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ARRIS Announces Preliminary and Unaudited Second Quarter 2008 Results

SUWANEE, Ga., July 30 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (Nasdaq: ARRS), a global technology leader in advanced cable telephony and broadband access equipment, next generation high-speed data and video applications, and operations software solutions, today announced preliminary and unaudited financial results for the second quarter 2008.

Second quarter 2008 revenues of $281.1 million increased $7.6 million, or 2.8%, as compared to first quarter revenues of $273.5 million. Second quarter and first half 2008 revenues increased $28.4 million, or 11.2%, and $66.6 million, or 13.6%, respectively, as compared to the same periods in 2007, primarily due to the C-COR acquisition. Second quarter 2008 gross margin was $92.9 million, or 33.0%, as compared to $85.2, or 31.2%, in the first quarter 2008 and $72.4 million, or 28.6%, in the second quarter 2007. Order backlog increased to $206.0 million at the end of the second quarter as compared to $147.0 million at the end of the first quarter. Book-to-bill ratio in the second quarter was 1.21.

GAAP net income in the second quarter 2008 was $0.08 per diluted share, as compared to $0.21 per diluted share for the second quarter 2007. Adjusted (non-GAAP) net income in the second quarter 2008 was $0.15 per diluted share, as compared to $0.22 per diluted share for the second quarter 2007. Items excluded from the computed adjusted (non-GAAP) net income include: amortization of intangibles, certain acquisition gains and expenses, certain tax benefits and costs, equity compensation expense, and adjustments to restructuring accruals. A reconciliation of GAAP to adjusted (non-GAAP) earnings per share is attached to this release and also can be found on the Company's website (www.arrisi.com).

The Company ended the second quarter 2008 with $297.8 million of cash and short-term investments, which compares to $293.0 million at the end of the first quarter 2008. The Company generated $10.4 million of cash from operating activities in the second quarter 2008.

"I am very pleased that despite the challenging economic climate, we can report that sales, earnings and margins are up quarter over quarter and we look for continuing strength in the second half of 2008 as we enter the third quarter with a healthy backlog," said Bob Stanzione, ARRIS Chairman & CEO. "The demand for ARRIS products remains strong as our customers see increasing competition and new service demands in their markets. International opportunities continue to unfold as evidenced by our recent CMTS agreement last month with the largest cable operator in Germany and new opportunities in Canada and Mexico. We are well positioned to take advantage of customer and end user demands for high speed data services, VoIP, on-demand video, ad insertion, OSS solutions and network upgrades to accommodate increased high definition channel offerings and streaming video."

"We enter the second half of 2008 with a strong order book and an improving margin profile," said David Potts, ARRIS EVP & CFO. "I am also very pleased with the solid progress that we have made with the integration of C- COR and the progress that we have made towards the overall financial goals that we outlined at our Investor Conference in March. At this point, we project that revenues for the Company in the third quarter 2008 will be in the range of $288 to $308 million with GAAP net income per diluted share in the range of $0.13 to $0.18 and adjusted (non-GAAP) net income per diluted share, in the range of $0.19 to $0.24.

ARRIS management will conduct a conference call at 5:00pm EDT, today, Wednesday, July 30, 2008, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4209 or 617-213-4863 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference passcode 38778423 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 4, 2008 by dialing 888-286-8010 or 617-801-6888 for international calls and using the passcode 25608915. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com.

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 reliable telephony, demand driven video, next-generation advertising and high-speed data services. ARRIS products expand and help grow network capacity with access and outside plant construction equipment, reliably deliver voice, video and data services and assure optimal service delivery for end customers. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Atlanta, Chicago, Beaverton, State College, Wallingford, Ireland and China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at http://www.arrisi.com.

Forward-looking statements:
Statements made in this press release, including those related to:

  • third quarter and 2008 revenues, gross margins and net income;
  • full year 2008 outlook, and
  • the general market outlook;

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 2008 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;
  • 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-K for the year ended December 31, 2007 and its Form 10-Q for the quarter ended March 31, 2008. 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.
                         CONSOLIDATED BALANCE SHEETS
                                (in thousands)

                         June 30,   March 31,   Dec. 31,  Sept. 30,   June 30,
                           2008       2008       2007       2007       2007
                       (unaudited)(unaudited)           (unaudited)(unaudited)

    ASSETS

    Current assets:
      Cash and cash
       equivalents       $290,266   $243,515   $323,797   $370,708   $444,020
      Short-term
       investments,
       at fair value        7,503     49,513     68,011    217,845    160,315
        Total cash, cash
         equivalents
         and short-term
         investments      297,769    293,028    391,808    588,553    604,335

      Restricted cash       7,051      7,186      6,977      3,142      3,136
      Accounts
       receivable, net    168,664    159,881    166,953    130,216    120,680
      Other receivables     9,067      6,074      4,330      5,000      6,845
      Inventories, net    147,716    125,105    131,792    118,227     90,542
      Prepaids              5,305      5,680      5,856      3,626      3,250
      Current deferred
       income tax assets   43,749     47,051     44,939     19,602     23,239
      Other current
       assets              15,707      8,209      4,841     13,703     10,773
        Total current
         assets           695,028    652,214    757,496    882,069    862,800

    Property, plant and
     equipment, net        60,823     60,747     59,156     31,251     30,196
    Goodwill              452,398    453,454    455,352    150,569    150,569
    Intangible assets,
     net                  244,575    257,029    269,893        115        172
    Investments             9,937     10,200      6,412      8,916      3,151
    Noncurrent deferred
     income  tax assets     3,547      3,688      3,459     16,238     17,294
    Other assets           11,383     12,624     10,181      9,084      7,517
                       $1,477,691 $1,449,956 $1,561,949 $1,098,242 $1,071,699


    LIABILITIES AND
     STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts payable    $68,476    $60,490    $58,852    $35,540    $46,015
      Accrued
       compensation,
       benefits and
       related taxes       18,072     14,397     26,177     18,857     14,631
      Accrued warranty      7,566      7,919      8,298      4,085      4,393
      Deferred revenue     28,100     19,901      8,474      6,273      7,195
      Current portion of
       long-term debt         314        310     35,305          -          -
      Other accrued
       liabilities         23,221     27,980     42,121     20,854     20,806
        Total current
         liabilities      145,749    130,997    179,227     85,609     93,040
    Long-term debt, net
     of current portion   276,606    276,686    276,765    276,000    276,000
    Accrued pension        11,362     10,905     10,455     11,810     12,778
    Noncurrent income
     tax payable            6,250      6,487      6,322      5,262      4,334
    Noncurrent deferred
     income tax liability  48,725     47,090     45,255          -          -
    Other long-term
     liabilities           18,694     19,704     18,158      8,404      8,724
        Total liabilities 507,386    491,869    536,182    387,085    394,876

    Stockholders' equity:
      Preferred stock           -          -          -          -          -
      Common stock          1,358      1,357      1,356      1,104      1,102
      Capital in excess
       of par value     1,098,581  1,095,716  1,093,498    789,348    782,717
      Treasury stock
       at cost            (76,007)   (76,007)      (572)         -          -
      Unrealized gain
       (loss) on marketable
       securities              66        151         20       (151)         -
      Unfunded pension
       liability           (3,358)    (3,358)    (3,358)    (4,462)    (4,462)
      Accumulated deficit (50,151)   (59,588)   (64,993)   (74,498)  (102,350)
      Cumulative
       translation
       adjustments           (184)      (184)      (184)      (184)      (184)
        Total
         stockholders'
         equity           970,305    958,087  1,025,767    711,157    676,823
                       $1,477,691 $1,449,956 $1,561,949 $1,098,242 $1,071,699



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

                                  For the Three Months   For the Six Months
                                    Ended June 30,          Ended June 30,
                                   2008        2007        2008        2007
                               (unaudited) (unaudited) (unaudited) (unaudited)


    Net sales                    $281,110    $252,718    $554,616    $487,971
    Cost of sales                 188,226     180,342     376,484     346,848
      Gross margin                 92,884      72,376     178,132     141,123
      Gross margin %                 33.0%       28.6%       32.1%       28.9%

    Operating expenses:
      Selling, general, and
       administrative expenses     37,046      26,455      74,028      50,630
      Research and development
       expenses                    27,662      17,791      55,784      35,887
      Restructuring and
       impairment charges             175           -         580         421
      Amortization of intangible
       assets                      12,454          58      25,708         116
                                   77,337      44,304     156,100      87,054
    Operating income               15,547      28,072      22,032      54,069
    Other expense (income):
      Interest expense              1,722       1,652       3,226       3,320
      Loss (gain) on investments      171      (1,444)        173      (1,425)
      Loss (gain) on foreign
       currency                       350        (146)       (640)        176
      Interest income              (1,702)     (6,459)     (4,387)    (12,942)
      Gain related to terminated
       acquisition, net of
       expenses                         -           -           -     (22,835)
      Other (income) expense, net      65          51          29         116
    Income from continuing
     operations before income
     taxes                         14,941      34,418      23,631      87,659
      Income tax expense            5,504      11,144       8,789      26,741
      Net income                   $9,437     $23,274     $14,842     $60,918

    Net income per common share:
      Basic                         $0.08       $0.21       $0.12       $0.56

      Diluted                       $0.08       $0.21       $0.12       $0.55

    Weighted average common
     shares:
      Basic                       122,741     109,398     126,752     108,935
      Diluted                     124,651     111,698     128,190     111,340



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

                                  For the Three Months   For the Six Months
                                    Ended June 30,          Ended June 30,
                                   2008        2007        2008        2007
                               (unaudited) (unaudited) (unaudited) (unaudited)

    Operating Activities:
      Net income                   $9,437     $23,274     $14,842     $60,918
      Adjustments to reconcile
       net income to net cash
       provided by operating
       activities:
        Depreciation                5,132       2,648      10,095       5,145
        Amortization of
         intangible assets         12,454          58      25,708         116
        Stock compensation
         expense                    2,840       3,378       5,391       6,034
        Deferred income tax
         provision                  5,078       4,924       4,572       9,626
        Amortization of deferred
         finance fees                 278         278         557         557
        Provision for doubtful
         accounts                       9         225         214         596
        Gain related to previously
         written off receivables        -           -           -        (377)
        Gain on disposal of fixed
         assets                        (2)          -          (2)          -
        Loss on investments           171      (1,444)        173      (1,425)
        Gain related to
         terminated acquisition,
         net of expenses                -           -           -     (22,835)
        Excess tax benefits from
         stock-based compensation
         plans                          -      (1,676)          -      (6,531)
      Changes in operating assets &
       liabilities, net of effects
       of acquisitions and
       disposals:
        Accounts receivable        (8,272)      4,851        (770)     (5,972)
        Other receivables          (2,993)      3,043      (4,737)     (4,289)
        Inventory                 (21,920)    (12,356)    (14,419)      3,684
        Income taxes payable       (3,078)     (7,024)     (2,997)     (5,731)
        Accounts payable and
         accrued liabilities       14,795       7,033       4,501     (17,809)
        Other, net                 (3,509)        688      (2,193)      2,158
          Net cash provided by
           operating activities    10,420      27,900      40,935      23,865

    Investing Activities:
      Purchases of property,
       plant, and equipment        (5,363)     (4,768)    (11,792)     (7,055)
      Cash proceeds related to
       terminated acquisition,
       net of expenses paid             -        (327)          -      10,554
      Cash paid for hedge
       related to terminated
       acquisition                      -           -           -     (26,469)
      Cash proceeds from hedge
       related to terminated
       acquisition                      -           -           -      38,750
      Cash paid for acquisition,
       net of cash acquired          (227)          -      (4,419)          -
      Cash proceeds from sale of
       property, plant & equipment     13           -         237           -
      Cash proceeds from sale of
       short-term investments          16           -          16           -
      Purchases of short-term-
       investments                      -     (69,715)    (16,887)   (197,850)
      Disposals of short-term-
       investments                 41,964      44,010      72,464     125,110
        Net cash provided by
         (used in) investing
         activities                36,403     (30,800)     39,619     (56,960)

    Financing Activities:
      Payment of debt and
       capital lease obligations      (99)          -     (35,196)          -
      Treasury stock repurchase         -           -     (75,960)          -
      Excess tax benefits from
       stock-based compensation
       plans                            -       1,676           -       6,531
      Employer repurchase of
       shares to satisfy minimum
       tax withholdings              (796)     (1,690)     (1,035)     (1,690)
      Proceeds from issuance of
       stock and other                823       5,617      (1,894)     10,656
        Net cash provided by (used
         in) financing activities     (72)      5,603    (114,085)     15,497

        Net increase (decrease)
         in cash and cash
         equivalents               46,751       2,703     (33,531)    (17,598)
    Cash and cash equivalents
     at beginning of period       243,515     441,317     323,797     461,618
    Cash and cash equivalents
     at end  of period           $290,266    $444,020    $290,266    $444,020



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

                                Q1 2008          Q2 2008        YTD 2008
                                       Per              Per             Per
                                     Diluted          Diluted          Diluted
                             Amount   Share   Amount   Share   Amount   Share

    Net income               $5,405   $0.04   $9,437   $0.08  $14,842    0.12

    Highlighted items:
      Impacting gross
       margin:
        Stock compensation
         expense                201       -      245       -      446       -

      Impacting operating
       expenses:
        Integration costs       427       -        -       -      427       -
        Restructuring charges
         - adjustments to
         existing accruals      405       -      175       -      580       -
        Amortization of
         intangible assets   13,254    0.10   12,454    0.10   25,708    0.20
        Stock compensation
         expense              2,350    0.02    2,595    0.02    4,945    0.04

    Tax related to
     highlighted items
     above                   (6,294)  (0.05)  (5,732)  (0.05)  (12,026) (0.09)

    Total highlighted items  10,343    0.08    9,737    0.08    20,080   0.16
    Net income excluding
     highlighted items      $15,748   $0.12  $19,174   $0.15   $34,922  $0.27

                                    131,981          124,651          128,190



                                 Q1 2007         Q2 2007         YTD 2007
                                       Per              Per             Per
                                     Diluted          Diluted          Diluted
                             Amount   Share   Amount   Share   Amount   Share

    Net income              $37,644   $0.34  $23,274   $0.21   $60,918   0.55

    Highlighted items:
      Impacting gross
       margin:
        Stock compensation
         expense                165       -     229       -     394       -

      Impacting operating
       expenses:
        Gains related to
         previously written
         off receivables      (377)       -       -       -   (377)       -
        Restructuring
         charges -
         adjustments to
         existing accruals      421       -       -       -     421       -
        Amortization of
         intangible assets       58       -      58       -     116       -
        Stock compensation
         expense              2,491    0.02   3,149    0.03   5,640    0.05

      Impacting net income
       (loss) from
       continuing
       operations:
        Gains related to
         terminated
         acquisition,
         net of expenses    (22,835)  (0.21)      -       - (22,835)  (0.21)
        Gain on deferred
         compensation
         assets                   -       -  (1,345)  (0.01) (1,345)  (0.01)

      Impacting income
       tax expense:
        Adjustments of
         income tax
         valuation
         allowances and
         research &
         development
         credits and other   (3,246)  (0.03)      -       -  (3,246)  (0.03)

      Tax related to
       highlighted items
       above                  7,754    0.07    (670)  (0.01)  7,084    0.06

    Total highlighted
     items                 (15,569)   (0.14)  1,421    0.01 (14,148)  (0.13)
    Net income excluding
     highlighted items      $22,075   $0.20 $24,695   $0.22 $46,770   $0.42

                                    110,988         111,698         111,340

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. In prior periods, ARRIS recognized a gain in Q1 of 2007 associated with previously written off receivables. With respect to amortization of intangibles, the intangibles being amortized relate to our recent acquisition of C-COR. The restructuring charge adjustments 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. In the second quarter of 2007, ARRIS realized a gain before tax of $1.3 million on its deferred compensation asset that had been previously recorded as an unrealized gain on the balance sheet. During the first quarter of 2007, ARRIS announced that it entered into a transaction agreement with TANDBERG Television ASA, in which ARRIS was to buy all the outstanding shares of TANDBERG. ARRIS was subsequently outbid by another buyer and the transaction agreement was terminated during the first quarter 2007. ARRIS recorded gains, net before tax, of $22.8 million related to the termination of the transaction (termination fee, foreign exchange gains, and expenses). The net termination fee resulted in a capital gain which provided greater access to prior tax capital losses that had previously been viewed as more likely than not unrealizable. As a result, net income tax valuation allowances totaling $3.2 million were reversed in the first quarter 2007. During the first quarter of 2008, ARRIS recorded incremental costs of $0.4 million as a result of the C- COR integration.

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 expects to continue providing similar information in the future with schedules reconciling the differences between GAAP and non-GAAP financial measures.



                              ARRIS GROUP, INC.
                          Supplemental Third Quarter
                    Net Income Reconciliation (unaudited)
                             Q3 EPS 2008 Guidance

    Estimated GAAP EPS - diluted                       $0.13 - $0.18
    Reconciling Items
      Amortization of intangibles, after tax                0.05
      Stock compensation expense, after tax                 0.01
        Subtotal                                            0.06
    Estimated adjusted (non-GAAP) EPS - diluted        $0.19 - $0.24

See the Supplemental Net Income Reconciliation for a discussion regarding management's reasoning for providing this non-GAAP financial measure

SOURCE ARRIS Group, Inc.
07/30/2008
/CONTACT: Jim Bauer, Investor Relations, ARRIS Group, Inc.
+1-678-473-2647, jim.bauer@arrisi.com
/Web site: http://www.arrisi.com
(ARRS)