ARRS Arris International Plc - Ordinary Shares

ARRIS Announces Third Quarter 2004 Results SUWANEE, Ga., Oct. 28 /PRNewswire-FirstCall/ -- ARRIS (NASDAQ:ARRS), a global telecommunications technology leader, today announced financial results for the third quarter 2004. Financial Highlights: - Revenues for the third quarter of 2004 were $128.4 million, up $15.3 million, or 14%, as compared to $113.1 million in the third quarter 2003 and up $7.9 million, or 7% as compared to $120.5 million in the second quarter 2004. - Net income (loss) per share for the third quarter was $(0.04). Excluding the items detailed below (a non-GAAP measure), net income (loss) per share for the third quarter was $0.03. - Gross margins were 27.8% as compared to 28.2% in the third quarter 2003, and 33.5% in the second quarter 2004, as expected. Financial details: Revenues for the third quarter 2004 were $128.4 million with net income (loss) per share of $(0.04). The results for the quarter were within the range of guidance which the Company provided on July 21, 2004. Through the first nine months of 2004, revenues were $360.6 million, as compared to $306.2 million in the same period in 2003, up 18% year over year. On a U.S. GAAP basis, net income (loss) was $(3.7) million or $(0.04) per share in the third quarter as compared to the second quarter 2004 net income (loss) of $(5.4) million, or $(0.06) per share and the third quarter 2003 net income (loss) of $(14.6) million or $(0.19) per share. Included in the third quarter net income (loss) per share was amortization of intangibles of $(0.07). Excluding the amortization of intangibles, the net income (loss) in the third quarter was $0.03 per share. On a U.S. GAAP basis, net income (loss) through the first nine months of 2004 was $(27.8) million or $(0.33) per share, as compared to $(38.9) million or $(0.50) per share in the same period in 2003. Broadband revenue was $71.5 million in the third quarter as compared to the second quarter level of $78.8 million and the third quarter 2003 level of $75.0 million. Supplies product revenue was $56.9 million in the third quarter, as compared to the second quarter level of $41.7 million and the third quarter 2003 level of $38.1 million. International sales were $29.5 million in the third quarter, as compared to $27.1 million in the second quarter and $17.5 million in the third quarter 2003. Backlog at the end of the third quarter 2004 was $64.7 million as compared to $82.9 million at the end of the second quarter 2004. Bookings in the third quarter 2004 were $110.2 million as compared to $133.6 million in the second quarter 2004. The book-to-bill ratio in the third quarter was approximately 0.86, compared to 1.11 in the second quarter 2004. Gross margins in the third quarter 2004 were 27.8% as compared to 33.5% in the second quarter 2004, and 28.2% in the third quarter 2003. As previously announced, the Company anticipated a decline in gross margins as the result of a change in product mix and costs associated with new product introduction of its new high density, DOCSIS 2.0 CMTS products. Gross margins of broadband products were 41.5% in the third quarter as compared to 43.2% in the second quarter 2004. Gross margins of supplies products were 10.6% in the third quarter as compared to 15.1% in the second quarter 2004. Operating expenses were $38.8 million in the third quarter, which included $6.2 million in amortization of intangibles. This compares to $44.9 million for the second quarter 2004, which included restructuring and other charges of $0.8 million and amortization of intangibles of $8.9 million. Excluding these items, operating expenses were $32.6 million in the third quarter and $35.2 million in the second quarter 2004. Research and development expenses included in operating expenses were $14.8 million the third quarter 2004 and compare to $16.3 million in the second quarter 2004 and $16.2 million in the third quarter 2003. The Company ended the third quarter with $95.9 million of cash on hand, down from the second quarter 2004 level of $100.3 million. Approximately $1.5 million of cash was used by operating activities in the third quarter, predominately the result of increased inventory levels. Inventory and turns for the third quarter were $88.3 million and 4.6, respectively, as compared to $74.5 million and 4.3, respectively, for the second quarter 2004. Accounts receivable ended the third quarter at $64.5 million with DSOs of 46, and compare to $63.4 million and DSOs of 46 at the end of the second quarter 2004. The Company again ended the quarter with no short-term bank debt. "ARRIS continues to make considerable progress with the ongoing plan for growth that I outlined during our Analyst Day in August," said Bob Stanzione, ARRIS Chairman & CEO. "Accelerating deployments of VoIP by our customers are reflected in the remarkable growth of the sales of our Touchstone(R) E-MTA customer premise units and by the addition of new CMTS customers. We see these trends continuing into 2005 and beyond as competition between MSOs, satellite operators and the regional Bell operating companies intensifies. It was especially gratifying to note that our increase in sales was the result of a much wider customer base, thereby mitigating the anticipated effect of reduced sales during the quarter to Comcast," concluded Stanzione. The Company also announced today that top ten MSO Insight Communications has recently placed multiple orders for the industry-leading ARRIS Cadant C4 Cable Modem Termination System (CMTS). Insight Communications is already a customer of ARRIS in the 1st generation cable telephony and cable modem categories and these new orders represent a significant expansion of the business relationship between the two companies. Also of note during the quarter was the rapid increase of the sale of Touchstone(R) E-MTAs ramping from 10,000 units in the first quarter to 30,000 units in the second quarter and to 174,000 units in the third quarter of 2004 as cable operators now begin their rollout of VoIP services. "I am pleased to report that the ARRIS team executed to plan in the quarter, but we recognize that we still have additional work to do to continue improvements in our financial results. In particular, and as anticipated, our gross margins decreased quarter over quarter. At our analyst conference in August we outlined specific actions we are taking to improve margins, and we believe we are making good progress in these areas," said David Potts, ARRIS EVP & CFO. "With respect to the fourth quarter 2004, revenues now appear to be in the range of $120 to $130 million with net income (loss) per share, on a U.S. GAAP basis, in the range of $(0.01) to $(0.05), inclusive of amortization of intangibles of approximately $(0.05) per share," continued Potts. ARRIS management will conduct a conference call at 8:30 am EDT on Friday, October 29, 2004, 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 release after market close on October 28, 2004, and the completion of the scheduled conference call on October 29, 2004. A replay of the conference call can be accessed through Tuesday, November 2, 2004 by dialing 877-519-4471 and using the PIN #5245180. 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 is found at http://www.arrisi.com/ . Forward-looking statements: Statements made in this press release, including those related to: - fourth quarter 2004 revenues and net income (loss); - the timing and impact of actions to improve margins; - the general market outlook and acceptance of ARRIS products; and - the timing of implementation of new services by ARRIS customers 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 2004 as well as the general outlook for 2004 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 - the market in which ARRIS operates is highly competitive and subject to rapid technological change and many of ARRIS' competitors are much larger and more diverse, thereby enabling them to devote greater financial and technological resources. 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, pricing and market share, the ability of ARRIS to react to changes in its industry and market conditions, including regulatory developments; disputes regarding intellectual property, 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. The Company expressly disclaims any obligation to update publicly or otherwise any forward-looking 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 30 31 31 30 2004 2004 2004 2003 2003 (unaudited) (unaudited) (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $95,865 $100,347 $97,197 $84,882 $59,981 Restricted cash 4,008 5,267 9,520 6,135 - Accounts receivable, net 64,540 63,392 57,862 56,344 61,627 Other receivables 2,822 1,817 1,324 1,280 1,410 Inventories, net 88,282 74,533 73,399 78,562 95,009 Other current assets 16,168 13,172 10,351 7,900 10,584 Total current assets 271,685 258,528 249,653 235,103 228,611 Property, plant and equipment, net 23,524 23,067 23,148 25,376 27,177 Goodwill 150,569 150,569 150,569 150,569 150,569 Intangibles 6,307 12,513 21,440 30,362 41,144 Investments 4,296 4,307 4,656 5,504 5,296 Other assets 2,598 3,368 2,973 4,945 8,895 $458,979 $452,352 $452,439 $451,859 $461,692 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $39,156 $33,452 $32,492 $24,389 $25,694 Accrued compensation, benefits and related taxes 12,137 9,202 5,273 4,267 4,310 Current portion of long-term debt 2 2 902 1,073 1,060 Current portion of capital lease obligations - - 6 14 22 Other accrued liabilities 37,123 33,318 34,378 34,683 36,533 Total current liabilities 88,418 75,974 73,051 64,426 67,619 Long-term debt, net of current portion 75,000 75,000 75,000 125,092 125,365 Other long-term liabilities 12,256 14,445 13,404 12,960 12,637 175,674 165,419 161,455 202,478 205,621 Stockholders' equity: Preferred stock - - - - - Common stock 888 887 887 773 774 Capital in excess of par value 644,714 645,390 645,676 586,008 586,107 Unearned compensation (5,396) (6,168) (7,598) (8,104) (9,362) Unrealized holding gain on marketable securities 991 1,012 781 771 132 Unfunded pension losses (1,293) (1,293) (1,293) (1,293) (1,219) Retained earnings (356,431) (352,726) (347,298)(328,642) (320,245) Cumulative translation adjustments (168) (169) (171) (132) (116) Total stockholders' equity 283,305 286,933 290,984 249,381 256,071 $458,979 $452,352 $452,439 $451,859 $461,692 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) Three months ended Nine months ended September 30, September 30, 2004 2003 2004 2003 Net sales $128,409 $113,111 $360,574 $306,164 Cost of sales 92,663 81,269 248,182 222,393 Gross profit 35,746 31,842 112,392 83,771 Gross profit % 27.8% 28.2% 31.2% 27.4% Operating expenses: Selling, general, and administrative expenses 17,122 18,671 53,161 60,660 Provision for doubtful accounts 621 142 917 7,860 Research and development expenses 14,839 16,245 47,339 47,459 Restructuring and impairment charges 56 - 7,107 336 Amortization of intangibles 6,206 8,812 24,055 26,284 38,844 43,870 132,579 142,599 Operating income (loss) (3,098) (12,028) (20,187) (58,828) Other expense (income): Interest expense 1,022 2,881 3,667 7,535 Membership interest - - - 2,418 Loss (gain) on debt retirement - - 4,406 (28,506) Loss (gain) on investments and notes receivable 150 (19) 1,589 995 Loss (gain) on foreign currency (235) (234) (96) (2,202) Other (income) expense, net (325) (63) (834) (152) Income (loss) from continuing operations before income taxes(3,710) (14,593) (28,919) (38,916) Income tax expense (benefit) 38 - 84 - Net income (loss) from continuing operations (3,748) (14,593) (29,003) (38,916) Income from discontinued operations 42 - 1,213 - Net income (loss) $(3,706) $(14,593) $(27,790) $(38,916) Net income (loss) per common share - basic & diluted: Income (loss) from continuing operations $(0.04) $(0.19) $(0.34) $(0.50) Income (loss) from discontinued operations 0.00 - 0.01 - Net income (loss) $(0.04) $(0.19) $(0.33) $(0.50) Weighted average common shares: Basic and diluted 87,347 75,039 84,440 77,339 ARRIS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months For the Nine Months Ended September 30, Ended September 30, 2004 2003 2004 2003 Operating Activities: Net income (loss) $(3,706) $(14,593) $(27,790) $(38,916) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 2,486 3,547 7,812 13,217 Amortization of intangibles 6,206 8,812 24,055 26,284 Amortization of unearned compensation 620 1,001 2,244 2,254 Amortization of deferred finance fees 153 1,217 537 3,371 Provision for doubtful accounts 621 142 917 7,860 Loss on disposal of fixed assets 2 6 97 11 Loss (gain) on investments and notes receivable 150 (19) 1,589 995 Cash proceeds from sale of trading securities - 96 - 226 Loss (gain) on debt retirement - - 4,406 (28,506) Loss on sale of ESP product line - 1,373 - 1,373 Changes in operating assets & liabilities, net of effects of acquisitions and disposals: Accounts receivable (1,769) (7,802) (9,113) 10,278 Other receivables (1,005) (121) (1,542) 1,744 Inventory (13,749) 11,209 (9,720) 9,763 Accounts payable and accrued liabilities 9,747 (7,014) 25,042 (23,850) Accrued membership interest - - - 2,418 Other, net (1,278) (1,009) (6,166) (589) Net cash provided by (used in) operating activities (1,522) (3,155) 12,368 (12,067) Investing Activities: Purchases of property, plant, and equipment (2,944) (1,595) (7,183) (4,213) Cash paid for disposal of product line - (231) - (231) Cash proceeds from sale of Actives product line - - - 1,800 Cash paid for acquisition, net of cash acquired - (2,284) (50) (2,842) Other - 26 - 26 Net cash provided by (used in) investing activities (2,944) (4,084) (7,233) (5,460) Financing Activities: Proceeds from issuance of debt - 1,597 - 126,597 Redemption of preferred membership interest - - - (88,430) Payments on capital lease obligations - (1,288) (14) (2,122) Payments on debt obligations - (356) (1,163) (24,325) Deferred finance costs paid - (519) - (5,797) Repurchase and retirement of common stock - - - (28,000) Proceeds from issuance of common stock and other (16) 569 7,025 1,176 Net cash provided by (used in) financing activities (16) 3 5,848 (20,901) Net increase in cash and cash equivalents (4,482) (7,236) 10,983 (38,428) Cash and cash equivalents at beginning of period 100,347 67,217 84,882 98,409 Cash and cash equivalents at end of period $95,865 $59,981 $95,865 $59,981 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q3 2004 Q2 2004 Per Per Diluted Diluted Amount Share Amount Share Net income (loss) $(3,706) $(0.04) $(5,428) $(0.06) Highlighted items: Impacting gross margin: Severance related to workforce reduction (including adjustments) - - (5) - Partial recovery of losses with respect to customer in Argentina - - - - Impacting operating expenses: Restructuring charges (including adjustments to existing accruals) 56 - 876 0.01 Loss (gain) on sale of product line - adjustment to prior disposal 5 - (46) - Severance related to workforce reduction (including adjustments) - - (51) - Amortization of intangibles 6,206 0.07 8,927 0.10 Impacting other expense (income): Loss on debt retirement - - - - Loss on investments and notes receivable 150 - 580 0.01 Impacting discontinued operations: Restructuring charges (including adjustments to existing accruals) (42) - (832) (0.01) Partial recovery of losses with respect to customer in Argentina - - - - Total highlighted items 6,375 0.07 9,449 0.11 Net income (loss) excluding highlighted items $2,669 $0.03 $4,021 $0.05 Weighted average common shares - diluted 87,347 87,113 ARRIS GROUP, INC. SUPPLEMENTAL EARNINGS RECONCILIATION (in thousands, except per share data) (unaudited) Q1 2004 Per Diluted Amount Share Net income (loss) $(18,656) $(0.24) Highlighted items: Impacting gross margin: Severance related to workforce reduction (including adjustments) 58 - Partial recovery of losses with respect to customer in Argentina (585) (0.01) Impacting operating expenses: Restructuring charges (including adjustments to existing accruals) 6,175 0.08 Loss (gain) on sale of product line - adjustment to prior disposal - - Severance related to workforce reduction (including adjustments) 495 0.01 Amortization of intangibles 8,922 0.11 Impacting other expense (income): Loss on debt retirement 4,406 0.06 Loss on investments and notes receivable 859 0.01 Impacting discontinued operations: Restructuring charges (including adjustments to existing accruals) - - Partial recovery of losses with respect to customer in Argentina (339) - Total highlighted items 19,991 0.25 Net income (loss) excluding highlighted items $1,335 $0.02 Weighted average common shares - diluted 78,829 DATASOURCE: ARRIS CONTACT: Jim Bauer, Investor Relations of ARRIS, +1-678-473-2647, or Web site: http://www.arrisi.com/

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