ARRS Arris International Plc - Ordinary Shares

ARRIS Announces Strong Second Quarter 2005 Performance SUWANEE, Ga., July 27 /PRNewswire-FirstCall/ -- ARRIS (NASDAQ:ARRS), a global telecommunications technology leader, today announced preliminary and unaudited financial results for the second quarter 2005. Financial Highlights: * Revenues were $162.2 million for the second quarter 2005, up $41.7 million, or 34.6%, over second quarter 2004 revenues of $120.5 million and up $26.3 million, or 19.4%, from first quarter 2005 revenues of $135.9 million. * Net income (loss) per diluted share for the second quarter was $0.08 as compared to $(0.06) in the second quarter 2004 and $0.04 in the first quarter 2005. Net income for the second quarter included a make-whole payment of $2.4 million, or $(0.03) per diluted share, associated with the conversion of all remaining 4 1/2% 2008 Convertible Notes. Excluding the make-whole payment and other items detailed below (a non- GAAP measure) net income per diluted share for the second quarter was $0.11. * Gross margins were 25.3% in the second quarter 2005, down from the first quarter 2005 level of 27.1%, primarily as the result of higher costs incurred to air freight E-MTAs to meet rapidly increasing customer demand during the quarter. * Cash, cash equivalents, and short-term investments at the end of the second quarter were $97.2 million reflecting the use of approximately $9.1 million of cash for operating activities during the quarter predominately to fund higher accounts receivable associated with the higher sales. * The remaining $75 million of 4-1/2% 2008 Convertible Notes were converted into 15 million shares of common stock during the quarter. * Book-to-bill ratio increased to 1.27 in the second quarter as compared to 1.11 in the second quarter of 2004 and compares to 1.35 in the first quarter of 2005. * Backlog increased approximately 36.1% to $166.8 million in the second quarter from $122.6 million in the first quarter. Financial details: Revenues for the quarter were $162.2 million with GAAP net income per diluted share of $0.08 inclusive of certain items described below. Revenues grew by $41.7 million, or 34.6% and $26.3 million, or 19.4% as compared to the second quarter 2004 and first quarter 2005, respectively. Through the first six months revenues were $298.1 million, up $66.0 million, or 28.4% from the first half of 2004. The revenue growth during the quarter is the result of both accelerating customer VoIP implementations and the strength of ARRIS' CMTS and high speed data products. On a GAAP basis, net income (loss) was $7.3 million or $0.08 per diluted share in the second quarter 2005 as compared to the first quarter 2005 net income (loss) of $3.4 million or $0.04 per share and as compared to the second quarter 2004 net income (loss) of $(5.4) million or $(0.06) per share. Included in the second quarter 2005 net income (loss) per share was an interest make-whole payment related to the redemption of the 4 1/2% 2008 Convertible Notes of $2.4 million or $(0.03) per share and amortization of intangibles and restructuring costs of $(0.3) million, or $(0.00) per share. Excluding these items, net income was $0.11 per diluted share in the second quarter. Year-to-date, GAAP net income (loss) was $10.7 million or $0.12 per diluted share and compares to $(24.1) million or $(0.29) per diluted share for the first half of 2004. A reconciliation of our GAAP to our non-GAAP earnings per share is attached to this release and can also be found on the ARRIS website. Broadband product revenues were $71.2 million in the second quarter, up approximately 2.2% from the first quarter 2005 level of $69.7 million. Supplies & CPE product revenues were $91.0 million in the second quarter, up approximately 37.5% compared to $66.2 million in the first quarter 2005. International sales were $44.0 million in the second quarter, as compared to $36.0 million in the first quarter 2005. Backlog at the end of the second quarter was $166.8 million, up approximately 36.1% as compared to $122.6 million at the end of the first quarter 2005. Bookings in the second quarter 2005 were $206.4 million as compared to $182.9 million in the first quarter 2005. The book-to-bill ratio in the second quarter was approximately 1.27, compared to 1.35 in the first quarter 2005. Gross margins of 25.3% were down compared to first quarter 2005 margins of 27.1%, primarily as a result of product mix and higher transportation costs required to meet increased customer demand. The Company noted that without the effect of the additional transportation costs, margins within the Supplies & CPE category actually increased during the quarter. E-MTA demand continued to accelerate with sales of 567,000 units in the quarter as compared to 334,000 units in the first quarter of 2005 and 173,000 units in the fourth quarter 2004 and 30,000 units in the second quarter of 2004. As a result, gross margins of the Supplies & CPE category were 15.0% in the second quarter as compared to 16.2% in the first quarter of 2005. Gross margins of Broadband products increased 110 basis points to 38.5% in the second quarter as compared to 37.4% in the first quarter 2005. Operating expenses were $32.0 million in the second quarter 2005 as compared to $32.1 million for the first quarter 2005. Research and development costs included in operating expenses were $14.3 million in the second quarter 2005 as compared to $14.8 million in the first quarter 2005. The Company had a foreign exchange gain of $1.1 million in the second quarter 2005 as compared to loss of $(0.9) million in the first quarter 2005. The Company ended the second quarter 2005 with $97.2 million of cash, cash equivalents and short-term investments, down from $107.9 million at the end of the first quarter 2005. Approximately $9.1 million of cash was used for operating activities in the second quarter, predominately to fund the increase in accounts receivable resulting from higher quarter over quarter sales. Inventory and turns at the end of the second quarter 2005 were $80.9 million and 6.2, respectively, as compared to $76.2 million and 4.7, respectively, for the first quarter 2005. Accounts receivable ended the second quarter 2005 at $87.9 million with DSOs of 43, and compare to $63.9 million and DSOs of 40 at the end of the first quarter 2005. "Competitive actions by the satellite and the telecom companies are accelerating spending within our industry," said Bob Stanzione, ARRIS Chairman & CEO. "New technology approaches such as packet bonding for higher speed data transmission rates and the wide acceptance of VoIP service offerings are both creating and sustaining demand for innovative ARRIS products. Also during the quarter our marketing efforts resulted in product sales to a number of new customers which further expands our customer base both domestically and internationally. We see building demand for greater than 100 Mbps to the customer premises that, coupled with future opportunities that will result from the transition to IP Video, continue to position ARRIS well for future industry spending." During the quarter the Company called for redemption the remaining $75 million of its 4-1/2% 2008 Convertible Notes. All of the holders elected to convert their notes into common stock, and the Company is now essentially debt-free. In addition, the Company announced that its Korean Value-Added Reseller (VAR), Commverge Solutions, had entered into an agreement to supply Hanaro Telecom with the ARRIS Cadant C4 Cable Termination System (CMTS) as part of Hanaro's next-generation large capacity upgrade and that the Company had shipped the one-millionth Touchstone E-MTA during the quarter. The Company continued to add new customers after the close of the quarter, most notably Cable One, the tenth largest cable operator in the U.S., and more recently a new wireless cable customer in Iraq. "We now anticipate that our revenues for the third quarter 2005 will again show a strong increase to the range of $180 to $190 million with net income per share, on a U.S. GAAP basis, in the range of $0.12 to $0.15," said David Potts, ARRIS EVP & CFO. "We expect to see improvement in our operating leverage as demand for our product portfolio continues to grow." ARRIS management will conduct a conference call at 8:30am EDT on Thursday, July 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 July 27, 2005 and the completion of the scheduled conference call on July 28, 2005. A replay of the conference call can be accessed through Tuesday, August 2, 2005 by dialing (877) 519-4471 and using the PIN #6252875. 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, U.S.A., 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: * third quarter 2005 revenues and net income; * revenue and earnings expectations for 2005; * the general market outlook; * acceptance and introduction of ARRIS products; and * the timing of introductions of new technologies 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 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) June 30, March 31, Dec. 31, Sept. 30, June 30, 2005 2005 2004 2004 2004 (unaudited)(unaudited) (unaudited)(unaudited) ASSETS Current assets: Cash and cash equivalents $97,194 $26,546 $25,072 $35,865 $40,597 Short-term investments - 81,400 78,000 60,000 59,750 Restricted cash 4,037 4,025 4,017 4,008 5,267 Accounts receivable, net 87,900 63,938 55,661 64,540 63,392 Other receivables 288 400 420 2,822 1,817 Inventories, net 80,869 76,249 92,636 88,282 74,533 Other current assets 6,700 9,310 9,416 16,168 13,172 Total current assets 276,988 261,868 265,222 271,685 258,528 Property, plant and equipment, net 26,351 26,217 27,125 23,524 23,067 Goodwill 150,569 150,569 150,569 150,569 150,569 Intangibles 1,356 884 1,672 6,307 12,513 Investments 3,223 4,450 3,620 4,296 4,307 Other assets 399 2,210 2,470 2,598 3,368 $458,886 $446,198 $450,678 $458,979 $452,352 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $30,863 $30,922 $30,640 $39,156 $33,452 Accrued compensation, benefits and related taxes 9,927 6,990 14,845 12,137 9,202 Current portion of long- term debt - - - 2 2 Other accrued liabilities 29,879 30,881 32,111 37,123 33,318 Total current liabilities 70,669 68,793 77,596 88,418 75,974 Long-term debt, net of current portion - 75,000 75,000 75,000 75,000 Other long-term liabilities 17,211 16,996 16,781 12,256 14,445 87,880 160,789 169,377 175,674 165,419 Stockholders' equity: Preferred stock - - - - - Common stock 1,053 873 889 888 887 Capital in excess of par value 727,096 644,891 644,838 644,714 645,390 Unearned compensation (8,112) (3,939) (4,566) (5,396) (6,168) Unrealized holding gain on marketable securities 838 742 706 991 1,012 Unfunded pension losses (3,345) (3,345) (3,345) (1,293) (1,293) Accumulated deficit (346,340) (353,629) (357,038) (356,431) (352,726) Cumulative translation adjustments (184) (184) (183) (168) (169) Total stockholders' equity 371,006 285,409 281,301 283,305 286,933 $458,886 $446,198 $450,678 $458,979 $452,352 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, 2005 2004 2005 2004 Net sales $162,201 $120,537 $298,125 $232,165 Cost of sales 121,118 80,185 220,251 155,519 Gross profit 41,083 40,352 77,874 76,646 Gross profit % 25.3% 33.5% 26.1% 33.0% Operating expenses: Selling, general, and administrative expenses 17,572 18,495 34,244 36,039 Provision for doubtful accounts (358) 252 (511) 296 Research and development expenses 14,336 16,323 29,137 32,500 Restructuring and impairment charges 198 876 396 7,051 Amortization of intangibles 218 8,927 775 17,849 31,966 44,873 64,041 93,735 Operating income (loss) 9,117 (4,521) 13,833 (17,089) Other expense (income): Interest expense 1,004 1,081 2,022 2,645 Loss (gain) on debt retirement 2,372 - 2,372 4,406 Loss (gain) on investments and notes receivable - 580 - 1,439 Equity in losses of unconsolidated affiliate - - 75 - Loss (gain) on foreign currency (1,078) 136 (143) 139 Other (income) expense, net (481) (95) (1,039) (509) Income (loss) from continuing operations before income taxes 7,300 (6,223) 10,546 (25,209) Income tax expense (benefit) 87 37 (65) 46 Net income (loss) from continuing operations 7,213 (6,260) 10,611 (25,255) Income from discontinued operations 76 832 86 1,171 Net income (loss) $7,289 $(5,428) $10,697 $(24,084) Net income (loss) per common share - basic: Income (loss) from continuing operations $0.08 $(0.07) $0.12 $(0.30) Income (loss) from discontinued operations 0.00 0.01 0.00 0.01 Net income (loss) $0.08 $(0.06) $0.12 $(0.29) Net income (loss) per common share - diluted: Income (loss) from continuing operations $0.08 $(0.07) $0.12 $(0.30) Income (loss) from discontinued operations 0.00 0.01 0.00 0.01 Net income (loss) $0.08 $(0.06) $0.12 $(0.29) Weighted average common shares: Basic 88,837 87,113 88,348 82,971 Diluted 91,356 87,113 90,507 82,971 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three For the Six Months Months Ended June 30, Ended June 30, 2005 2004 2005 2004 Operating Activities: Net income (loss) $7,289 $(5,428) $10,697 $(24,084) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 2,501 2,466 5,098 5,326 Amortization of intangibles 218 8,927 775 17,849 Amortization of unearned compensation 1,177 575 1,730 1,624 Amortization of deferred finance fees 152 152 305 384 Provision for doubtful accounts (358) 252 (511) 296 Loss on disposal of fixed assets 143 116 131 95 Loss (gain) on investments and notes receivable - 580 - 1,439 Loss (gain) on debt retirement 2,372 - 2,372 4,406 Impairment of long-lived assets - - 291 - Loss from equity investment - - 75 - Gain on discontinued product lines (76) (832) (86) (1,171) Gain on derivative instruments (1,233) - (1,230) - Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (23,354) (5,782) (31,478) (7,344) Other receivables 112 (493) 132 (537) Inventory (4,310) (1,134) 12,077 4,029 Accounts payable and accrued liabilities 2,265 5,786 (6,192) 16,466 Other, net 4,045 887 3,694 (4,888) Net cash provided by (used in) operating activities (9,057) 6,072 (2,120) 13,890 Investing Activities: Purchases of property, plant, and equipment (2,928) (2,585) (4,883) (4,239) Cash proceeds from sale of property, plant, and equipment - - 40 - Cash paid for acquisition, net of cash acquired (89) - (89) (50) Purchases of available-for-sale securities - (59,750) (5,000) (79,750) Disposals of available-for-sale securities 81,400 10,000 83,000 30,000 Other - - (259) - Net cash provided by (used in) investing activities 78,383 (52,335) 72,809 (54,039) Financing Activities: Payments on capital lease obligations - (6) - (14) Payments on debt obligations - (900) - (1,163) Proceeds from issuance of common stock and other 1,322 569 1,433 7,041 Net cash provided by (used in) financing activities 1,322 (337) 1,433 5,864 Net increase in cash and cash equivalents 70,648 (46,600) 72,122 (34,285) Cash and cash equivalents at beginning of period 26,546 87,197 25,072 74,882 Cash and cash equivalents at end of period $97,194 $40,597 $97,194 $40,597 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2005 Q2 2005 YTD 2005 Per Per Per Diluted Diluted Diluted Amount Share Amount Share Amount Share Net income (loss) $3,408 $0.04 $7,289 $0.08 $10,697 $0.12 Highlighted items: Impacting operating expenses: Impairment of long-lived assets 291 - - - 291 - Restructuring charges - adjustments to existing accruals (93) - 198 - 105 - Amortization of intangibles 557 0.01 218 - 775 0.01 Impacting other expenses: Loss on debt retirement - - 2,372 0.03 2,372 0.03 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (10) - (76) - (86) - Total highlighted items 745 0.01 2,712 0.03 3,457 0.04 Net income (loss) excluding highlighted items $4,153 $0.05 $10,001 $0.11 $14,154 $0.16 Weighted average common shares - diluted 90,497 91,356 90,507 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 the loss on debt retirement, the call for redemption of the Convertible Notes resulted in a non-cash charge due to an interest "make-whole" payment indenture provision attendant to the occurrence of the call prior to the expiration of three years from the issuance of the Convertible Notes. With respect to amortization, the intangibles being amortized relate to our most recent acquisitions. 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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