SUWANEE, Ga., July 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 across the broadband local access
network, today announced preliminary and unaudited financial
results for the second quarter 2007. Financial Highlights: --
Revenues were $252.7 million for the second quarter 2007, up 14.9%
as compared to $220.0 million in the second quarter 2006 and up
7.4% as compared to $235.3 million in the first quarter 2007. --
Net income in the second quarter 2007 was $23.3 million, or $0.21
per diluted share, and compares to net income of $24.8 million, or
$0.23 per diluted share, in the second quarter 2006. Excluding
certain items as detailed in the attached supplemental earnings
reconciliation, net income per diluted share for the second quarter
2007 was $0.22 (a non- GAAP measure). -- Gross margins were 28.6%
in the second quarter 2007 as compared to 29.0% in the second
quarter 2006 and 29.2% in the first quarter 2007. -- Cash, cash
equivalents, and short-term investments at the end of the second
quarter 2007 were $604.3 million, up from $575.9 million at the end
of the first quarter 2007. Cash generated from operating activities
was $27.9 million in the second quarter 2007. -- Backlog at the end
of the second quarter 2007 was $136.2 million, down from the first
quarter 2007 level of $169.7 million. Book-to-bill ratio was 0.87
in the second quarter as compared to 0.91 in the second quarter
2006 and 1.33 in the first quarter 2007. Financial details:
Revenues for the second quarter 2007 were $252.7 million. Revenues
grew by $32.7 million, or 14.9%, and by $17.4 million, or 7.4% as
compared to the second quarter 2006 and the first quarter 2007,
respectively. Revenue growth during the quarter reflects increased
demand for our market leading products as our customers compete
with the telco and satellite industries to offer triple-play
services as well as increasing customer demand for higher bandwidth
services. Market rollouts of triple-play service bundles and
preliminary introductions of new service offerings for the small
and medium- sized business markets by many MSOs is expected to
continue in 2007 and for many years into the future. Net income in
the second quarter 2007 was $23.3 million, or $0.21 per diluted
share, as compared to the second quarter 2006 net income of $24.8
million, or $0.23 per diluted share, and as compared to the first
quarter 2007 net income of $37.6 million, or $0.34 per diluted
share. Excluding equity compensation expense and certain other
items, net income in the second quarter was $0.22 per diluted
share. Net income in the first quarter 2007 included a net gain of
$22.8 million related to a terminated acquisition. As previously
disclosed, 2007 net income, in contrast to 2006, reflects income
tax expense at full rates. A reconciliation of GAAP to non-GAAP net
income per share is attached to this release and also can be found
on the Company's website (http://www.arrisi.com/). Broadband
product revenues were $77.4 million in the second quarter 2007 as
compared to $98.8 million in the second quarter of 2006 and as
compared to the first quarter 2007 level of $80.2 million. These
results reflect the previously anticipated and disclosed decline of
CBR telephony product sales. Supplies & CPE product revenues
were $175.3 million in the second quarter 2007 as compared to
$121.2 million in the second quarter 2006 and compared to $155.1
million in the first quarter of 2007. International sales were
$67.8 million in the second quarter 2007 and compare to $58.2
million in the second quarter 2006 and $60.5 million in the first
quarter 2007. Backlog at the end of the second quarter was $136.2
million as compared to $169.7 million at the end of the first
quarter 2007. Bookings in the second quarter 2007 were $219.3
million as compared to $312.2 million in the first quarter 2007.
The book-to-bill ratio in the second quarter 2007 was approximately
0.87 as compared 1.33 in the first quarter 2007. Gross margins for
the second quarter 2007 were 28.6%, and as expected, were down
slightly from the first quarter 2007 gross margin results of 29.2%.
Gross margins of Broadband products were 44.6% in the second
quarter 2007 and compare to 48.3% in the first quarter 2007
reflecting strategic pricing actions. Gross margins of Supplies
& CPE products were 21.6% in the second quarter 2007 as
compared to 19.4% in the first quarter 2007 reflecting continued
cost reductions and new product introductions. Operating expenses
in the second quarter 2007 were $44.3 million, which included
equity compensation expense of approximately $3.1 million.
Operating expenses in the second quarter 2006 were $41.3 million,
which included equity compensation expense of approximately $2.3
million, technology licensing fees of approximately $2.4 million,
and bad debt income of approximately $1.1 million related to
previously written off receivables. Research and development costs
included in operating expenses were $17.8 million in the second
quarter 2007 as compared to $19.3 million in the second quarter
2006. The Company ended the second quarter with $604.3 million of
cash, cash equivalents, and short-term investments, up from the
first quarter 2007 level of $575.9 million and up from the second
quarter 2006 level of $197.2 million. Approximately $27.9 million
was generated from operating activities in the second quarter 2007.
Inventory and turns for the second quarter were $90.5 million and
8.6 on an annualized basis, as compared to $78.2 million and 7.7 on
an annualized basis, respectively, for the first quarter 2007.
Accounts receivable ended the second quarter at $120.7 million with
DSOs of 44.5 on an annualized basis, as compared to $125.8 million
and DSOs of 46.8 on an annualized basis at the end of the first
quarter 2007. "As we enter the second half of 2007, our overall
business looks very promising as our customers introduce new
bundled service offerings to their customers and prepare to enter
the small and medium-sized business markets with ARRIS products,"
said Bob Stanzione, ARRIS Chairman & CEO. "Increasing
competitive pressure on our customers, demands for more speed
driven by new applications and services and demand for higher
reliability and service standards for superior user experience are
expected to sustain capital spending in the industry." "Our results
for the second quarter 2007 reflect strong execution by the ARRIS
team with improvements in many areas, notably the Supplies &
CPE gross margin percentage that exceeded 20%," said David Potts,
ARRIS EVP & CFO. "Looking forward, we now project that our
revenues for the third quarter 2007 will be in the range of $253 to
$263 million with net income per diluted share, on a U.S. GAAP
basis, in the range of $0.19 to $0.22 including amortization of
intangibles and equity compensation expense of $0.02 per diluted
share." ARRIS management will conduct a webcast at 5:00 pm EDT,
today, Wednesday, July 25, 2007, to discuss these results in
detail. To access the webcast go to http://www.arrisi.com/ and
click on Investor Relations. You may also participate in the
conference call by dialing 866-831-6267, or 617-213-8857 for
international calls, conference passcode 49872538. Please note that
ARRIS will not accept any calls related to this earnings release
until after the conclusion of the 5:00 pm EDT conference call. A
replay of the conference call can be accessed approximately two
hours after the call through Tuesday, July 31, 2007 by dialing
888-286-8010 or 617-801-6888 for international calls and using the
pass code 35030731. A replay of the webcast, including the slides,
will also 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
2007 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 third quarter of 2007 as well as the
general outlook for 2007 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; --
ARRIS is dependent upon customer decisions to purchase the
Company's products; these decisions can be deferred and customers
also may select competitor's products; 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-K for the year ended December 31,
2006 and its Form 10-Q for the quarter ended March 31, 2007. 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, December 31, 2007 2007 2006
(unaudited) (unaudited) ASSETS Current assets: Cash and cash
equivalents $444,020 $441,317 $461,618 Short-term investments, at
fair value 160,315 134,610 87,575 Total cash, cash equivalents and
short-term investments 604,335 575,927 549,193 Restricted cash
3,136 3,128 3,124 Accounts receivable, net 120,680 125,756 115,304
Other receivables 6,845 9,888 2,556 Inventories 90,542 78,186
94,226 Prepaids 3,250 3,500 3,547 Current deferred income tax
assets 23,239 26,818 29,285 Other current assets 10,773 4,001 3,717
Total current assets 862,800 827,204 800,952 Property, plant and
equipment, net 30,196 28,076 28,287 Goodwill 150,569 150,569
150,569 Intangibles, net 172 230 288 Investments 3,151 3,569 3,520
Noncurrent deferred income tax assets 17,294 18,639 20,874 Other
assets 7,517 7,790 9,067 $1,071,699 $1,036,077 $1,013,557
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts
payable $46,015 $41,337 $60,853 Accrued compensation, benefits and
related taxes 14,631 9,991 23,269 Accrued warranty 7,829 7,968
8,234 Other accrued liabilities 28,001 32,411 29,057 Total current
liabilities 96,476 91,707 121,413 Long-term debt, net of current
portion 276,000 276,000 276,000 Accrued pension 12,778 12,420
12,061 Noncurrent income tax payable 4,334 4,334 3,041 Other
long-term liabilities 5,288 5,606 5,621 394,876 390,067 418,136
Stockholders' equity: Preferred stock - - - Common stock 1,102
1,096 1,089 Capital in excess of par value 782,717 773,839 761,500
Unrealized gain on marketable securities - 1,345 1,297 Unfunded
pension losses (4,462) (4,462) (4,462) Accumulated deficit
(102,350) (125,624) (163,268) Unrealized loss on derivatives - -
(551) Cumulative translation adjustments (184) (184) (184) Total
stockholders' equity 676,823 646,010 595,421 $1,071,699 $1,036,077
$1,013,557 ARRIS GROUP, INC. CONSOLIDATED BALANCE SHEETS (in
thousands) September 30, June 30, 2006 2006 (unaudited) (unaudited)
ASSETS Current assets: Cash and cash equivalents $179,971 $167,174
Short-term investments, at fair value 30,000 30,000 Total cash,
cash equivalents and short-term investments 209,971 197,174
Restricted cash 6,126 6,112 Accounts receivable, net 120,740
104,143 Other receivables 5,621 4,621 Inventories 101,062 91,764
Prepaids 3,751 2,959 Current deferred income tax assets - - Other
current assets 2,435 4,119 Total current assets 449,706 410,892
Property, plant and equipment, net 25,338 24,423 Goodwill 150,569
150,569 Intangibles, net 345 483 Investments 3,438 3,410 Noncurrent
deferred income tax assets - - Other assets 641 408 $630,037
$590,185 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $44,440 $40,241 Accrued compensation, benefits and
related taxes 19,630 14,648 Accrued warranty 8,582 8,296 Other
accrued liabilities 28,371 27,012 Total current liabilities 101,023
90,197 Long-term debt, net of current portion - - Accrued pension
11,947 13,266 Noncurrent income tax payable - - Other long-term
liabilities 5,589 5,644 118,559 109,107 Stockholders' equity:
Preferred stock - - Common stock 1,086 1,083 Capital in excess of
par value 747,721 744,556 Unrealized gain on marketable securities
1,219 1,165 Unfunded pension losses (4,618) (4,618) Accumulated
deficit (233,519) (260,081) Unrealized loss on derivatives (227)
(843) Cumulative translation adjustments (184) (184) Total
stockholders' equity 511,478 481,078 $630,037 $590,185 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, 2007 2006 2007 2006 Net sales
$252,718 $219,990 $487,971 $428,334 Cost of sales 180,342 156,250
346,848 308,087 Gross margin 72,376 63,740 141,123 120,247 Gross
margin % 28.6% 29.0% 28.9% 28.1% Operating expenses: Selling,
general, and administrative expenses 26,455 21,721 50,630 42,999
Research and development expenses 17,791 19,320 35,887 34,394
Restructuring and impairment charges - 15 421 343 Amortization of
intangibles 58 219 116 437 44,304 41,275 87,054 78,173 Operating
income 28,072 22,465 54,069 42,074 Other expense (income): Interest
expense 1,652 13 3,320 23 Gain on investments (1,444) (3) (1,425)
(3) Loss (gain) on foreign currency (146) (827) 176 (1,144)
Interest income (6,459) (2,081) (12,942) (3,601) Gain related to
terminated acquisition, net of expenses - - (22,835) - Other
expense (income), net 51 95 116 201 Income from continuing
operations before income taxes 34,418 25,268 87,659 46,598 Income
tax expense 11,144 606 26,741 1,234 Net income from continuing
operations 23,274 24,662 60,918 45,364 Income from discontinued
operations - 88 - 109 Net income $23,274 $24,750 $60,918 $45,473
Net income per common share - basic: Income from continuing
operations $0.21 $0.23 $0.56 $0.43 Income from discontinued
operations - - - - Net income $0.21 $0.23 $0.56 $0.43 Net income
per common share - diluted: Income from continuing operations $0.21
$0.23 $0.55 $0.42 Income from discontinued operations - - - - Net
income $0.21 $0.23 $0.55 $0.42 Weighted average common shares:
Basic 109,398 107,099 108,935 106,665 Diluted 111,698 109,670
111,340 109,294 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, 2007 2006 2007 2006 Operating
Activities: Net income $23,274 $24,750 $60,918 $45,473 Adjustments
to reconcile net income to net cash provided by (used in) operating
activities: Depreciation 2,648 2,440 5,145 5,058 Amortization of
intangibles 58 219 116 437 Stock compensation expense 3,378 2,393
6,034 4,641 Deferred income tax provision 4,924 - 9,626 -
Amortization of deferred finance fees 278 - 557 - Provision for
doubtful accounts 225 51 596 (214) Gain related to previously
written off receivables - (1,098) (377) (1,573) Gain on disposal of
fixed assets - (6) - (4) Gain on investments (1,444) - (1,425) -
Gain on discontinued operations - (88) - (109) Gain related to
terminated acquisition, net of expenses - - (22,835) - Changes in
operating assets & liabilities, net of effects of acquisitions
and disposals: Accounts receivable 4,851 (13,397) (5,972) (20,952)
Other receivables 3,043 (483) (4,289) (4,335) Inventory (12,356)
7,909 3,684 22,145 Accounts payable and accrued liabilities 7,033
10,181 (17,809) 6,542 Excess tax benefits from stock-based
compensation plans (1,676) (185) (6,531) (354) Prepaids and other,
net (6,336) 1 (3,573) 7,281 Net cash provided by operating
activities 27,900 32,687 23,865 64,036 Investing Activities:
Purchases of property, plant, and equipment (4,768) (2,553) (7,055)
(3,942) Cash proceeds from sale of property & equipment - 20 -
20 Cash received related to terminated acquisition, net of expenses
paid (327) - 10,554 - Cash paid for hedge related to terminated
acquisition - - (26,469) - Cash proceeds from hedge related to
terminated acquisition - - 38,750 - Purchases of short term
investments (69,715) (51,900) (197,850) (51,900) Disposals of short
term investments 44,010 58,150 125,110 76,150 Net cash provided by
(used in) investing activities (30,800) 3,717 (56,960) 20,328
Financing Activities: Excess tax benefits from stock- based
compensation plans 1,676 185 6,531 354 Employer repurchase of
shares to satisfy minimum tax witholdings (1,690) (1,017) (1,690)
(1,044) Proceeds from issuance of stock 5,617 2,043 10,656 8,214
Net cash provided by financing activities 5,603 1,211 15,497 7,524
Net increase (decrease) in cash and cash equivalents 2,703 37,615
(17,598) 91,888 Cash and cash equivalents at beginning of period
441,317 129,559 461,618 75,286 Cash and cash equivalents at end of
period $444,020 $167,174 $444,020 $167,174 ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per
share data) (unaudited) Q1 2007 Q2 2007 Per Per Diluted Diluted
Amount Share Amount Share Net income $37,644 $0.34 $23,274 $0.21
Highlighted items: Impacting gross margin: Stock compensation
expense 165 - 229 - Impacting operating expenses: Gains related to
previously written off receivables (377) - - - Restructuring
charges - adjustments to existing accruals 421 - - - Amortization
of intangibles 58 - 58 - Stock compensation expense 2,491 0.02
3,149 0.03 Impacting net income (loss) from continuing operations
Gains related to terminated acquisition, net of expenses (22,835)
(0.21) - - Adjustments of income tax valuation allowances (3,246)
(0.03) - - Gain on deferred compensation assets - - (1,345) (0.01)
Tax related to all highlighted items above 7,754 0.07 (670) (0.01)
Total highlighted items (15,569) (0.14) 1,421 0.01 Net income
excluding highlighted items $22,075 $0.20 $24,695 $0.22 Weighted
average common shares diluted 110,988 111,698 ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per
share data) (unaudited) YTD 2007 Per Diluted Amount Share Net
income $60,918 $0.55 Highlighted items: Impacting gross margin:
Stock compensation expense 394 - Impacting operating expenses:
Gains related to previously written off receivables (377) -
Restructuring charges - adjustments to existing accruals 421 -
Amortization of intangibles 116 - Stock compensation expense 5,640
0.05 Impacting net income (loss) from continuing operations Gains
related to terminated acquisition, net of expenses (22,835) (0.21)
Adjustments of income tax valuation allowances (3,246) (0.03) Gain
on deferred compensation assets (1,345) (0.01) Tax related to all
highlighted items above 7,084 0.06 Total highlighted items (14,148)
(0.13) Net income excluding highlighted items $46,770 $0.42
Weighted average common shares - diluted 111,340 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: Stock compensation expense 108 - 112 - Impacting operating
expenses: Gains related to previously written off receivables (475)
- (1,098) (0.01) Restructuring charges - adjustments to existing
accruals 328 - 15 - Amortization of intangibles 218 - 219 - Stock
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 YTD
2006 Per Diluted Amount Share Net income $45,473 $0.42 Highlighted
items: Impacting gross margin: Stock compensation expense 220 -
Impacting operating expenses: Gains related to previously written
off receivables (1,573) (0.01) Restructuring charges - adjustments
to existing accruals 343 - Amortization of intangibles 437 - Stock
compensation expense 4,421 0.04 Impacting discontinued operations:
Restructuring charges - adjustments to existing accruals (109) -
Total highlighted items 3,739 0.03 Net income excluding highlighted
items $49,212 $0.45 Weighted average common shares - diluted
109,294 ARRIS believes that presenting net income 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 records 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. ARRIS recognized gains in the first quarters of 2006 and
2007 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 restructuring charge adjustments 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. During the second quarter of 2007, ARRIS realized a
gain before tax of $1.3 million on its deferred compensation asset
that had been previously recorded as an unrealized gain on the
balance sheet. During the first quarter of 2007, ARRIS announced
that it entered into a transaction agreement with TANDBERG
Television ASA, in which ARRIS was to buy all the outstanding
shares of TANDBERG. ARRIS was subsequently outbid by another buyer
and the transaction agreement was terminated during the first
quarter 2007. ARRIS recorded gains, net before tax, of $22.8
million related to the termination of the transaction (termination
fee, foreign exchange gains, and expenses). The net termination fee
resulted in a capital gain which provided greater access to prior
tax capital losses that had previously been viewed as more likely
than not unrealizable. As a result, net income tax valuation
allowances totaling $3.2 million were reversed in the first quarter
2007. 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, Web site:
http://www.arrisi.com/
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