ARRS Arris International Plc - Ordinary Shares

SUWANEE, Ga., July 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 second quarter 2006. Financial Highlights: - Revenues were $220.0 million for the second quarter of 2006, up 35.6% as compared to $162.2 million in the second quarter 2005 and up 5.6% as compared to $208.3 million in the first quarter 2006. - Net income in the second quarter 2006 was $24.8 million or $0.23 per diluted share as compared to net income of $7.3 million or $0.08 per diluted share in the second quarter 2005 and as compared to net income of $20.7 million or $0.19 per diluted share in the first quarter 2006. Excluding the items detailed below, net income per diluted share for the second quarter 2006 was $0.24 (a non-GAAP measure). - Gross margins were 29.0% in the second quarter 2006, as compared to 25.3% in the second quarter 2005 and 27.1% in the first quarter 2006. - Cash on hand and short-term investments at the end of the second quarter 2006 were $197.2 million, more than doubling from $97.2 million at the end of the second quarter 2005 and up $31.4 million, from the end of the first quarter 2006. Cash of $31.7 million was generated from operating activities in the second quarter of 2006. - Book-to-bill ratio was 0.91 in the second quarter as compared to 1.01 in the first quarter 2006. Financial details: Revenues for the second quarter 2006 were $220.0 million with GAAP net income of $0.23 per diluted share, inclusive of certain items described below. Revenues grew by $57.8 million or 35.6% and by $11.7 million or 5.6% as compared to the second quarter 2005 and the first quarter 2006, respectively. Through the first six months, revenues were $428.3 million, up $130.2 million or 43.7% from the same period last year. The revenue growth is a result of strong demand for the Company's Voice over IP (VoIP) and high speed data products as cable operators rollout telephone service and as their need for higher speed data service offerings continues to grow. Net income in the second quarter 2006 was $24.8 million or $0.23 per diluted share as compared to the second quarter 2005 net income of $7.3 million or $0.08 per diluted share and as compared to the first quarter 2006 net income of $20.7 million or $0.19 per diluted share. Excluding amortization of intangibles, equity compensation expense and other items, net income was $0.24 per diluted share in the second quarter 2006. A reconciliation of GAAP to non-GAAP earnings per share is attached to this release and can also be found on the Company website. Net income for the first half of 2006 was $45.5 million or $0.42 per diluted share and compares to $10.7 million or $0.12 per diluted share in the first half of 2005. Broadband product revenues were $98.8 million in the second quarter, up approximately 15.7% from the first quarter 2006 level of $85.4 million. Year to date Broadband sales of $184.2 million are up 30.7% as compared to year to date 2005 Broadband sales of $140.9 million. This increase was the result of strong demand for the Company's flagship C4 CMTS and from CBR telephony equipment sales. Demand for CMTS products has been spurred by the growing threat posed by telephone companies' FTTX programs and advanced digital subscriber line technologies and the need for MSOs to offer higher data rates to their subscribers. Supplies & CPE product revenues were $121.2 million in the second quarter, up 33.2% as compared to $91.0 million in the second quarter 2005, but, notwithstanding record EMTA unit sales, down approximately 1.5% as compared to $123.0 million in the first quarter of 2006 due principally to shifts in EMTA product mix. Year to date Supplies & CPE sales of $244.1 million are up 55.3% as compared to year to date 2005 Supplies & CPE sales of $157.2 million. International sales were $58.2 million in the second quarter, up 32.3% as compared to $44.0 million in the second quarter 2005 and up 14.1% as compared to $51.0 million in the first quarter 2006. Backlog at the end of the second quarter was $149.2 million compared to $168.9 million at the end of the first quarter 2006. Bookings in the second quarter 2006 were $200.3 million as compared to $210.8 million in the first quarter 2006. The book-to-bill ratio in the second quarter was approximately 0.91, down from 1.01 in the first quarter 2006 reflecting shortening of order lead times. Gross margins were 29.0% in the second quarter as compared to first quarter 2006 margins of 27.1%. The increase reflects margin improvements in both product categories and a more favorable mix. Gross margins of Broadband products were 46.0% in the second quarter as compared to 45.6% in the first quarter. Gross margins of the Supplies & CPE products were 15.1% in the second quarter as compared to 14.3% in the first quarter. Operating expenses were $41.3 million in the second quarter, which included equity compensation expense of approximately $2.3 million, previously disclosed technology licensing fees of approximately $2.4 million, and bad debt income of approximately $1.1 million related to previously written off receivables. This compares to $36.9 million for the first quarter, which included $2.1 million of equity compensation expense. Research and development costs included in operating expenses were $19.3 million in the second quarter, which includes the previously mentioned technology licensing fees, and compares to $15.1 million in the first quarter of 2006. The Company ended the second quarter with $197.2 million of cash on hand and short-term investments, up from the first quarter level of $165.8 million and up from the second quarter 2005 level of $97.2 million. Approximately $31.7 million of cash was generated from operating activities in the second quarter. Inventory and turns for the second quarter were $91.8 million and 6.5, respectively, as compared to $99.7 million and 5.7, respectively for the first quarter 2006. Accounts receivable ended the second quarter at $104.1 million with DSOs of 41 as compared to $91.4 million and DSOs of 38 at the end of the first quarter 2006. "2006 continues to shape up like a very good year for ARRIS," said Bob Stanzione, ARRIS Chairman & CEO. "Competition to offer the 'triple-play' of voice, video and data, as well as ever higher bandwidth speeds within the industry drives demand for ARRIS products. Our recent announcements of many new network and CPE products have been well received by our customers. We expect to see the industry trends for higher bandwidth, bundled services by the MSOs and even wireless offerings continuing for the foreseeable future." During the second quarter the Company announced that its VoIP product offerings had helped UPC reach one million telephony customers in Europe. In addition, the Company announced a new international customer, Columbus Communications Trinidad, had selected the C4 CMTS as it prepares to offer the triple-play of voice, digital video, and high speed data to its customers. Also, in June at Cable Tec Expo in Denver, the Company demonstrated an Open Standard Switched Digital Video solution with Vertasent, a leading developer of on-demand management systems. "Our results for the second quarter reflected the strong demand for, and acceptance of, our product offerings," said David Potts, ARRIS EVP & CFO. "As previously discussed, we expect sales of our CBR products to decline in 2006. In the third quarter we anticipate a decline in CBR sales while at the same time we see an increase in sales of our EMTAs. As a result, we project that our revenues for the third quarter of 2006 will be in the range of $220 to $230 million with net income per diluted share, on a U.S. GAAP basis in the range of $0.20 to $0.24 including amortization of intangibles and equity compensation expense of $0.02." ARRIS management will conduct a conference call at 8:30am EDT on Thursday, July 27, 2006 to discuss these results in detail. You may participate in this conference call by dialing 866-425-6192 prior to the start of the call and providing the ARRIS Group, Inc. name, conference ID# 7587941 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 26, 2006 and the completion of the scheduled conference call on July 27, 2006. A replay of the conference call can be accessed through Tuesday, August 1, 2006 by dialing 877-519-4471 and using the PIN#7587941. 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: - third quarter 2006 revenues and net income; - expected sales levels and acceptance of certain ARRIS products; - the general market outlook; and - the outlook for 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 third 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, including its Form 10-Q for the quarter ended March 31, 2006. 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, 2006 2006 2005 2005 2005 (unaudited)(unaudited) (unaudited)(unaudited) ASSETS Current assets: Cash and cash equivalents $167,174 $129,559 $75,286 $48,194 $97,194 Short-term investments 30,000 36,250 54,250 46,250 - Total cash, cash equivalents and short- term investments 197,174 165,809 129,536 94,444 97,194 Restricted cash 6,112 6,092 6,073 4,053 4,037 Accounts receivable, net 104,143 91,360 83,540 95,791 87,900 Other receivables 4,621 4,138 286 887 288 Inventories, net 91,764 99,673 113,909 90,122 80,869 Prepaids 2,959 4,094 10,945 16,507 3,704 Other current assets 4,119 3,251 4,331 3,691 2,996 Total current assets 410,892 374,417 348,620 305,495 276,988 Property, plant and equipment, net 24,423 24,327 25,557 26,483 26,351 Goodwill 150,569 150,569 150,569 150,569 150,569 Intangibles, net 483 702 920 1,138 1,356 Investments 3,410 3,358 3,321 3,347 3,223 Other assets 408 388 416 395 399 $590,185 $553,761 $529,403 $487,427 $458,886 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $40,241 $41,478 $35,920 $25,602 $30,863 Accrued compensation, benefits and related taxes 14,648 9,503 20,424 16,083 9,927 Accrued warranty 8,296 8,020 8,479 6,724 6,534 Other accrued liabilities 27,012 22,151 20,633 23,104 23,345 Total current liabilities 90,197 81,152 85,456 71,513 70,669 Accrued pension 13,266 12,943 12,636 11,040 11,574 Other long-term liabilities 5,644 5,618 5,594 5,643 5,637 109,107 99,713 103,686 88,196 87,880 Stockholders' equity: Preferred stock - - - - - Common stock 1,083 1,081 1,069 1,065 1,053 Capital in excess of par value 744,556 740,954 732,405 727,249 727,096 Unearned compensation - - - - (8,112) Unrealized gain on marketable securities 1,165 1,114 1,076 975 838 Unfunded pension losses (4,618) (4,618) (4,618) (3,345) (3,345) Accumulated deficit (260,081) (284,831) (305,554) (327,520) (346,340) Unrealized gain (loss) on derivatives (843) 532 1,523 991 - Cumulative translation adjustments (184) (184) (184) (184) (184) Total stockholders' equity 481,078 454,048 425,717 399,231 371,006 $590,185 $553,761 $529,403 $487,427 $458,886 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, 2006 2005 2006 2005 Net sales $219,990 $162,201 $428,334 $298,125 Cost of sales 156,250 121,118 308,087 220,251 Gross profit 63,740 41,083 120,247 77,874 Gross profit % 29.0% 25.3% 28.1% 26.1% Operating expenses: Selling, general, and administrative expenses 21,721 17,214 42,999 33,733 Research and development expenses 19,320 14,336 34,394 29,137 Restructuring and impairment charges 15 198 343 396 Amortization of intangibles 219 218 437 775 41,275 31,966 78,173 64,041 Operating income 22,465 9,117 42,074 13,833 Other expense (income): Interest expense 13 1,004 23 2,022 Loss on debt retirement - 2,372 - 2,372 Loss (gain) on investments and notes receivable (3) - (3) 75 Gain on foreign currency (827) (1,078) (1,144) (143) Interest income (2,081) (713) (3,601) (1,322) Other (income) expense, net 95 232 201 283 Income from continuing operations before income taxes 25,268 7,300 46,598 10,546 Income tax expense (benefit) 606 87 1,234 (65) Net income from continuing operations 24,662 7,213 45,364 10,611 Income from discontinued operations 88 76 109 86 Net income $24,750 $7,289 $45,473 $10,697 Net income per common share - basic: Income from continuing operations $0.23 $0.08 $0.43 $0.12 Income from discontinued operations 0.00 0.00 0.00 0.00 Net income $0.23 $0.08 $0.43 $0.12 Net income per common share - diluted: Income from continuing operations $0.23 $0.08 $0.42 $0.12 Income from discontinued operations 0.00 0.00 0.00 0.00 Net income $0.23 $0.08 $0.42 $0.12 Weighted average common shares: Basic 107,099 88,837 106,665 88,348 Diluted 109,670 91,356 109,294 90,507 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, 2006 2005 2006 2005 Operating Activities: Net income $24,750 $7,289 $45,473 $10,697 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,440 2,643 5,058 5,370 Amortization of intangibles 219 218 437 775 Equity compensation expense 2,393 1,177 4,641 1,730 Excess tax benefits from stock- based compensation plans (185) - (354) - Amortization of deferred finance fees - 152 - 305 Provision for doubtful accounts 51 (357) (214) (510) Gain related to previously written off receivables (1,098) - (1,573) - Loss (gain) on disposal of fixed assets (6) 143 (4) 131 Loss on investments and notes receivable - - - 75 Loss on debt retirement - 2,372 - 2,372 Impairment of long-lived assets - - - 291 Income from discontinued operations (88) (76) (109) (86) Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (13,397) (23,355) (20,952) (31,479) Other receivables (483) 112 (4,335) 132 Inventory 7,909 (4,310) 22,145 12,077 Accounts payable and accrued liabilities 9,164 1,908 5,498 (6,925) Prepaids and other, net 1 3,027 7,281 2,894 Net cash provided by (used in) operating activities 31,670 (9,057) 62,992 (2,151) Investing Activities: Purchases of property, plant, and equipment (2,553) (2,928) (3,942) (4,852) Cash proceeds from sale of property, plant, and equipment 20 - 20 40 Cash paid for acquisition, net of cash acquired - (89) - (89) Purchases of short term investments (51,900) - (51,900) (5,000) Disposals of short term investments 58,150 81,400 76,150 83,000 Other - - - (259) Net cash provided by (used in) investing activities 3,717 78,383 20,328 72,840 Financing Activities: Excess tax benefits from stock- based compensation plans 185 - 354 - Proceeds from issuance of common stock and other 2,043 1,322 8,214 1,433 Net cash provided by (used in) financing activities 2,228 1,322 8,568 1,433 Net increase in cash and cash equivalents 37,615 70,648 91,888 72,122 Cash and cash equivalents at beginning of period 129,559 26,546 75,286 25,072 Cash and cash equivalents at end of period $167,174 $97,194 $167,174 $97,194 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2006 Q2 2006 YTD 2006 Per Per Per Diluted Diluted Diluted Amount Share Amount Share Amount Share Net income (loss) $20,723 $0.19 $24,750 $0.23 $45,473 $0.42 Highlighted items: Impacting gross margin: Equity compensation 108 - 112 - 220 - Impacting operating expenses: Gain related to previously written off receivables (475) - (1,098) (0.01) (1,573) (0.01) Restructuring charges - adjustments to existing accruals 328 - 15 - 343 - Amortization of intangibles 218 - 219 - 437 - Equity compensation 2,140 0.02 2,281 0.02 4,421 0.04 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (21) - (88) - (109) - Total highlighted items 2,298 0.02 1,441 0.01 3,739 0.03 Net income (loss) excluding highlighted items $23,021 $0.21 $26,191 $0.24 $49,212 $0.45 Weighted average common shares - diluted 109,345 109,670 109,294 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. In prior periods, ARRIS highlighted significant losses related to bad debt expense associated with Adelphia and Cabovisao. ARRIS recognized gains in the first half of 2006 associated with these previously written off receivables. 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 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/

Copyright