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ARRIS Announces Preliminary and Unaudited Second Quarter 2010 Results
Jul 28, 2010 (04:07 PM EDT)


SUWANEE, Ga., July 28 /PRNewswire-FirstCall/ -- 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 second quarter 2010.

Revenues in the second quarter 2010 were $280.4 million, up approximately $1.9 million as compared to second quarter 2009 revenues of $278.5 million, and up $13.7 million as compared to first quarter 2010 revenues of $266.7 million.  Through the first half of 2010 and 2009, revenues were $547.1 million and $532.0 million, respectively.

Adjusted net income (a non-GAAP measure) in the second quarter 2010 was $0.24 per diluted share, compared to $0.27 per diluted share for the second quarter 2009 and $0.24 per diluted share for the first quarter of 2010.  Year to date, adjusted net income was $0.48 per diluted share for 2010 as compared to $0.45 per diluted share in 2009.

GAAP net income in the second quarter 2010 was $0.15 per diluted share, as compared to second quarter 2009 GAAP net income of $0.18 per diluted share and the first quarter 2010 GAAP net income of $0.15 per diluted share. Year to date, GAAP net income was $0.30 per diluted share in 2010 as compared to GAAP net income of $0.28 per diluted share in 2009.  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 2010 was 40.4%, which compares to the second quarter 2009 gross margin of 42.1% and the first quarter 2010 gross margin of 42.2%.  

The Company ended the second quarter 2010 with $663.4 million of cash, cash equivalents and short-term investments, up in the aggregate by approximately $139.3 million from the end of the second quarter 2009 and up $2.3 million from the end of the first quarter 2010. The Company generated $35.2 million of cash from operating activities during the second quarter 2010 and $83.4 million through the first six months of 2010, which compares to $94.3 million and $108.2 million during the same periods in 2009, respectively.

Order backlog at the end of the second quarter 2010 was $174.1 million as compared to $165.7 million and $195.1 million at the end of the second quarter 2009 and the first quarter 2010, respectively.  The Company's book-to-bill ratio in the second quarter 2010 was 0.92 as compared to the second quarter 2009 of 1.04 and the first quarter 2010 of 1.19.

"The second quarter closed in line with our expectations and I continue to believe that we are well positioned for long-term growth," said Bob Stanzione, ARRIS Chairman & CEO.  "I am particularly encouraged by our progress related to future products that will enable hybrid and full IP video architectures that our customers are now exploring.  Also of note is that during the second quarter 2010, we repurchased approximately 1.9 million shares of ARRIS common stock for $20.6 million and repurchased $5.0 million (face value) of Convertible Notes for $4.8 million."

During the quarter the Company displayed its leading edge products at the National Cable show in Los Angles.  A highlight of the show was the ARRIS IP Video Architecture, which accelerates the introduction and deployment of an open, scalable, converged IP Video service offering over cable that is both capital and operational expense efficient.  

"Looking forward, we now project that third quarter 2010 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 $0.16 to $0.20 and GAAP net income per diluted share, in the range of $0.07 to $0.11," said David Potts, ARRIS EVP & CFO.  "We are projecting accelerating DOCSIS 3.0 EMTA deployments.  At the same time we anticipate some change in mix, in particular a modest decline in our CMTS revenue."

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, July 28, 2010, to discuss these results in detail.  You may participate in this conference call by dialing 888-679-8035 or 617-213-4848 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 73491299 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 Wednesday, August 4, 2010 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 47814593.  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;
  • third 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 third 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-Q for the quarter ended March 31, 2010.  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,



2010


2010


2009


2009


2009












ASSETS






















Current assets:











Cash and cash equivalents


$    370,932


$    500,044


$        500,565


$          461,795


$    476,846

Short-term investments, at fair value


292,421


161,012


125,031


99,917


47,195



663,353


661,056


625,596


561,712


524,041












Restricted cash


4,478


4,476


4,475


4,473


4,552

Accounts receivable, net


139,673


139,207


143,708


119,125


128,482

Other receivables


6,368


3,057


6,113


2,235


5,904

Inventories, net


78,830


79,907


95,851


100,024


115,944

Prepaids


10,196


10,546


11,675


10,764


7,700

Current deferred income tax assets


30,469


37,324


35,994


32,883


41,166

Other current assets


21,329


14,328


18,896


17,193


12,361

Total current assets


954,696


949,901


942,308


848,409


840,150












Property, plant and equipment, net


56,128


56,223


57,195


58,339


60,048

Goodwill


235,122


235,256


235,388


234,416


231,684

Intangible assets, net


186,529


195,551


204,572


201,351


208,822

Investments


29,485


25,435


20,618


30,574


10,317

Noncurrent deferred income tax assets


6,127


6,298


6,759


3,593


3,870

Other assets


6,755


8,050


8,776


7,648


6,251



$ 1,474,842


$ 1,476,714


$     1,475,616


$       1,384,330


$ 1,361,142























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











Accounts payable


$      72,652


$      44,523


$          53,979


$            42,659


$      48,859

Accrued compensation, benefits and related taxes


20,696


23,639


36,936


27,054


20,753

Accrued warranty


3,539


3,632


4,265


5,292


5,185

Deferred revenue


44,913


53,024


47,044


35,423


43,727

Current portion of long-term debt


50


87


124


148


148

Current deferred income tax liability


-


-


-


250


248

Other accrued liabilities


24,476


42,978


46,203


34,979


35,852

Total current liabilities


166,326


167,883


188,551


145,805


154,772

Long-term debt, net of current portion


212,914


214,131


211,248


208,433


205,710

Accrued pension


17,058


16,733


16,408


18,914


19,665

Noncurrent income taxes payable


16,523


16,248


14,815


10,632


12,386

Noncurrent deferred income tax liability


28,705


33,577


37,204


35,188


33,999

Other noncurrent liabilities


15,704


16,871


16,021


15,301


15,094

Total liabilities


457,230


465,443


484,247


434,273


441,626












Stockholders' equity:











Preferred stock


-


-


-


-


-

Common stock


1,405


1,402


1,388


1,385


1,379

Capital in excess of par value


1,194,829


1,187,854


1,183,872


1,177,958


1,169,223

Treasury stock at cost


(99,645)


(79,019)


(75,960)


(75,960)


(75,960)

Unrealized gain (loss) on marketable securities


217


2


28


(60)


(161)

Unfunded pension liability


(6,041)


(6,041)


(6,041)


(8,070)


(8,070)

Accumulated deficit


(72,969)


(92,743)


(111,734)


(145,012)


(166,711)

Cumulative translation adjustments


(184)


(184)


(184)


(184)


(184)

Total stockholders' equity


1,017,612


1,011,271


991,369


950,057


919,516



$ 1,474,842


$ 1,476,714


$     1,475,616


$       1,384,330


$ 1,361,142















ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)


















For the Three Months


For the Six Months


Ended June 30,


Ended June 30,


2010


2009


2010


2009


(unaudited)


(unaudited)


(unaudited)


(unaudited)









Net sales

$    280,355


$    278,521


$    547,052


$    532,039

Cost of sales

167,077


161,241


321,263


319,249

Gross margin

113,278


117,280


225,789


212,790









Operating expenses:








Selling, general, and administrative expenses

34,458


39,128


69,576


74,471

Research and development expenses

35,538


30,143


69,903


58,538

Restructuring charges

21


592


73


712

Amortization of intangible assets

9,022


9,263


18,043


18,526


79,039


79,126


157,595


152,247

Operating income

34,239


38,154


68,194


60,543

Other expense (income):








Interest expense

4,765


4,278


9,195


8,765

Loss (gain) on investments

114


(512)


(31)


(215)

Loss on foreign currency

457


1,570


189


2,528

Interest income

(696)


(363)


(1,070)


(748)

Gain on debt retirement

(115)


-


(115)


(4,152)

Other (income) expense, net

(131)


(522)


(173)


(624)

Income from continuing operations before income taxes

29,845


33,703


60,199


54,989

Income tax expense

10,071


10,794


21,434


19,198

Net income

$      19,774


$      22,909


$      38,765


$      35,791









Net income per common share








Basic

$          0.16


$          0.18


$          0.31


$          0.29

Diluted

$          0.15


$          0.18


$          0.30


$          0.28









Weighted average common shares:








Basic

126,584


124,412


126,277


123,849

Diluted

130,690


128,054


130,334


126,482



ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


















For the Three Months


For the Six Months






Ended June 30,


Ended June 30,






2010


2009


2010


2009






(unaudited)


(unaudited)


(unaudited)


(unaudited)













Operating Activities:










Net income


$        19,774


$      22,909


$     38,765


$      35,791



Depreciation


5,697


5,135


11,056


9,962



Amortization of intangible assets


9,022


9,263


18,043


18,526



Stock compensation expense


5,752


4,053


10,273


7,454



Deferred income tax provision (benefit)


2,154


(762)


(2,341)


3,927



Amortization of deferred finance fees


177


179


357


368



Provision for doubtful accounts


(3)


(16)


292


(10)



Loss (gain) on investments


115


(512)


(31)


(215)



Loss on disposal of fixed assets


21


30


32


30



Non-cash interest expense


2,884


2,718


5,767


5,536



Gain on debt retirement


(115)


-


(115)


(4,152)



Excess income tax benefits from stock-based compensation plans


(161)


(125)


(2,647)


(556)


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











Accounts receivable


(463)


27,326


3,743


30,971



Other receivables


(3,590)


212


(1,170)


(1,820)



Inventory


1,077


4,830


17,021


13,808



Income taxes payable/recoverable


(12,175)


3,055


(3,008)


1,932



Accounts payable and accrued liabilities


5,312


13,300


(19,623)


(22,316)



Other, net


(266)


2,714


7,008


8,918




Net cash provided by operating activities


35,212


94,309


83,422


108,154













Investing Activities:










Purchases of property, plant, and equipment


(5,626)


(5,802)


(10,280)


(10,868)


Cash paid for acquisition, net of cash acquired


-


-


-


(200)


Cash proceeds from sale of property, plant & equipment


3


1


243


1


Purchases of short-term investments


(188,650)


(34,896)


(231,086)


(58,766)


Disposals of short-term investments


53,054


18,131


55,154


33,937




Net cash provided used in investing activities


(141,219)


(22,566)


(185,969)


(35,896)













Financing Activities:










Payment of debt obligations


(37)


(36)


(74)


(72)


Early redemption of long-term debt


(4,800)


-


(4,800)


(10,556)


Repurchase of common stock


(20,626)


-


(23,685)


-


Excess income tax benefits from stock-based compensation plans


161


125


2,647


556


Repurchase of shares to satisfy employee tax withholdings


(432)


(373)


(6,425)


(2,180)


Proceeds from issuance of common stock


2,629


6,449


5,251


6,946




Net cash provided by (used in) financing activities


(23,105)


6,165


(27,086)


(5,306)
















Net increase (decrease) in cash and cash equivalents


(129,112)


77,908


(129,633)


66,952

Cash and cash equivalents at beginning of period


500,044


398,938


500,565


409,894

Cash and cash equivalents at end of period


$     370,932


$    476,846


$     370,932


$    476,846



ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)





























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


0.07















Impacting other (income) / expense:













Non-cash interest expense

2,883


0.02


2,884


0.02


5,767


0.04


Gain on debt retirement

-


-


(115)


-


(115)


-















Impacting income tax expense:


























Adjustments of income tax valuation allowances and 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


0.08


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




130,690




130,334










































Q1 2009


Q2 2009


First Half 2009





Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Net income

$ 12,882


$         0.10


$ 22,909


$         0.18


$ 35,791


0.28















Highlighted items:













Impacting gross margin:













Stock compensation expense

303


-


366


-


669


0.01















Impacting operating expenses:













Acquisition costs, restructuring and other

120


-


592


-


712


0.01


Amortization of intangible assets

9,263


0.07


9,263


0.07


18,526


0.15


Stock compensation expense

3,098


0.02


3,687


0.03


6,785


0.05















Impacting other (income) / expense:













Non-cash interest expense

2,818


0.02


2,718


0.02


5,536


0.04


Gain on debt retirement

(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


-


-


1,455


0.01


Tax related to highlighted items above

(3,646)


(0.03)


(5,322)


(0.04)


(8,968)


(0.07)















Total highlighted items

9,259


0.07


11,304


0.09


20,563


0.16


Net income excluding highlighted items

$ 22,141


$         0.18


$ 34,213


$         0.27


$ 56,354


$         0.45















Weighted average common shares - diluted



124,920




128,054




126,482















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 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.  In the first and second quarters of 2010 and in the first quarter of 2009, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits.  During the first quarter of 2009, and second quarter of 2010  ARRIS repurchased a portion of their convertible debt and recognized a gain of approximately $4.2 million and $0.1 million, respectively.  


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)
Q3 2010 EPS Guidance





Estimated GAAP EPS - diluted

$0.07 - $0.11

Reconciling Items:


   Amortization of intangibles, after tax

0.05

   Stock compensation expense, after tax

0.03

Non-cash interest expense, after tax

0.01

   Subtotal

0.09

Estimated adjusted (non-GAAP) EPS - diluted

$0.16 - $0.20


See the Preliminary Supplemental Net Income Reconciliation for a discussion regarding these adjustments and management's reasoning for providing this adjusted financial measure.



ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL OPERATING INCOME RECONCILIATIONS
(unaudited)
(in thousands)













Q1 2010

Q2 2010

First Half 2010



(unaudited)

(unaudited)

(unaudited)






Operating Income as reported


$      33,955

$      34,239

$          68,194

Operating Income as a % of sales


13%

12%

12%

Highlighted Items:





Stock compensation expense


4,521

5,753

10,274

Acquisition costs, restructuring and other


52

21

73

Amortization of intangible assets


9,022

9,022

18,044

Operating Income excluding highlighted items


47,550

49,035

96,585

Operating Income excluding highlighted items as a % of sales


18%

17%

18%













Q1 2009

Q2 2009

First Half 2009



(unaudited)

(unaudited)

(unaudited)






Operating Income as reported


$      22,389

$      38,154

$          60,543

Operating Income as a % of sales


9%

14%

11%

Highlighted Items:





Stock compensation expense


3,401

4,053

7,454

Acquisition costs, restructuring and other


120

592

712

Amortization of intangible assets


9,263

9,263

18,526

Operating Income excluding highlighted items


35,173

52,062

87,235

Operating Income excluding highlighted items as a % of sales


14%

19%

16%






See the Preliminary Supplemental Net Income Reconciliation for a discussion regarding these adjustments and management's reasoning for providing this adjusted financial measure.



SOURCE ARRIS Group, Inc.