UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 21, 2019
ARRIS INTERNATIONAL PLC
(Exact Name of Registrant as Specified in Its Charter)
England and Wales | 001-37672 | 98-1241619 | ||
(State of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
3871 Lakefield Drive Suwanee, Georgia |
30024 | |||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (678) 473-2000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act or Rule 12b-2 of the Exchange Act.
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. | Results of Operations and Financial Condition. |
On February 21, 2019, ARRIS International plc issued a press release regarding preliminary and unaudited financial results for the quarter and year ended December 31, 2018. The press release is furnished herewith as Exhibit 99.1 and is incorporated by reference.
Item 9.01. | Financial Statements and Exhibits. |
99.1 | Press Release dated February 21, 2019 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ARRIS INTERNATIONAL PLC | ||
By: | /s/ Patrick W. Macken | |
Patrick W. Macken | ||
Senior Vice President, General Counsel, and Secretary |
Date: February 21, 2019
Exhibit 99.1
ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2018 Results
SUWANEE, Ga., February 21, 2019 – ARRIS (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the fourth quarter and full year 2018.
“We had a strong finish to 2018 generating $0.76 of non-GAAP earnings per share and $229 million of cash from operating activities in the fourth quarter,” said Bruce McClelland ARRIS CEO. “Led by strength in our Network and Cloud business, sales of our E6000 CCAP product were particularly strong with several customers increasing year end capital spend. CPE sales were higher than any other quarter over the last year, exceeding $1 billion. Enterprise sales were disappointing with sales of Ruckus products below expectations in North America, due to higher channel inventory. Looking forward, we anticipate 2019 to be a stronger year than 2018, with the first quarter expected to be the lowest quarter of the year. We are on track to transition the majority of Broadband CPE production out of China by early second quarter to address US import tariffs, resulting in reduced sales in the first quarter. Additionally, we expect lower sales of Network and Cloud in Q1 due to strong end of year shipments, and flat Enterprise sales as channel inventory normalizes.”
Revenues were $1.787 billion in the quarter and $6.743 billon for full year 2018.
GAAP net income in the quarter was $0.25 per diluted share and $0.62 per diluted share year to date through December 31, 2018.
Adjusted net income (a non-GAAP measure) in the quarter was $0.76 per diluted share and $2.89 per diluted share for full year 2018.
A reconciliation of adjusted net income per diluted share to GAAP net income per diluted share is attached to this release and can be found on the Company’s website (www.ARRIS.com).
Cash & Cash Equivalents - The Company generated $229 million of cash from operating activities during the fourth quarter 2018 and ended the year with $735 million of cash resources.
Further details are attached to this release and full results will be filed in our 10K.
Forward-Looking Statements
Statements made in this press release, including those related to preliminary revenues and net income for the fourth quarter and full year 2018, 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 2018 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; |
· | satisfaction of conditions for the completion of the proposed acquisition of ARRIS by CommScope Holding Company, Inc. (the “Acquisition”), including receipt of remaining required regulatory approvals, may be delayed or may not be satisfied at all; |
· | delays in moving certain manufacturing from China or difficulties in commencing production in new locations as planned could materially impact revenues; |
· | volatility in component pricing and supply could impact revenues and gross margins more than currently anticipated; |
· | any increase in tariffs enacted on imports from China or an expansion of the products covered, could have a material adverse impact on our financial results; |
· | volatility in currency fluctuation may adversely impact our international customers’ ability or willingness to purchase products and the pricing of products; |
· | impacts of the U.K. invoking Article 50 of the Lisbon Treaty to leave the European Union, could have an adverse impact on results of operations; |
· | regulatory changes, including those related to recently completed changes to the U.S. income tax code, could have an adverse impact on operations and results of operations; |
· | the impact of litigation and similar regulatory proceedings that we are involved in or may become involved in, including the costs of such litigation; and |
· | the Company’s 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 the Company offers. |
These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company's business and results from operations. 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-Q for the quarter ended September 30, 2018. In providing forward-looking statements, the Company expressly disclaims any obligation to update these statements publicly or otherwise, whether as a result of new information, future events or otherwise, except as required by law.
About ARRIS
ARRIS (NASDAQ: ARRS) is powering a smart, connected world. The company’s leading hardware, software and services transform the way that people and businesses stay informed, entertained and connected. For more information, visit www.ARRIS.com.
For the latest ARRIS news:
· | Check out our blog: ARRIS EVERYWHERE |
· | Follow us on Twitter: @ARRIS |
Contact:
Bob Puccini
Investor Relations
+1.720.895.7787
ARRIS, the ARRIS logo and E6000 are trademarks of ARRIS International plc and/or its affiliates. All other marks are the property of their respective owners. © 2018 ARRIS Enterprises LLC. All rights reserved.
ARRIS INTERNATIONAL
PLC
PRELIMINARY CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||
2018 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 729,933 | $ | 480,757 | $ | 501,411 | $ | 506,240 | $ | 487,573 | ||||||||||
Short-term investments, at fair value | 5,538 | 39,640 | 46,698 | 36,804 | 23,874 | |||||||||||||||
Total cash, cash equivalents and short term investments | 735,471 | 520,397 | 548,109 | 543,044 | 511,447 | |||||||||||||||
Accounts receivable, net | 1,225,975 | 1,117,641 | 1,183,360 | 1,034,608 | 1,218,089 | |||||||||||||||
Other receivables | 222,368 | 235,122 | 192,067 | 169,681 | 157,845 | |||||||||||||||
Inventories, net | 740,205 | 717,272 | 803,217 | 849,069 | 825,211 | |||||||||||||||
Prepaid income taxes | 17,391 | 17,717 | 10,406 | 26,409 | 28,351 | |||||||||||||||
Prepaids | 26,978 | 34,125 | 40,290 | 36,308 | 26,644 | |||||||||||||||
Other current assets | 144,251 | 201,111 | 196,014 | 172,993 | 145,953 | |||||||||||||||
Total current assets | 3,112,639 | 2,843,385 | 2,973,463 | 2,832,112 | 2,913,540 | |||||||||||||||
Property, plant and equipment, net | 287,671 | 289,820 | 299,991 | 309,457 | 372,467 | |||||||||||||||
Goodwill | 2,240,642 | 2,261,002 | 2,259,177 | 2,336,820 | 2,278,512 | |||||||||||||||
Intangible assets, net | 1,403,659 | 1,488,580 | 1,580,393 | 1,583,299 | 1,771,362 | |||||||||||||||
Investments | 45,295 | 71,747 | 69,902 | 69,858 | 71,082 | |||||||||||||||
Deferred income taxes | 175,405 | 155,193 | 146,443 | 131,417 | 115,436 | |||||||||||||||
Other assets | 62,558 | 76,878 | 72,155 | 103,525 | 101,858 | |||||||||||||||
$ | 7,327,869 | $ | 7,186,605 | $ | 7,401,524 | $ | 7,366,488 | $ | 7,624,257 | |||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 1,288,827 | $ | 1,100,901 | $ | 1,125,619 | $ | 1,010,812 | $ | 1,206,656 | ||||||||||
Accrued compensation, benefits and related taxes | 141,565 | 146,964 | 140,387 | 113,029 | 155,966 | |||||||||||||||
Accrued warranty | 36,988 | 40,772 | 38,651 | 42,434 | 44,507 | |||||||||||||||
Deferred revenue | 111,254 | 115,989 | 123,590 | 143,740 | 115,224 | |||||||||||||||
Current portion of LT debt & financing lease obligations | 83,862 | 83,785 | 83,709 | 83,633 | 83,559 | |||||||||||||||
Income taxes payable | 2,964 | 4,182 | 2,094 | 4,937 | 6,244 | |||||||||||||||
Other accrued liabilities | 302,307 | 356,002 | 361,315 | 316,206 | 321,113 | |||||||||||||||
Total current liabilities | 1,967,767 | 1,848,595 | 1,875,365 | 1,714,791 | 1,933,269 | |||||||||||||||
Long-term debt & financing lease obligations, net of current portion | 2,032,382 | 2,053,373 | 2,074,352 | 2,095,320 | 2,116,244 | |||||||||||||||
Accrued pension | 25,303 | 32,371 | 31,889 | 43,443 | 42,637 | |||||||||||||||
Noncurrent deferred revenue | 58,744 | 58,553 | 58,233 | 56,041 | 54,090 | |||||||||||||||
Noncurrent income taxes | 119,047 | 112,259 | 120,988 | 159,148 | 144,665 | |||||||||||||||
Deferred income taxes | 46,784 | 60,410 | 62,886 | 68,825 | 68,888 | |||||||||||||||
Other noncurrent liabilities | 71,994 | 67,534 | 68,507 | 71,546 | 80,430 | |||||||||||||||
Total liabilities | 4,322,021 | 4,233,095 | 4,292,220 | 4,209,114 | 4,440,223 | |||||||||||||||
Stockholders' equity: | ||||||||||||||||||||
Ordinary shares | 2,623 | 2,621 | 2,722 | 2,769 | 2,768 | |||||||||||||||
Capital in excess of par value | 3,468,728 | 3,439,476 | 3,424,905 | 3,392,415 | 3,387,128 | |||||||||||||||
Accumulated other comprehensive (loss) income | (13,345 | ) | (8,655 | ) | (4,648 | ) | 12,545 | 4,552 | ||||||||||||
Accumulated deficit | (466,165 | ) | (494,706 | ) | (329,731 | ) | (266,264 | ) | (225,881 | ) | ||||||||||
Total ARRIS International plc stockholders' equity | 2,991,841 | 2,938,736 | 3,093,248 | 3,141,465 | 3,168,567 | |||||||||||||||
Stockholders' equity attributable to noncontrolling interest | 14,007 | 14,774 | 16,056 | 15,909 | 15,467 | |||||||||||||||
Total stockholders' equity | 3,005,848 | 2,953,510 | 3,109,304 | 3,157,374 | 3,184,034 | |||||||||||||||
$ | 7,327,869 | $ | 7,186,605 | $ | 7,401,524 | $ | 7,366,488 | $ | 7,624,257 |
ARRIS INTERNATIONAL
PLC
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the Three Months | For the Twelve Months | |||||||||||||||
Ended December 30, | Ended December 31, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net sales | $ | 1,787,143 | $ | 1,738,594 | $ | 6,742,640 | $ | 6,614,392 | ||||||||
Cost of sales | 1,307,910 | 1,244,124 | 4,823,781 | 4,948,153 | ||||||||||||
Gross margin | 479,233 | 494,470 | 1,918,859 | 1,666,239 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general, and administrative expenses | 169,789 | 142,403 | 667,053 | 475,369 | ||||||||||||
Research and development expenses | 150,932 | 141,442 | 644,038 | 539,094 | ||||||||||||
Amortization of intangible assets | 90,062 | 100,588 | 383,561 | 375,407 | ||||||||||||
Impairment of goodwill and intangible assets | - | 55,000 | 3,400 | 55,000 | ||||||||||||
Gain on disposal of fixed assets | (13,346 | ) | - | (13,346 | ) | - | ||||||||||
Integration, acquisition, restructuring and other costs | 13,722 | 67,734 | 55,268 | 98,357 | ||||||||||||
411,160 | 507,168 | 1,739,974 | 1,543,227 | |||||||||||||
Operating income | 68,073 | (12,699 | ) | 178,885 | 123,012 | |||||||||||
Other expense (income): | ||||||||||||||||
Interest expense | 24,945 | 23,850 | 95,086 | 87,088 | ||||||||||||
Loss on investments | 2,025 | 2,088 | 308 | 11,066 | ||||||||||||
(Gain) loss on foreign currency | (2,201 | ) | 4,188 | 3,834 | 9,757 | |||||||||||
Interest income | (3,253 | ) | (1,978 | ) | (8,341 | ) | (7,975 | ) | ||||||||
Other expense (income), net | 5,082 | (402 | ) | 5,056 | 1,873 | |||||||||||
Income income (loss) before income taxes | 41,474 | (40,443 | ) | 82,942 | 21,203 | |||||||||||
Income tax benefit | (2,238 | ) | (32,309 | ) | (24,344 | ) | (44,921 | ) | ||||||||
Consolidated net income (loss) | 43,712 | (8,136 | ) | 107,286 | 66,124 | |||||||||||
Net loss attributable to noncontrolling interests | (795 | ) | (20,604 | ) | (6,454 | ) | (25,903 | ) | ||||||||
Net income attributable to ARRIS International plc | $ | 44,507 | $ | 12,469 | $ | 113,740 | $ | 92,027 | ||||||||
Net income per ordinary share (1): | ||||||||||||||||
Basic | $ | 0.26 | $ | 0.07 | $ | 0.63 | $ | 0.49 | ||||||||
Diluted | $ | 0.25 | $ | 0.07 | $ | 0.62 | $ | 0.49 | ||||||||
Weighted average ordinary shares: | ||||||||||||||||
Basic | 173,726 | 186,548 | 180,147 | 187,133 | ||||||||||||
Diluted | 176,248 | 188,829 | 182,041 | 189,616 |
(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 December 31, | For the Twelve Months Ended December 31, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating Activities: | ||||||||||||||||
Consolidated net income (loss) | $ | 43,712 | $ | (8,134 | ) | $ | 107,286 | $ | 66,124 | |||||||
Depreciation | 18,147 | 22,855 | 83,686 | 88,195 | ||||||||||||
Amortization of acquired intangible assets | 91,938 | 102,455 | 391,074 | 382,416 | ||||||||||||
Amortization of deferred finance fees and debt discount | 1,191 | 2,339 | 4,811 | 7,960 | ||||||||||||
Impairment of goodwill and intangible assets | - | 55,000 | 3,400 | 55,000 | ||||||||||||
Deferred income taxes | (14,228 | ) | (43,041 | ) | (72,669 | ) | (74,465 | ) | ||||||||
Foreign currency remeasurement of deferred taxes | (1,007 | ) | 851 | (477 | ) | 9,360 | ||||||||||
Stock compensation expense | 22,146 | 18,706 | 85,233 | 81,557 | ||||||||||||
Provision for non-cash warrants | - | (8,145 | ) | - | - | |||||||||||
Recovery for doubtful accounts | (25 | ) | (7 | ) | (462 | ) | (566 | ) | ||||||||
(Gain) loss on sale and disposal of plant, property and equipment and other | (12,535 | ) | 1,187 | (10,774 | ) | 7,063 | ||||||||||
Loss on investments and others | 2,025 | 2,088 | 517 | 11,066 | ||||||||||||
Changes in operating assets & liabilities, net of effects of acquisitions and disposals: | ||||||||||||||||
Accounts receivable | (107,774 | ) | (129,282 | ) | (22,138 | ) | 175,930 | |||||||||
Other receivables | 12,754 | (12,187 | ) | (64,523 | ) | (84,652 | ) | |||||||||
Inventories | (22,755 | ) | (1,849 | ) | 81,815 | (224,582 | ) | |||||||||
Accounts payable and accrued liabilities | 174,745 | (82,449 | ) | 24,948 | 49,988 | |||||||||||
Prepaids and other, net | 20,428 | 1,770 | 37,275 | (16,583 | ) | |||||||||||
Net cash provided by (used in) operating activities | 228,762 | (77,843 | ) | 649,002 | 533,811 | |||||||||||
Investing Activities: | ||||||||||||||||
Purchases of investments | - | (243 | ) | (64,454 | ) | (68,493 | ) | |||||||||
Sales of investments | 33,835 | 10,000 | 79,473 | 165,301 | ||||||||||||
Proceeds from dividend declared on equity investment | 9,800 | - | 9,966 | 826 | ||||||||||||
Purchases of property, plant & equipment, net | (17,995 | ) | (15,683 | ) | (63,616 | ) | (78,072 | ) | ||||||||
Proceeds from sale of property, plant & equipment, net of deposits | 24,420 | - | 74,425 | - | ||||||||||||
Purchases of intangible assets | - | - | (423 | ) | (6,422 | ) | ||||||||||
Acquisitions, net of cash acquired | (1,152 | ) | (760,802 | ) | (1,152 | ) | (760,802 | ) | ||||||||
Other, net | 9,352 | - | 9,352 | - | ||||||||||||
Net cash provided by (used in) investing activities | 58,260 | (766,728 | ) | 43,571 | (747,662 | ) | ||||||||||
Financing Activities: | ||||||||||||||||
Proceeds from issuance of debt | - | 145,533 | - | 175,847 | ||||||||||||
Payment of financing lease obligation | (230 | ) | (187 | ) | (870 | ) | (777 | ) | ||||||||
Payment of debt obligations | (21,875 | ) | (145,033 | ) | (87,500 | ) | (244,009 | ) | ||||||||
Payment for deferred financing costs and debt discount | - | (4,499 | ) | - | (5,961 | ) | ||||||||||
Repurchase of shares | (21,457 | ) | (50,000 | ) | (353,079 | ) | (196,965 | ) | ||||||||
Repurchase of shares to satisfy employee minimum tax withholdings | (3,864 | ) | (214 | ) | (23,781 | ) | (26,573 | ) | ||||||||
Proceeds from issuance of shares, net | 10,980 | 8,846 | 20,186 | 17,469 | ||||||||||||
Contribution from noncontrolling interest | - | - | 2,257 | 3,500 | ||||||||||||
Net cash used in financing activities | (36,446 | ) | (45,554 | ) | (442,787 | ) | (277,469 | ) | ||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (3,503 | ) | (2,197 | ) | (7,520 | ) | (1,256 | ) | ||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | 247,073 | (892,322 | ) | 242,266 | (492,576 | ) | ||||||||||
Cash, cash equivalents and restricted cash at beginning of period | 484,309 | 1,381,438 | 489,116 | 981,692 | ||||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 731,382 | $ | 489,116 | $ | 731,382 | $ | 489,116 | ||||||||
Reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets | ||||||||||||||||
Cash and cash equivalent | 729,933 | 487,573 | ||||||||||||||
Restricted cash included in other current assets | 776 | 23 | ||||||||||||||
Restricted cash included in other assets | 673 | 1,520 | ||||||||||||||
Total | 731,382 | 489,116 |
ARRIS INTERNATIONAL
PLC
PRELIMINARY ADJUSTED SALES & NET INCOME RECONCILIATION
(in thousands, except per share data) (unaudited)
Q4 2017 | Q3 2018 | Q4 2018 | DEC YTD 2017 | DEC YTD 2018 | ||||||||||||||||||||||||||||||||||||
Amount | Per Diluted Share | Amount | Per Diluted Share | Amount | Per Diluted Share | Amount | Per Diluted Share | Amount | Per Diluted Share | |||||||||||||||||||||||||||||||
Sales | $ | 1,738,593 | $ | 1,651,248 | $ | 1,787,143 | $ | 6,614,392 | $ | 6,742,640 | ||||||||||||||||||||||||||||||
Highlighted items: | ||||||||||||||||||||||||||||||||||||||||
Reduction in revenue related to warrants | (8,145 | ) | - | - | - | – | ||||||||||||||||||||||||||||||||||
Acquisition accounting impacts of deferred revenue | 1,120 | 2,400 | 1,700 | 1,120 | 13,101 | |||||||||||||||||||||||||||||||||||
Adjusted sales | $ | 1,730,448 | $ | 1,653,648 | $ | 1,788,843 | $ | 6,614,392 | $ | 6,755,741 | ||||||||||||||||||||||||||||||
Net income attributable to ARRIS International plc | $ | 12,469 | $ | 0.07 | $ | 47,079 | $ | 0.26 | $ | 44,507 | $ | 0.25 | $ | 92,027 | $ | 0.49 | $ | 113,740 | $ | 0.62 | ||||||||||||||||||||
Highlighted Items: | ||||||||||||||||||||||||||||||||||||||||
Impacting gross margin: | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | 3,303 | 0.02 | 3,660 | 0.02 | 3,577 | 0.02 | 13,947 | 0.07 | 14,299 | 0.08 | ||||||||||||||||||||||||||||||
Reduction in revenue related to warrants | (8,145 | ) | (0.04 | ) | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||
Acquisition accounting impacts of deferred revenue | 1,120 | 0.01 | 2,400 | 0.01 | 1,700 | 0.01 | 1,120 | 0.01 | 13,101 | 0.07 | ||||||||||||||||||||||||||||||
Acquisition accounting impacts of fair valuing inventory | 7,560 | 0.04 | – | – | – | – | 8,468 | 0.04 | 16,971 | 0.09 | ||||||||||||||||||||||||||||||
Impacting operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Integration, acquisition, restructuring and other costs | 67,736 | 0.36 | 5,046 | 0.03 | 13,722 | 0.08 | 98,357 | 0.52 | 55,267 | 0.30 | ||||||||||||||||||||||||||||||
Amortization of intangible assets | 100,588 | 0.53 | 88,305 | 0.49 | 90,062 | 0.51 | 375,407 | 1.98 | 383,560 | 2.11 | ||||||||||||||||||||||||||||||
Impairment of goodwill and intangible assets | 55,000 | 0.29 | – | – | – | – | 55,000 | 0.29 | 3,400 | 0.02 | ||||||||||||||||||||||||||||||
Stock compensation expense | 15,403 | 0.08 | 16,668 | 0.09 | 18,569 | 0.11 | 66,711 | 0.35 | 70,934 | 0.39 | ||||||||||||||||||||||||||||||
Gain on sale of fixed assets | – | – | – | – | (13,346 | ) | (0.08 | ) | – | – | (13,346 | ) | (0.07 | ) | ||||||||||||||||||||||||||
Noncontrolling interest share of non-GAAP adj | (20,026 | ) | (0.11 | ) | (885 | ) | (0.00 | ) | (849 | ) | – | (22,352 | ) | (0.12 | ) | (4,922 | ) | (0.03 | ) | |||||||||||||||||||||
Impacting other (income)/expense: | ||||||||||||||||||||||||||||||||||||||||
Impairment on investments | – | – | – | – | – | – | 929 | – | – | – | ||||||||||||||||||||||||||||||
Debt amendment fees | 3,069 | 0.02 | – | – | – | – | 5,851 | 0.03 | – | – | ||||||||||||||||||||||||||||||
Pension settlement and curtailment | – | – | – | – | 5,665 | 0.03 | – | – | 5,665 | 0.03 | ||||||||||||||||||||||||||||||
Remeasurement of certain deferred tax liabilities | 852 | – | 519 | – | (1,017 | ) | (0.01 | ) | 9,360 | 0.05 | (477 | ) | – | |||||||||||||||||||||||||||
Impacting income tax expense: | ||||||||||||||||||||||||||||||||||||||||
Net tax items | (73,267 | ) | (0.39 | ) | (40,666 | ) | (0.23 | ) | (29,513 | ) | (0.17 | ) | (190,151 | ) | (1.00 | ) | (132,107 | ) | (0.73 | ) | ||||||||||||||||||||
Total highlighted items | 153,193 | 0.81 | 75,047 | 0.42 | 88,570 | 0.50 | 422,647 | 2.23 | 412,345 | 2.27 | ||||||||||||||||||||||||||||||
Adjusted net income | $ | 165,662 | $ | 0.88 | $ | 122,126 | $ | 0.68 | $ | 133,077 | $ | 0.76 | $ | 514,674 | $ | 2.71 | $ | 526,085 | $ | 2.89 | ||||||||||||||||||||
Weighted average ordinary shares - basic | 186,548 | 178,106 | 173,726 | 187,133 | 180,147 | |||||||||||||||||||||||||||||||||||
Weighted average ordinary shares - diluted | 188,829 | 179,337 | 176,248 | 189,616 | 182,041 |
ARRIS INTERNATIONAL
PLC
PRELIMINARY SUPPLEMENTAL GAAP TO ADJUSTED SALES & GROSS MARGIN RECONCILIATION
(in thousands)
(unaudited)
Q4 2017 | Q3 2018 | Q4 2018 | Dec YTD 2017 | Dec YTD 2018 | ||||||||||||||||
Sales - GAAP | $ | 1,738,593 | $ | 1,651,248 | $ | 1,787,143 | $ | 6,614,392 | $ | 6,742,640 | ||||||||||
Adjustment to revenue related to warrants | (8,145 | ) | - | - | - | - | ||||||||||||||
Acquisition accounting impacts of deferred revenue | 1,120 | 2,400 | 1,700 | 1,120 | 13,101 | |||||||||||||||
Adjusted Sales - Non-GAAP | $ | 1,731,568 | $ | 1,653,648 | $ | 1,788,843 | $ | 6,615,512 | $ | 6,755,741 | ||||||||||
GAAP Gross Margin | $ | 494,469 | $ | 465,189 | $ | 479,233 | $ | 1,666,239 | $ | 1,918,859 | ||||||||||
Acquisition accounting impacts of fair valuing inventory | 7,560 | - | - | 8,468 | 16,971 | |||||||||||||||
Acquisition accounting impacts of deferred revenue | 1,120 | 2,400 | 1,700 | 1,120 | 13,101 | |||||||||||||||
Stock compensation expense | 3,303 | 3,660 | 3,577 | 13,947 | 14,299 | |||||||||||||||
Adjustment to revenue related to warrants | (8,145 | ) | - | - | - | - | ||||||||||||||
Adjusted Gross Margin - Non-GAAP | $ | 498,307 | $ | 471,249 | $ | 484,510 | $ | 1,689,774 | $ | 1,963,230 | ||||||||||
GAAP Gross Margin - % | 28.4 | % | 28.2 | % | 26.8 | % | 25.2 | % | 28.5 | % | ||||||||||
Adjusted Gross Margin - Non-GAAP - % | 28.8 | % | 28.5 | % | 27.1 | % | 25.5 | % | 29.1 | % |
ARRIS INTERNATIONAL
PLC
PRELIMINARY SUPPLEMENTAL OPERATING INCOME TO ADJUSTED DIRECT CONTRIBUTION RECONCILIATION
(in thousands)
(unaudited)
Q4 2018 | Year 2018 | |||||||||||||||||||||||||||||||||||||||
Network & Cloud | CPE | Enterprise | Corp/ Other | Total | Network & Cloud | CPE | Enterprise | Corp/ Other | Total | |||||||||||||||||||||||||||||||
Sales | $ | 536,782 | $ | 1,099,068 | $ | 153,039 | $ | (1,746 | ) | $ | 1,787,143 | $ | 2,156,577 | $ | 3,923,894 | $ | 675,352 | $ | (13,183 | ) | $ | 6,742,640 | ||||||||||||||||||
Add: | ||||||||||||||||||||||||||||||||||||||||
Acquisition accounting impacts of deferred revenue | - | - | 1,700 | - | 1,700 | - | - | 13,101 | - | 13,101 | ||||||||||||||||||||||||||||||
Adjusted sales | $ | 536,782 | $ | 1,099,068 | $ | 154,739 | $ | (1,746 | ) | $ | 1,788,843 | $ | 2,156,577 | $ | 3,923,894 | $ | 688,453 | $ | (13,183 | ) | $ | 6,755,741 | ||||||||||||||||||
Operating income (loss) | $ | 191,318 | $ | 38,775 | $ | (14,980 | ) | $ | (147,040 | ) | $ | 68,073 | $ | 732,529 | $ | 50,766 | $ | (16,111 | ) | $ | (588,299 | ) | $ | 178,885 | ||||||||||||||||
Add: | ||||||||||||||||||||||||||||||||||||||||
Amortization of intangible assets | 24,707 | 46,840 | 17,697 | 818 | 90,062 | 99,316 | 207,804 | 73,176 | 3,265 | 383,561 | ||||||||||||||||||||||||||||||
Impairment of goodwill and intangible assets | - | - | - | - | - | 3,400 | - | - | - | 3,400 | ||||||||||||||||||||||||||||||
Gain on sale of fixed assets | - | (13,346 | ) | - | - | (13,346 | ) | - | (13,346 | ) | - | - | (13,346 | ) | ||||||||||||||||||||||||||
Integration, acquisition, restructuring & other costs | 3,955 | 605 | 2,254 | 6,909 | 13,723 | 13,693 | 25,286 | 7,602 | 8,687 | 55,268 | ||||||||||||||||||||||||||||||
Direct contribution (1) | 219,980 | 72,874 | 4,971 | (139,313 | ) | 158,512 | 848,938 | 270,510 | 64,667 | (576,347 | ) | 607,768 | ||||||||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||||||||||
Allocated costs (2) | (27,868 | ) | (19,099 | ) | (6,275 | ) | 53,242 | - | (114,036 | ) | (77,993 | ) | (22,917 | ) | 214,946 | - | ||||||||||||||||||||||||
Stock compensation expense | 8,150 | 5,043 | 4,057 | 4,896 | 22,146 | 32,485 | 21,566 | 14,272 | 16,910 | 85,233 | ||||||||||||||||||||||||||||||
Depreciation expense | 6,711 | 6,919 | 1,017 | 3,500 | 18,147 | 27,181 | 28,701 | 10,889 | 16,915 | 83,686 | ||||||||||||||||||||||||||||||
Adjusted direct contribution | $ | 206,973 | $ | 65,737 | $ | 3,770 | $ | (77,675 | ) | $ | 198,805 | $ | 794,568 | $ | 242,784 | $ | 66,911 | $ | (327,576 | ) | $ | 776,687 |
(1) | Defined as gross margin less direct operating expenses, excluding amortization of intangible assets, impairments, gain on sale of fixed assets, integration, acquisition, restructuring, and other costs. |
(2) | Allocated facility costs and service provider sales and marketing costs |
ARRIS INTERNATIONAL
PLC
PRELIMINARY ADJUSTED EBITDA RECONCILIATION
(in millions)
(unaudited)
Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | Year 2018 | ||||||||||||||||
Net income (loss) as reported | $ | (17 | ) | $ | 35 | $ | 46 | $ | 44 | $ | 107 | |||||||||
Income tax expense (benefit) | 3 | (10 | ) | (16 | ) | (2 | ) | (24 | ) | |||||||||||
Interest income | (2 | ) | (2 | ) | (2 | ) | (3 | ) | (8 | ) | ||||||||||
Interest expense | 23 | 24 | 24 | 25 | 95 | |||||||||||||||
Depreciation expense | 23 | 21 | 22 | 18 | 84 | |||||||||||||||
Amortization of intangible assets | 115 | 90 | 88 | 90 | 384 | |||||||||||||||
EBITDA | 145 | 158 | 162 | 171 | 637 | |||||||||||||||
Adjustments | ||||||||||||||||||||
Stock-based compensation expense | 19 | 24 | 20 | 22 | 85 | |||||||||||||||
Integration, acquisition, restructuring and other costs | 14 | 23 | 5 | 14 | 55 | |||||||||||||||
Pension settlement and curtailment | - | - | - | 6 | 6 | |||||||||||||||
Gain on disposal of fixed assets | - | - | - | (13 | ) | (13 | ) | |||||||||||||
Impairment on goodwill and intangible assets | 3 | - | - | - | 3 | |||||||||||||||
Acquisition accounting impacts of deferred revenue | 6 | 3 | 2 | 2 | 13 | |||||||||||||||
Acquisition accounting impacts of fair valuing inventory | 17 | - | - | - | 17 | |||||||||||||||
Remeasurement of deferred taxes | 4 | (4 | ) | 1 | (1 | ) | (0 | ) | ||||||||||||
Adjusted EBITDA - Non-GAAP | $ | 208 | $ | 204 | $ | 191 | $ | 200 | $ | 803 |
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:
Reduction in Revenue Related to Warrants: We entered into agreements with two customers for the issuance of warrants to purchase up to 14.0 million of ARRIS’s ordinary shares. Vesting of the warrants is subject to certain purchase volume commitments, and therefore the accounting guidance requires that we record any change in the fair value of warrants as a reduction in revenue. Until final vesting, changes in the fair value of the warrants will be marked to market and any adjustment recorded in revenue. We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total revenues and gross margin.
Acquisition Accounting Impacts Related to Deferred Revenue: In connection with the accounting related to our acquisitions, business combination rules require us to account for the fair values of deferred revenue arrangements for post contract support in our purchase accounting. The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues as if these purchase accounting adjustments had not been applied. We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business. We historically have experienced high renewal rates related to our support agreements, and our objective is to increase the renewal rates on acquired post contract support agreements. However, we cannot be certain that our customers will renew their contracts.
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 acquisitions, business combinations rules require the acquired 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 the end customer price less a reasonable margin as a distributor. We have excluded the resulting adjustments in inventory and cost of goods sold as the historic and forward gross margin trends will differ as a result of the adjustments. We believe it is useful to understand the effects of this on cost of goods sold and margin.
Integration, Acquisition, Restructuring and Other 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 measures. We incurred expenses in connection with the Pace and Ruckus Networks acquisitions, 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 expenses consist of employee severance, abandoned facilities, product line disposition and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses.
Impairment of Goodwill and Intangible Assets: We have excluded the effect of the estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and net income measures. Although an impairment does not directly impact the Company’s current cash position, such expense represents the declining value of the business, technology and other intangible assets that were acquired. We exclude these impairments when significant and they are not reflective of ongoing business and operating results.
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.
Gain on Disposal of Property, Plant & Equipment: We have excluded the effect of a gain on the sale of our manufacturing facility and certain manufacturing fixed assets in Taiwan in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this item in our other expense (income).
Noncontrolling Interest share of Non-GAAP Adjustments: The joint venture formed for the ActiveVideo acquisition is accounted for by ARRIS under the consolidation method. As a result, the consolidated Statements of Income 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 Statements of Operations. We have excluded the noncontrolling share of any non- GAAP adjusted measures recorded by the venture, as we believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.
Impairment on Investments: We have excluded the effect of other-than-temporary impairments and certain gains on investments 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 2017, the Company amended its credit agreement. This debt modification allowed us to improve the terms and conditions of the credit agreement and extend the maturities of certain loan facilities. 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).
Pension Settlement Charge and Curtailment: We have excluded the effect of the deferred actuarial gains and losses remaining in accumulated other comprehensive income related to the termination of our pension benefit plans 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).
Remeasurement of Deferred Taxes: The Company records foreign currency remeasurement gains and losses related to deferred tax liabilities in the United Kingdom. The foreign currency remeasurement gains and losses derived from the remeasurement of the deferred income taxes from GBP to USD. We have excluded the impact of these gains and losses in the calculation of our non-GAAP measures. We believe it is useful to understand the effects of this item on our total other expense (income).
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 and non-US valuation allowances, benefits for releases of uncertain tax positions due to settlement, change in law or statute of limitations and provision to return differences.