ARRIS Announces Preliminary and Unaudited Third Quarter 2009 Results
- Press Release
- Source: ARRIS Group, Inc.
- On 4:00 pm EDT, Monday October 26, 2009
SUWANEE, Ga., Oct. 26 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (Nasdaq: ARRS - News), a global technology leader in the development of advanced cable telephony, next generation high-speed data, demand driven video solutions, operations software and broadband access equipment, today announced preliminary and unaudited financial results for the third quarter 2009.
Related Quotes
| Symbol | Price | Change |
|---|---|---|
| ARRS | 9.98 | -0.17 |
Revenues in the third quarter 2009 were $275.8 million, compared to second quarter 2009 revenues of $278.5 million and third quarter 2008 revenues of $297.6 million. Through the first nine months of 2009 and 2008, revenues were $807.8 million and $852.2 million, respectively.
Adjusted net income (a non-GAAP measure) for the third quarter 2009 was $0.25 per diluted share, compared to $0.27 per diluted share for the second quarter 2009 and $0.24 per diluted share for the third quarter of 2008. Year to date, adjusted net income was $0.69 per diluted share for 2009 as compared to $0.52 per diluted share in 2008. The increased profitability primarily reflects higher gross margins.
GAAP net income for the third quarter 2009 was $0.17 per diluted share, as compared to the second quarter 2009 of $0.18 per diluted share, and the third quarter 2008 of $0.18 per diluted share. Year to date, GAAP net income was $0.45 per diluted share for 2009 as compared to $0.27 per diluted share for 2008. Significant GAAP items in the third quarter 2009 that have been excluded in computing adjusted net income and earnings per shares include: amortization of intangibles, equity compensation expense, restructuring and acquisition-related costs, and non-cash interest related to convertible debt. A reconciliation of adjusted net income to GAAP net income per share is attached to this release and also can be found on the Company's website (www.arrisi.com).
Gross margin in the third quarter 2009 was 41.9%, which compares to the second quarter 2009 of 42.1% and the third quarter 2008 of 35.7%. The year-over-year improvement primarily reflects continued strong CMTS sales.
The Company ended the third quarter 2009 with $577 million of cash resources, which includes $562 million of cash and short-term investments, and $15 million of long-term marketable security investments, up in the aggregate by approximately $53 million from the end of the second quarter 2009 as a result of both strong earnings and lower working capital. The Company generated $63 million of cash from operating activities in the third quarter 2009 and $171 million through the first nine months of 2009, which compares to $46 million and $87 million in the same periods in 2008. Order backlog at the end of the third quarter 2009 was $170 million and the Company's book to bill ratio in the third quarter was 1.01. These amounts compare to order backlog of $166 million and book to bill ratio of 1.04 in the second quarter of 2009.
"The ARRIS team continues to deliver products and services that our customers worldwide need in order to grow, meet the competition and enhance the subscriber experience," said Bob Stanzione, ARRIS Chairman & CEO. "Rapid increases in internet TV traffic are altering the home video experience and creating demand for the ARRIS high speed data platform. We have taken key steps to grow our current business to include a strong video product suite in order to capitalize on today's vision of a converged voice, data and video platform."
During the quarter the Company announced the purchase of substantially all of the assets of Digeo, Inc., which provides products and a rich patent portfolio for video networking and multi-media services platforms as well the purchase of EGT, Inc. which provides video processing technologies that complement the Company's VOD, ad insertion and switched digital video product offerings. Also during the quarter, the Company announced that two new customers, Bresnan Communications and Kabel Nord, had selected the market leading ARRIS C-4 CMTS product for deployment in their operation areas. International sales represent a growing portion of ARRIS revenues with Cablevision Mexico the third largest customer in the quarter and three Japanese and Canadian customers ranked in the top twenty customers.
"Our third quarter 2009 results reflect continuing strong market acceptance of ARRIS products," said David Potts, ARRIS EVP & CFO. "Once again, our strong gross margins and cash generation demonstrate the financial strength of our Company. With respect to the fourth quarter 2009, we project that revenues for the Company will be in the range of $265 to $285 million, with adjusted net income per diluted share in the range of $0.22 to $0.26 and GAAP net income per diluted share, in the range of $0.13 to $0.17."
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Monday, October 26, 2009, to discuss these results in detail. You may participate in this conference call by dialing 888-679-8033 or 617-213-4846 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference passcode 82209148 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 5:00pm EDT conference call. A replay of the conference call can be accessed approximately two hours after the call through Friday, October 30, 2009 by dialing 888-286-8010 or 617-801-6888 for international calls and using the passcode 23090362. 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 carrier-grade telephony, demand driven video, next-generation advertising, network and workforce management solutions, access and transport architectures and ultra high-speed data services. Headquartered in Suwanee, Georgia, USA, ARRIS has R&D centers in Suwanee; Beaverton, OR; Chicago, IL; Kirkland, WA; State College, PA; Wallingford, CT; Waltham, MA; Cork, Ireland; and Shenzhen, China, and operates support and sales offices throughout the world. Information about ARRIS products and services can be found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
- growth expectations and business prospects;
- fourth quarter and 2009 revenues and net income;
- expected sales levels and acceptance of new ARRIS products;
- 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 as well as the general outlook for 2009 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;
- our customers operate in a capital intensive consumer based industry, and the current disruptions in the capital markets or changes in customer spending may adversely impact their ability or willingness to purchase the products that we offer; 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 June 30, 2009. 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,
2009 2009 2009 2008 2008
ASSETS
Current
assets:
Cash and
cash
equivalents $461,795 $476,846 $398,938 $409,894 $305,987
Short-term
investments,
at fair
value 99,917 47,195 25,494 17,371 23,571
------ ------ ------ ------ ------
561,712 524,041 424,432 427,265 329,558
Restricted
cash 4,473 4,552 4,550 5,673 5,768
Accounts
receivable,
net 119,125 128,482 155,792 159,443 180,367
Other
receivables 2,235 5,904 6,636 4,749 5,180
Inventories,
net 100,024 115,944 120,774 129,752 139,598
Prepaids 10,764 7,700 6,994 8,004 5,156
Income taxes
recoverable 4,212 366 3,232 362 1,896
Current
deferred
income tax
assets 32,883 41,166 49,027 44,004 42,714
Other current
assets 12,981 11,995 15,083 19,420 20,236
------ ------ ------ ------ ------
Total
current
assets 848,409 840,150 786,520 798,672 730,473
Property,
plant and
equipment,
net 58,339 60,048 59,438 59,204 60,268
Goodwill 234,416 231,684 231,684 231,684 449,418
Intangible
assets, net 201,351 208,822 218,085 227,348 236,689
Investments 30,574 10,317 14,593 14,681 15,086
Noncurrent
deferred
income
tax assets 3,593 3,870 3,771 12,157 3,988
Other assets 7,648 6,251 5,483 6,576 7,173
----- ----- ----- ----- -----
$1,384,330 $1,361,142 $1,319,574 $1,350,322 $1,503,095
========== ========== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts
payable $42,659 $48,859 $44,422 $75,863 $54,304
Accrued
compensation,
benefits
and related
taxes 27,054 20,753 15,583 27,024 21,831
Accrued
warranty 5,292 5,185 5,306 5,652 6,354
Deferred
revenue 35,423 43,727 44,006 44,461 35,986
Current
portion of
long-term
debt 148 148 147 146 234
Current
deferred
income tax
liability 250 248 241 1,059 -
Other
accrued
liabilities 34,979 35,852 31,922 25,410 30,205
------ ------ ------ ------ ------
Total
current
liabilities 145,805 154,772 141,627 179,615 148,914
Long-term
debt, net
of current
portion 208,433 205,710 203,080 211,870 209,340
Accrued
pension 18,914 19,665 19,289 18,820 10,622
Noncurrent
income tax
payable 10,632 12,386 12,441 9,607 10,128
Noncurrent
deferred
income tax
liability 35,188 33,999 42,530 41,598 67,403
Other
noncurrent
liabilities 15,301 15,094 14,391 15,343 18,088
------ ------ ------ ------ ------
Total
liabili-
ties 434,273 441,626 433,358 476,853 464,495
Stockholders'
equity:
Preferred
stock - - - - -
Common
stock 1,385 1,379 1,368 1,362 1,360
Capital in
excess of
par value 1,177,958 1,169,223 1,159,054 1,159,097 1,155,211
Treasury
stock at
cost (75,960) (75,960) (75,960) (75,960) (75,960)
Unrealized
loss on
marketable
securities (60) (161) (372) (274) (128)
Unfunded
pension
liability (8,070) (8,070) (8,070) (8,070) (3,358)
Accumulated
deficit (145,012) (166,711) (189,620) (202,502) (38,341)
Cumulative
translation
adjustments (184) (184) (184) (184) (184)
---- ---- ---- ---- ----
Total
stockholders'
equity 950,057 919,516 886,216 873,469 1,038,600
------- ------- ------- ------- ---------
$1,384,330 $1,361,142 $1,319,574 $1,350,322 $1,503,095
========== ========== ========== ========== ==========
ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
--------- --------- --------- ---------
Net sales $275,772 $297,551 $807,811 $852,167
Cost of sales 160,299 191,417 479,548 567,901
------- ------- ------- -------
Gross margin 115,473 106,134 328,263 284,266
Gross margin % 41.9% 35.7% 40.6% 33.4%
Operating expenses:
Selling, general, and
administrative expenses 36,311 33,012 110,782 107,040
Research and development
expenses 30,909 27,473 89,447 83,257
Restructuring charges 73 202 785 782
Amortization of intangible
assets 9,281 9,146 27,807 34,854
----- ----- ------ ------
76,574 69,833 228,821 225,933
------ ------ ------- -------
Operating income 38,899 36,301 99,442 58,333
Other expense (income):
Interest expense 4,356 4,360 13,121 12,672
Loss (gain) on investments (238) 37 (453) 210
Loss (gain) on foreign
currency 1,114 382 3,642 (258)
Interest income (424) (1,504) (1,172) (5,891)
Gain on debt retirement - - (4,152) -
Other income, net (263) (72) (887) (43)
---- --- ---- ---
Income from continuing
operations before income taxes 34,354 33,098 89,343 51,643
Income tax expense 12,655 10,664 31,853 17,551
------ ------ ------ ------
Net income $21,699 $22,434 $57,490 $34,092
======= ======= ======= =======
Net income per common share:
Basic $0.17 $0.18 $0.46 $0.27
===== ===== ===== =====
Diluted $0.17 $0.18 $0.45 $0.27
===== ===== ===== =====
Weighted average common shares:
Basic 125,326 122,922 124,381 125,466
======= ======= ======= =======
Diluted 129,695 125,420 127,916 127,249
======= ======= ======= =======
ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
--------- --------- --------- ---------
Operating
Activities:
Net income $21,699 $22,434 $57,490 $34,092
Depreciation 5,408 5,426 15,370 15,521
Amortization
of intangible
assets 9,281 9,146 27,807 34,854
Stock
compensation
expense 4,260 2,895 11,714 8,286
Deferred income
tax provision 9,751 3,856 13,678 2,863
Amortization of
deferred
finance fees 180 190 548 571
Provision for
doubtful
accounts 11 151 1 365
Loss (gain) on
investments (238) 37 (453) 210
Gain on
disposal of
fixed assets (76) (13) (46) (15)
Non-cash
interest expense 2,772 2,710 8,308 7,972
Gain on debt
retirement - - (4,152) -
Excess tax
benefits from
stock-based
compensation
plans (1,471) (24) (2,027) (24)
Changes in operating
assets &
liabilities,
net of effects of
acquisitions and
disposals:
Accounts
receivable 9,830 (1,819) 40,801 (12,103)
Other
receivables 2,359 736 539 (4,001)
Inventory 16,641 5,182 30,449 (6,028)
Income taxes
payable/
recoverable (4,800) 4,972 (2,868) (657)
Accounts payable
and accrued
liabilities (9,757) (10,567) (32,620) 9,743
Other, net (2,800) 285 6,665 (5,117)
------ --- ----- ------
Net cash
provided by
operating
activities 63,050 45,597 171,204 86,532
Investing
Activities:
Purchases of
property,
plant, and
equipment (3,459) (4,652) (14,327) (16,444)
Cash paid for
acquisition, net of
cash
acquired (7,930) (5,647) (8,130) (10,066)
Cash proceeds from
sale of property,
plant & equipment 207 13 208 250
Purchases of
investments (93,079) (70,111) (151,845) (86,998)
Disposals of
investments 20,479 50,006 54,416 122,486
------ ------ ------ -------
Net cash
provided by
(used in)
investing
activities (83,782) (30,391) (119,678) 9,228
Financing
Activities:
Payment of debt and
capital lease
obligations (49) (322) (10,677) (35,518)
Repurchase of common
stock - - - (75,960)
Excess tax benefits
from stock-based
compensation plans 1,471 24 2,027 24
Repurchase of
shares to
satisfy minimum tax
withholdings - - (2,180) (1,035)
Fees and proceeds
from
issuance of common
stock, net 4,259 813 11,205 (1,081)
----- --- ------ ------
Net cash
provided by
(used in)
financing
activities 5,681 515 375 (113,570)
Net increase
(decrease)
in cash and
cash
equivalents (15,051) 15,721 51,901 (17,810)
Cash and cash
equivalents
at beginning
of period 476,846 290,266 409,894 323,797
------- ------- ------- -------
Cash and cash
equivalents
at end of
period $461,795 $305,987 $461,795 $305,987
======== ======== ======== ========
ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL NET INCOME RECONCILIATION
(in thousands, except per share data)
(unaudited)
Q1 2009 Q2 2009
------- -------
Per Diluted Per Diluted
Amount Share Amount Share
------ ----- ------ -----
Net income (loss) $12,882 $0.10 $22,909 $0.18
Highlighted items:
Impacting gross
margin:
Stock compensation
expense 303 - 366 -
Impacting operating
expenses:
Acquisition costs,
restructuring, and
other 120 - 592 -
Amortization of
intangible assets 9,263 0.07 9,263 0.07
Stock compensation
expense 3,098 0.02 3,687 0.03
Impacting other
(income) / expense:
Non-cash interest
expense 2,818 0.02 2,718 0.02
Gain on repurchase of
debt (4,152) (0.03) - -
Impacting income tax
expense:
Adjustments of income
tax valuation
allowances and
research &
development credits
and other 1,455 0.01 - -
Tax related to
highlighted items
above (3,646) (0.03) (5,322) (0.04)
----- ---- ------ ----
Total highlighted
items 9,259 0.07 11,304 0.09
----- ---- ------ ----
Net income excluding
highlighted items $22,141 $0.18 $34,213 $0.27
======= ===== ======= =====
Weighted average
common shares -
diluted 124,920 128,054
======= =======
Q1 2008 Q2 2008
------- -------
Per Diluted Per Diluted
Amount Share Amount Share
------ ----- ------ -----
Net income (loss) $3,829 $0.03 $7,829 $0.06
Highlighted items:
Impacting gross
margin:
Stock compensation
expense 201 - 245 -
Impacting operating
expenses:
Integration costs 427 - - -
Restructuring charges 405 - 175 -
Amortization of
intangible assets 13,254 0.10 12,454 0.10
Stock compensation
expense 2,350 0.02 2,595 0.02
Impacting other
(income) / expense:
Non-cash interest
expense 2,605 0.02 2,657 0.02
Impacting income tax
expense:
Adjustments of tax
related to goodwill
impairment and
certain provision to
return adjustments - - - -
Tax related to
highlighted items
above (7,268) (0.06) (6,726) (0.05)
------ ---- ------ ----
Total highlighted
items 11,974 0.09 11,400 0.09
------ ---- ------ ----
Net income excluding
highlighted items $15,803 $0.12 $19,229 $0.15
======= ===== ======= =====
Weighted average
common shares -
diluted 131,981 124,651
======= =======
Q3 2009 Sept YTD 2009
------- -------------
Per Diluted Per Diluted
Amount Share Amount Share
------ ----- ------ -----
Net income (loss) $21,699 $0.17 $57,490 0.45
Highlighted items:
Impacting gross
margin:
Stock compensation
expense 394 - 1,063 0.01
Impacting operating
expenses:
Acquisition costs,
restructuring, and
other 348 - 1,060 0.01
Amortization of
intangible assets 9,281 0.07 27,807 0.22
Stock compensation
expense 3,866 0.03 10,651 0.08
Impacting other
(income) / expense:
Non-cash interest
expense 2,772 0.02 8,308 0.06
Gain on repurchase of
debt - - (4,152) (0.03)
Impacting income tax
expense:
Adjustments of income
tax valuation
allowances and
research &
development credits
and other (166) - 1,289 0.01
Tax related to
highlighted items
above (6,218) (0.05) (15,186) (0.12)
------ ---- ------ ----
Total highlighted
items 10,277 0.08 30,840 0.24
------ ---- ------ ----
Net income excluding
highlighted items $31,976 $0.25 $88,330 $0.69
======= ===== ======= =====
Weighted average
common shares -
diluted 129,695 127,916
======= =======
Q3 2008 Sept YTD 2008
------- -------------
Per Diluted Per Diluted
Amount Share Amount Share
------ ----- ------ -----
Net income (loss) $22,434 $0.18 $34,092 $0.27
Highlighted items:
Impacting gross
margin:
Stock compensation
expense 264 - 710 0.01
Impacting operating
expenses:
Integration costs - - 427 -
Restructuring charges 202 - 782 0.01
Amortization of
intangible assets 9,146 0.07 34,854 0.27
Stock compensation
expense 2,631 0.02 7,576 0.06
Impacting other
(income) / expense:
Non-cash interest
expense 2,710 0.02 7,972 0.06
Impacting income tax
expense:
Adjustments of tax
related to goodwill
impairment and
certain provision to
return adjustments (1,530) (0.01) (1,530) (0.01)
Tax related to
highlighted items
above (5,164) (0.04) (19,158) (0.15)
----- ---- ------ ----
Total highlighted
items 8,259 0.07 31,633 0.25
----- ---- ------ ----
Net income excluding
highlighted items $30,693 $0.24 $65,725 $0.52
======= ===== ======= =====
Weighted average
common shares -
diluted 125,420 127,249
======= =======
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. With respect to amortization
of intangibles, the intangibles being amortized relate to our recent
acquisition of C-COR. The acquisition costs, restructuring, and other
reflect items that, although they or similar items might recur, are of a
nature and magnitude that identifying them separately provides investors
with a greater ability to project ARRIS' future performance. With
respect to the convertible debt non-cash interest, ARRIS records non-cash
interest expense related to the 2013 convertible debt as a result of the
adoption of FSP ABP 14-1 on January 1, 2009. Disclosing the non-cash
piece provides investors with the information regarding interest that
will not be paid out in cash. During the first quarter of 2009,
ARRIS repurchased a portion of their convertible debt and recognized a
gain of approximately $4.2 million. In the first and third quarter of
2009, a tax expense of approximately $1.3 million was recorded for
state valuation allowances, research and development tax credits and
provision to return differences resulting from filing of the 2008 tax
return. During the first quarter of 2008, ARRIS recorded incremental
costs of $0.4 million as a result of the C-COR integration. In the
third quarter of 2008, ARRIS recorded a net tax benefit of $1.6 million
related to provision to return differences resulting from the filing of
the 2007 tax return.
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 GROUP, INC.
Net Income Reconciliation (unaudited)
Q4 EPS 2009 Guidance
Estimated GAAP EPS - diluted $0.13 - $0.17
Reconciling Items:
Amortization of intangibles, after tax* 0.05
Stock compensation expense, after tax 0.02
Non-cash interest expense, after tax 0.01
Acquisition, restructuring and other, after
tax 0.01
----
Subtotal 0.09
----
Estimated adjusted (non-GAAP) EPS - diluted $0.22 - $0.26
==================
* Does not include the amortization for the Digeo intangibles as the
valuation has not been completed.
See the Supplemental Net Income Reconciliation for a discussion regarding
management's reasoning for providing this adjusted financial measure
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