ARRS Arris International Plc - Ordinary Shares

ARRIS Announces First Quarter 2005 Results SUWANEE, Ga., April 27 /PRNewswire-FirstCall/ -- ARRIS (NASDAQ:ARRS), a global telecommunications technology leader, today announced preliminary and unaudited financial results for the first quarter 2005. Financial Highlights: * Revenues were $135.9 million for the first quarter 2005, up 22% over first quarter 2004 revenues of $111.6 million and up 5% from fourth quarter 2004 revenues of $129.5 million. * Net income (loss) per diluted share for the first quarter was $0.04 as compared to $(0.24) in the first quarter 2004 and $(0.01) in the fourth quarter 2004. Excluding the items detailed below (a non-GAAP measure) net income per diluted share for the first quarter was $0.05. * Cash, cash equivalents, and short-term investments at the end of the first quarter were $107.9 million, with $6.9 million of cash generated from operating activities in the first quarter. * Book-to-bill ratio increased to 1.35 in the first quarter from 1.08 in the fourth quarter. * Backlog increased approximately 62% to $122.6 million in the first quarter from $75.6 million in the fourth quarter. Financial details: Revenues for the quarter were $135.9 million with GAAP net income per share of $0.04 inclusive of certain items described below. Revenue growth in the quarter of over 22%, as compared with the first quarter 2004 revenue of $111.6 million, was driven by strong acceptance of ARRIS' market leading CPE product offerings for VoIP rollouts in both domestic and international markets. The first quarter financial results were at the upper range of the revenue and earnings guidance that the Company provided on February 10, 2005. On a GAAP basis, net income (loss) was $3.4 million or $0.04 per diluted share in the first quarter as compared to the fourth quarter 2004 net income (loss) of $(0.6) million or $(0.01) per share and as compared to the first quarter 2004 net income (loss) of $(18.7) million or $(0.24) per share. Included in the first quarter 2005 net income (loss) per share was amortization of intangibles of $(0.01) per share. Excluding amortization and other items, the net income (loss) was $0.05 per diluted share in the first quarter. A reconciliation of our GAAP to our non-GAAP earnings per share is attached to this release and can be found on our website. Broadband product revenues were $69.7 million in the first quarter, down approximately 10% from the fourth quarter 2004 level of $77.8 million. Supplies & CPE product revenues were $66.2 million in the first quarter, up approximately 28% compared to $51.7 million in the fourth quarter 2004. International sales were $36.0 million in the first quarter, as compared to $42.3 million in the fourth quarter 2004. Backlog at the end of the first quarter was $122.6 million, up 62% as compared to $75.6 million at the end of the fourth quarter 2004. Bookings in the first quarter 2005 were $182.9 million as compared to $140.4 million in the fourth quarter 2004. The book- to-bill ratio in the first quarter was approximately 1.35, up from 1.08 in the fourth quarter 2004. Gross margins of 27.1% were up approximately 100 basis points as compared to fourth quarter 2004 margins of 26.1%, with margin increases in both product groups and compares to 32.5% in the first quarter 2004. Gross margins of Broadband products were 37.4% in the first quarter 2005 as compared to 34.6% in the fourth quarter 2004. Gross margins of the Supplies & CPE products were 16.2% in the first quarter as compared to 13.4% in the fourth quarter. Operating expenses were $32.1 million in the first quarter, which included $0.6 million of amortization of intangibles and $0.2 million of restructuring and impairment costs. This compares to $35.7 million for the fourth quarter 2004, which included $4.6 million of amortization of intangibles and $0.5 million of restructuring and other costs. Excluding these items, operating expenses were $31.3 million in the first quarter and $30.6 million in the fourth quarter. Research and development costs included in operating expenses were $14.8 million in the first quarter as compared to $16.0 million in the fourth quarter. The Company had a foreign exchange loss of $(0.9) million in the first quarter as compared to a gain of $1.2 million in the fourth quarter 2004. The Company ended the first quarter with $107.9 million of cash on hand and short-term investments, up from the year end 2004 level of $103.1 million. Approximately $6.9 million of cash was generated from operating activities in the first quarter. Inventory at the end of the first quarter and turns for the first quarter were $76.2 million and 4.7, respectively, as compared to $92.6 million and 4.2, respectively, for the fourth quarter 2004. Accounts receivable ended the first quarter at $63.9 million with DSOs of 40, and compare to $55.7 million and DSOs of 42 at the end of the fourth quarter 2004. "It is now clear that convergence of voice, data and video is the major driving force within our industry and with our customers," said Bob Stanzione, ARRIS Chairman & CEO. "Our R&D investments have positioned ARRIS as a clear industry thought leader and our work in new wideband CMTS architectures and preliminary DOCSIS 3.0 standards has already resulted in new products that will be ready for introduction later this year. ARRIS is a strong proponent of the technique recently approved by CableLabs known as Packet-Based channel bonding, which will permit us to provide timely solutions to our customers and which will allow our customers to use their existing installed base of DOCSIS 2.0 CMTS units in channel bonding wideband applications. The C4 Flexpath(R) feature, first demonstrated at the NCTA show in 2004 at 80Mbps and again in 2005 at 100Mbps is based on this technique and allows download speeds up to 25 times faster than today's rates." During the quarter the Company announced a number of significant developments that position it well for the future. On March 30, 2005, the Company announced that Insight Communications, already a customer for a range of ARRIS products, had approved and ordered the Cadant C4(R) CMTS for its VoIP deployments. On March 25, 2005, the Company announced that the Cadant C4(R) won Euro-DOCSIS 2.0 certification in tComLabs Certification Wave 18, which, along with the already Euro-DOCSIS 2.0 certified Touchstone CPE, allows deployment of a full Euro-DOCSIS solution to European customers. Also during the quarter, the Company announced that Canadian operator, Videotron, had selected the ARRIS Telephony Modem for its large scale VoIP deployments throughout Canada. "We now anticipate that our revenues for the second quarter 2005 will be in the range of $145 to $155 million with net income per share, on a U.S. GAAP basis in the range of $0.06 to $0.10 inclusive of amortization of intangibles of approximately $0.3 million," said David Potts, ARRIS EVP & CFO. "Growing demand for ARRIS products that enable the worldwide rollout of VoIP by our customers should sustain both top line and bottom line growth throughout 2005. Our confidence comes from improved visibility based upon announced plans by our customers." ARRIS management will conduct a conference call at 8:30am EDT on Thursday, April 28, 2005 to discuss these results in detail. You may participate in this conference call by dialing (877) 691-0879 prior to the start of the call and providing the ARRIS Group, Inc. name and Jim Bauer as the moderator. Please note that ARRIS will not accept any calls related to this earnings release during the period between the 6:30pm EDT release on April 27, 2005 and the completion of the scheduled conference call on April 28, 2005. A replay of the conference call can be accessed through Tuesday, May 3, 2005 by dialing (877) 519-4471 and using the PIN #5951877. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at http://www.arrisi.com/ . ARRIS provides broadband local access networks with innovative next generation high-speed data and telephony systems for the delivery of voice, video and data to the home and business. ARRIS' complete solutions enhance the reliability and value of converged services from the network to the subscriber. Headquartered in Suwanee, Georgia, USA, ARRIS has design, engineering, distribution, service and sales office locations 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: * Introductions of new products; * second quarter 2005 revenues and earnings; * revenue and earnings expectations for 2005; * the general market outlook; and * acceptance and introduction of ARRIS products 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 second quarter 2005 as well as the general outlook for 2005 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; and * several of the substantial participants in our industry, including some of our customers are in a weakened financial condition, which could directly or indirectly cause a reduced demand for our products or other unexpected consequences; additionally, we cannot be certain if or when the general uncertainty in our industry will stabilize or improve. In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: 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. 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. Consolidated Balance Sheets (in thousands) March 31 Dec. 31 Sept. 30 June 30 March 31 2005 2004 2004 2004 2004 (unaudited) (unaudited)(unaudited)(unaudited) ASSETS Current assets: Cash and cash equivalents $26,546 $25,072 $35,865 $40,597 $87,197 Short-term investments 81,400 78,000 60,000 59,750 10,000 Restricted cash 4,025 4,017 4,008 5,267 9,520 Accounts receivable, net 63,938 55,661 64,540 63,392 57,862 Other receivables 400 420 2,822 1,817 1,324 Inventories, net 76,249 92,636 88,282 74,533 73,399 Other current assets 9,310 9,416 16,168 13,172 10,351 Total current assets 261,868 265,222 271,685 258,528 249,653 Property, plant and equipment, net 26,217 27,125 23,524 23,067 23,148 Goodwill 150,569 150,569 150,569 150,569 150,569 Intangibles 884 1,672 6,307 12,513 21,440 Investments 4,450 3,620 4,296 4,307 4,656 Other assets 2,210 2,470 2,598 3,368 2,973 $446,198 $450,678 $458,979 $452,352 $452,439 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $30,922 $30,640 $39,156 $33,452 $32,492 Accrued compensation, benefits and related taxes 6,990 14,845 12,137 9,202 5,273 Current portion of long- term debt - - 2 2 902 Current portion of capital lease obligations - - - - 6 Other accrued liabilities 30,881 32,111 37,123 33,318 34,378 Total current liabilities 68,793 77,596 88,418 75,974 73,051 Long-term debt, net of current portion 75,000 75,000 75,000 75,000 75,000 Other long-term liabilities 16,996 16,781 12,256 14,445 13,404 160,789 169,377 175,674 165,419 161,455 Stockholders' equity: Preferred stock - - - - - Common stock 873 889 888 887 887 Capital in excess of par value 644,891 644,838 644,714 645,390 645,676 Unearned compensation (3,939) (4,566) (5,396) (6,168) (7,598) Unrealized gain on marketable securities 742 706 991 1,012 781 Unfunded pension losses (3,345) (3,345) (1,293) (1,293) (1,293) Accumulated deficit (353,629) (357,038) (356,431) (352,726) (347,298) Cumulative translation adjustments (184) (183) (168) (169) (171) Total stockholders' equity 285,409 281,301 283,305 286,933 290,984 $446,198 $450,678 $458,979 $452,352 $452,439 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) For the Three Months Ended March 31, 2005 2004 Net sales $135,924 $111,628 Cost of sales 99,133 75,334 Gross profit 36,791 36,294 Gross profit % 27.1% 32.5% Operating expenses: Selling, general, and administrative expenses 16,672 17,544 Provision for doubtful accounts (153) 44 Research and development expenses 14,801 16,177 Restructuring and impairment charges 198 6,175 Amortization of intangibles 557 8,922 32,075 48,862 Operating income (loss) 4,716 (12,568) Other expense (income): Interest expense 1,018 1,564 Loss (gain) on debt retirement - 4,406 Loss (gain) on investments - 859 Equity in losses of unconsolidated affiliate 75 - Loss (gain) on foreign currency 935 3 Other (income) expense, net (558) (414) Income (loss) from continuing operations before income taxes 3,246 (18,986) Income tax expense (benefit) (152) 9 Net income (loss) from continuing operations 3,398 (18,995) Income from discontinued operations 10 339 Net income (loss) $3,408 $(18,656) Net income (loss) per common share - basic Income (loss) from continuing operations $0.04 $(0.24) Income (loss) from discontinued operations - - Net income (loss) $0.04 $(0.24) Net income (loss) per common share - diluted: Income (loss) from continuing operations $0.04 $(0.24) Income (loss) from discontinued operations - - Net income (loss) $0.04 $(0.24) Weighted average common shares: Basic 87,851 78,829 Diluted 90,497 78,829 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months Ended March 31, 2005 2004 Operating Activities: Net income (loss) $3,408 $(18,656) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 2,597 2,860 Amortization of intangibles 557 8,922 Amortization of unearned compensation 542 1,049 Amortization of deferred finance fees 153 232 Provision for doubtful accounts (153) 44 Loss (gain) on disposal of fixed assets (12) (21) Loss (gain) on investments - 859 Loss (gain) on debt retirement - 4,406 Impairment of long-lived assets 291 - Loss from equity investment 75 - Gain on discontinued product lines (10) (339) Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (8,124) (1,562) Other receivables 20 (44) Inventory 16,387 5,163 Accounts payable and accrued liabilities (8,403) 10,680 Other, net (402) (5,775) Net cash provided by (used in) operating activities 6,926 7,818 Investing Activities: Purchases of property, plant, and equipment (1,955) (1,654) Cash proceeds from sale of property, plant, and equipment 40 - Cash paid for acquisition, net of cash acquired - (50) Purchases of short-term investments (5,000) (20,000) Disposals of short-term investments 1,600 20,000 Other (259) - Net cash provided by (used in) investing activities (5,574) (1,704) Financing Activities: Payments on capital lease obligations - (8) Payments on debt obligations - (263) Proceeds from issuance of common stock and other 122 6,472 Net cash provided by (used in) financing activities 122 6,201 Net increase in cash and cash equivalents 1,474 12,315 Cash and cash equivalents at beginning of period 25,072 74,882 Cash and cash equivalents at end of period $26,546 $87,197 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2005 Per Diluted Amount Share Net income $3,408 $0.04 Highlighted items: Impacting operating expenses: Impairment of long-lived assets 291 - Restructuring charges - adjustments to existing accruals (93) - Amortization of intangibles 557 0.01 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (10) - Total highlighted items 745 0.01 Net income excluding highlighted items $4,153 $0.05 Weighted average common shares - diluted 90,497 ARRIS believes that presenting net income (loss) and earnings per share amounts adjusted for the events described above provides meaningful information which will allow investors to more easily compare ARRIS' financial performance period to period. With respect to amortization, the intangibles being amortized relate to acquisitions for which the vast majority of the amortization was complete by the end of the first quarter of 2005. Given the magnitude of the amortization historically, identifying it separately provides investors the ability to appropriately factor in their analysis the amount of amortization that will not recur. While some of the other events will or may recur, and there may be similar events that occur as well or instead, these other events tend not to occur on a predictable basis or in predictable amounts. In assessing operating performance and preparing budgets and forecasts, ARRIS' management considers performance after making these adjustments because of their nature and believes that it is helpful to investors to provide them with the same information in order to provide greater transparency and insight into management's analysis. Therefore, ARRIS has provided this information and expects to continue to provide similar information in the future with full schedules reconciling the differences between GAAP and non-GAAP financial measures. As used herein, "GAAP" refers to U.S. generally accepted accounting principles. DATASOURCE: ARRIS CONTACT: Jim Bauer, Investor Relations of ARRIS, +1-678-473-2647, or Web site: http://www.arrisi.com/

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