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Press release from PR Newswire

ARRIS Announces Preliminary and Unaudited Second Quarter 2011 Results

Wednesday, July 27, 2011

ARRIS Announces Preliminary and Unaudited Second Quarter 2011 Results16:00 EDT Wednesday, July 27, 2011SUWANEE, Ga., July 27, 2011 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the second quarter 2011.Revenues in the second quarter 2011 were $265.8 million as compared to second quarter 2010 revenues of $280.4 million and as compared to first quarter 2011 revenues of $267.4 million.  Through the first half of 2011 and 2010, revenues were $533.2 million and $547.1 million, respectively.Adjusted net income (a non-GAAP measure) in the second quarter 2011 was $0.24 per diluted share, compared to $0.24 per diluted share for the second quarter 2010 and $0.16 per diluted share for the first quarter 2011.  Year to date, adjusted net income was $0.40 per diluted share for 2011 as compared to $0.48 per diluted share in 2010.GAAP net income in the second quarter 2011 was $0.13 per diluted share, as compared to second quarter 2010 GAAP net income of $0.15 per diluted share and first quarter 2011 GAAP net income of $0.09 per diluted share. Year to date, GAAP net income was $0.23 per diluted share in 2011 as compared to GAAP net income of $0.30 per diluted share in 2010.  Significant GAAP items that have been excluded in computing adjusted net income and adjusted net income per diluted share include amortization of intangible assets, equity compensation, non-cash interest expense, restructuring charges, and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per share is attached to this release and also can be found on the Company's website (www.arrisi.com). Gross margin for the second quarter 2011 was 40.2%, which compares to the second quarter 2010 gross margin of 40.4% and the first quarter 2011 gross margin of 36.3%.The Company ended the second quarter 2011 with $591.5 million of cash, cash equivalents and short-term investments, down in the aggregate by approximately $71.9 million from the end of the second quarter 2010, and down $28.1 million from the end of the first quarter 2011. During the second quarter 2011, the Company repurchased approximately 5.1 million shares of ARRIS common stock for $57.6 million.  The Company generated $31.4 million of cash from operating activities during the second quarter 2011 and $27.8 through the first six months of 2011, which compares to $35.2 million and $83.4 generated during the same periods in 2010.Order backlog at the end of the second quarter 2011 was $154.2 million as compared to $174.1 million and $177.5 million at the end of the second quarter 2010 and the first quarter 2011, respectively. The Company's book-to-bill ratio in the second quarter 2011 was 0.91 as compared to the second quarter 2010 of 0.92 and the first quarter 2011 of 1.14."I am pleased with our second quarter financial results," said Bob Stanzione, ARRIS Chairman & CEO. "I am particularly gratified by the high level of customer acceptance of our new higher density C4 CMTS line cards and software upgrades and the increasing interest and demand for our Home Media Gateway. The strong level of interest and traction with these and other new ARRIS products bodes well for the remainder of 2011."During the quarter the Company announced that Shaw Communications Inc., Canada's largest television provider with over 3.4 million subscribers, launched the ARRIS Whole Home Solution in its Calgary system, to be followed by a nationwide launch in its other markets. Marketed as the Shaw Gateway experience, the platform will initially feature the solution's multi-room Personal Video Recorder (PVR) functionality -- consisting of a six-tuner, multi-room HD PVR with 500 GB storage; customized, intuitive User Interface; 4 port Ethernet home networking router; MOCA® 1.1+ home networking technology; and  802.11n capabilities.  "With respect to the third quarter 2011, we now project that revenues for the Company will be in the range of $270 to $290 million, with adjusted net income per diluted share in the range of $0.19 to $0.23 and GAAP net income per diluted share in the range of $0.09 to $0.13," said David Potts, ARRIS EVP & CFO.  "Our guidance reflects the continued rollout of our new C4 CMTS line card capacity upgrade as well as the new Home Gateway."ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, July 27, 2011, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4214 or 617-213-4866 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 59411438 and Jim Bauer as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the conference call. A replay of the conference call can be accessed approximately two hours after the call through August 3, 2011 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 42579746. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com.About ARRISARRIS is a global communications technology company specializing in the design, engineering and supply of technology supporting triple- and quad-play broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver converged IP video solutions, carrier-grade telephony, demand driven video, next-generation advertising, network and workforce management solutions, access and transport architectures and ultra high-speed data services. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; Wallingford, CT; Waltham, MA; Cork, Ireland; and Shenzhen, China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at www.arrisi.com.Forward-looking statements: Statements made in this press release, including those related to:growth expectations and business prospects;revenues and net income for the third quarter 2011, full year 2011 and beyond;expected sales levels and acceptance of new ARRIS products; andthe general market outlook and industry trendsare forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements.  Among other things, projected results for the third quarter 2011 as well as the general outlook for 2011 and beyond are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control;ARRIS' customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness  to purchase the products that the Company offers; andbecause the market in which ARRIS operates is volatile, actions taken and contemplated may not achieve the desired impact relative to changing market conditions and the success of these strategies will be dependent on the effective implementation of those plans while minimizing organizational disruption.In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the uncertain current economic climate and its impact on our customers' plans and access to capital; the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of ARRIS to react to changes in general industry and market conditions including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; possible acquisitions and dispositions; and consolidations within the telecommunications industry of both the customer and supplier base.  These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company's business. Additional information regarding these and other factors can be found in ARRIS' reports filed with the Securities and Exchange Commission, including its March 31, 2011 Form 10-Q.  In providing forward-looking statements, the Company expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise.ARRIS GROUP, INC.PRELIMINARY CONSOLIDATED BALANCE SHEETS(in thousands)(unaudited)June 30,March 31,December 31,September 30,June 30,20112011201020102010ASSETSCurrent assets:Cash and cash equivalents$             360,281$             358,747$             353,121$             351,894$             370,932Short-term investments, at fair value231,254260,862266,981288,463292,421Total cash, cash equivalents and short term investments591,535619,609620,102640,357663,353Restricted cash3,6464,1764,9374,4804,478Accounts receivable, net152,436149,976125,933133,915139,673Other receivables 4065,2756,5282,6546,368Inventories, net113,020105,787101,76389,20378,830Prepaids10,27212,1159,2378,93410,196Current deferred income tax assets22,68120,45019,81928,58530,469Other current assets25,21633,53533,05428,34721,329Total current assets919,212950,923921,373936,475954,696Property, plant and equipment, net 57,10056,61756,30656,81656,128Goodwill233,440233,471234,964235,109235,122Intangible assets, net150,728159,672168,616177,560186,529Investments34,23732,78731,01529,59129,485Noncurrent deferred income tax assets9,83910,1836,2936,5606,127Other assets5,8785,7985,5206,1296,755$          1,410,434$          1,449,451$          1,424,087$          1,448,240$          1,474,842LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable$               27,825$               35,796$               50,736$               52,011$               72,652Accrued compensation, benefits and related taxes20,83226,27828,77825,91320,696Accrued warranty3,3002,9312,9453,5043,539Deferred revenue47,16643,01931,62536,02944,913Current portion of long-term debt---1250Other accrued liabilities17,80517,59418,84725,89124,476Total current liabilities116,928125,618132,931143,360166,326Long-term debt, net of current portion208,336205,447202,615204,053212,914Accrued pension17,73017,47217,21317,38317,058Noncurrent income taxes payable21,84521,84417,70216,50916,523Noncurrent deferred income tax liabilities24,80825,82729,15132,19328,705Other noncurrent liabilities17,36718,27115,40614,92615,704Total liabilities407,014414,479415,018428,424457,230Stockholders' equity:Preferred stock-----Common stock1,4431,4381,4091,4061,405Capital in excess of par value1,228,7291,219,6151,206,1571,199,1841,194,829Treasury stock at cost(202,933)(145,286)(145,286)(115,248)(99,645)Unrealized gain (loss) on marketable securities1,5301,244392(374)217Unfunded pension liability(5,813)(5,813)(5,813)(6,041)(6,041)Accumulated deficit(19,352)(36,042)(47,606)(58,927)(72,969)Cumulative translation adjustments(184)(184)(184)(184)(184)Total stockholders' equity1,003,4201,034,9721,009,0691,019,8161,017,612$          1,410,434$          1,449,451$          1,424,087$          1,448,240$          1,474,842ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(unaudited)For the Three MonthsFor the Six MonthsEnded June 30,Ended June 30,2011 2010 2011 2010 Net sales$       265,799$        280,355$       533,235$       547,052Cost of sales158,901167,077329,391321,263Gross margin106,898113,278203,844225,789Operating expenses:Selling, general, and administrative expenses35,86834,45872,70669,576Research and development expenses36,62935,53872,66969,903Restructuring charges-21-73Amortization of intangible assets8,9449,02217,88818,04381,44179,039163,263157,595Operating income 25,45734,23940,58168,194Other expense (income):Interest expense4,1804,7658,4059,195(Gain) loss on investments(334)114(757)(31)Loss on foreign currency79457967189Interest income(886)(696)(1,664)(1,070)Gain on debt redemption-(115)-(115)Other (income) expense, net(419)(131)(532)(173)Income from continuing operations before income taxes22,83729,84534,16260,199Income tax expense 6,14710,0715,90821,434Net income $         16,690$          19,774$         28,254$         38,765Net income per common share:Basic$             0.14$              0.16$             0.23$             0.31Diluted$             0.13$              0.15$             0.23$             0.30Weighted average common shares:Basic121,800126,584122,047126,277Diluted123,711129,717124,720129,848ARRIS GROUP, INC.PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)For the Three MonthsFor the Six MonthsEnded June 30,Ended June 30,2011 2010 2011 2010 Operating Activities:Net income$               16,690$               19,774$             28,254$               38,765Depreciation5,8135,69711,66811,056Amortization of intangible assets8,9449,02217,88818,043Amortization of deferred finance fees163177326357Non-cash interest expense2,8892,8845,7215,767Deferred income tax provision (benefit)(3,559)2,154(11,403)(2,341)Stock compensation expense5,9255,75211,20910,273Provision for doubtful accounts-(3)-292Gain on debt retirement-(115)-(115)Loss on disposal of fixed assets(1)213332Loss (gain) on investments(334)115(757)(31)Excess tax benefits from stock-based compensation plans453(161)(3,247)(2,647)Changes in operating assets & liabilities, net of effects of acquisitions and disposals:Accounts receivable(2,460)(463)(26,503)3,743Other receivables5,583(3,590)6,117(1,170)Inventory(7,233)1,077(11,257)17,021Income taxes payable/recoverable10,321(12,175)12,591(3,008)Accounts payable and accrued liabilities(8,432)5,312(15,480)(19,623)Other, net(3,382)(281)2,6496,993Net cash provided by operating activities31,38035,19727,80983,407Investing Activities:Purchases of investments(43,480)(188,650)(142,841)(231,086)Disposals of investments73,48253,054179,43155,154Purchases of property & equipment, net(6,296)(5,611)(12,547)(10,265)Cash proceeds from sale of property & equipment1343243Net cash provided by (used in) investing activities23,707(141,204)24,086(185,954)Financing Activities:Payment of debt obligations-(37)-(74)Early redemption of long-term debt-(4,800)-(4,800)Repurchase of common stock(57,647)(20,626)(57,647)(23,685)Excess income tax benefits from stock-based compensation plans(453)1613,2472,647Repurchase of shares to satisfy employee tax withholdings-(432)(8,245)(6,425)Fees and proceeds from issuance of common stock, net4,5472,62917,9105,251Net cash used in financing activities(53,553)(23,105)(44,735)(27,086)Net increase (decrease) in cash and cash equivalents1,534(129,112)7,160(129,633)Cash and cash equivalents at beginning of period362,747500,044357,121500,565Cash and cash equivalents at end of period$             364,281$             370,932$           364,281$             370,932ARRIS GROUP, INC.PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION(in thousands, except per share data) (unaudited)Q1 2011Q2 2011First Half 2011Per DilutedPer DilutedPer DilutedAmountShareAmountShareAmountShareNet income$        11,564$                 0.09$        16,690$                 0.13$       28,254$              0.23Highlighted items:Impacting gross margin:Stock compensation expense437-557-9940.01Impacting operating expenses:Amortization of intangible assets8,9440.078,9440.0717,8880.14Stock compensation expense4,8470.045,3680.0410,2150.08Impacting other (income) / expense:Non-cash interest expense2,8320.022,8890.025,7210.05Impacting income tax expense:Adjustments of income tax valuation allowances, research & development credits and other(3,583)(0.03)--(3,583)(0.03)Tax related to highlighted items above(5,024)(0.04)(4,915)(0.04)(9,939)(0.08)Total highlighted items8,4530.0712,8430.1021,2960.17Net income excluding highlighted items$        20,017$                 0.16$        29,533$                 0.24$       49,550$              0.40Weighted average common shares - diluted125,732123,711124,720Q1 2010Q2 2010First Half 2010Per DilutedPer DilutedPer DilutedAmountShareAmountShareAmountShareNet income$        18,991$                 0.15$        19,774$                 0.15$       38,765$              0.30Highlighted items:Impacting gross margin:Stock compensation expense433-481-9140.01Impacting operating expenses:Acquisition costs, restructuring and other52-21-73-Amortization of intangible assets9,0220.079,0220.0718,0440.14Stock compensation expense4,0880.035,2720.049,3600.08Impacting other (income) / expense:Non-cash interest expense2,8830.022,8840.025,7670.05Gain on retirement of debt--(115)-(115)-Impacting income tax expense:Adjustments of income tax valuation allowances, research & development credits and other1,2220.01(351)-8710.01Tax related to highlighted items above(5,505)(0.04)(6,170)(0.05)(11,675)(0.09)Total highlighted items12,1950.0911,0440.0923,2390.18Net income excluding highlighted items$        31,186$                 0.24$        30,818$                 0.24$       62,004$              0.48Weighted average common shares - diluted129,975129,717129,848With respect to stock compensation expense,  ARRIS records non-cash compensation expense related to grants of options and restricted stock.  Depending upon the size, timing and the terms of the grants, this non-cash compensation expense may vary significantly.  With respect to amortization of intangibles, the intangibles being amortized relate to our acquisitions.  The acquisition costs, restructuring, and other reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides investors with a greater ability to project ARRIS?  future performance.    With respect to the convertible debt non-cash interest, ARRIS records non-cash interest expense related to the 2013 convertible debt.  Disclosing the non-cash piece provides investors with the information regarding interest that will not be paid out in cash.  In the first quarter of 2011 and in the first and second quarters of 2010, income tax expense adjustments were recorded for state valuation allowances and research and development tax credits.  In assessing operating performance and preparing budgets and forecasts, ARRIS? management considers performance after making these adjustments and believes that providing investors with the same information provides greater transparency and insight into management?s analysis.SOURCE ARRIS Group, Inc.For further information: Jim Bauer, Investor Relations, +1-678-473-2647, jim.bauer@arrisi.com