EXHIBIT 99.1
Contact: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES SECOND QUARTER 2003
FINANCIAL RESULTS
DULUTH, GA. (JULY 23, 2003) ARRIS (NASDAQ:ARRS), a global telecommunications
technology leader, today announced financial results for the second quarter
2003.
FINANCIAL HIGHLIGHTS:
- - Revenues for the second quarter were $101.7 million.
- - Net income (loss) per share for the second quarter was $(0.37) which
includes: amortization of intangibles, severance costs associated with
the previously announced cost reduction actions implemented in the
quarter, a charge associated with the write down of an investment in a
start-up company, and incremental reserves related to Cabovisao
receivables. Net income (loss) per share excluding these items was
$(0.13) for the second quarter.
- - Cash on hand at the end of the quarter was $67.2 million, with zero
drawn on the revolving credit facility. Approximately $2.9 million of
cash was generated from operations in the second quarter.
- - The remaining $11.5 million balance of the convertible notes due May
15, 2003 were redeemed for cash in the quarter.
FINANCIAL DETAILS:
Second quarter revenues were $101.7 million, up from first quarter 2003
revenues of $91.3 million and within the range of current guidance for the
quarter. Through the first two quarters of 2003, revenues were $193.1 million,
as compared to $348.9 million in 2002.
On a GAAP basis, net income (loss) for the second quarter was $(27.8) million
or $(0.37) per share, as compared to $0.04 per share in the first quarter of
2003 and $(0.50) per share in the second quarter 2002. Net income (loss)
through the first six months of 2003 was a loss of $(24.3) million or $(0.31)
per share as compared to a loss of $(100.6) million, or $(1.24) per share in
2002. The second
quarter earnings include the impact of: 1) amortization of intangibles of
$(8.8) million, or $(0.12) per share, 2) severance costs associated with cost
reduction actions implemented in the quarter of $(1.5) million, or $(0.02) per
share, 3) a charge associated with the write down of an investment in a
start-up company of $(1.0) million, or $(0.01) per share, and 4) incremental
reserves for allowance for doubtful accounts related to Cabovisao of $(6.4)
million, or $(0.09) per share. Excluding these items, net income (loss) was
$(10.1) million or $(0.13) per share in the second quarter of 2003. The Company
noted that the second quarter 2003 also included foreign exchange gains of
approximately $0.02 per share.
Broadband product revenues were $66.5 million in the second quarter as compared
to the first quarter 2003 level of $61.7 million. Supplies & Services product
revenues were $35.2 million in the second quarter, as compared to $29.7 million
in the first quarter of 2003. International sales were $17.8 million in the
second quarter, as compared to $18.7 million in the first quarter 2003. Sales
to Comcast/AT&T Broadband were $36.1 million in the second quarter, as compared
to $23.8 million in the first quarter 2003. Backlog at the end of the second
quarter was $43.3 million compared to $54.6 million at the end of the first
quarter 2003. Bookings in the second quarter were $90.4 million as compared to
$102.2 million in the first quarter 2003. Both the bookings and backlog reflect
the removal of approximately $7.5 million of orders on hand from 2002 related
to Cabovisao. The book-to-bill ratio, excluding the impact of the removal of
the Cabovisao orders, was approximately 0.96 in the second quarter 2003,
compared to 1.12 in the first quarter 2003.
Operating expenses (excluding amortization of intangibles) were $43.7 million
for the quarter, which included the charges related to cost reductions of ($1.5
million) and the incremental reserves for doubtful accounts associated with
Cabovisao of ($6.4 million), as discussed above. This compares to $37.6 million
in the first quarter of 2003, which included a $2.2 million write off related
to customer relations software. During the second quarter, the Company
undertook several actions to reduce its breakeven point, including a reduction
in workforce by approximately 70 employees.
The Company ended the second quarter with $67.2 million of cash on hand and
continues to have zero drawn on its revolving credit facility. During the
second quarter, the Company redeemed the remaining balance of its convertible
notes due May 15, 2003 for $11.5 million in cash. The Company generated
approximately $2.9 million of cash from operations in the quarter.
The Company ended the second quarter with $106.0 million of net inventory,
which was slightly up from the first quarter level of $104.3 million. Inventory
turns were 2.8 at the end of the second quarter as compared to 2.6 at the end
of the first quarter 2003. Trade accounts receivable were $55.2 million at the
end of the second quarter and compares to $69.6 million at the end of the first
quarter 2003. Included within the accounts receivable balance is approximately
18.6 million
euros due from Cabovisao, a Portugal-based MSO, prior to reserves for doubtful
accounts. As previously disclosed, Cabovisao and its parent company CSii are in
the process of restructuring their financing. CSii filed for court supervised
restructuring and recapitalization in Canada on June 30, 2003. The Company
continues to monitor the progress of the financing efforts by Cabovisao and is
actively negotiating the settlement of the past due amount. Based upon these
negotiations, the Company incrementally added approximately $6.4 million in
incremental reserves for these receivables in the second quarter. DSO's were 56
days at the end of the second quarter as compared to 75 days at the end of the
first quarter 2003.
"Although limited visibility on customer spending continues, we are most
pleased to see that our C4 CMTS footprint continues to expand. Sales of this
product line rose significantly during the quarter," said Bob Stanzione, ARRIS
Chairman, President & CEO. "I continue to be optimistic about improvements in
overall industry spending as our customers extend or resume their cable
telephony rollouts, but we remain cautious until spending visibility improves.
Although we have taken a number of actions to reduce operating expenses and
lower our breakeven point, we remain committed to maintaining the technological
leadership of our cable telephony and next generation high-speed data products.
Our recently announced agreement to acquire Com21's CMTS assets and our
continuing substantial investment in R & D are examples of this commitment. I
was especially pleased during the quarter that GCI Communications selected
ARRIS to provide our Cadant C4 and Touchstone telephony ports to provide VoIP
services in its operating area. This win exemplifies our technological
leadership not only in existing CBR telephony services, but also in new VoIP
service rollouts," concluded Stanzione.
During the quarter, the Company announced that GCI Communications had signed a
multi-year agreement for ARRIS to provide up to 18 fully loaded Cadant(R) C4
Cable Modem Termination Systems (CMTS) and up to 63,000 Touchstone telephony
ports. Altrio Communications also purchased the C4 for voice and tiered data
services. In addition, the Company announced that three regional utility
companies would use the C4 to offer voice and data to their residential and
business customers. These customer wins were supported by successful CableLabs
product certifications and qualifications of ARRIS products in the April 2003
Wave 25 testing where the C4 received PacketCable 1.0 qualification and the
Touchstone Cable Modem 450 was certified for both DOCSIS 2.0 and 1.1.
The Company also recently announced that it had entered into a definitive
agreement for the acquisition of the CMTS related assets of Com 21, including
its Irish subsidiary, for approximately $2.8 million, subject to the approval
of the U.S. bankruptcy courts and certain other conditions. The transaction
will culminate in the addition to the Company's portfolio of the C3 CMTS, a
DOCSIS 2.0, Layer 3
capable, feature rich rack mounted CMTS designed to meet the needs of smaller
scale systems, both domestically and internationally.
"We are pleased that the turnaround in revenues from the first quarter and the
actions taken during the quarter to reduce ongoing expenses will accelerate our
return to profitability," said Larry Margolis, ARRIS EVP & CFO. "However, we
remain cautious about forecasting any financial results beyond the current
quarter. We now believe that third quarter 2003 revenues will improve into the
range of $105 million to $115 million with net income (loss) per share in the
range of $(0.18) to $(0.24) inclusive of amortization of intangibles, or
$(0.06) to $(0.12) excluding the amortization of intangibles. Included in the
net income (loss) is approximately $(0.02) per share of costs related to the
anticipated divestiture of our ESP consulting services."
ARRIS management will conduct a conference call at 8:30am EST on Thursday July
24, 2003 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 6:30pm EST release on July 23, 2003 and the
completion of the scheduled conference call at 8:30am EST on July 24, 2003. A
replay of the conference call can be accessed through Monday July 28, 2003 by
dialing (877) 519-4471 and using the PIN#4040823. A replay also will be made
available for a period of 12 months following the conference call on ARRIS'
website at 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 Duluth, Georgia, USA, ARRIS has design, engineering, distribution, service
and sales office locations throughout the world. Information about ARRIS'
products and services is found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
- third quarter 2003 revenues and earnings;
- the general market outlook; and
- the timing of improvements in industry conditions
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 2003 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
- several of the substantial participants in our industry,
including some of our customers are in a weakened financial
condition which could directly or indirectly cause a reduced
demand for our products or other unexpected consequences,
additionally, we cannot be certain if or when the general
uncertainty in our industry will stabilize or improve.
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. 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 SEPTEMBER 30 JUNE 30
2003 2003 DECEMBER 31 2002 2002
(UNAUDITED) (UNAUDITED) 2002 (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 67,217 $ 76,543 $ 98,409 $ 94,037 $ 53,212
Accounts receivable, net 54,942 69,264 78,743 132,418 143,073
Accounts receivable from Nortel 215 289 2,212 2,930 3,177
Other receivables 1,289 1,919 3,154 3,766 6,292
Inventories 105,980 104,331 104,203 113,874 122,550
Income taxes recoverable -- -- -- -- 12,629
Investment held for resale 103 160 137 83 225
Current assets - discontinued operations -- -- -- 22,830 26,190
Other current assets 12,453 14,647 14,834 18,905 21,057
--------- --------- --------- --------- ---------
Total current assets 242,199 267,153 301,692 388,843 388,405
Property, plant and equipment, net 29,068 30,210 34,540 40,528 42,510
Goodwill 150,569 151,253 151,265 222,507 223,561
Intangibles 48,054 56,794 64,843 74,318 83,026
Investments 3,179 4,885 4,594 12,387 12,593
Deferred income taxes, net -- -- -- -- --
Other assets 9,723 11,701 6,478 10,721 10,078
--------- --------- --------- --------- ---------
$ 482,792 $ 521,996 $ 563,412 $ 749,304 $ 760,173
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,807 $ 29,343 $ 24,253 $ 43,383 $ 53,073
Accrued compensation, benefits and related taxes 17,187 16,914 23,423 27,238 25,181
Accounts payable and accrued expenses - Nortel 427 540 11,303 13,095 19,643
Current portion of long-term debt 184 11,755 23,887 99,598 99,598
Current portion of capital lease obligations 1,171 1,415 1,120 1,142 1,163
Other accrued liabilities 40,803 39,513 44,360 41,037 44,619
--------- --------- --------- --------- ---------
Total current liabilities 88,579 99,480 128,346 225,493 243,277
Capital lease obligations, net of current portion 139 337 158 389 615
Long-term debt 125,000 125,028 -- -- --
--------- --------- --------- --------- ---------
Total liabilities 213,718 224,845 128,504 225,882 243,892
Membership interest - Nortel -- -- 114,518 111,768 109,110
--------- --------- --------- --------- ---------
Total liabilities & membership interest 213,718 224,845 243,022 337,650 353,002
Stockholders' equity:
Preferred stock -- -- -- -- --
Common stock 757 758 831 830 828
Capital in excess of par value 577,592 578,397 603,563 603,639 603,109
Unearned compensation (2,397) (3,328) (1,649) (2,010) (2,175)
Unrealized holding gain (loss) on marketable securities 90 445 227 (3,469) (3,656)
Unfunded pension losses (1,219) (1,219) (1,219) -- --
Retained earnings (305,652) (277,883) (281,329) (187,283) (190,769)
Cumulative translation adjustments (97) (19) (34) (53) (166)
--------- --------- --------- --------- ---------
Total stockholders' equity 269,074 297,151 320,390 411,654 407,171
--------- --------- --------- --------- ---------
$ 482,792 $ 521,996 $ 563,412 $ 749,304 $ 760,173
========= ========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $ 101,710 $ 176,502 $ 193,053 $ 348,899
Cost of sales 74,525 116,023 141,124 230,189
--------- --------- --------- ---------
Gross profit 27,185 60,479 51,929 118,710
Operating expenses:
Selling, general, administrative and development 43,681 68,262 80,921 115,445
Restructuring and impairment charges -- -- 336 --
Amortization of intangibles 8,764 8,708 17,472 17,078
--------- --------- --------- ---------
52,445 76,970 98,729 132,523
--------- --------- --------- ---------
Operating profit (loss) (25,260) (16,491) (46,800) (13,813)
Interest expense 2,990 2,102 4,654 4,400
Membership interest -- 2,500 2,418 5,000
Loss (gain) on debt retirement -- 9,276 (28,506) 9,276
Loss (gain) on investments 1,037 1,356 1,014 1,570
Other (income) expense, net (1,518) (4,693) (2,057) (3,670)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (27,769) (27,032) (24,323) (30,389)
Income tax expense (benefit) -- -- -- (6,800)
--------- --------- --------- ---------
Net income (loss) from continuing operations (27,769) (27,032) (24,323) (23,589)
Discontinued Operations:
Income (loss) from discontinued operations -- (13,682) -- (19,059)
Income tax expense (benefit) -- -- -- --
--------- --------- --------- ---------
Gain (loss) from discontinued operations -- (13,682) -- (19,059)
--------- --------- --------- ---------
Net income (loss) before cumulative effect
of an accounting change (27,769) (40,714) (24,323) (42,648)
Cumulative effect of an accounting change - goodwill -- -- -- 57,960
Net income (loss) $ (27,769) $ (40,714) $ (24,323) $(100,608)
========= ========= ========= =========
Net income (loss) per common share
Basic: Income (loss) from continuing operations $ (0.37) $ (0.33) $ (0.31) $ (0.29)
Income (loss) from discontinued operations -- (0.17) -- (0.23)
Cumulative effect of an accounting change -- -- -- (0.71)
--------- --------- --------- ---------
Basic: Net income (loss) $ (0.37) $ (0.50) $ (0.31) $ (1.24)
========= ========= ========= =========
Diluted: Income (loss) from continuing operations $ (0.37) $ (0.33) $ (0.31) $ (0.29)
Income (loss) from discontinued operations -- (0.17) -- (0.23)
Cumulative effect of an accounting change -- -- -- (0.71)
--------- --------- --------- ---------
Diluted: Net income (loss) $ (0.37) $ (0.50) $ (0.31) $ (1.24)
========= ========= ========= =========
Weighted average common shares
Basic 74,992 82,236 78,509 81,252
========= ========= ========= =========
Diluted 74,992 82,236 78,509 81,252
========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ (27,769) $ (40,714) $ (24,323) $(100,608)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 3,505 5,287 9,670 10,851
Amortization of intangibles 8,764 8,708 17,472 17,078
Amortization of deferred finance fees 1,211 641 2,154 1,276
Amortization of unearned compensation 809 395 1,285 886
Provision for doubtful accounts 6,875 21,595 7,718 23,025
Loss on disposal of fixed assets 5 -- 5 19
Loss (gain) on investments 1,037 1,356 1,014 1,570
Loss (gain) on debt retirement -- 9,276 (28,506) 9,276
Gain on sale of discontinued product lines -- 8,536 -- 8,536
Cumulative effect of an accounting change - goodwill -- -- -- 57,960
Changes in operating assets & liabilities, net of effects of
acquisitions and disposals:
Accounts receivable 7,521 (34,465) 18,080 (32,006)
Other receivables 630 6,233 1,865 3,757
Inventory (1,649) 4,059 (1,446) 25,856
A/P & accrued liabilities 285 2,888 (16,868) 4,850
Income taxes recoverable -- 224 -- (7,563)
Accrued membership interest -- 2,500 2,418 5,000
Other, net 1,714 1,504 420 (7,783)
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,938 (1,977) (9,042) 21,980
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,519) (2,444) (2,618) (3,622)
Cash proceeds from sale of Keptel product line -- 30,000 -- 30,000
Cash proceeds from sale of Actives product line 1,800 -- 1,800 --
Cash paid for acquisition (100) (159) (558) (835)
Cash proceeds from sale of investment 130 -- 130 --
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 311 27,397 (1,246) 25,543
FINANCING ACTIVITIES:
Proceeds from issuance of bonds -- -- 125,000 --
Redemption of preferred membership interest -- -- (88,430) --
Repurchase and retirement of common stock -- -- (28,000) --
Payments on capital lease obligations (442) (243) (834) (403)
Payments on debt obligations (11,599) -- (23,969) --
Deferred finance costs paid (534) -- (5,278) --
Proceeds from issuance of stock -- 678 607 755
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (12,575) 435 (20,904) 352
NET INCREASE IN CASH AND CASH EQUIVALENTS (9,326) 25,855 (31,192) 47,875
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 76,543 27,357 98,409 5,337
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,217 $ 53,212 $ 67,217 $ 53,212
========= ========= ========= =========
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2003
----------------------------- -----------------------------
PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE
-------- ----------- -------- -----------
Net income (loss) $(27,769) $ (0.37) $(24,323) $ (0.31)
Highlighted items:
Amortization of intangibles 8,764 0.12 17,472 0.22
Severance related to workforce reduction 1,507 0.02 1,507 0.02
Allowance for Cabovisao receivable 6,400 0.09 6,400 0.08
Loss on investments 1,037 0.01 1,014 0.01
Gain on retirement of membership interest -- -- (28,506) (0.36)
Write-off of customer relationship software -- -- 2,243 0.03
-------- ---------- -------- ----------
Total highlighted items 17,708 0.24 130 0.00
-------- ---------- -------- ----------
Net income (loss) excluding highlighted items $(10,061) $ (0.13) $(24,193) $ (0.31)
======== ========== ======== ==========
Weighted average common shares - diluted 74,992 78,509
========== ==========
ARRIS believes that presenting net income and earnings per share amounts
adjusted for the events described above provides meaningful information which
will allow investors to more easily compare ARRIS' financial performance period
to period. Therefore, ARRIS will continue to provide similar information in the
future with full schedules reconciling the differences between GAAP and
non-GAAP financial measures. As used herein, "GAAP" refers to accounting
principles generally accepted in the United States.