![]() ARRIS INVESTOR DAY 2013 DECEMBER 4, 2013 Exhibit 99.1 |
![]() VIDEO |
![]() WELCOME BOB PUCCINI |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE SAFE HARBOR Statements in this presentation or made in this meeting, including those related to the outlook for the remainder of 2013 and beyond, the integration of Motorola Home, expected revenues and net income, gross margins, operating expenses, research and development expenses, cash flows, income taxes, acceptance of certain ARRIS products, our strategy and objectives, the general market outlook, and 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 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 products; and the market in which ARRIS operates is volatile and actions taken and contemplated may not achieve the desired impact. Other factors that could cause results to differ from current expectations include: the uncertain current economic climate and financial markets, and their impact on our customers’ plans and access to capital; ARRIS’ ability to successfully integrate Motorola Home’s opportunities, technology, personnel, and operations; the impact of rapidly changing technologies; the impact of competition on product development and pricing; rights to intellectual property and the current trend toward increasing patent litigation; the adoption of industry standards; possible acquisitions and dispositions; 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 SEC, including its Form 10-Q for the quarter ended September 30, 2013. 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, except as required by law. 4 DECEMBER 4, 2013 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE WHO YOU WILL HEAR FROM TODAY 5 BOB Stanzione Chairman and CEO LARRY Robinson Customer Premises Equipment BRUCE McClelland Network & Cloud RON Coppock Sales and Marketing LARRY Margolis HR and Legal DAVID Potts Finance and IT JIM Brennan Supply Chain DECEMBER 4, 2013 |
Diverse, experienced management team - Bob S – 25 years with Bell Labs and Lucent, 18 years with ARRIS (founding CEO) and predecessor company ANTEC - Dave Potts – 20+ years with Nortel, 18 years with ARRIS (founding CTO) - Larry Margolis – 20+ years with ANTEC, ~12 years with ARRIS - John Burke – 20+ years with GI and Motorola Home - Larry Robinson– many years with GI and Motorola Home - Bruce McClelland - ~12 years with Nortel, ~16 years with ARRIS - Rob McLaughlin– 20+ years with GI and Motorola Home - Ron Coppock - ~15 years experience with ANTEC and predecessor companies, ~12 years with ARRIS - Jim Brennan many years with GI and Motorola Home Robust professional experience in both telco and cable technologies and business. |
![]() ARRIS INVESTOR CONFERENCE 2013 INVESTOR DAY AGENDA 6 8:00 – 8:30 COFFEE, CONTINENTAL BREAKFAST 8:30 – 8:35 Welcome BOB Puccini 8:35 – 9:00 ARRIS Vision, Strategy, Direction Forward BOB Stanzione 9:00 – 9:40 CPE Business Update LARRY Robinson 9:40 – 9:55 BREAK 9:55 – 10:10 Demonstrations JONATHAN Ruff 10:10 – 10:50 Network & Cloud Business Update BRUCE McClelland 10:50 – 11:20 Financial Update DAVID Potts 11:20 – 11:50 Executive Leadership Panel Q&A session ARRIS Leadership Bob Stanzione, Dave Potts, Larry Robinson, Bruce McClelland, Ron Coppock, Jim Brennan, Larry Margolis 11:50 – 12:00 Wrap up BOB Stanzione DECEMBER 4, 2013 |
![]() CEO BOB STANZIONE |
![]() ARRIS INVESTOR CONFERENCE ARRIS COMPANY OVERVIEW NASDAQ: ARRS 8 Global Leader in Video Delivery and Broadband Technology DECEMBER 4, 2013 25+ $1.1B 2,176 Patents Approved or Pending Q3 2013 revenue $1.068 billion Channel presence in over 85 countries Direct presence in over 25 countries HQ Suwanee, GA, Public 1993, ~6,500 employees 85+ 2,176 |
o Acquisition creates a global leader in video delivery and broadband technology o The new ARRIS has the scale and expertise to transform the industry o We have unique insight into the needs of service/content providers on a global scale And how they must evolve their networks as they continue to evolve their businesses to deliver the smart, simple connected home |
![]() ARRIS INVESTOR CONFERENCE ARRIS PRODUCT PORTFOLIO Set-Top Box Gateway Cable Modem E-MTA Voice / Data Modem CMTS Edge Router Universal Edge QAM Flagship Product Lines Cable Operator Headend Equipment that communicates with cable modems to control flow of data; allocates shared bandwidth and prioritizes and routes traffic Combines the functionality of CMTS and Edge QAM to enable voice, video and data in a converged IP network Cable Operator Headend Equipment that packages video for delivery over the HFC network to the settop box. Can also be used for packaging of data packets sent from the CMTS to the home A device located at the subscriber's home and connects to the Cable network to receive and transmit digital information between subscriber-owned computers and the CMTS over the HFC network, providing Internet connectivity A cable modem which also provides telephone service from the cable operator throughout the home A device installed at the subscriber's television set and connects to the Service Provider network to decode digital video signals and render them as video on the television set A device which connects to the Service Provider network and provides voice, data, and video services throughout the subscriber's home CCAP 9 DECEMBER 4, 2013 |
As many of you know, we have one of the largest product lines in the industry, providing equipment and services spanning network to home. We believe this approach makes us a stronger supplier to our customers, and provides important insight into the interworking of the technology, leading to superior products. Video Processing • Significant ongoing investment in VOD, AI, and Transcoding • Most significant activity and opportunity is around 3-screen support and evolution to CDN network architectures • Introduced a new backoffice last year called CMM that was targeted directly at this growing opportunity – CDN support today • Core VOD not growing very rapidly but it a critical asset/control point • Several new products focused on MPEG4 transcoding for multi-screen support – higher growth rate and low share today Assurance • Opex reduction and improved customer satisfaction is high priority for all operators • Growing interest in our Assurance products • Only real competition is the customer themselves • Pursuing several new business models such as cloud hosted service, network mgmt outsourcing, and even cost-sharing collaboration Wireless • Recently announced a new partnership with a company call Ruckus Wireless • Fabulous product line directly focused on WiFi hotspots; compliment existing wired service offering and provider cellular offload • Growing focus within the cable operators; significant growth potential Access and Transport • growth in narrowcast bandwidth will drive continued investment in the HFC infrastructure – node splits or DWDM expansion • has been muted due to economy and reduced home construction – have seen this turn around and start to grow again • Investing in PON and deep fiber solutions – commercial today but eventually residential as well Pro Services • Very pleased in the growth of our Pro Services business • Much more than just rack/stack of our own equipment • Network design and planning, Cell tower backhaul turnkey project mgmt/execution • 40% of revenue from outside cable |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE GLOBAL CUSTOMER BASE 10 DECEMBER 4, 2013 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE WHAT YOU WILL HEAR TODAY ARRIS continues to execute well on our company strategy ARRIS is ideally positioned in the most exciting and fast growing segments of our industry • Multi-screen Video • CPE refresh cycle • CCAP and DOCSIS 3.1 network upgrades • IP Convergence Our updated long-term strategy Believe our December 2012 post-integration target “run rate” model is achievable 11 DECEMBER 4, 2013 |
![]() ARRIS INVESTOR CONFERENCE ARRIS CORPORATE STRATEGY INVESTOR CONFERENCE AUGUST 2012 Maintain a strong capital structure, mindful of our 2013 debt maturity, share repurchase opportunities and other capital needs including M&A. Grow our current businesses into a more complete portfolio including a strong video product suite. Continue to invest in the evolution toward enabling true network convergence onto an all IP platform. Continue to expand our product/service portfolio through internal developments, acquisitions and partnerships. Expand our international business and begin to consider opportunities in markets other than cable. Continue to invest in and evolve the ARRIS talent pool to implement the above… DECEMBER 4, 2013 12 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE KEY ACCOMPLISHMENTS IN 2013 Home acquisition • Customer diversification • Product diversification • Scale Sound capital structure to support new ARRIS Integration ahead of schedule New product launches • E6000 • XG1 • Various other CPE devices Strengthening of talent pool, particularly through the acquisition DECEMBER 4, 2013 13 |
![]() ARRIS INVESTOR CONFERENCE ARRIS REVENUE HISTORY $M 14 Mot Home portfolio 2013 excludes Home Business Revenue from January 1 – April 16, 2013 Circuit Switched Cable Telephony (Cornerstone) Cable IP Telephony Build Out DOCSIS 3.0 CMTS and CPE Cycle CCAP, Advanced Gateways, etc. DECEMBER 4, 2013 |
![]() ARRIS INVESTOR CONFERENCE 15 ARRIS R&D INVESTMENTS 2013 excludes Home Business Spending from January 1 – April 16, 2013 DECEMBER 4, 2013 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE ARRIS EVOLVING GROWTH STORY 16 STRONG TRACK RECORD OF PURPOSEFUL, SUCCESSFUL CORPORATE DEVELOPMENT Circuit Switch Cable Telephony Voice over IP DOCSIS CMTS and CPE Cycle CCAP and Adv. Gateways Forging New Boundaries INTERNATIONAL CLOUD WIRELESS APPLICATIONS ENTERPRISE RETAIL Early organic growth evolving from Circuit switch to IP Telephony Selected technology acquisitions to address adjacent markets Transformative acquisition to drive diversification, scale, market reach, and development capabilities Positioned to accelerate growth with new market opportunities DECEMBER 4, 2013 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE ARRIS SHARE PRICE GROWTH 17 DECEMBER 4, 2013 EXCELLENT SHAREHOLDER RETURNS Through November 29, 2013 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE POSITIVE CUSTOMER RESPONSE N.A. CABLE “ARRIS commitment to integrating hardware and software solutions in support of our RDK initiative has been instrumental in expanding the Comcast X1 experience.” N.A. TELCO “With SecureMedia, we can continue to expand our delivery of premium on demand content to multiple screens, safely and securely.” N.A. CABLE "DreamGallery will allow us to deliver the experience where customers can enjoy their content whenever and wherever they want.” EMEA CONTENT AGGREGATOR “SecureMedia gives us the protection and assurance to provide a variety of premium video to our customers.” GLOBAL PROGRAMMER "We've worked with ARRIS for years and knew they were ideal to help us.” EMEA CABLE “By consolidating the video and data service over APEX3000, we've been able to merge traffic in an agile and flexible way - increasing network capacity for future growth.” N.A. CABLE "ARRIS E6000 CER enables us to deliver popular services.” 18 DECEMBER 4, 2013 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE MULTI-SCREEN VIDEO IS CHANGING CONSUMPTION HABITS…FAST DECEMBER 4, 2013 19 • Total TV Time (N.A.): • 2010 – 3.9 hours daily • 2013 – 4.2 hours daily • Connected video devices (N.A): • 2012 – 277.2 M • 2017 – 537.7 M Source: eMarketer, MRG, CTAM AND WATCHING VIDEO IN MORE WAYS THAN EVER SP = traditional video Service Provider CONSUMERS ARE WATCHING MORE VIDEO THAN EVER ON MORE DEVICES THAN EVER 52% 17% 4% 6% 21% % Average Time Spent Watching Video in the Home (N.A) TV/HDTV SP DVR SP VOD SP TV to Other Devices Over-the -Top Streaming |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE CONSUMER BEHAVIOR DRIVING TRANSITION TO ALL IP NETWORKS MIGRATION WILL REQUIRE $ BILLIONS OF INVESTMENT 20 DECEMBER 4, 2013 DEPLOY TV EVERYWHERE IMPROVE SERVICE VELOCITY, INNOVATION OPERATIONAL EXCELLENCE SERVICE PROVIDER IMPERATIVES IP SERVICE DELIVERY MULTI-SCREEN, TV-EVERYWHERE BANDWIDTH DEMAND GROWTH ENHANCED QUALITY OF EXPERIENCE SCALABLE, OPEN CLOUD ADVANCED HOME NETWORKING IMPROVED MONETIZATION OTT VIDEO INTEGRATION |
![]() ![]() ARRIS INVESTOR CONFERENCE ARRIS GROWTH STRATEGIES DECEMBER 4, 2013 21 Deliver next-generation broadband and video solutions that enable service providers to offer content anytime, anywhere solutions Be the leading supplier of in-home solutions enabling rich media experiences and IP services Expand and grow the ARRIS service delivery business by enabling the evolution to next generation networks and time to market advantage for operators CUSTOMER PREMISE EQUIPMENT NETWORK and CLOUD GLOBAL SERVICES ARRIS INVESTOR CONFERENCE |
![]() ![]() KEY FOCUS AREAS FOR 2014 22 DECEMBER 4, 2013 DELIVER ON GROWTH AND EXPANSION …. MOVE BEYOND INTEGRATION AND FOCUS ON GROWTH And most importantly invest in and evolve our best-in-industry talent pool Maintain a strong capital structure, mindful of our debt & liquidity Expand our international business including exploring adjacent market opportunities Invest aggressively to refresh and expand our product/service portfolios through organic development and partnership/acquisition Capitalize on the evolution toward network convergence and all IP platforms to drive business growth Leverage ARRIS scale to drive profitable worldwide growth ARRIS INVESTOR CONFERENCE EXECUTE ON OUR STRONG FOUNDATION… |
![]() ![]() ![]() THANK YOU QUESTIONS? |
![]() ![]() ![]() CUSTOMER PREMISE EQUIPMENT BUSINESS UPDATE LARRY ROBINSON |
![]() ![]() ARRIS INVESTOR CONFERENCE ARRIS CUSTOMER PREMISES EQUIPMENT 25 Global Customer Relationships End-to-End Network Expertise Extensive R&D Capabilities Robust Product Portfolio Operational Excellence BROADBAND ACCESS IP VIDEO DIGITAL VIDEO DECEMBER 4, 2013 WELL-POSITIONED TO DELIVER THE FUTURE OF HOME ENTERTAINMENT ARRIS INVESTOR CONFERENCE |
![]() ![]() MARKET TRENDS IMPACTING THE HOME 26 26 26 Access Network Cloud Solutions Home Network Traffic DECEMBER 4, 2013 CREATING A “CHALLENGED” CONSUMER EXPERIENCE ENTERTAINMENT REDEFINED GROWING POPULATION OF DEVICES WITHIN THE HOME INCREASED HOME NETWORK DEMANDS ARRIS INVESTOR CONFERENCE |
![]() ![]() DECEMBER 4, 2013 27 39% considering switching TV providers within 6 mos 16% have added/increased services in past 6 mos 14% have dropped/decreased services in past 6 mos Less than 1% fully “cut the cord” Source: CTAM, Digitalsmiths, Investor’s Business Daily, websites CONSUMER BEHAVIOR DRIVING COMPETITION & SERVICE INNOVATION CONSUMERS DEMANDING MORE SERVICES ARRIS INVESTOR CONFERENCE |
![]() ![]() CPE TECHNOLOGIES SHAPE THE HOME Software Broadband Video Processors Wireless Networks Wired Networks Storage Security 28 DECEMBER 4, 2013 ARRIS CONTINUES TO INVEST IN KEY CPE TECHNOLOGIES ARRIS INVESTOR CONFERENCE |
![]() DEPLOY TV EVERYWHERE IMPROVE SERVICE VELOCITY, INNOVATION OPERATIONAL EXCELLENCE INDUSTRY PRIORITIES DRIVING CPE INVESTMENTS 29 SERVICE PROVIDER PROGRAMS & INVESTMENTS SERVICE PROVIDER IMPERATIVES ARRIS CAPABILITIES DECEMBER 4, 2013 • Enable cloud-based access to content • Connecting all IP devices in the home with Cloud and Gateway • Evolve in-home architecture increasing service delivery flexibility • Convergence for the home – beyond 3-play • Increased consumer engagement with enhanced interactivity and applications • Next Gen compression and screen resolution • Enhance initial Wi-Fi install and maintenance • Deploy next-gen video gateways • Implement cloud and remote based user interface • Multiservice IP Gateways and STB • Advanced 802.11ac • In-Home Transcoding • High MIPS CPU • Thin Client Evolution • HEVC/4K STB • Wi-Fi Assure • Hybrid and all-IP Gateways • HTML5 ARRIS INVESTOR CONFERENCE |
![]() SIMPLIFY THE CONNECTED EXPERIENCE 30 Game Consoles Traditional TV / HDTV’s Broadband Access SMART TV’s / OTT Boxes Multi-screen (Tablets) Connecting devices in the home, enabling content sharing, unifying & enhancing the consumer experience DECEMBER 4, 2013 ARRIS INVESTOR CONFERENCE |
![]() ARRIS INVESTOR CONFERENCE THE GATEWAY— MULTI-PURPOSE PLATFORM 31 DRIVING A CPE REPLACEMENT CYCLE Industry Verticals Audio Entertainment Services Apps Platform Next Generation TV Experiences Gigabit Broadband Access ARRIS Gateway Portfolio – Leading The Industry Transition DECEMBER 4, 2013 |
![]() THE GATEWAY— ENABLING NEW EXPERIENCES 32 Video Gateways Multimedia Gateways Advanced WiFi Gateways Data Gateways Voice Gateways Multi-Service IP Gateways Platforms That Power the Future of Home Entertainment DECEMBER 4, 2013 ARRIS INVESTOR CONFERENCE PLATFORM FUNCTIONS IP Service Translation for In-Home Device Distribution Service Provider & Subscriber Network Demarcation Managed Device – Provision Services, Monitor & Maintain Quality of Service In-Home CPE Resource Aggregation |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE FUTURE HOME GATEWAY ARCHITECTURE 33 Current NA Video CPE / HH Screens Set-Tops 3+ TV’s / 7 IP-devices ~1.8 Refresh Rate 8-11 years CY'12 CY'17 CAGR WW Video Subs 730.2M 921.5M 4.8% WW Broadband Subs 525.6M 635.8M 3.9% WW DOCSIS 3.0 Subs 13.6M 57.5M 33.4% DECEMBER 4, 2013 = Trending Up = Trending Down Key Trends & New Architecture Demands Creating Robust Market Source: ARRIS estimates, 2013 Infonetics Research, Inc. (WW Broadband Subs include DOCSIS & DSL estimates) Key Trends |
![]() ARRIS INVESTOR CONFERENCE GROWTH DRIVEN BY MULTIMEDIA & ADVANCED BROADBAND DEVICES DECEMBER 4, 2013 Multimedia Home Gateways Broadband Devices NEW SERVICES ENABLED BY TECHNOLOGY – MAINTAINS STRONG BUSINESS MOMENTUM CAGR 8.4% CAGR 26.7% 34 |
![]() SERVICE PROVIDERS – DRIVING CPE INVESTMENT CYCLES DECEMBER 4, 2013 35 NEW SERVICES DEMANDING NEW PLATFORMS ARRIS INVESTOR CONFERENCE |
![]() GATEWAY SOLUTIONS – ALIGNED WITH INDUSTRY TRENDS DECEMBER 4, 2013 36 Data / Voice Gateway D3.0 Data/Voice 802.11ac D3.1 Data/Voice 802.11ac/ad/HEW Headless 3-play GW MOXI WHS Platform Next-Gen Gateway Headed Video GW Flexible Front End CA / DRM Support Xcode Support 8x4 D3.0 ARRIS Gateway Portfolio Next-Gen Gateway Headless 3-play GW 16x4+ D3.0 Video Gateways Multi-Service Gateways Data Gateways Time ARRIS INVESTOR CONFERENCE |
![]() GigE CPE SOLUTIONS – LEVERAGING THE LATEST TECHNOLOGY DECEMBER 4, 2013 37 DOCSIS Performance Home LAN 100Mbps 1Gbps 5 Gbps APU Security GigE G.hn G.hn Shift-to-IP Catalyst D3.0/D3.1 Service Delivery Wi-Fi performance / management ultimate differentiator VDSL 50Mbps Bonded Pair Vectoring 100Mbps 200Mbps 3K DMIPS 10K DMIPS 40K DMIPS Time ARRIS INVESTOR CONFERENCE |
![]() ARRIS CPE – DRIVING PLATFORM DIFFERENTIATION 38 • Cloud to Home Connectivity • Network Interoperability • Increased Access Speeds • Network Unification • Gbps Home LANs • Best in Class Wired & Wireless Network Performance • Converged Services • Advanced Gateway Platforms • Client Devices • Flexible Application Ecosystem • X-functions DECEMBER 4, 2013 CONSUMER TRENDS • Any Content, Anywhere, Any Time • Personalized Experience • Customer-owned Devices • Quality of Experience Access Network Connectivity Home Network Performance Home Devices ARRIS INVESTOR CONFERENCE |
Look at our Focus Areas – centered around the consumer experience (that our customers are delivering) WAN2LAN – Leveraging capabilities within Bruce’s team Home network becomes increasing important (discovery, seamless integration, performance) Devices…X-funtions |
![]() ![]() ARRIS INVESTOR CONFERENCE ARRIS CPE – LEVERAGING MARKET TRENDS TO DRIVE GROWTH 39 • Grow / secure new wins in DVB (Int’l markets) • Expand DSL pursuits • Leverage scale; Drive supply chain efficiencies • Exploit design expertise • Ensure disciplined mgmt approach • Capitalize on diversified portfolio • Deliver on product pipeline • Cont’d R&D investment • Execute in core markets • Build upon key customer engagements DECEMBER 4, 2013 Regain Market Share Deliver New Products Focus on Execution Expand Market Presence • Grow / secure new wins in DVB (Int’l markets) • Expand DSL pursuits • Leverage scale; Drive supply chain efficiencies • Exploit design expertise • Ensure disciplined mgmt approach • Capitalize on diversified portfolio • Deliver on product pipeline • Cont’d R&D investment • Execute in core markets • Build upon key customer engagements |
![]() ![]() ![]() THANK YOU QUESTIONS? |
![]() ![]() ![]() BREAK |
![]() ![]() ![]() DEMONSTRATIONS JONATHAN RUFF |
![]() ![]() ![]() • Gbps High Speed data • Voice, Video and Data with one connector • Self Healing non-stop performance E6000 |
![]() ![]() ![]() • Video Access Point • Whole Home Coverage • Multiple simultaneous HD streams • Advanced Quality of Service Functionality • Easy Install Solution VAP 2500 |
![]() ![]() ![]() • Voice, Video and Data • Home Networking & WiFi • 6 Channel Transcoder • DECT Telephony • Home Automation-Zigbee MG2402 |
![]() ![]() ![]() DEPLOY TV EVERYWHERE IMPROVE SERVICE VELOCITY, INNOVATION OPERATIONAL EXCELLENCE SERVICE PROVIDER IMPERATIVES • Wi-Fi Video Access Points • Wi-Fi Set Tops ARRIS CAPABILITIES • Self Healing E6000 and CCAP • Gbps High Speed Data • Applications on Set-top • OTT Video Services Support • Gateway with Home Automation Connectivity |
![]() ![]() ![]() THANK YOU |
![]() ![]() ![]() NETWORK & CLOUD BUSINESS UPDATE BRUCE MCCLELLAND |
![]() EVOLVING CONSUMER DEMANDS DRIVING NETWORK INVESTMENT Source: Cisco VNI Source: ARRIS estimates, eMarketer The American Media Diet: 2010 vs. 2013 CONSUMER DEMAND FOR TV EVERYWHERE IS MAJOR CATALYST FOR NETWORK INVESMENT Global Consumer Internet Traffic 2012 - 2017 DEMAND FOR BANDWIDTH WILL CONTINUE TO INCREASE TV VIEWING REMAINS STRONG EVEN AS NEW DEVICES EMERGE DECEMBER 4, 2013 49 ARRIS INVESTOR CONFERENCE File Sharing Web, email, and data Internet Video Daily Consumption in Hours |
![]() DEPLOY TV EVERYWHERE IMPROVE SERVICE VELOCITY, INNOVATION OPERATIONAL EXCELLENCE • Improve delivery and support model using sophisticated tools and analytics • Reduce service outage impacts and improve subscriber experience • Expand network capacity with platforms that provide for future growth and capability • Evolve network architecture to provide network- based capabilities such as remote User Interfaces and TV On Demand • Enhanced recommendations and contextual advertising SERVICE PROVIDER PROGRAMS & INVESTMENTS SERVICE PROVIDER IMPERATIVES • IP Convergence • Assurance • Services • SaaS • CCAP • HEVC • Network DVR • Advanced Advertising • Offer Management ARRIS CAPABILITIES • Multi-screen • Content Mgmt • Video Transcoding • HTML5/DRM STRONG ALIGNMENT WITH SERVICE PROVIDER MAJOR PRIORITIES 50 DECEMBER 4, 2013 • Enable multi-screen video distribution • Re-fresh main-screen user experience • Provide cloud-based access to content with enhanced interactivity and applications ARRIS INVESTOR CONFERENCE |
![]() NETWORK INFRASTRUCTURE AND CLOUD SOLUTIONS 51 CLOUD SOLUTIONS ACCESS AND TRANSPORT CMTS/CCAP VIDEO INFRASTRUCTURE GLOBAL SERVICES SERVING THE CABLE, TELCO, AND PROGRAMMER SEGMENTS DECEMBER 4, 2013 1 2 3 4 5 Multi-Screen Video HFC Advanced Advertising QoE Assurance PON ARRIS INVESTOR CONFERENCE |
Organized in four Product Lines: Cloud Solutions, Video Infrastructure, CMTS/CCAP, and Access and Transport. Global Services spanning all ARRIS Products. |
![]() ARRIS Cloud Solutions ARRIS CLOUD STRATEGY SOLVING THE TV EVERYWHERE ‘PINCH POINT’ 52 Traditional Media New Aggregators User Content The Subscriber Experience • Integrated open-standards solutions for cloud-based delivery enabling content anytime and anywhere • Systems integration and end- to-end solutions expertise DECEMBER 4, 2013 Cloud 1 • New media monetization solutions • New customer engagement models ARRIS INVESTOR CONFERENCE |
Talk to Pain Points - Bandwidth - Ingest/format - Security - Multi-screen UE - Content search, navigation, transaction - QOE, ease of use, etc. |
![]() ARRIS INVESTOR CONFERENCE SERVICE PROVIDERS ARE ADOPTING CLOUD-BASED ARCHITECTURES 53 TRADITIONAL NETWORKS CLOUD NETWORKS DVR User Interface HW Security Storage Control Maintenance Routing Platform-as-a-Service TV Everywhere Service Cloud Tightly Integrated – Monolithic – Proprietary – Platform Dependent Loosely Coupled – Multi-Vendor – Open – Platform Independent DECEMBER 4, 2013 SERVICE VELOCITY, SCALABILITY, RELIABILITY Cloud 1 In The Home On The Go |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE MULTI-SCREEN INFRASTRUCTURE ASSURANCE SOLUTIONS MULTI-SCREEN CONSUMER SOLUTIONS CLOUD SOLUTIONS • WorkAssure™ • ServAssure™ • DreamGallery™ UI Framework • MOXI® Whole Home Solutions • SecureMedia® DRM • MobileTV • Multi-screen Video Back Office • Recommendation and Offer Management • Advertising 54 DECEMBER 4, 2013 Cloud 1 |
![]() ARRIS INVESTOR CONFERENCE KEY INITIATIVES CLOUD SOLUTIONS MARKET OPPORTUNITY 55 ’13E / ’17E CAGR: 13% GLOBAL REVENUE OPPORTUNITY Multi-screen Consumer Solutions Multi-screen Video Infrastructure Assurance • Competitive forces spurring investment in re-fresh of User Experience • Connected Device Digital Rights Management • Advanced Video Gateways and Settop Box Software • Actionable Intelligence and Proactive Service Mgmt • Improved Quality of Experience • Field Service Management • Multi-screen and connected device video services • Expanded cloud-centric applications, e.g. Network DVR • Advanced Offer Management and Recommendation • Advanced Advertising • Cloud-centric applications SIGNIFICANT GROWTH OPPORTUNITY TO ENABLE CONTENT ANYTIME, ANYWHERE SOLUTIONS Sources: ARRIS Views based on Infonetics 1Q13, IHS 2Q13, ABI 2012, F&S 2013, ARC 2013, IDC Research, MRG 2013, TBR 2013 and ARRIS Internal Estimates DECEMBER 4, 2013 Cloud 1 $ 0.0 $ 1.0 $ 2.0 $ 3.0 $ 4.0 2013 2017 $1.7B $2.9B |
![]() BEST-IN-CLASS MULTI-SCREEN CONSUMER SOLUTIONS 56 Whole Home Solution with MOXI ® DreamGallery Multi-Screen Software MOXI ® Reference UI DreamGallery Framework/ Portal SecureMedia® DRM DECEMBER 4, 2013 Cloud Hide the complexity Customer retention Grow ARPU ARRIS INVESTOR CONFERENCE 1 TM TM |
![]() ARRIS INVESTOR CONFERENCE SECUREMEDIA ® DIGITAL RIGHTS MANAGEMENT • Award-winning advanced security and DRM solution to protect delivery of VOD and linear content to virtually all devices • Approved by all major film studios and broadcast networks • Available today on market-leading platforms • And deployed by Multi-Screen Video Providers worldwide 57 DECEMBER 4, 2013 Cloud 1 |
![]() Award-winning advanced security and DRM solution to protect delivery of VOD and linear content to virtually all devices. Approved by all major film studios and broadcast networks |
![]() MULTI-SCREEN VIDEO INFRASTRUCTURE SOLUTIONS 58 Platform-As-A-Service • Enable seamless management and delivery of content end-to-end across multiple networks • Provide elegant migration from current broadcast paradigm to full IP distribution • Create new revenue stream with robust advertising solution Simple solutions and services Scale with out customers Grow new markets DECEMBER 4, 2013 Cloud 1 ARRIS INVESTOR CONFERENCE |
![]() ARRIS INVESTOR CONFERENCE ARRIS END-TO-END MULTI-SCREEN SOLUTIONS 59 • ConnectSR (Billing interface) • CMM – EAM (Entitlements and Account Management) • Merchandizer • DreamGallery • DreamGallery Virtual • Moxi • Moxi Mobile Client • Portal CONTENT MGMT CONTENT PROTECTION OFFER MGMT USER EXPERIENCE • Secure Media • Integration with other 3 Party Systems SESSION MGMT • PlayList Manager and Packager • QAM & IP Session Management • Fulfillment Manager • ConvergeMedia Manager • AdManager - SpotAgent • VideoFlow • Capture Manager (Cloud, Start-Over for Capture) • Policy Manager ADVERTISING • AdManager (PO System, Router, Enterprise) • SkyVision • SkyVision ADS • AdEdge (IVE) SERVICES Multi-screen Integration and Deployment Broadband Network Transformation Headend Progression IPTV Evolution Custom Development DECEMBER 4, 2013 Cloud 1 rd |
![]() ARRIS INVESTOR CONFERENCE CLOUD SOLUTIONS— A COMPELLING BUSINESS MODEL Tightly integrated with Service Provider core business • Long term sticky engagement Recurring revenue stream • Both hosted and enterprise operating models • Application revenue share opportunities • Multi-year agreements with minimum purchase commitments High Gross Margin software business • Per device, per household, per transaction • Scales as the business grows • Low cost of sales Significant Professional Service and System Integration components 60 DECEMBER 4, 2013 Cloud 1 |
![]() ARRIS INVESTOR CONFERENCE CMTS/CCAP— A GROWING MARKET 61 • $1B+ market with 10%+ CAGR over next 3 years • Exponential growth in bandwidth demand primarily driven by IP Video • CCAP platforms rapidly consuming CMTS market – Need for more bandwidth putting pressure on space, power, capital – Video and Data convergence will grow in importance • Important inflection point to gain share and establish base for future revenue • ‘Classic’ CMTS platforms will continue to operate for years and support additional advanced features • CCAP platform provides operators a path to Video and Data convergence • Initial priority focused on addressing Data growth • Additional headend simplification will be achieved as legacy Video traffic is added to the CCAP platform over time DECEMBER 4, 2013 CCAP 2 Source: Infonetics Q213 Phase 1: Dense CMTS and IP Video Phase 2: Legacy Narrowcast Video (VoD & SDV) Phase 3: Legacy Broadcast Video Phase 4: EPON/GPON |
• Converged capabilities of CCAP Platform will be enabled over time as operators simplify headend infrastructure – Initial priority focused on meeting HSD exponential growth needs |
![]() CCAP ANATOMY 62 • Continued shift in pricing model towards capacity- based licenses • Currently deploying chassis with less than 25% of capacity ‘activated’ – will result in future stream of high margin revenue • Majority of deployments are replacing current “Classic” CMTS chassis – opportunity to gain share • Lower Price/Mbps achieved thru technology advances Economics of CCAP Continual Re-fresh Cycle will drive future upgrades • DOCSIS3.1 • Analog and Digital Optical Interfaces • Remote CCAP & C-DOCSIS • Remote Phy • Software Defined Networking • PON Density Advantages E6000 - Platform for the Future DECEMBER 4, 2013 CCAP ARRIS INVESTOR CONFERENCE Initial Chassis Deployment Card Fill Capacity License Upgrades Gen2 Line Card Upgrades Network-side Interface Upgrades 2 5,000 4,000 3,000 2,000 1,000 0 2009 2011 2013 25 20 15 10 5 0 DS Channels/Chassis Power/DS Channel (W) Source: ARRIS estimates |
![]() ARRIS INVESTOR CONFERENCE E6000 CONVERGED EDGE ROUTER DEPLOYMENT STATUS 63 • Highly successful market introduction and product ramp • Supporting >1 Million subscribers • Replacing ‘classic’ CMTS platforms from all vendors • Platform expected to provide 10+ year life cycle • Both software and hardware upgrades planned to expand capacity and add new services • Technology and Quality leadership • Near term roadmap prioritized to gain share • Advanced Routing Features • Increased density and scalability (less space, lower power, lower cost) • Video Convergence DECEMBER 4, 2013 TARGETING INCREASED MARKET SHARE AND SALES GROWTH CCAP 2 |
![]() VIDEO INFRASTRUCTURE A SOLID PROFITABLE BUSINESS DECEMBER 4, 2013 64 Video 3 ANALOG DIGITAL HD / DVR BROADBAND & MULTI-SCREEN Encoders / Transcoders Rate Shaping Multiplexing Switched Digital Video Encryption / Authentication Integrated Receiver / Decoder Encoder Uplink Digital Accessable Controller EdgeQAM VOD Storage/ Streaming Network DVR • Broad portfolio of products that are at the foundation of providing high quality Pay TV Services • Large $1.5B+ Addressable Market • Key opportunities include HD/Ultra-HD, Network DVR, HEVC compression Source: ARRIS estimates, Frost &Sullivan, ABI and Infonetics ARRIS INVESTOR CONFERENCE |
![]() ARRIS INVESTOR CONFERENCE VIDEO INFRASTRUCTURE NEW GROWTH OPPORTUNITIES 65 Video Processing • – Encoding, Transcoding, Encryption, Packaging • • – MPEG2/MPEG4 video compression efficiency improvements – Adaptive Bitrate IP video streaming – HEVC and UltraHD/4K Programmer Infrastructure • • – Increased HD content; keen interest in UltraHD – 4K/8K – IP Distribution and Multi-screen services Programmer Uplink Service Provider Satellite Receivers Satellite DECEMBER 4, 2013 Video 3 Source: Frost &Sullivan Strategic product segment Sizable market ~ $800M Primary growth drivers Leading provider of compression and encryption technology to the leading Programmers Programmers continue to invest in upgrades to their distribution network |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE ACCESS AND TRANSPORT POISED FOR GROWTH DECEMBER 4, 2013 66 • Cable MSO’s investing $1B+ annually in HFC equipment • Significant installed base of aging equipment to be replaced • Technology upgrade cycle required to address increased bandwidth needs • Evolving network architectures focused on driving fiber deeper • Metro WiFi deployments expanding worldwide • Multiple new products in the pipeline: • All-digital optics • Expanded frequency range support • Deep Fiber, PON, RFoG, FTTH • Advanced WiFi performance Source: ARRIS estimates Headend Optics Fiber Nodes RF Amps and Passives 4 Access |
![]() ARRIS INVESTOR CONFERENCE GLOBAL SERVICES— A SIGNIFICANT GROWTH OPPORTUNITY 67 MULTI-SCREEN INTEGRATION & DEPLOYMENT ENABLING THE EVOLUTION TO NEXT GENERATION NETWORKS AND TIME TO MARKET ADVANTAGE FOR OPERATORS BROADBAND NETWORK TRANSFORMATION HEADEND PROGRESSION IPTV EVOLUTION CUSTOM DEVELOPMENT Personalized, multi-device, promotion / ad enabled Value added applications for widely deployed IPTV environments Secure flawless video delivery Cable plant evolution, Metro WiFi, Metro Ethernet Customer-driven uniquely product and service development DECEMBER 4, 2013 Services 5 |
![]() ARRIS NETWORK AND CLOUD ENTERING PROFITABLE GROWTH CYCLE 68 DECEMBER 4, 2013 • Broadband • IP Video • Multi-screen • Professional Services • Technology Leadership • Software-as-a-Service • Technical Services • E6000 Converged Edge Router • MPEG4/HEVC Compression • Programmer Distribution • Multi-screen • HFC and PON • Next Gen Platforms • Multi-screen • Customer Relationship = Early Access Deliver New Products Increase Market Share Growing Markets Focus on Execution ARRIS INVESTOR CONFERENCE |
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![]() FINANCIAL UPDATE DAVE POTTS |
![]() ARRIS INVESTOR CONFERENCE FIRST SIX MONTHS – POST ACQUISITION DECEMBER 4, 2013 71 Q3 2013 Actual Q4 2013 Guidance December 2012 Post- Integration Target Annual “Run Rate” Model Revenues $1,068M $1,150M - $1,180M $4,800M - $5,100M - New Products Providing Growth - Customer Diversification - International Expansion Gross margin 29.7% 29% - 30% - In line with Target Model Operating Expense $228M $930M - $980M - At or Below Target Model EPS GAAP EPS $0.13 $0.00 - $0.04 $0.48 - $0.63 Non-GAAP EPS (1) $0.39 $0.42 - $0.46 $2.00 - $2.15 - Good Progress Strong Cash Generation - $380M from operating activities through Q3 2013 - Excludes Home Business Cash from January 1 – April 16, 2013 (1) See GAAP to Non-GAAP EPS Reconciliation EXCELLENT PROGRESS |
![]() POST ACQUISITION SYNERGY UPDATE 72 EXCELLENT PROGRESS, AHEAD OF SCHEDULE DECEMBER 4, 2013 ARRIS INVESTOR CONFERENCE COST SYNERGIES R&D Restructuring & Alignment G&A Restructuring & Alignment S&M Restructuring & Alignment CoGS Synergies INTEGRATION ACTIONS Simplification/Optimization Google/Motorola Separation “Back Offfice” Systems Complete – ahead of schedule STATUS COMMENTS Underway – targeted Q3, 2014 Complete – ahead of schedule On track, initial savings in Q4, 2013 Manufacturing & Real Estate on track On track to complete majority by YE Underway – targeted Q3 2014 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE TARGET ANNUAL “RUN RATE” MODEL UPDATE DECEMBER 4, 2013 73 Revenue $4.8 B - $5.1B GAAP EPS (1) $0.72 - $0.87 Non-GAAP EPS (2) $2.00 - $2.15 (1) Reflects updated estimates for amortization of intangibles and equity compensation expense (2) See GAAP to Non-GAAP EPS Reconciliation Believe target model is achievable |
![]() ARRIS INVESTOR CONFERENCE 74 CAPITAL ALLOCATION PRIORITIES • Ensure liquidity - Target ~$300M of cash buffer - Have $250M Revolver in reserve, undrawn • De-lever - $232M Convertible Note will be paid off in December 2013 - A key priority is to reduce debt - Our target model should yield robust EBITDA to do so • Acquisition - Continue to evaluate alternatives • Share Repurchases - Lower priority given leverage DECEMBER 4, 2013 |
![]() ARRIS INVESTOR CONFERENCE CASH + DEBT POST CONVERTIBLE NOTE REDEMPTION DECEMBER 4, 2013 75 9/30/2013 9/30/2013 Adjusted for Note Redemption Cash and Cash Equivalents (1) $695 M $463 M Debt Convertible Notes $232 M $0M Term Loan A/B $1,893 M (2) $1,893 M (2) $2,125 M $1,893 M (1) Includes cash and cash equivalents, marketable securities, and long term investments (2) Net of $32M mandatory pre-payments ($ in millions) • Convertibles will be redeemed in December 2013 • Significant liquidity post-redemption |
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![]() PANEL ARRIS LEADERSHIP |
![]() ARRIS INVESTOR CONFERENCE ARRIS SENIOR LEADERSHIP TEAM 78 BOB Stanzione Chairman and CEO LARRY Robinson Customer Premises Equipment BRUCE McClelland Network & Cloud RON Coppock Sales and Marketing LARRY Margolis HR and Legal DAVID Potts Finance and IT JIM Brennan Supply Chain DECEMBER 4, 2013 |
Diverse, experienced management team - - - - - - - - - Robust professional experience in both telco and cable technologies and business. Bob S – 25 years with Bell Labs and Lucent, 18 years with ARRIS (founding CEO) and predecessor company ANTEC Dave Potts – 20+ years with Nortel, 18 years with ARRIS (founding CTO) Larry Margolis – 20+ years with ANTEC, ~12 years with ARRIS John Burke – 20+ years with GI and Motorola Home Larry Robinson– many years with GI and Motorola Home Bruce McClelland - ~12 years with Nortel, ~16 years with ARRIS Rob McLaughlin– 20+ years with GI and Motorola Home Ron Coppock - ~15 years experience with ANTEC and predecessor companies, ~12 years with ARRIS Jim Brennan many years with GI and Motorola Home |
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![]() CEO BOB STANZIONE |
![]() ARRIS INVESTOR CONFERENCE THINGS TO REMEMBER FROM TODAY ARRIS continues to execute well on our company strategy ARRIS is ideally positioned in the most exciting and fast growing segments of our industry • Multi-screen Video • CPE refresh cycle • CCAP and DOCSIS 3.1 network upgrades • IP Convergence Our updated long-term strategy Continue to believe our December, 2012 post-integration target “run rate” model is achievable 81 DECEMBER 4, 2013 |
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![]() ARRIS INVESTOR CONFERENCE DECEMBER 2012 TARGET ANNUAL MODEL POST-INTEGRATION GAAP TO NON-GAAP EPS RECONCILIATION 84 (1) Purchase accounting impacts reflect current estimates. Amortization and other items may change (2) Assumes no share repurchases and normal course equity grants (3) Non-GAAP EPS excludes stock based compensation, amortization of acquired intangibles DECEMBER 4, 2013 84 |
![]() ![]() ![]() ARRIS INVESTOR CONFERENCE UPDATED TARGET ANNUAL “RUN RATE” MODEL GAAP TO NON-GAAP EPS RECONCILIATION DECEMBER 4, 2013 85 GAAP to Non-GAAP EPS Reconciliation GAAP Net Income $106 <-> $128 Amortization (1) $240 $240 Stock Based Compensation $50 $50 Tax Effect on Above Items ($102) ($102) Estimated Non-GAAP Net Income $294 <-> $316 Shares Outstanding (2) 147 147 GAAP EPS $0.72 <-> $0.87 Non-GAAP EPS (3) $2.00 <-> $2.15 (1) Purchase accounting impacts reflect current estimates. Amortization and other items may change (2) Assumes no share repurchases and normal course equity grants (3) Non-GAAP EPS excludes stock based compensation, and amortization of acquired intangibles ($ in millions) |
![]() ARRIS INVESTOR CONFERENCE Q4 2013 GUIDANCE GAAP TO ADJUSTED NON-GAAP EPS GUIDANCE RECONCILIATION DECEMBER 4, 2013 86 Q4 2013 Guidance Estimated GAAP EPS $ 0.00 -$ 0.04 Reconciling Items (after tax): Amortization of Intangibles 0.34 Acquisition accounting impacts related to Motorola Home deferred revenue 0.01 Stock Compensation Expense 0.05 Acquisition Costs 0.02 Subtotal 0.42 Estimated Adjusted (Non-GAAP) EPS $ 0.42 -$ 0.46 |
![]() GAAP EPS (1) /ADJUSTED EPS RECONCILIATION Q3 2013 (PRELIMINARY & UNAUDITED) DECEMBER 4, 2013 87 See the Notes to GAAP / Adjusted Non-GAAP Financial Measures slide (in thousands, except per share data) Amount Amount Amount Amount Sales 357,432 $ 1,067,823 $ 1,009,660 $ 2,421,835 $ Highlighted items: Acquisition accounting impacts related to Motorola Home and BigBand deferred revenue 546 1,556 2,467 3,973 Reduction in revenue related to Comcast investment in ARRIS - - - 13,182 Sales excluding highlighted items 357,978 $ 1,069,379 $ 1,012,127 $ 2,438,990 $ Per Diluted Per Diluted Per Diluted Per Diluted Amount Share Amount Share Amount Share Amount Share Net income (loss) 17,864 $ 0.15 $ 17,959 $ 0.13 $ 38,664 $ 0.33 $ (44,380) $ (0.34) $ (2) Highlighted items: Impacting gross margin: Acquistion accounting impacts related to Motorola Home fair value of inventory - - - - - - 57,600 0.44 Product rationalization - - - - - - 13,582 0.10 Acquisition accounting impacts related to Motorola Home and BigBand deferred revenue 546 0.00 1,006 0.01 2,467 0.02 2,478 0.02 Fair value impacts related to Comcast investment in ARRIS - - - - - - 13,182 0.10 Stock compensation expense 808 0.01 1,248 0.01 2,367 0.02 2,945 0.02 Impacting operating expenses: Acquisition costs and other 30 0.00 6,221 0.04 739 0.01 32,804 0.25 Restructuring 213 0.00 6,057 0.04 6,455 0.06 38,323 0.29 Amortization of intangible assets 7,742 0.07 64,606 0.46 22,565 0.19 127,751 0.97 Loss off sale of product line - - - - 337 0.00 - - Stock compensation expense 5,870 0.05 9,481 0.07 18,827 0.16 21,708 0.16 - Impacting other (income) / expense: - - Non-cash interest expense 3,120 0.03 3,374 0.02 9,177 0.08 9,926 0.08 Impairment of investment - - - - 466 0.00 - - Credit facility - ticking Fees - - - - - - 865 0.01 Mark-to-market FV adjustment related to Comcast investment in ARRIS - - - - - - 13,189 0.10 Net Tax Items (10,545) (0.09) (54,998) (0.39) (25,415) (0.22) (143,034) (1.08) Total highlighted items 7,784 0.07 36,995 0.26 37,985 0.33 191,319 1.45 Net income excluding highlighted items 25,648 $ 0.22 $ 54,954 $ 0.39 $ 76,649 $ 0.66 $ 146,939 $ 1.11 $ Weighted average common shares - Basic 113,709 138,478 114,206 129,502 Weighted average common shares - diluted 116,346 140,605 116,348 132,169 (1) Excludes Motorola Home results prior to April 17, 2013 (2) Basic shares used for YTD 2013 as a loss was reported for that periods and the inclusion of dilutive shares would be anti-dilutive Q3 2012 Q3 2013 YTD 2012 YTD 2013 Q3 2012 Q3 2013 YTD 2012 YTD 2013 (1) ARRIS INVESTOR CONFERENCE |
![]() ARRIS INVESTOR CONFERENCE DECEMBER 4, 2013 88 NOTES TO GAAP/ADJUSTED NON-GAAP FINANCIAL MEASURES (PRELIMINARY & UNAUDITED) Acquisition Accounting Impacts Related to Deferred Revenue: Product Rationalization: Reduction in Revenue Related to Comcast Investment in ARRIS: Stock-Based Compensation Expense: Restructuring, Acquisition and Integration Costs: Loss on Sale of Product Line: Amortization of Intangible Assets: Non-Cash Interest on Convertible Debt: Impairment of Investment: Inventory Valuation: In connection with our acquisition of Motorola Home, business combinations rules require the inventory be recorded at fair value on the opening balance sheet. This is different from historical cost. Essentially we were required to write the inventory up to end customer price less a reasonable margin as a distributor. This resulted in an increase in the value of inventory and will result in higher cost of goods sold as it is sold. In conjunction with the integration of Motorola Home, we have identified certain product lines which overlap. In the second quarter of 2013, we made the decision to eliminate certain products. As a result, we recorded expenses related to the elimination of inventory and certain vendor liabilities. We believe it is useful to understand the effects of this item on our total cost of goods sold. In connection with our acquisition of Motorola Home, Comcast purchased shares of ARRIS common stock to fund a portion of the acquisition price. The accounting guidance requires that we record the implied fair value of benefit received by Comcast as a reduction in revenue. Until the closing of the deal, changes in the value of the investment were marked to market and flowed through other expense (income). We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total revenues and other expense (income). We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record non-cash compensation expense related to grants of options and restricted stock. Depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods. We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income measures. We will incur significant expenses in connection with our recent acquisition of Motorola Home, which we generally would not otherwise incur in the periods presented as part of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses. We have excluded the effect of a loss on the sale of a product line in calculating our non-GAAP operating expenses and net income measures. We believe it is useful to understand the effects of these items on our total operating expenses. We have excluded the effect of amortization of intangible assets in calculating our non-GAAP operating expenses and net income measures. Amortization of intangible assets is non-cash, and is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods. We have excluded the effect of non-cash interest in calculating our non-GAAP operating expenses and net income measures. We record the accretion of the debt discount related to the equity component non-cash interest expense. We believe it is useful to understand the component of interest expense that will not be paid out in cash. We have excluded the effect of an other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income). In connection with our acquisitions of Motorola Home and BigBand, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and post contract support in our purchase accounting. The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues. We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business. We have historically experienced high renewal rates related to our support agreements and our objective is to increase the renewal rates on acquired post contract support agreements; however, we cannot be certain that our customers will renew our contracts. The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP” or referred to herein as “reported”). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects: |
![]() NOTES TO GAAP/ADJUSTED NON-GAAP FINANCIAL MEASURES (CON’T) (PRELIMINARY & UNAUDITED) DECEMBER 4, 2013 89 ARRIS INVESTOR CONFERENCE We have excluded the tax effect of the non-GAAP items mentioned above. Additionally, we have excluded the effects of certain tax adjustments related to state valuation allowances, research and development tax credits and provision to return differences. Income Tax Expense (Benefit): In connection with our acquisition of Motorola Home, the cash portion of the consideration was funded primarily through debt financing commitments. A ticking fee is a fee paid to our banks to compensate for the time lag between the commitment allocation on a loan and the actual funding. We have excluded the effect of the ticking fee in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income). Credit Facility - Ticking Fees: Mark To Market Fair Value Adjustment Related To Comcast Investment in ARRIS: : In connection with our acquisition of Motorola Home, Comcast purchased shares of ARRIS common stock. The accounting guidance requires we mark to market the changes in the value of the investment and flow through other expense (income). We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total other expense (income). |
![]() ARRIS INVESTOR CONFERENCE BSR – Broadband Services Router CCAP – Converged Cable Access Platform CE – Converged Experiences Business Unit / Consumer Electronics CMS – Content Management System CMTS – Cable Modem Termination System CPE – Customer Premises Equipment DCT – Digital Consumer Terminal DOCSIS – Data Over Cable Service Interface Specification (Version 3.0 is the latest specification) DRM – Digital Rights Management DSL – Digital Subscriber Line DTA – Digital Television Adapter DVB – Digital Video Broadcasting DVR – Digital Video Recorder E-MTA – Embedded Multimedia Terminal Adapter EPON – Ethernet over Passive Optical Network FTTH – Fiber to the Home HD – High Definition HD-DVR – High Definition Digital Video Recorder HDTV – High Definition Television HEVC – High Efficiency Video Coding / H.265 / MPEG-H Part 2 HFC – Hybrid Fiber Coaxial HSD – High-Speed Data IP – Internet Protocol IPR – Intellectual Property Rights IPTV – Internet Protocol Television IRD – Integrated Receiver/Decoder LAN – Local Area Network MPEG – Motion Picture Experts Group MSO – Multisystem Operator MSP – Media Services Platform nDVR – Network Digital Video Recorder OEM – Original Equipment Manufacturer OSS – Operations Support System OTT – Over-the-Top QAM – Quadrature Amplitude Modulation RFOG – Radio Frequency over Glass SD – Standard Definition SDV – Switched Digital Video STB – Set-Top Box Triple Play – Bundled Offering of Internet (data), Telephone and TV VOD – Video on Demand VolP – Voice over Internet Protocol VSP – Video Services Platform / Video Service Provider Glossary of Terms 90 DECEMBER 4, 2013 |