EX-99.1 2 g23097exv99w1.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
FIRST QUARTER 2010 RESULTS
Suwanee, Ga. (April 27, 2010) 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 first quarter 2010.
Revenues in the first quarter 2010 were $266.7 million, up 5.2% as compared to first quarter 2009 revenues of $253.5 million, but down 11.1% as compared to fourth quarter 2009 revenues of $300.0 million.
Adjusted net income (a non-GAAP measure) for the first quarter 2010 was $0.24 per diluted share, compared to $0.18 per diluted share for the first quarter 2009 and $0.32 per diluted share for the fourth quarter of 2009.
GAAP net income for the first quarter 2010 was $0.15 per diluted share, as compared to first quarter 2009 GAAP net income of $0.10 per diluted share and the fourth quarter 2009 GAAP net income of $0.26 per diluted share. Significant GAAP items that have been excluded in computing adjusted net income and adjusted earnings per 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 first quarter 2010 was 42.2%, which compares to the first quarter 2009 gross margin of 37.7% and the fourth quarter 2009 gross margin of 44.8%.
The Company ended the first quarter 2010 with $661.1 million of cash resources (cash and short-term investments), up in the aggregate by approximately $236.6 million from the end of the first quarter 2009 and up $35.5 million from the end of the fourth quarter 2009, as a result of both strong earnings and effective working capital management. The Company generated $48.2 million of cash from operating activities during the first quarter 2010, which compares to $13.8 million in the first quarter 2009 and $69.8 million in the fourth quarter 2009. Order backlog at the end of the first quarter 2010 was $195.1 million as compared to $155.0 million and $144.4 million at the end of the first quarter 2009 and the fourth quarter 2009, respectively. The Company’s book-to-bill ratio in the first quarter 2010 was 1.19 as compared to the first quarter 2009 of 1.16 and the fourth quarter 2009 of 0.92.

 

 

“The first quarter results and in particular, customer diversification, cause me to continue be optimistic about full year 2010,” said Bob Stanzione, ARRIS Chairman & CEO. “Increasing amounts of data and Internet TV traffic, and the proliferation of Internet ready HD televisions coupled with the industry trends towards converged platforms for voice, data and video, present opportunity and demand for existing and new ARRIS products.” During the quarter the Company hosted a well-attended analyst and investor conference at its corporate headquarters in Suwanee, GA. Slides from this conference may be found on the ARRIS website and provide the content from all presentations. Also during the quarter, at the Korean Cable Show, the Company demonstrated its C4 CMTS broadband access capabilities that deliver data speeds in excess of 320 Mb/s downstream and 100 Mb/s upstream.
“We started 2010 as expected, and look forward to increasing business momentum as the year unfolds,” said David Potts, ARRIS EVP & CFO. “As a result, we now project that second quarter 2010 revenues for the Company will be in the range of $275 to $295 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 $0.14 to $0.18.”
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Tuesday, April 27, 2010, to discuss these results in detail. You may participate in this conference call by dialing 888-680-0893 or 617-213-4859 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 72619457 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 Saturday, May 1, 2010 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 17182291. 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, 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;
 
  •   second quarter and 2010 revenues and net income;
 
  •   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 as well as the general outlook for 2010 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management’s control;
 
  •   ARRIS’ customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that the Company offers; and
 
  •   because the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.
In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the uncertain current economic climate and its impact on our customers’ plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; and consolidations within the telecommunications industry of both the customer and supplier base. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company’s business. Additional information regarding these and other factors can be found in ARRIS’ reports filed with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 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)
                                         
    March 31,     December 31,     September 30,     June 30,     March 31,  
    2010     2009     2009     2009     2009  
ASSETS
                                        
Current assets:
                                        
Cash and cash equivalents
   $ 500,044     $ 500,565     $ 461,795     $ 476,846     $ 398,938  
Short-term investments, at fair value
     161,012       125,031       99,917       47,195       25,494  
 
                              
 
     661,056       625,596       561,712       524,041       424,432  
 
                                        
Restricted cash
     4,476       4,475       4,473       4,552       4,550  
Accounts receivable, net
     139,207       143,708       119,125       128,482       155,792  
Other receivables
     3,057       6,113       2,235       5,904       6,636  
Inventories, net
     79,907       95,851       100,024       115,944       120,774  
Prepaids
     10,546       11,675       10,764       7,700       6,994  
Income taxes recoverable
     —       3,106       4,212       366       3,232  
Current deferred income tax assets
     37,324       35,994       32,883       41,166       49,027  
Other current assets
     14,328       15,790       12,981       11,995       15,083  
 
                              
Total current assets
     949,901       942,308       848,409       840,150       786,520  
 
                                        
Property, plant and equipment, net
     56,223       57,195       58,339       60,048       59,438  
Goodwill
     235,256       235,388       234,416       231,684       231,684  
Intangible assets, net
     195,551       204,572       201,351       208,822       218,085  
Investments
     25,435       20,618       30,574       10,317       14,593  
Noncurrent deferred income tax assets
     6,298       6,759       3,593       3,870       3,771  
Other assets
     8,050       8,776       7,648       6,251       5,483  
 
                              
 
   $ 1,476,714     $ 1,475,616     $ 1,384,330     $ 1,361,142     $ 1,319,574  
 
                              
 
                                        
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                        
Current liabilities:
                                        
Accounts payable
   $ 44,523     $ 53,979     $ 42,659     $ 48,859     $ 44,422  
Accrued compensation, benefits and related taxes
     23,639       36,936       27,054       20,753       15,583  
Accrued warranty
     3,632       4,265       5,292       5,185       5,306  
Deferred revenue
     53,024       47,044       35,423       43,727       44,006  
Current portion of long-term debt
     87       124       148       148       147  
Current deferred income tax liability
     —       —       250       248       241  
Other accrued liabilities
     42,978       46,203       34,979       35,852       31,922  
 
                              
Total current liabilities
     167,883       188,551       145,805       154,772       141,627  
Long-term debt, net of current portion
     214,131       211,248       208,433       205,710       203,080  
Accrued pension
     16,733       16,408       18,914       19,665       19,289  
Noncurrent income tax payable
     16,248       14,815       10,632       12,386       12,441  
Noncurrent deferred income tax liability
     33,577       37,203       35,188       33,999       42,530  
Other noncurrent liabilities
     16,871       16,021       15,301       15,094       14,391  
 
                              
Total liabilities
     465,443       484,246       434,273       441,626       433,358  
 
                                        
Stockholders’ equity:
                                        
Preferred stock
     —       —       —       —       —  
Common stock
     1,402       1,388       1,385       1,379       1,368  
Capital in excess of par value
     1,187,854       1,183,872       1,177,958       1,169,223       1,159,054  
Treasury stock at cost
     (79,019 )     (75,960 )     (75,960 )     (75,960 )     (75,960 )
Unrealized gain (loss) on marketable securities
     2       28       (60 )     (161 )     (372 )
Unfunded pension liability
     (6,041 )     (6,041 )     (8,070 )     (8,070 )     (8,070 )
Accumulated deficit
     (92,743 )     (111,733 )     (145,012 )     (166,711 )     (189,620 )
Cumulative translation adjustments
     (184 )     (184 )     (184 )     (184 )     (184 )
 
                              
Total stockholders’ equity
     1,011,271       991,370       950,057       919,516       886,216  
 
                              
 
   $ 1,476,714     $ 1,475,616     $ 1,384,330     $ 1,361,142     $ 1,319,574  
 
                              
 
                              
     

 

 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                 
    For the Three Months  
    Ended March 31,  
    2010     2009  
    (unaudited)     (unaudited)  
Net sales
   $ 266,697     $ 253,518  
Cost of sales
     154,186       158,008  
 
            
Gross margin
     112,511       95,510  
Gross margin %
     42.2 %     37.7 %
 
                
Operating expenses:
                
Selling, general, and administrative expenses
     35,117       35,342  
Research and development expenses
     34,365       28,395  
Restructuring charges
     52       120  
Amortization of intangible assets
     9,022       9,263  
 
            
 
     78,556       73,120  
 
            
Operating income
     33,955       22,390  
Other expense (income):
                
Interest expense
     4,430       4,487  
Loss (gain) on investments
     (146 )     297  
Loss (gain) on foreign currency
     (268 )     959  
Interest income
     (374 )     (385 )
Gain on debt retirement
     —       (4,152 )
Other (income) expense, net
     (42 )     (103 )
 
            
Income from continuing operations before income taxes
     30,355       21,287  
Income tax expense
     11,364       8,404  
 
            
Net income
   $ 18,991     $ 12,883  
 
            
 
                
Net income per common share
                
Basic
   $ 0.15     $ 0.10  
 
            
Diluted
   $ 0.15     $ 0.10  
 
            
 
                
Weighted average common shares:
                
Basic
     126,013       123,281  
 
            
Diluted
     129,975       124,920  
 
            
 
   

 

 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                 
    For the Three Months  
    Ended March 31,  
    2010     2009  
    (unaudited)     (unaudited)  
Operating Activities:
                
Net income
   $ 18,991     $ 12,882  
Depreciation
     5,359       4,827  
Amortization of intangible assets
     9,021       9,263  
Stock compensation expense
     4,521       3,401  
Deferred income tax provision
     (4,495 )     4,689  
Amortization of deferred finance fees
     180       189  
Provision for doubtful accounts
     295       6  
Loss (gain) on investments
     (146 )     297  
Loss on disposal of fixed assets
     11       —  
Non-cash interest expense
     2,883       2,818  
Gain on debt retirement
     —       (4,152 )
Excess income tax benefits from stock-based compensation plans
     (2,486 )     (431 )
Changes in operating assets & liabilities, net of effects of acquisitions and disposals:
                
Accounts receivable
     4,206       3,645  
Other receivables
     2,420       (2,032 )
Inventory
     15,944       8,978  
Income taxes payable/recoverable
     9,167       (1,123 )
Accounts payable and accrued liabilities
     (24,935 )     (35,616 )
Other, net
     7,274       6,204  
 
            
Net cash provided by operating activities
     48,210       13,845  
 
                
Investing Activities:
                
Purchases of property, plant, and equipment
     (4,654 )     (5,066 )
Cash paid for acquisition, net of cash acquired
     —       (200 )
Cash proceeds from sale of property, plant & equipment
     240       —  
Purchases of short-term investments
     (42,436 )     (23,870 )
Disposals of short-term investments
     2,100       15,806  
 
            
Net cash used in investing activities
     (44,750 )     (13,330 )
 
                
Financing Activities:
                
Payment of debt and capital lease obligations
     (37 )     (10,592 )
Repurchase of common stock
     (3,059 )     —  
Excess income tax benefits from stock-based compensation plans
     2,486       431  
Repurchase of shares to satisfy employee tax withholdings
     (5,993 )     (1,807 )
Proceeds from issuance of common stock
     2,622       497  
 
            
Net cash used in financing activities
     (3,981 )     (11,471 )
Net increase in cash and cash equivalents
     (521 )     (10,956 )
Cash and cash equivalents at beginning of period
     500,565       409,894  
 
            
Cash and cash equivalents at end of period
   $ 500,044     $ 398,938  
 
            
 
     

 

 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME (LOSS) RECONCILIATION
(in thousands, except per share data)
(unaudited)
                                 
    Q1 2010   Q1 2009
            Per Diluted             Per Diluted  
    Amount     Share     Amount     Share  
Net income
   $ 18,991     $ 0.15     $ 12,882     $ 0.10  
Highlighted items:
                                
Impacting gross margin:
                                
Stock compensation expense
     433       —       303       —  
 
                                
Impacting operating expenses:
                                
Acquisition costs, restructuring and other
     52       —       120       —  
Amortization of intangible assets
     9,022       0.07       9,263       0.07  
Stock compensation expense
     4,088       0.03       3,098       0.02  
 
                                
Impacting other (income) / expense:
                                
Non-cash interest expense
     2,883       0.02       2,818       0.02  
Gain on repurchase of debt
     —       —       (4,152 )     (0.03 )
Impacting income tax expense:
                                
Adjustments of income tax valuation allowances and research & development credits and other
     1,222       0.01       1,455       0.01  
Tax related to highlighted items above
     (5,505 )     (0.04 )     (3,646 )     (0.03 )
Total highlighted items
     12,195       0.09       9,259       0.07  
 
                        
Net income excluding highlighted items
   $ 31,186     $ 0.24     $ 22,141     $ 0.18  
 
                        
 
                                
Weighted average common shares — diluted
             129,975               124,920  
 
                            
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 quarters of 2010 and 2009, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits. During the first quarter of 2009, ARRIS repurchased a portion of their convertible debt and recognized a gain of approximately $4.2 million.
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)
Q2 2010 EPS Guidance
         
Estimated GAAP EPS — diluted
 $0.14 - $0.18
Reconciling Items:
   0.05  
Amortization of intangibles, after tax
  0.02  
Stock compensation expense, after tax
   0.01    
Non-cash interest expense, after tax Subtotal
   0.08    
Estimated adjusted (non-GAAP) EPS — diluted
 $0.22 - $0.26    
See the Supplemental Net Income (Loss) Reconciliation for a discussion regarding these adjustments and management’s reasoning for providing this adjusted financial measure

5

 

ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS
                 
    Q1 2010   Q1 2009
(in thousands)   (unaudited)   (unaudited)
 
Operating Income as reported
   $ 33,955     $ 22,390  
Operating Income as a % of sales
     12.7 %     8.8 %
Highligted Items:
                
Stock compensation expense
     4,521       3,401  
Acquisition costs, restructuring and other
     52       120  
Amortization of intangible assets
     9,022       9,263  
     
Operating Income excluding highlighted items
     47,550       35,174  
Operating Income excluding highlighted items as a % of sales
     17.8 %     13.9 %