ARRS Arris International Plc - Ordinary Shares

SUWANEE, Ga., Oct. 25 /PRNewswire-FirstCall/ -- ARRIS Group, Inc. (NASDAQ:ARRS), a global communications technology leader in the development of advanced cable telephony and next generation high-speed data solutions for broadband local access networks, today announced preliminary and unaudited financial results for the third quarter 2006. Financial Highlights: - Revenues were $228.6 million for the third quarter 2006, up 14% as compared to $201.0 million in the third quarter 2005 and up 4% as compared to $220.0 million in the second quarter 2006. - Net income in the third quarter 2006 was $26.6 million, or $0.24 per diluted share, as compared to net income of $18.8 million, or $0.18 per diluted share, in the third quarter 2005 and as compared to net income of $24.8 million or $0.23 per diluted share in the second quarter 2006. Excluding the items detailed below, net income per diluted share for the third quarter 2006 was $0.27 (a non-GAAP measure). - Gross margins were 27.6% in the third quarter 2006 as compared to 27.4% in the third quarter 2005 and 29.0% in the second quarter 2006 reflecting the expected change on product mix. Gross margin percentages improved sequentially in both product categories quarter over quarter. - Cash on hand and short-term investments at the end of the third quarter 2006 were $210.0 million, up significantly from $94.4 million at the end of the third quarter 2005 and up $12.8 million from $197.2 million at the end of the second quarter 2006. Cash generated from operating activities was $14.2 million in the third quarter 2006 and was $77.2 million through the first nine months of 2006. - Book-to-bill ratio was 0.88 in the third quarter as compared to 0.91 in the second quarter 2006 and 1.02 in the third quarter 2005. Financial details: Revenues for the third quarter 2006 were $228.6 million with GAAP net income of $0.24 per diluted share, inclusive of certain items described below. Revenues grew by $27.6 million or approximately 14%, and by $8.6 million or approximately 4%, as compared to the third quarter 2005 and the second quarter 2006, respectively. Through the first nine months of 2006, revenues were $657.0 million, up $157.9 million or approximately 32% from the same period last year. The revenue growth was a result of continuing demand for the Company's Voice over IP (VoIP) and high speed data products as cable operators aggressively compete with telcos for customers who sign up for the "triple- play" of voice, data and video service offerings. Net income in the third quarter 2006 was $26.6 million, or $0.24 per diluted share, as compared to the third quarter 2005 net income of $18.8 million, or $0.18 per diluted share, and as compared to the second quarter 2006 net income of $24.8 million, or $0.23 per diluted share. Excluding equity compensation expense and other items, net income was $0.27 per diluted share in the third quarter 2006. A reconciliation of GAAP to non-GAAP earnings per share is attached to this release and also can be found on the Company website (http://www.arrisi.com/). Net income for the nine months of 2006 was $72.0 million, or $0.66 per diluted share, and compares to $29.5 million, or $0.31 per diluted share, in the first nine months of 2005. Broadband product revenues were $87.6 million in the third quarter, up approximately 8% as compared to $81.3 million in the third quarter 2005, but down approximately 11% from the second quarter 2006 level of $98.8 million, reflecting the continuing phase-out of CBR telephony product sales as customers migrate to VoIP. Year-to-date Broadband sales of $271.8 million are up 22% as compared to $222.1 million in 2005. Strong demand for the Company's flagship CMTS products have more than replaced the phase-out of CBR sales year over year. Demand for CMTS products continues to be driven by the Multi System Operators' (MSOs) competitive response to the telcos' aggressive marketing programs for FTTX and advanced digital subscriber line technologies as well as the need for MSOs to offer ever higher data rates to their subscribers. Supplies & CPE product revenues were $141.0 million in the third quarter, up 18% as compared to $119.7 million in the third quarter 2005 and up approximately 16% as compared to $121.2 million in the second quarter of 2006. Year-to-date Supplies & CPE sales of $385.2 million are up 39% as compared to $276.9 million in the same period in 2005. International sales were $54.4 million in the third quarter and compare to $52.4 million in the third quarter 2005 and $58.2 million in the second quarter 2006. Backlog at the end of the third quarter was $122.0 million compared to $149.2 million at the end of the second quarter 2006. Bookings in the third quarter 2006 were $201.4 million as compared to $200.3 million in the second quarter 2006. The book-to-bill ratio in the third quarter was approximately 0.88 as compared to 0.91 in the second quarter 2006 and 1.02 in the third quarter 2005. Gross margins were 27.6% in the third quarter as compared to second quarter 2006 margins of 29.0%. The decrease in consolidated margins reflects, as previously disclosed, a change in product mix during the quarter as a result of much higher EMTA sales and lower CBR product sales which have a gross margin level higher than the consolidated corporate average gross margin. This shift was partially offset by anticipated EMTA margin improvements. Gross margins of Broadband products were 46.2% in the third quarter 2006 as compared to 46.0% in the second quarter 2006. Gross margins of the Supplies & CPE products were up 100 basis points to 16.1% in the third quarter 2006 as compared to 15.1% in the second quarter 2006. Operating expenses were $37.7 million in the third quarter 2006, which included equity compensation expense of approximately $2.3 million. This compares to $41.3 million for the second quarter, which included equity compensation expense of approximately $2.3 million and technology licensing fees of approximately $2.4 million. Operating expenses in the third quarter 2005 were $36.3 million, which included equity compensation expense of $2.5 million. Research and development costs included in operating expenses were $16.1 million in the third quarter 2006 and compare to $19.3 million, which included the previously mentioned $2.4 million of technology licensing fees, in the second quarter of 2006. Research and development costs in the third quarter 2005 were $16.0 million. The Company ended the third quarter with $210.0 million of cash on hand and short-term investments, up from the second quarter level of $197.2 million and up from the third quarter 2005 level of $94.4 million. Approximately $14.2 million and $77.2 million of cash were generated from operating activities in the third quarter and first nine months of 2006, respectively. Inventory and turns for the third quarter were $101.1 million and 6.9 on an annualized basis, respectively, as compared to $91.8 million and 6.5 on an annualized basis, respectively for the second quarter 2006. Accounts receivable ended the third quarter at $120.7 million with DSOs of 45 as compared to $104.1 million and DSOs of 41 at the end of the second quarter 2006. "Thanks to our customers and the outstanding efforts of our employees, this has been yet another outstanding quarter for us. I am very pleased with our financial and market results through the first three quarters of 2006," said Bob Stanzione, ARRIS Chairman & CEO. "We are well positioned for future growth as our products are leaders in the fast growing markets of voice, data and video. Increased agility in new product introductions, relentless pursuit of operational excellence and our sharp focus on maintaining a strong balance sheet should lead us to continued success." During the third quarter, the Company announced that the nation's second largest MSO, Time Warner, had signed a two-year Purchase Agreement for ARRIS C4 and C3 CMTS products. Also announced were the successful field trials of wideband data services at speeds in excess of 100 Mbps to customers of KCTV JEJU Broadcasting in South Korea using the ARRIS FlexPath(TM) wideband data solution in the ARRIS Cadant(R) C4(TM) CMTS and the ARRIS Touchstone(R) WBM650B wideband modems. In addition, the Company noted that the National Cable Television Cooperative (NCTC), a programming and hardware purchasing cooperative for more than 1100 cable operators in the United States, had named ARRIS as a "Preferred Vendor" of Embedded Multimedia Terminal Adaptors (EMTAs). "Our results for the third quarter showed both top and bottom line improvement as compared to the second quarter," said David Potts, ARRIS EVP & CFO. We project that our revenues for the fourth quarter 2006 will be in the range of $220.0 to $230.0 million with net income per diluted share, on a U.S. GAAP basis, in the range of $0.23 to $0.26 including equity compensation expense of $0.02. It is also important to note that our guidance assumes that we do not become a tax payer at full rates until 2007. However, depending upon actual results in the fourth quarter 2006, it is possible a portion of our income may be taxed at full rates. Finally, we continue to evaluate valuation allowances we have historically recorded with respect to our deferred tax assets. It is possible that we may reverse a portion of these allowances in the fourth quarter 2006, which would result in a one-time gain." ARRIS management will conduct a conference call at 5:00pm EDT, today, Wednesday, October 25, 2006, to discuss these results in detail. You may participate in this conference call by dialing 888-562-3356 prior to the start of the call and providing the ARRIS Group, Inc. name, conference ID# 7952787 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 through Monday, October 30, 2006 by dialing 877-519-4471 and using the PIN#7952787. 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: - fourth quarter 2006 revenues and net income; - income tax expense impacts; - 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 fourth 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 June 30, 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) September June March December September 30, 2006 30, 2006 31, 2006 31, 2005 30, 2005 (unaudited) (unaudited) (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $179,971 $167,174 $129,559 $75,286 $48,194 Short-term investments, at fair value 30,000 30,000 36,250 54,250 46,250 Total cash, cash equivalents and short- term investments 209,971 197,174 165,809 129,536 94,444 Restricted cash 6,126 6,112 6,092 6,073 4,053 Accounts receivable, net 120,740 104,143 91,360 83,540 95,791 Other receivables 5,621 4,621 4,138 286 887 Inventories, net 101,062 91,764 99,673 113,909 90,122 Prepaids 3,751 2,959 4,094 10,945 16,507 Other current assets 2,435 4,119 3,251 4,331 3,691 Total current assets 449,706 410,892 374,417 348,620 305,495 Property, plant and equipment, net 25,338 24,423 24,327 25,557 26,483 Goodwill 150,569 150,569 150,569 150,569 150,569 Intangibles, net 345 483 702 920 1,138 Investments 3,438 3,410 3,358 3,321 3,347 Other assets 641 408 388 416 395 $630,037 $590,185 $553,761 $529,403 $487,427 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $44,440 $40,241 $41,478 $35,920 $25,602 Accrued compensation, benefits and related taxes 19,630 14,648 9,503 20,424 16,083 Accrued warranty 8,582 8,296 8,020 8,479 6,724 Other accrued liabilities 28,371 27,012 22,151 20,633 23,104 Total current liabilities 101,023 90,197 81,152 85,456 71,513 Long-term debt, net of current portion - - Accrued pension 11,947 13,266 12,943 12,636 11,040 Other long-term liabilities 5,589 5,644 5,618 5,594 5,643 118,559 109,107 99,713 103,686 88,196 Stockholders' equity: Preferred stock - - - - - Common stock 1,086 1,083 1,081 1,069 1,065 Capital in excess of par value 747,721 744,556 740,954 732,405 727,249 Unrealized gain on marketable securities 1,219 1,165 1,114 1,077 975 Unfunded pension losses (4,618) (4,618) (4,618) (4,618) (3,345) Accumulated deficit (233,519) (260,081) (284,831) (305,555) (327,520) Unrealized gain (loss) on derivatives (227) (843) 532 1,523 991 Cumulative translation adjustments (184) (184) (184) (184) (184) Total stockholders' equity 511,478 481,078 454,048 425,717 399,231 $630,037 $590,185 $553,761 $529,403 $487,427 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) For the Three Months For the Nine Months Ended September 30, Ended September 30, 2006 2005 2006 2005 Net sales $228,646 $200,957 $656,980 $499,082 Cost of sales 165,467 145,979 473,554 366,230 Gross margin 63,179 54,978 183,426 132,852 Gross margin % 27.6% 27.4% 27.9% 26.6% Operating expenses: Selling, general, and administrative expenses 21,524 20,070 64,523 53,803 Research and development expenses 16,066 15,954 50,460 45,091 Restructuring and impairment charges 4 34 347 430 Amortization of intangibles 138 218 575 993 37,732 36,276 115,905 100,317 Operating income 25,447 18,702 67,521 32,535 Other expense (income): Interest expense 27 11 50 2,033 Loss on debt retirement - - - 2,372 Loss (gain) on investments 32 (60) 29 15 Loss (gain) on foreign currency 201 288 (943) 145 Interest income (2,756) (777) (6,357) (2,099) Other (income) expense 68 83 269 366 Income from continuing operations before income taxes 27,875 19,157 74,473 29,703 Income tax expense 1,328 307 2,562 242 Net income from continuing operations 26,547 18,850 71,911 29,461 Income (loss) from discontinued operations 15 (30) 124 56 Net income $26,562 $18,820 $72,035 $29,517 Net income per common share - basic: Income from continuing operations $0.25 $0.18 $0.67 $0.31 Income from discontinued operations $0.00 $(0.00) $0.00 $0.00 Net income $0.25 $0.18 $0.67 $0.31 Net income per common share - diluted: Income from continuing operations $0.24 $0.18 $0.66 $0.31 Income from discontinued operations $0.00 $(0.00) $0.00 $0.00 Net income $0.24 $0.18 $0.66 $0.31 Weighted average common shares: Basic 107,678 104,434 107,007 93,768 Diluted 109,090 107,049 109,311 95,368 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three For the Nine Months Ended Months Ended September 30, September 30, 2006 2005 2006 2005 Operating Activities: Net income $26,562 $18,820 $72,035 $29,517 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,177 2,571 7,235 7,941 Amortization of intangibles 138 218 575 993 Equity compensation expense 2,427 2,611 7,068 4,341 Excess tax benefits from stock- based compensation plans (184) - (538) - Amortization of deferred finance fees - - - 305 Provision for doubtful accounts (34) 155 (248) (355) Gain related to previously written off receivables - - (1,573) - Loss (gain) on disposal of fixed assets 2 - (2) 131 Loss on investments 32 - 32 75 Loss on debt retirement - - - 2,372 Impairment of long-lived assets - - - 291 Loss (gain) on discontinued operations (15) 30 (124) (56) Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (16,563) (8,046) (37,515) (39,525) Other receivables (1,000) (599) (5,335) (467) Inventory (9,298) (9,253) 12,847 2,824 Accounts payable and accrued liabilities 10,092 (324) 15,590 (7,249) Other, net (119) (13,136) 7,162 (10,242) Net cash provided by (used in) operating activities 14,217 (6,953) 77,209 (9,104) Investing Activities: Purchases of property, plant, and equipment (3,138) (2,703) (7,080) (7,555) Cash proceeds from sale of property, plant, and equipment 2 - 22 40 Cash paid for acquisition, net of cash acquired - - - (89) Purchases of short term investments - (46,250) (51,900) (51,250) Disposals of short term investments - 32 76,150 83,032 Other - - - (259) Net cash provided by (used in) investing activities (3,136) (48,921) 17,192 23,919 Financing Activities: Excess tax benefits from stock- based compensation plans 184 - 538 - Proceeds from issuance of common stock and other 1,532 6,874 9,746 8,307 Net cash provided by financing activities 1,716 6,874 10,284 8,307 Net increase (decrease) in cash and cash equivalents 12,797 (49,000) 104,685 23,122 Cash and cash equivalents at beginning of period 167,174 97,194 75,286 25,072 Cash and cash equivalents at end of period $179,971 $48,194 $179,971 $48,194 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2006 Q2 2006 Per Per Diluted Diluted Amount Share Amount Share Net income $20,723 $0.19 $24,750 $0.23 Highlighted items: Impacting gross margin: Equity compensation expense 108 - 112 - Impacting operating expenses: Gain related to previously written off receivables (475) - (1,098) (0.01) Restructuring charges - adjustments to existing accruals 328 - 15 - Amortization of intangibles 218 - 219 - Equity compensation expense 2,140 0.02 2,281 0.02 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (21) - (88) - Total highlighted items 2,298 0.02 1,441 0.01 Net income excluding highlighted items $23,021 $0.21 $26,191 $0.24 Weighted average common shares - diluted 109,345 109,670 Q3 2006 YTD 2006 Per Per Diluted Diluted Amount Share Amount Share Net income $26,562 0.24 $72,035 $0.66 Highlighted items: Impacting gross margin: Equity compensation expense 144 - 364 - Impacting operating expenses: Gain related to previously written off receivables - - (1,573) (0.01) Restructuring charges - adjustments to existing accruals 4 - 347 - Amortization of intangibles 138 - 575 0.01 Equity compensation expense 2,283 0.02 6,704 0.06 Impacting discontinued operations: Restructuring charges - adjustments to existing accruals (15) - (124) - Total highlighted items 2,554 0.02 6,293 0.06 Net income excluding highlighted items $29,116 0.27 $78,328 $0.72 Weighted average common shares - diluted 109,090 109,311 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 Group, Inc. CONTACT: Jim Bauer, Investor Relations of ARRIS Group, Inc., +1-678-473-2647, or Web site: http://www.arrisi.com/

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