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ARRIS Announces Preliminary and Unaudited Third Quarter 2012 Results

SUWANEE, Ga., Oct. 24, 2012 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the third quarter 2012.

Revenues in the third quarter 2012 were $357.5 million as compared to third quarter 2011 revenues of $274.4 million and as compared to second quarter 2012 revenues of $349.3 million.  Through the first three quarters of 2012 and 2011, revenues were $1,009.7 million and $807.6 million, respectively. 

Adjusted net income (a non-GAAP measure) in the third quarter 2012 was $0.22 per diluted share, compared to $0.21 per diluted share for the third quarter 2011 and $0.25 per diluted share for the second quarter 2012.  Year to date, adjusted net income was $0.66 per diluted share for 2012 as compared to $0.60 per diluted share in 2011.

GAAP net income in the third quarter 2012 was $0.15 per diluted share, as compared to third quarter 2011 GAAP net income of $0.11 per diluted share and second quarter 2012 GAAP net income of $0.13 per diluted share. Year to date, GAAP net income was $0.33 per diluted share in 2012 as compared to GAAP net income of $0.34 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: acquisition 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 third quarter 2012 was 31.3%, which compares to the third quarter 2011 gross margin of 36.5% and the second quarter 2012 gross margin of 33.9%.

The Company ended the third quarter of 2012 with $571.2 million of cash resources, which includes $548.4 million of cash, cash equivalents and short-term investments, and $22.8 million of long-term marketable security investments, as compared to $576.3 million, in the aggregate, at the end of the second quarter of 2012. During the third quarter 2012, the Company repurchased approximately 0.8 million shares of ARRIS common stock for $10.4 million.  Year to date the Company has repurchased approximately 4.5 million shares for $51.9 million.  The Company generated $6.7 million of cash from operating activities during the third quarter 2012 and $72.6 million through the first nine months of 2012, which compares to $24.5 million and $52.3 million, respectively, during the same periods in 2011.

Order backlog at the end of the third quarter 2012 was $185.8 million as compared to $155.3 million and $251.9 million at the end of the third quarter 2011 and the second quarter 2012, respectively. The Company's book-to-bill ratio in the third quarter 2012 was 0.82 as compared to the third quarter 2011 of 1.00 and the second quarter 2012 of 0.93.

"I am very pleased with our third quarter and year to date results as we continue to see strong demand for our products.  We just completed a successful SCTE Expo show in Orlando where we showcased our new E6000 Converged Edge Router," said Bob Stanzione, ARRIS Chairman and CEO.  "The level of engagement with our customers is outstanding and I am very encouraged by the alignment of our products with their investment priorities." 

"Our third quarter results were strong, with adjusted net income per share in the upper half of our guidance," said David Potts, ARRIS EVP & CFO.  "With respect to the fourth quarter 2012, we now project that revenues for the Company will be in the range of $345 to $365 million, with adjusted net income per diluted share in the range of $0.26 to $0.30 and GAAP net income per diluted share in the range of $0.13 to $0.17, reflecting higher demand for our CMTS product line."

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, October 24, 2012, 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 pass code 70703648, 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 October 30, 2012 by dialing (888) 286-8010 or (617) 801-6888 and using the pass code 74972935. Live internet access to the call will be available through the Investor Relations section of the Company's website at www.arrisi.com.  A replay will also 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 fourth 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 fourth quarter 2012 as well as the general outlook for 2013 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 economic uncertainty 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 current volatility in the capital markets, 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 June 30, 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)

























September 30,


June 30,


March 31,


December 31,


September 30,



2012


2012


2012


2011


2011












ASSETS






















Current assets:











  Cash and cash equivalents


$       188,653


$       199,395


$       215,808


$       235,875


$       354,659

  Short-term investments, at fair value


359,753


340,166


298,539


282,904


220,318

  Total cash, cash equivalents and short term investments

548,406


539,561


514,347


518,779


574,977












  Restricted cash


4,665


3,942


3,943


4,101


3,647

  Accounts receivable, net


171,143


179,371


183,427


152,437


165,821

  Other receivables 


578


1,414


5,071


8,789


5,296

  Inventories, net


137,496


102,361


105,114


115,912


116,769

  Prepaids


12,408


12,124


12,436


10,408


10,692

  Current deferred income tax assets


20,787


21,972


22,068


22,048


24,239

  Other current assets


18,907


16,766


16,792


27,071


21,695

  Total current assets


914,390


877,511


863,198


859,545


923,136












Property, plant and equipment, net 


54,593


56,175


57,810


61,375


57,619

Goodwill


194,469


194,626


195,268


194,542


233,430

Intangible assets, net


102,258


110,000


117,444


124,823


141,784

Investments


57,483


70,967


82,968


71,095


47,221

Noncurrent deferred income tax assets


49,589


47,228


42,106


38,433


9,637

Other assets


9,913


10,575


11,699


10,997


5,400



$     1,382,695


$     1,367,082


$     1,370,493


$     1,360,810


$     1,418,227























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:











  Accounts payable


$         49,061


$         44,800


$         54,576


$         40,671


$         38,918

  Accrued compensation, benefits and related taxes


35,066


28,165


31,081


36,764


25,320

  Accrued warranty


3,036


2,995


3,094


3,350


2,933

  Deferred revenue


50,859


63,023


60,129


43,746


39,094

  Other accrued liabilities


21,768


23,980


31,054


33,325


19,653

  Total current liabilities


159,790


162,963


179,934


157,856


125,918

Long-term debt, net of current portion


218,943


215,823


212,765


209,766


206,825

Accrued pension


26,172


25,696


25,739


25,260


17,989

Accrued severance liability, net of current portion


3,895


3,758


3,884


4,191


-

Noncurrent income taxes payable


24,434


26,676


26,676


24,450


22,471

Noncurrent deferred income tax liabilities


334


340


352


337


21,117

Other noncurrent liabilities


20,362


21,039


22,372


22,745


16,253

  Total liabilities


453,930


456,295


471,722


444,605


410,573












Stockholders' equity:











  Preferred stock


-


-


-


-


-

  Common stock


1,479


1,473


1,467


1,449


1,446

  Capital in excess of par value


1,270,561


1,259,946


1,247,763


1,245,115


1,237,852

  Treasury stock at cost


(306,330)


(295,960)


(280,724)


(254,409)


(220,034)

  Unrealized gain (loss) on marketable securities


74


211


149


(267)


26

  Unfunded pension liability


(10,231)


(10,231)


(10,231)


(10,231)


(5,813)

  Accumulated deficit


(26,604)


(44,468)


(59,469)


(65,268)


(5,639)

  Cumulative translation adjustments


(184)


(184)


(184)


(184)


(184)

  Total stockholders' equity


928,765


910,787


898,771


916,205


1,007,654



$     1,382,695


$     1,367,082


$     1,370,493


$     1,360,810


$     1,418,227












 

 

 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)










 

For the Three Months


 

For the Nine Months


Ended September 30,


Ended September 30,


2012


2011


2012


2011









Net sales

$   357,432


$    274,374


$  1,009,660


$   807,609

Cost of sales

245,480


174,250


670,274


503,641

Gross margin

111,952


100,124


339,386


303,968

Operating expenses:








Selling, general, and administrative expenses

37,866


35,220


117,544


107,926

Research and development expenses

42,978


36,065


130,006


108,734

Acquisition costs

30


475


739


475

Loss on sale of product line

-


-


337


-

Restructuring charges

213


969


6,455


969

Amortization of intangible assets

7,742


8,944


22,565


26,832


88,829


81,673


277,646


244,936

Operating income 

23,123


18,451


61,740


59,032

Other expense (income):








Interest expense

4,479


4,277


13,251


12,681

Loss (gain) on investments

(878)


253


(1,483)


(504)

Loss (gain) on foreign currency

(431)


(841)


917


125

Interest income

(764)


(775)


(2,248)


(2,438)

Loss on debt redemption

-


19


-


19

Other (income) expense, net

(129)


(150)


(791)


(681)

Income from continuing operations before income taxes

20,846


15,668


52,094


49,830

Income tax expense

2,982


1,955


13,430


7,863

Net income 

$     17,864


$     13,713


$       38,664


$     41,967









Net income per common share:








Basic

$        0.16


$         0.11


$          0.34


$        0.35

Diluted

$        0.15


$         0.11


$          0.33


$        0.34









Weighted average common shares:








Basic

113,709


119,283


114,206


121,115

Diluted

116,346


121,237


116,348


123,549









 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)






 

For the Three Months


 

For the Nine Months






Ended September 30,


Ended September 30,






2012


2011


2012


2011













Operating Activities:










Net income


$         17,864


$         13,713


$       38,664


$       41,967



Depreciation


6,788


5,882


20,965


17,550



Amortization of intangible assets


7,742


8,944


22,565


26,832



Amortization of deferred finance fees


159


161


479


487



Non-cash interest expense


3,120


2,883


9,177


8,604



Deferred income tax provision (benefit)


(1,184)


(4,084)


(10,904)


(15,487)



Stock compensation expense


6,678


5,738


21,194


16,947



Provision for doubtful accounts


-


(1)


54


(1)



Loss on debt retirement


-


19


-


19



Loss on sale of product line


-


-


337


-



Loss (gain) on disposal of fixed assets


34


(27)


40


6



Loss (gain) on investments


(877)


253


(1,482)


(504)



Excess tax benefits from stock-based compensation plans

(154)


258


(2,614)


(2,989)


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











Accounts receivable


8,228


(13,384)


(19,515)


(39,887)



Other receivables


794


(6,134)


8,187


(17)



Inventory


(35,135)


(3,749)


(25,139)


(15,006)



Income taxes payable/recoverable


(6,509)


5,362


1,943


17,953



Accounts payable and accrued liabilities


(2,522)


9,148


2,614


(6,332)



Other, net


1,716


(520)


6,043


2,129




Net cash provided by operating activities


6,742


24,462


72,608


52,271













Investing Activities:










Purchases of investments


(94,995)


(85,263)


(235,348)


(228,104)


Disposals of investments


88,898


80,796


172,059


260,227


Purchases of property & equipment, net


(5,264)


(6,401)


(14,520)


(18,948)


Cash proceeds from sale of property & equipment


13


27


13


70


Cash proceeds from sale of product line


-


-


3,249


-




Net cash provided by (used in) investing activities


(11,348)


(10,841)


(74,547)


13,245













Financing Activities:










Early redemption of long-term debt


-


(4,984)


-


(4,984)


Repurchase of common stock


(10,370)


(17,101)


(51,921)


(74,748)


Excess income tax benefits from stock-based compensation plans

154


(258)


2,614


2,989


Repurchase of shares to satisfy employee tax withholdings


(132)


(15)


(8,184)


(8,260)


Fees and proceeds from issuance of common stock, net


4,212


3,115


12,208


21,025




Net cash used in financing activities


(6,136)


(19,243)


(45,283)


(63,978)
















Net increase (decrease) in cash and cash equivalents

(10,742)


(5,622)

#

(47,222)


1,538

Cash and cash equivalents at beginning of period


199,395


360,281


235,875


353,121

Cash and cash equivalents at end of period


$       188,653


$       354,659


$      188,653


$      354,659













 

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)



















(in thousands, except per share data)

Q1 2012


Q2 2012


Q3 2012


YTD 2012





Per Diluted




Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Amount


Share


Sales 

$  302,901




$  349,327




$  357,432




$ 1,009,660





















Highlighted items:

















Purchase accounting impacts of deferred revenue

1,771


0.02


663


0.01


546


-


2,980


0.03


Sales excluding highlighted items

$  304,672




$  349,990




$  357,978




$ 1,012,640







































Q1 2012


Q2 2012


Q3 2012


YTD 2012





Per Diluted




Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Amount


Share


Net income

$     5,799


$           0.05


$    15,001


$           0.05


$    17,864


$           0.05


$      38,664


$           0.05



















Highlighted items:

















Impacting gross margin:

















Purchase accounting impacts of deferred revenue

1,258


0.01


663


0.01


546


-


2,467


0.02


Stock compensation expense

750


0.01


809


0.01


808


0.01


2,367


0.02



















Impacting operating expenses:

















Acquisition costs

607


0.01


102


-


30


-


739


0.01


Restructuring

5,203


0.04


1,039


0.01


213


-


6,455


0.06


Amortization of intangible assets

7,379


0.06


7,444


0.06


7,742


0.07


22,565


0.19


Loss of sale of product line

337


-


-


-


-


-


337


0.00


Stock compensation expense

5,899


0.05


7,058


0.06


5,870


0.05


18,827


0.16



















Impacting other (income) / expense:

















Non-cash interest expense

2,999


0.03


3,058


0.03


3,120


0.03


9,177


0.08


Impairment of investment

-


-


466


-


-


-


466


-



















Impacting income tax expense:

















Adjustments of income tax valuation allowances and other

-


-


-


-


(4,183)


(0.04)


(4,183)


(0.04)


Tax related to highlighted items above

(8,121)


(0.07)


(6,749)


(0.06)


(6,362)


(0.05)


(21,232)


(0.18)



















Total highlighted items

16,311


0.14


13,890


0.12


7,784


0.07


37,985


0.33


Net income excluding highlighted items

$    22,110


$           0.19


$    28,891


$           0.25


$    25,462


$           0.22


$      76,463


$           0.66



















Weighted average common shares - diluted



117,597




115,111




116,346




116,348






















































Q1 2011


Q2 2011


Q3 2011


YTD 2011





Per Diluted




Per Diluted




Per Diluted







Amount


Share


Amount


Share


Amount


Share


Amount




Sales 

$  267,436




$  265,799




$  274,374




$    807,609





















Highlighted items:

















Purchase accounting impacts of deferred revenue

-


-


-


-


-


-


-




Sales excluding highlighted items

$  267,436




$  265,799




$  274,374




$    807,609







































Q1 2011


Q2 2011


Q3 2011


YTD 2011





Per Diluted




Per Diluted




Per Diluted




Per Diluted



Amount


Share


Amount


Share


Amount


Share


Amount


Share


Net income (loss)

$    11,564


$           0.09


$    16,690


$           0.13


$    13,713


$           0.11


$      41,967


$           0.34



















Highlighted items:

















Impacting gross margin:

















Stock compensation expense

437


-


557


-


525


-


1,519


0.01



















Impacting operating expenses:

















Acquisition costs

-


-


-


-


475


-


475


-


Restructuring

-




-


-


969


0.01


969


0.01


Amortization of intangible assets

8,944


0.07


8,944


0.07


8,944


0.07


26,832


0.22


Stock compensation expense

4,847


0.04


5,368


0.04


5,213


0.04


15,428


0.12



















Impacting other (income) / expense:

















Non-cash interest expense

2,832


0.02


2,889


0.02


2,883


0.02


8,604


0.07


Loss on retirement of debt

-


-


-


-


19


-


19


-



















Impacting income tax expense:

















Adjustments of income tax valuation allowances and other

(3,583)


(0.03)


-


-


(2,334)


(0.02)


(5,917)


(0.05)



















Tax related to highlighted items above

(5,024)


(0.04)


(4,915)


(0.04)


(5,265)


(0.04)


(15,204)


(0.12)



















Total highlighted items

8,453


0.07


12,843


0.10


11,429


0.09


32,725


0.26


Net income excluding highlighted items

$    20,017


$           0.16


$    29,533


$           0.24


$    25,142


$           0.21


$      74,692


$           0.60



















Weighted average common shares - diluted



125,732




123,711




121,237




123,549





















































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.

Early Pension Payout:  In an effort to reduce volatility and administrative expense in connection with the Company's pension plan, we have offered certain participants an opportunity to voluntarily elect an early payout of their pension benefits.  We anticipate recording a charge in the fourth quarter of 2012 of approximately $3 million, dependant upon the actual number of participants who elect the payout option.  We intend to exclude this charge in our fourth quarter Non-GAAP measures, as this is a one-time charge that is not considered by management in their review of financial results.

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). 

Loss (Gain) on Retirement of Debt:  We have excluded the effect of the loss (gain) on retirement of debt in calculating our non-GAAP financial measures.  We believe it is useful for investors 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.

Bob Puccini, Investor Relations, +1-720-895-7787, bob.puccini@arrisi.com