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Press release from PR Newswire

ARRIS Announces Preliminary And Unaudited Second Quarter 2012 Results

Wednesday, July 25, 2012

ARRIS Announces Preliminary And Unaudited Second Quarter 2012 Results16:00 EDT Wednesday, July 25, 2012SUWANEE, Ga., July 25, 2012 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the second quarter 2012.Revenues in the second quarter 2012 were $349.3 million as compared to second quarter 2011 revenues of $265.8 million and as compared to first quarter 2012 revenues of $302.9 million.  Through the first two quarters of 2012 and 2011, revenues were $652.2 million and $533.2 million respectively.  Adjusted net income (a non-GAAP measure) in the second quarter 2012 was $0.25 per diluted share, compared to $0.19 per diluted share for the first quarter 2012 and $0.24 per diluted share for the second quarter 2011.  Year to date, adjusted net income was $0.44 per diluted share for 2012 as compared to $0.40 per diluted share in 2011.GAAP net income in the second quarter 2012 was $0.13 per diluted share, as compared to second quarter 2011 GAAP net income of $0.13 per diluted share and first quarter 2012 GAAP net income of $0.05 per diluted share. Year to date, GAAP net income was $0.18 per diluted share in 2012 as compared to GAAP net income of $0.23 per diluted share in 2011.  Significant GAAP items that have been adjusted in computing adjusted net income and adjusted net income per diluted share include: purchase accounting impacts related to acquired deferred revenue;  amortization of intangible assets;  long-term investment impairment;  loss on the sale of a product line; equity compensation;  non-cash interest expense;  acquisition and  restructuring charges; and  certain discrete tax items. A reconciliation of adjusted net income to GAAP net income per diluted 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 2012 was 33.9%, which compares to the second quarter 2011 gross margin of 40.2% and the first quarter 2012 gross margin of 36.0%.The Company ended the second quarter 2012 with $576.3 million of cash resources, which includes $539.6 million of cash, cash equivalents and short-term investments, and $36.7 million of long-term marketable security investments, as compared to $567.2 million, in the aggregate, at the end of the first quarter 2012. During the second quarter 2012, the Company repurchased approximately 1.4 million shares of ARRIS common stock for $15.2 million.  Year to date the Company has repurchased 3.7 million shares for $41.6 million.  The Company generated $30.6 million of cash from operating activities during the second quarter 2012 and $65.9 million through the first six months of 2012, which compares to $31.4 million and $27.8 million generated during the same periods in 2011.Order backlog at the end of the second quarter 2012 was $251.9 million as compared to $154.2 million and $277.7 million at the end of the second quarter 2011 and the first quarter 2012, respectively. The Company's book-to-bill ratio in the second quarter 2012 was 0.93 as compared to the second quarter 2011 of 0.91 and the first quarter 2012 of 1.43."I am very pleased with our second quarter and first half results. Sales were up over 15% in the second quarter 2012 compared to the first quarter 2012.  On a year-to-date basis, sales were up 22% during the first half of 2012 as compared to the first half of 2011," said Bob Stanzione, ARRIS Chairman and CEO.  "These results confirm that our investments over the past few years have positioned ARRIS with a portfolio aligned extremely well with our customers' demands.  I remain very encouraged as I look to the balance of 2012."During the second quarter ARRIS announced advances to its Media Gateway product that support advanced web services and application development.  Additionally, the Company achieved a world record 4.7Gbit/s downstream throughput speed at Kabel Deutschland with  the EuroDOCSIS? 3.0-based ARRIS C4® CMTS and 12 ARRIS Touchstone® Cable Modem CM820's.  ARRIS will be hosting an Investor and Analyst Conference in New York at the NASDAQ headquarters the morning of August 8.  "Our second quarter results were strong, with sales at the upper end of our guidance and adjusted net income above guidance," said David Potts, ARRIS EVP & CFO.  "With respect to the third quarter 2012, we now project that revenues for the Company will be in the range of $348 to $368 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, reflecting strong demand, particularly for our DOCSIS 3.0 CPE products." ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, July 25, 2012, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4218 or 617-213-4870 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 75540304 and Bob Puccini 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 1, 2012 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 22051173. 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, GA, USA, ARRIS has R&D centers in Suwanee, GA; Beaverton, OR; Lisle, IL; Kirkland, WA; State College, PA; Tel Aviv, Israel; 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 2012, and beyond; 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 2012 as well as the general outlook for 2012 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, 2012.  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 30,20122012201120112011ASSETSCurrent assets:Cash and cash equivalents$       199,395$       215,808$       235,875$       354,659$       360,281Short-term investments, at fair value340,166298,539282,904220,318231,254Total cash, cash equivalents and short term investments539,561514,347518,779574,977591,535Restricted cash3,9423,9434,1013,6473,646Accounts receivable, net179,371183,427152,437165,821152,436Other receivables 1,4145,0718,7895,296406Inventories, net102,361105,114115,912116,769113,020Prepaids12,12412,43610,40810,69210,272Current deferred income tax assets21,97222,06822,04824,23922,681Other current assets16,76616,79227,07121,69525,216Total current assets877,511863,198859,545923,136919,212Property, plant and equipment, net 56,17557,81061,37557,61957,100Goodwill194,626195,267194,542233,430233,440Intangible assets, net110,000117,444124,823141,784150,728Investments70,96782,96871,09547,22134,237Noncurrent deferred income tax assets47,22842,10638,4339,6379,839Other assets10,57511,69910,9975,4005,878$     1,367,082$     1,370,492$     1,360,810$     1,418,227$     1,410,434LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable$         44,800$         54,576$         40,671$         38,918$         27,825Accrued compensation, benefits and related taxes28,16531,08136,76425,32020,832Accrued warranty2,9953,0943,3502,9333,300Deferred revenue63,02360,12943,74639,09447,166Other accrued liabilities23,98031,05433,32519,65317,805Total current liabilities162,963179,934157,856125,918116,928Long-term debt, net of current portion215,823212,765209,766206,825208,336Accrued pension25,69625,73925,26017,98917,730Accrued severance liability, net of current portion3,7583,8844,191--Noncurrent income taxes payable26,67626,67624,45022,47121,844Noncurrent deferred income tax liabilities34035233721,11724,808Other noncurrent liabilities21,03922,37122,74516,25317,367Total liabilities456,295471,721444,605410,573407,013Stockholders' equity:Preferred stock-----Common stock1,4731,4671,4491,4461,443Capital in excess of par value1,259,9461,247,7631,245,1151,237,8521,228,729Treasury stock at cost(295,960)(280,724)(254,409)(220,034)(202,933)Unrealized gain (loss) on marketable securities211149(267)261,530Unfunded pension liability(10,231)(10,231)(10,231)(5,813)(5,813)Accumulated deficit(44,468)(59,469)(65,268)(5,639)(19,351)Cumulative translation adjustments(184)(184)(184)(184)(184)Total stockholders' equity910,787898,771916,2051,007,6541,003,421$     1,367,082$     1,370,492$     1,360,810$     1,418,227$     1,410,434  ARRIS GROUP, INC. PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(unaudited) For the Three MonthsEnded June 30, For the Six MonthsEnded June 30,2012201120122011Net sales$   349,327$    265,799$   652,228$   533,235Cost of sales230,801158,901424,794329,391Gross margin118,526106,898227,434203,844Operating expenses:Selling, general, and administrative expenses40,13535,86879,67872,706Research and development expenses42,88136,62987,02872,669Acquisition costs102-709-Loss on sale of product line--337-Restructuring charges1,039-6,242-Amortization of intangible assets7,4448,94414,82317,88891,60181,441188,817163,263Operating income 26,92525,45738,61740,581Other expense (income):Interest expense4,4224,1808,7728,405Loss (gain) on investments356(334)(605)(757)Loss on foreign currency540791,348967Interest income(729)(886)(1,484)(1,664)Other (income) expense, net(226)(419)(662)(532)Income from continuing operations before income taxes22,56222,83731,24834,162Income tax expense7,5616,14710,4485,908Net income $     15,001$     16,690$     20,800$     28,254Net income per common share:Basic$        0.13$         0.14$        0.18$        0.23Diluted$        0.13$         0.13$        0.18$        0.23Weighted average common shares:Basic113,842121,800114,457122,047Diluted115,111123,711116,352124,720 ARRIS GROUP, INC.PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited) For the Three MonthsEnded June 30, For the Six MonthsEnded June 30,2012201120122011Operating Activities:Net income$         15,001$         16,690$       20,800$       28,254Depreciation6,9825,81314,17711,668Amortization of intangible assets7,4448,94414,82317,888Amortization of deferred finance fees160163320326Non-cash interest expense3,0582,8896,0575,721Deferred income tax provision (benefit)(5,085)(3,559)(9,720)(11,403)Stock compensation expense7,8675,92514,51611,209Provision for doubtful accounts--54-Loss on sale of product line--337-Loss (gain) on disposal of fixed assets3(1)633Loss (gain) on investments356(334)(605)(757)Excess tax benefits from stock-based compensation plans(806)453(2,460)(3,247)Changes in operating assets & liabilities, net of effects of acquisitions and disposals:Accounts receivable4,056(2,460)(27,743)(26,503)Other receivables3,7005,5837,3936,117Inventory2,753(7,233)9,996(11,257)Income taxes payable/recoverable2,08710,3218,45212,591Accounts payable and accrued liabilities(17,262)(8,432)5,136(15,480)Other, net279(3,382)4,3272,649Net cash provided by operating activities30,59331,38065,86627,809Investing Activities:Purchases of investments(62,587)(43,480)(140,353)(142,841)Disposals of investments31,25373,48283,161179,431Purchases of property & equipment, net(5,494)(6,296)(9,256)(12,547)Cash proceeds from sale of property & equipment-1-43Cash proceeds from sale of product line--3,249-Net cash provided by (used in) investing activities(36,828)23,707(63,199)24,086Financing Activities:Repurchase of common stock(15,236)(57,647)(41,551)(57,647)Excess income tax benefits from stock-based compensation plans806(453)2,4603,247Repurchase of shares to satisfy employee tax withholdings(19)-(8,052)(8,245)Fees and proceeds from issuance of common stock, net4,2714,5477,99617,910Net cash used in financing activities(10,178)(53,553)(39,147)(44,735)Net increase (decrease) in cash and cash equivalents(16,413)1,534(36,480)7,160Cash and cash equivalents at beginning of period215,808358,747235,875353,121Cash and cash equivalents at end of period$       199,395$       360,281$      199,395$      360,281 ARRIS GROUP, INC.PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION(in thousands, except per share data) (unaudited)(in thousands, except per share data)Q2 2012YTD 2012Per DilutedPer DilutedAmountShareAmountShareSales $  349,327$  652,228Highlighted items:Purchase accounting impacts of deferred revenue6630.011,9210.02Sales excluding highlighted items$  349,990$  654,149Q2 2012Q2 2011YTD 2012YTD 2011Per DilutedPer DilutedPer DilutedPer DilutedAmountShareAmountShareAmountShareAmountShareNet income$   15,001$       0.13$   16,690$       0.13$   20,800$       0.18$    28,254$           0.23Highlighted items:Impacting gross margin:Purchase accounting impacts of deferred revenue6630.01--1,9210.02--Stock compensation expense8090.01557-1,5590.019940.01Impacting operating expenses:Acquisition costs102---7090.01--Restructuring1,039---6,2420.05--Amortization of intangible assets7,4440.068,9440.0714,8230.1317,8880.14Loss of sale of product line----337---Stock compensation expense7,0580.065,3680.0412,9570.1110,2150.08Impacting other (income) / expense:Non-cash interest expense3,0580.032,8890.026,0570.055,7210.05Impairment of investment466---466---Impacting income tax expense:Adjustments of income tax valuation allowances and other------(3,583)(0.03)Tax related to highlighted items above(6,749)(0.06)(4,915)(0.04)(14,870)(0.13)(9,939)(0.08)Total highlighted items13,8900.1212,8430.1030,2010.2621,2960.17Net income excluding highlighted items$   28,891$       0.25$   29,533$       0.24$   51,001$       0.44$    49,550$           0.40Weighted average common shares - diluted115,111123,711116,352124,720See the Notes to GAAP / Adjusted Non-GAAP Financial Measures Notes to GAAP to Adjusted Non-GAAP Financial MeasuresThe 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:Purchase Accounting Impacts Related to Deferred Revenue:  In connection with our acquisition of BigBand, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and 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.  We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business.  We have historically 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 our 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 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 options and restricted stock. 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 Costs:  We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income measures. We incurred significant expenses in connection with our recent acquisition of BigBand, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. We believe it is useful to understand the effects of these items on our total operating expenses. Restructuring Costs:  We have excluded the effect of restructuring charges in calculating our non-GAAP operating expenses and net income measures. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses. Loss on Sale of Product Line:  We have excluded the effect of a loss on the sale of a product line in calculating our non-GAAP operating expenses and net income measures.  We believe it is useful to understand the effects of these items on our total operating expenses. Amortization of Intangible Assets: We have excluded the effect of amortization of intangible assets in calculating our non-GAAP operating expenses and net income 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.Non-Cash Interest on Convertible Debt: We have excluded the effect of non-cash interest in calculating our non-GAAP operating expenses and net income measures. We record the accretion of the debt discount related to the equity component non-cash interest expense. We believe it is useful to understand the component of interest expense that will not be paid out in cash.Impairment of Investment: We have excluded the effect of an other-than-temporary impairment of a cost method investment 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).  Income Tax Expense: 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 state valuation allowances, research and development tax credits and provision to return differences.  SOURCE ARRIS Group, Inc.For further information: Bob Puccini, Investor Relations, +1-720-895-7787, bob.puccini@arrisi.com