 0.27     $ 31,976     $ 0.25     $ 88,330     $ 0.69  
 
                                                
Weighted average common shares — diluted
             124,920               128,054               129,695               127,916  
 
                                                        
                                                                 
    Q1 2008     Q2 2008     Q3 2008     Sept YTD 2008  
            Per Diluted             Per Diluted             Per Diluted             Per Diluted  
    Amount     Share     Amount     Share     Amount     Share     Amount     Share  
Net income (loss)
   $ 3,829     $ 0.03     $ 7,829     $ 0.06     $ 22,434     $ 0.18     $ 34,092     $ 0.27  
 
                                                                
Highlighted items:
                                                                
Impacting gross margin:
                                                                
Stock compensation expense
     201       —       245       —       264       —       710       0.01  
 
                                                                
Impacting operating expenses:
                                                                
Integration costs
     427       —       —       —       —       —       427       —  
Restructuring charges
     405       —       175       —       202       —       782       0.01  
Amortization of intangible assets
     13,254       0.10       12,454       0.10       9,146       0.07       34,854       0.27  
Stock compensation expense
     2,350       0.02       2,595       0.02       2,631       0.02       7,576       0.06  
 
                                                                
Impacting other (income) / expense:
                                                                
Non-cash interest expense
     2,605       0.02       2,657       0.02       2,710       0.02       7,972       0.06  
 
                                                                
Impacting income tax expense:
                                                                
Adjustments of tax related to goodwill impairment and certain provision to return adjustments
     —       —       —       —       (1,530 )     (0.01 )     (1,530 )     (0.01 )
 
                                                                
Tax related to highlighted items above
     (7,268 )     (0.06 )     (6,726 )     (0.05 )     (5,164 )     (0.04 )     (19,158 )     (0.15 )
 
                                                
Total highlighted items
     11,974       0.09       11,400       0.09       8,259       0.07       31,633       0.25  
 
                                                
Net income excluding highlighted items
   $ 15,803     $ 0.12     $ 19,229     $ 0.15     $ 30,693     $ 0.24     $ 65,725     $ 0.52  
 
                                                
 
                                                                
Weighted average common shares — diluted
             131,981               124,651               125,420               127,249  
 
                                                        
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 recent acquisition of C-COR. 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 as a result of the adoption of FSP ABP 14-1 on January 1, 2009. Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash. During the first quarter of 2009, ARRIS repurchased a portion of their convertible debt and recognized a gain of approximately $4.2 million. In the first and third quarter of 2009, a tax expense of approximately $1.3 million was recorded for state valuation allowances, research and development tax credits and provision to return differences resulting from filing of the 2008 tax return. 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 GROUP, INC.
Net Income Reconciliation (unaudited)
Q4 EPS 2009 Guidance
         
Estimated GAAP EPS — diluted
   $ 0.13 - $0.17  
Reconciling Items:
        
Amortization of intangibles, after tax*
     0.05  
Stock compensation expense, after tax
     0.02  
Non-cash interest expense, after tax
     0.01  
Acquisition, restructuring and other, after tax
     0.01  
 
      
Subtotal
     0.09  
 
      
Estimated adjusted (non-GAAP) EPS — diluted
   $ 0.22 - $0.26  
 
      
 
*   Does not include the amortization for the Digeo intangibles as the valuation has not been completed.
See the Supplemental Net Income Reconciliation for a discussion regarding management’s reasoning for providing this adjusted financial measure