ARRS Arris International Plc - Ordinary Shares

SUWANEE, Ga., April 26 /PRNewswire-FirstCall/ -- ARRIS (NASDAQ:ARRS), a global communications technology leader in the development of advanced cable telephony solutions and next generation high-speed data across the broadband local access network, today announced preliminary and unaudited financial results for the first quarter 2006. Financial Highlights: - Revenues were $208.3 million for the first quarter of 2006, up 53% as compared to $135.9 million in the first quarter 2005 and up 15% as compared to $181.3 million in the fourth quarter of 2005. - Net income per diluted share for the first quarter 2006 was $0.19, up 375% as compared to $0.04 in the first quarter 2005 and down 5% as compared to $0.20 in the fourth quarter of 2005. Excluding the items detailed below, net income per diluted share for the first quarter 2006 was $0.21 (a non-GAAP measure). - Consistent with prior guidance, gross margins were 27.1% in the first quarter 2006, equal to the first quarter 2005 and down from 31.9% in the fourth quarter 2005 primarily due to changes in product mix coupled with price reductions that took effect at the beginning of 2006. - Cash on hand and short-term investments at the end of the first quarter 2006 were $165.8 million, up $57.8 million, or 54%, as compared with $107.9 at the end of the first quarter 2005 and up $36.3 million, or 28%, from the end of the fourth quarter 2005. Cash of $31.3 million was generated from operating activities in the first quarter of 2006. - Book-to-bill ratio was 1.01 in the first quarter as compared to 0.97 in the fourth quarter 2005. Financial details: Revenues for the first quarter 2006 were $208.3 million. On a U.S. GAAP basis, net income was $20.7 million or $0.19 per diluted share in the first quarter 2006 as compared to the fourth quarter 2005 net income of $22.0 million or $0.20 per diluted share and to the first quarter 2005 net income of $3.4 million or $0.04 per diluted share. Excluding amortization of intangibles, equity compensation expense and other items, the net income was $0.21 per diluted share in the first quarter 2006. A reconciliation of our GAAP to our non-GAAP earnings per share is attached to this release and can also be found on the Company website. Broadband product revenues were $85.4 million in the first quarter, down approximately 8.1% from the fourth quarter 2005 level of $92.9 million reflecting lower sales of CBR telephony products. Supplies & CPE product revenues were $123.0 million in the first quarter, up approximately 39.1% as compared to $88.4 million in the fourth quarter of 2005, reflecting primarily the strong resurgence of E-MTA sales in the first quarter as customer VoIP rollouts continue. E-MTA revenues and units reached new record levels in the first quarter, exceeding the previous levels of the third quarter 2005. International sales were $51.0 million in the first quarter, as compared to $52.3 million in the fourth quarter 2005. Backlog at the end of the first quarter was $168.9 million compared to $166.5 million at the end of the fourth quarter 2005. Bookings in the first quarter were $210.8 million as compared to $176.6 million in the fourth quarter 2005. The book-to-bill ratio in the first quarter was approximately 1.01, up from 0.97 in the fourth quarter 2005. Gross margins were 27.1% in the first quarter as compared to fourth quarter 2005 margins of 31.9%. This decrease is predominantly the result a change in product mix during the quarter and price reductions implemented by the Company to win market share. Gross margins of Broadband products were 45.6% in the first quarter as compared to 43.3% in the fourth quarter. Gross margins of the Supplies & CPE products were 14.3% in the first quarter as compared to 19.9% in the fourth quarter. Operating expenses were $36.9 million in the first quarter, which included equity compensation expense of approximately $2.1 million. This compares to $36.7 million for the fourth quarter, which included $2.4 million of equity compensation expense. Research and development costs included in operating expenses were $15.1 million in the first quarter as compared to $15.0 million in the fourth quarter of 2005. The Company ended the first quarter with $165.8 million of cash on hand and short-term investments, up from the fourth quarter level of $129.5 million and from the first quarter 2005 level of $107.9 million. Approximately $31.3 million of cash was generated from operating activities in the first quarter. Inventory and turns for the first quarter were $99.7 million and 5.7, respectively, as compared to $113.9 million and 4.8, respectively for the fourth quarter 2005. Accounts receivable ended the first quarter at $91.4 million with DSOs of 38 as compared to $83.5 million and DSOs of 45 at the end of the fourth quarter 2005. "Our results this quarter show that we have started 2006 with great momentum," said Bob Stanzione, ARRIS Chairman & CEO. "Accelerating competition within our customers' markets continues to drive demand for more bandwidth, more new services and higher levels of quality. The new, innovative and market leading products that ARRIS is now delivering for data, voice and video transport, help our customers in the growing competition between, cable, telco and satellite. As a result, I am very positive about the outlook for ARRIS in 2006 and beyond." During the first quarter the Company announced a 100 Mb/s broadband trial with NTL, the largest cable operator in the United Kingdom and the introduction of new customer premises products for T1/E1 services over cable operator's HFC networks. Also of long term importance was the Company's April 7, 2006 announcement of a joint development, licensing and supply agreement with UTStarcom (NASDAQ:UTSI) that will together enable the fourth leg of the quadruple play for cable MSOs worldwide. The joint solution will allow customers with Wi-Fi enabled handsets to seamlessly roam between their cellular and Wi-Fi connections, or a service commonly referred to as Fixed Mobile Convergence (FMC). The Company recently demonstrated this FMC capability at the National Cable show in Atlanta. "We are off to a strong start to 2006 as customers continue robust deployments of VoIP," said David Potts, ARRIS EVP & CFO. "We now anticipate that our revenues for the second quarter of 2006 will be in the range of $210 to $220 million with net income per diluted share, on a U.S. GAAP basis in the range of $0.20 to $0.23 including amortization of intangibles and equity compensation expense of $0.02. Also included in the second quarter operating expense is $2.5 million, or $0.02 per diluted share, related to license fees encompassed in the agreements recently entered into with UTStarcom. The Company anticipates that a total of $5.0 million will be invested with UTStarcom for license fees over a three year period with the next payment scheduled in 2007." ARRIS management will conduct a conference call at 8:30am EDT on Thursday, April 27, 2006 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 26, 2006 and the completion of the scheduled conference call on April 27, 2006. A replay of the conference call can be accessed through Tuesday, May 2, 2006 by dialing 877-519-4471 and using the PIN#7252270. 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: - second quarter 2006 revenues and net income; - the general market outlook and acceptance of ARRIS products; and - the outlook for industry conditions 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 of 2006 as well as the general outlook for 2006 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; 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 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, 2006 2005 2005 2005 2005 (unaudited) (unaudited)(unaudited)(unaudited) ASSETS Current assets: Cash and cash equivalents $129,559 $75,286 $48,194 $97,194 $26,546 Short-term investments 36,250 54,250 46,250 - 81,400 Total cash, cash equivalents and short-term investments 165,809 129,536 94,444 97,194 107,946 Restricted cash 6,092 6,073 4,053 4,037 4,025 Accounts receivable, net 91,360 83,540 95,791 87,900 63,938 Other receivables 4,138 286 887 288 400 Inventories, net 99,673 113,909 90,122 80,869 76,249 Other current assets 7,345 15,276 20,198 6,700 9,310 Total current assets 374,417 348,620 305,495 276,988 261,868 Property, plant and equipment, net 24,327 25,557 26,483 26,351 26,217 Goodwill 150,569 150,569 150,569 150,569 150,569 Intangibles, net 702 920 1,138 1,356 884 Investments 3,358 3,321 3,347 3,223 4,450 Other assets 388 416 395 399 2,210 $553,761 $529,403 $487,427 $458,886 $446,198 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $41,478 $35,920 $25,602 $30,863 $30,922 Accrued compensation, benefits and related taxes 9,503 20,424 16,083 9,927 6,990 Accrued warranty 8,020 8,479 6,724 6,534 5,450 Other accrued liabilities 22,151 20,633 23,104 23,345 25,431 Total current liabilities 81,152 85,456 71,513 70,669 68,793 Long-term debt, net of current portion - - - - 75,000 Accrued pension 12,943 12,636 11,040 11,574 11,309 Other long-term liabilities 5,618 5,594 5,643 5,637 5,687 99,713 103,686 88,196 87,880 160,789 Stockholders' equity: Preferred stock - - - - - Common stock 1,081 1,069 1,065 1,053 873 Capital in excess of par value 740,954 732,405 727,249 727,096 644,891 Unearned compensation - - - (8,112) (3,939) Unrealized gain on marketable securities 1,114 1,076 975 838 742 Unfunded pension losses (4,618) (4,618) (3,345) (3,345) (3,345) Accumulated deficit (284,831) (305,554) (327,520) (346,340) (353,629) Unrealized gain on derivatives 532 1,523 991 - - Cumulative translation adjustments (184) (184) (184) (184) (184) Total stockholders' equity 454,048 425,717 399,231 371,006 285,409 $553,761 $529,403 $487,427 $458,886 $446,198 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) For the Three Months Ended March 31, 2006 2005 Net sales $208,344 $135,924 Cost of sales 151,837 99,133 Gross profit 56,507 36,791 Gross profit % 27.1% 27.1% Operating expenses: Selling, general, and administrative expenses 21,278 16,519 Research and development expenses 15,074 14,801 Restructuring and impairment charges 328 198 Amortization of intangibles 218 557 36,898 32,075 Operating income 19,609 4,716 Other expense (income): Interest expense 10 1,018 Loss on investments and notes receivable - 75 Loss (gain) on foreign currency (317) 935 Interest income (1,520) (609) Other (income) expense, net 106 51 Income from continuing operations before income taxes 21,330 3,246 Income tax expense (benefit) 628 (152) Net income from continuing operations 20,702 3,398 Income from discontinued operations 21 10 Net income $20,723 $3,408 Net income per common share - basic: Income from continuing operations $0.20 $0.04 Income from discontinued operations 0.00 0.00 Net income $0.20 $0.04 Net income per common share - diluted: Income from continuing operations $0.19 $0.04 Income from discontinued operations 0.00 0.00 Net income $0.19 $0.04 Weighted average common shares: Basic 106,227 87,851 Diluted 109,345 90,497 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months Ended March 31, 2006 2005 Operating Activities: Net income $20,723 $3,408 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,618 2,727 Amortization of intangibles 218 557 Equity compensation expense 2,248 553 Excess tax benefits from stock- based compensation plans (169) - Amortization of deferred finance fees - 153 Provision for doubtful accounts (265) (153) Gain related to Adelphia receivables (475) - Loss on disposal of fixed assets 2 (12) Loss (gain) on investments and notes receivable - 75 Impairment of long-lived assets - 291 Income from on discontinued operations (21) (10) Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (7,555) (8,124) Other receivables (3,852) 20 Inventory 14,236 16,387 Accounts payable and accrued liabilities (3,666) (8,833) Prepaids and Other, net 7,280 (133) Net cash provided by (used in) operating activities 31,322 6,906 Investing Activities: Purchases of property, plant, and equipment (1,389) (1,924) Cash proceeds from sale of property, plant, and equipment - 40 Purchases of short term investments - (5,000) Disposals of short term investments 18,000 1,600 Other - (259) Net cash provided by (used in) investing activities 16,611 (5,543) Financing Activities: Excess tax benefits from stock- based compensation plans 169 - Proceeds from issuance of common stock and other 6,171 111 Net cash provided by (used in) financing activities 6,340 111 Net increase in cash and cash equivalents 54,273 1,474 Cash and cash equivalents at beginning of period 75,286 25,072 Cash and cash equivalents at end of period $129,559 $26,546 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2006 Q1 2005 Q4 2005 Per Per Per Diluted Diluted Diluted Amount Share Amount Share Amount Share Net income (loss) $20,723 $0.19 $3,408 $0.04 $21,966 $0.20 Highlighted items: Impacting gross margin: Equity compensation* 108 - 31 - 125 - Impacting operating expenses: Impairment of long- lived assets - - 291 - - - Gain related to Adelphia receivables (475) - - - - - Restructuring charges - adjustments to existing accruals 328 - (93) - 901 0.01 Amortization of intangibles 218 - 557 0.01 219 - Equity compensation* 2,140 0.02 522 0.01 2,448 0.02 Impacting other expenses: Gain on investment - - - - 131 - Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (21) - (10) - (152) - Total highlighted items 2,298 0.02 1,298 0.01 3,672 0.03 Net income (loss) excluding highlighted items $23,021 $0.21 $4,706 $0.05 $25,638 $0.24 Weighted average common shares - diluted 109,345 90,497 107,296 * ARRIS adopted SFAS 123R effective July 1, 2005. Prior to the adoption date, the provisions of APB 25 were followed. In the periods before Q3 2005, the Company recorded compensation expense related to restricted stock and options subject to variable accounting. ARRIS believes that presenting net income (loss) and related per share amounts adjusted for the items detailed above provides meaningful information that will allow investors to more easily understand ARRIS' financial performance and compare its period-to-period results. With respect to stock compensation expense, ARRIS adopted SFAS 123R effective July 1, 2005, as a result of which ARRIS will record 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 the gain related to Adelphia receivables, ARRIS adjusted its reserve estimate associated with a previously written off Adelphia receivable. With respect to amortization of intangibles, the intangibles being amortized relate to our most recent acquisitions and will not recur. Similarly, the impairment of long-lived assets, restructuring charge adjustments and gain on investment reflect items that, although they or similar items might recur, are of a nature and magnitude that identifying them separately provides that investors with a greater ability to project ARRIS' future performance. As importantly, 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. DATASOURCE: ARRIS CONTACT: Jim Bauer, Investor Relations of ARRIS, +1-678-473-2647, or Web site: http://www.arrisi.com/

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