SUWANEE, 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 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 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,
		2012		2012		2011		2011		2011
ASSETS
Current assets:
Cash and cash equivalents		$       199,395		$       215,808		$       235,875		$       354,659		$       360,281
Short-term investments, at fair value		340,166		298,539		282,904		220,318		231,254
Total cash, cash equivalents and short term investments		539,561		514,347		518,779		574,977		591,535
Restricted cash		3,942		3,943		4,101		3,647		3,646
Accounts receivable, net		179,371		183,427		152,437		165,821		152,436
Other receivables		1,414		5,071		8,789		5,296		406
Inventories, net		102,361		105,114		115,912		116,769		113,020
Prepaids		12,124		12,436		10,408		10,692		10,272
Current deferred income tax assets		21,972		22,068		22,048		24,239		22,681
Other current assets		16,766		16,792		27,071		21,695		25,216
Total current assets		877,511		863,198		859,545		923,136		919,212
Property, plant and equipment, net		56,175		57,810		61,375		57,619		57,100
Goodwill		194,626		195,267		194,542		233,430		233,440
Intangible assets, net		110,000		117,444		124,823		141,784		150,728
Investments		70,967		82,968		71,095		47,221		34,237
Noncurrent deferred income tax assets		47,228		42,106		38,433		9,637		9,839
Other assets		10,575		11,699		10,997		5,400		5,878
		$     1,367,082		$     1,370,492		$     1,360,810		$     1,418,227		$     1,410,434
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$         44,800		$         54,576		$         40,671		$         38,918		$         27,825
Accrued compensation, benefits and related taxes		28,165		31,081		36,764		25,320		20,832
Accrued warranty		2,995		3,094		3,350		2,933		3,300
Deferred revenue		63,023		60,129		43,746		39,094		47,166
Other accrued liabilities		23,980		31,054		33,325		19,653		17,805
Total current liabilities		162,963		179,934		157,856		125,918		116,928
Long-term debt, net of current portion		215,823		212,765		209,766		206,825		208,336
Accrued pension		25,696		25,739		25,260		17,989		17,730
Accrued severance liability, net of current portion		3,758		3,884		4,191		-		-
Noncurrent income taxes payable		26,676		26,676		24,450		22,471		21,844
Noncurrent deferred income tax liabilities		340		352		337		21,117		24,808
Other noncurrent liabilities		21,039		22,371		22,745		16,253		17,367
Total liabilities		456,295		471,721		444,605		410,573		407,013
Stockholders' equity:
Preferred stock		-		-		-		-		-
Common stock		1,473		1,467		1,449		1,446		1,443
Capital in excess of par value		1,259,946		1,247,763		1,245,115		1,237,852		1,228,729
Treasury stock at cost		(295,960)		(280,724)		(254,409)		(220,034)		(202,933)
Unrealized gain (loss) on marketable securities		211		149		(267)		26		1,530
Unfunded 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' equity		910,787		898,771		916,205		1,007,654		1,003,421
		$     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 Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Net sales	$   349,327		$    265,799		$   652,228		$   533,235
Cost of sales	230,801		158,901		424,794		329,391
Gross margin	118,526		106,898		227,434		203,844
Operating expenses:
Selling, general, and administrative expenses	40,135		35,868		79,678		72,706
Research and development expenses	42,881		36,629		87,028		72,669
Acquisition costs	102		-		709		-
Loss on sale of product line	-		-		337		-
Restructuring charges	1,039		-		6,242		-
Amortization of intangible assets	7,444		8,944		14,823		17,888
	91,601		81,441		188,817		163,263
Operating income	26,925		25,457		38,617		40,581
Other expense (income):
Interest expense	4,422		4,180		8,772		8,405
Loss (gain) on investments	356		(334)		(605)		(757)
Loss on foreign currency	540		79		1,348		967
Interest income	(729)		(886)		(1,484)		(1,664)
Other (income) expense, net	(226)		(419)		(662)		(532)
Income from continuing operations before income taxes	22,562		22,837		31,248		34,162
Income tax expense	7,561		6,147		10,448		5,908
Net income	$     15,001		$     16,690		$     20,800		$     28,254
Net income per common share:
Basic	$        0.13		$         0.14		$        0.18		$        0.23
Diluted	$        0.13		$         0.13		$        0.18		$        0.23
Weighted average common shares:
Basic	113,842		121,800		114,457		122,047
Diluted	115,111		123,711		116,352		124,720

 

ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
					For the Three Months Ended June 30,				For the Six Months Ended June 30,
					2012		2011		2012		2011
Operating Activities:
	Net income				$         15,001		$         16,690		$       20,800		$       28,254
		Depreciation			6,982		5,813		14,177		11,668
		Amortization of intangible assets			7,444		8,944		14,823		17,888
		Amortization of deferred finance fees			160		163		320		326
		Non-cash interest expense			3,058		2,889		6,057		5,721
		Deferred income tax provision (benefit)			(5,085)		(3,559)		(9,720)		(11,403)
		Stock compensation expense			7,867		5,925		14,516		11,209
		Provision for doubtful accounts			-		-		54		-
		Loss on sale of product line			-		-		337		-
		Loss (gain) on disposal of fixed assets			3		(1)		6		33
		Loss (gain) on investments			356		(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 receivable			4,056		(2,460)		(27,743)		(26,503)
		Other receivables			3,700		5,583		7,393		6,117
		Inventory			2,753		(7,233)		9,996		(11,257)
		Income taxes payable/recoverable			2,087		10,321		8,452		12,591
		Accounts payable and accrued liabilities			(17,262)		(8,432)		5,136		(15,480)
		Other, net			279		(3,382)		4,327		2,649
			Net cash provided by operating activities		30,593		31,380		65,866		27,809
Investing Activities:
	Purchases of investments				(62,587)		(43,480)		(140,353)		(142,841)
	Disposals of investments				31,253		73,482		83,161		179,431
	Purchases of property & equipment, net				(5,494)		(6,296)		(9,256)		(12,547)
	Cash proceeds from sale of property & equipment				-		1		-		43
	Cash proceeds from sale of product line				-		-		3,249		-
			Net cash provided by (used in) investing activities		(36,828)		23,707		(63,199)		24,086
Financing Activities:
	Repurchase of common stock				(15,236)		(57,647)		(41,551)		(57,647)
	Excess income tax benefits from stock-based compensation plans				806		(453)		2,460		3,247
	Repurchase of shares to satisfy employee tax withholdings				(19)		-		(8,052)		(8,245)
	Fees and proceeds from issuance of common stock, net				4,271		4,547		7,996		17,910
			Net 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)		7,160
Cash and cash equivalents at beginning of period					215,808		358,747		235,875		353,121
Cash 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 2012								YTD 2012
				Per Diluted								Per Diluted
		Amount		Share						Amount		Share
	Sales	$  349,327								$  652,228
	Highlighted items:
	Purchase accounting impacts of deferred revenue	663		0.01						1,921		0.02
	Sales excluding highlighted items	$  349,990								$  654,149
		Q2 2012				Q2 2011				YTD 2012					YTD 2011
				Per Diluted				Per Diluted				Per Diluted					Per Diluted
		Amount		Share		Amount		Share		Amount		Share			Amount		Share
	Net income	$   15,001		$       0.13		$   16,690		$       0.13		$   20,800		$       0.18			$    28,254		$           0.23
	Highlighted items:
	Impacting gross margin:
	Purchase accounting impacts of deferred revenue	663		0.01		-		-		1,921		0.02			-		-
	Stock compensation expense	809		0.01		557		-		1,559		0.01			994		0.01
	Impacting operating expenses:
	Acquisition costs	102		-		-		-		709		0.01			-		-
	Restructuring	1,039		-		-		-		6,242		0.05			-		-
	Amortization of intangible assets	7,444		0.06		8,944		0.07		14,823		0.13			17,888		0.14
	Loss of sale of product line	-		-		-		-		337		-			-		-
	Stock compensation expense	7,058		0.06		5,368		0.04		12,957		0.11			10,215		0.08
	Impacting other (income) / expense:
	Non-cash interest expense	3,058		0.03		2,889		0.02		6,057		0.05			5,721		0.05
	Impairment of investment	466		-		-		-		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 items	13,890		0.12		12,843		0.10		30,201		0.26			21,296		0.17
	Net income excluding highlighted items	$   28,891		$       0.25		$   29,533		$       0.24		$   51,001		$       0.44			$    49,550		$           0.40
	Weighted average common shares - diluted			115,111				123,711				116,352					124,720
	See the Notes to GAAP / Adjusted Non-GAAP Financial Measures

 

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:

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