FOR IMMEDIATE RELEASE CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES THIRD QUARTER 2003
FINANCIAL RESULTS
DULUTH, GA. (OCTOBER 22, 2003) ARRIS (NASDAQ:ARRS), a global telecommunications
technology leader, today announced financial results for the third quarter 2003.
FINANCIAL HIGHLIGHTS:
- Revenues for the third quarter were up 11% sequentially to
$113.1 million.
- Net income (loss) per share for the third quarter was $(0.19)
which includes: amortization of intangibles, severance and other
costs associated with the previously announced divestiture of
ESP consulting services, and severance associated with other
cost reduction actions implemented in the quarter. Net income
(loss) per share excluding these items was $(0.04) for the third
quarter.
- Gross margins improved by approximately 150 basis points from
the second quarter to 28.2%.
- Cash on hand at the end of the quarter was $60.0 million, with
zero drawn on the revolving credit facility. Approximately $3.2
million of cash was used in operations in the third quarter,
predominately due to growth in accounts receivable.
FINANCIAL DETAILS:
Third quarter revenues were $113.1 million, up 11% from second quarter 2003
revenues of $101.7 million and in the upper range of the Company's guidance for
the quarter. Through the first three quarters of 2003, revenues were $306.2
million, as compared to $529.5 million in 2002.
On a GAAP basis, net income (loss) for the third quarter was $(14.6) million or
$(0.19) per share, as compared to $(0.37) per share in the second quarter of
2003 and $0.04 per share in the third quarter 2002. Net income (loss) through
the first nine months of 2003 was a loss of $(38.9) million or $(0.50) per share
as compared to a loss of $(97.1) million, or $(1.19) per share in 2002. The
third quarter earnings include the impact of: 1) amortization of intangibles of
$(8.8) million or $(0.12) per share, 2) severance and other costs associated
with the
previously announced divestiture of ESP of $(1.4) million or $(0.02) per share,
and 3) severance associated with other cost reductions actions implemented in
the quarter of $(1.4) million or $(0.02) per share. Excluding these items, net
income (loss) of $(3.0) million or $(0.04) per share was also at the upper range
of previous Company guidance.
Broadband product revenues were $75.0 million in the third quarter up 13% from
the second quarter 2003 level of $66.5 million. Supplies product revenues were
$38.1 million in the third quarter, up 8% compared to $35.2 million in the
second quarter of 2003. International sales were $17.5 million in the third
quarter, as compared to $17.8 million in the second quarter 2003. Sales to
Comcast were $35.8 million in the third quarter, as compared to $36.1 million in
the second quarter 2003. Backlog at the end of the third quarter was $57.5
million compared to $43.3 million at the end of the second quarter 2003.
Bookings in the third quarter were $127.3 million as compared to $90.4 million
in the second quarter 2003. (Bookings in the second quarter include the impact
of the previously disclosed removal of $7.5 million of orders in the second
quarter related to Cabovisao). The book-to-bill ratio in the third quarter was
approximately 1.13, compared to 0.96 in the second quarter 2003.
Gross margins of 28.2% were up approximately 150 basis points over second
quarter 2003 margins of 26.7% as the result of product cost reductions
implemented and higher volume.
Operating expenses (excluding amortization of intangibles) were $35.1 million
for the quarter, which included $(2.8) million of severance and other costs
related to the ESP divestiture and cost reduction actions, as discussed above.
This compares to $43.7 million in the second quarter of 2003, which included
$(7.7) million of charges related to reserves for doubtful accounts for
Cabovisao and severance charges. During the third quarter, the Company continued
to take various actions to reduce its breakeven point.
The Company ended the third quarter with $60.0 million of cash on hand and
continues to have zero drawn on its revolving credit facility. The Company used
approximately $3.2 million of cash in operations in the quarter, predominately
as a result of an increase in accounts receivable. The Company used
approximately $4.1 million of cash in investing activities in the quarter,
including the previously announced purchase of certain assets of COM21.
The Company ended the third quarter with $95.0 million of net inventory, which
was down from the second quarter level of $106.0 million. Inventory turns
improved to 3.2 at the end of the third quarter as compared to 2.8 at the end of
the second quarter 2003. Trade accounts receivable were $61.6 million at the end
of the third quarter and compares to $55.2 million at the end of the second
quarter 2003. DSO's were 47 days at the end of the third quarter as compared to
56 days at the end of the second quarter 2003.
"The industry conditions that have impacted our company for the past several
quarters appear to be improving," said Bob Stanzione, ARRIS Chairman, President
& CEO, "and our results this quarter seem to bear this out. Although overall
industry capital expenditures are forecast to continue to decline into 2004, we
believe ARRIS revenues will increase next year as cable operators accelerate
their offerings of high-speed data and prepare for rollouts of VoIP. The
beginnings of these improvements in overall industry spending in ARRIS product
areas were reflected by the increase in our sales this quarter. Although we
expect to see the normal seasonality of spending in the fourth quarter, I am
encouraged by the outlook for 2004 and our strengthening performance. ARRIS, of
course, will continue to tightly control and reduce expenses, where possible,
while at the same time continuing our intense focus on product development and
winning new or expanding existing customer relationships. Continuing cable
telephony rollouts, increasing bandwidth requirements for peer-to-peer
transmissions and increasing competition for broadband access to the customer
premises are all catalysts for increased spending with ARRIS in the coming
quarters. These opportunities for revenue growth, coupled with the recent
actions that we have taken to further reduce our breakeven point, make me
confident that we will return to profitability in 2004, excluding amortization
of intangibles. Our market leading Cadant C4(R) CMTS product gives us the
ability to take advantage of the need for more bandwidth and the longer term
projected growth of VoIP services as the cable operators look for new sources of
revenue and earnings growth into the future," concluded Stanzione.
During the quarter, the Company announced that it had reached agreements with
its major customers on the timing and pricing to upgrade previously deployed C4
CMTS to DOCSIS 2.0 specifications. These agreements allow for a simple upgrade
to DOCSIS 2.0 from 1.1 when customers may require DOCISIS 2.0 functionalities by
inserting a new cable access module and installing Release 4.0 software on
existing and new DOCSIS 1.1 C4 CMTS platforms. The Company plans to obtain
DOCSIS 2.0 certification for the C4 and begin to roll out these products during
the first half of 2004. In addition during the quarter, the Company completed
the transaction to purchase certain CMTS assets from Com21. These assets
resulted in a new feature rich, rack mounted CMTS product called the Cadant(R)
C3. This new product, which is designed to reach smaller scale markets both
domestically and internationally, received CableLabs DOCSIS 1.1 qualification in
Wave 26 and provides ARRIS with a complete CMTS product line.
The Company also recently announced a co-marketing agreement with Juniper
Networks to collaborate on the sale of each other's products to cable operators
who are looking to differentiate their offerings through the delivery of IP
based services. The agreement combines the high performance of Juniper Networks'
high performance IP networking platforms with the market leading product line of
ARRIS Cadant(R) CMTSs.
"We are very pleased with the 11% sequential growth in revenue, the improvement
in our book to bill ratio, our continuing gross margin improvements and ongoing
reductions in expenses during the quarter," said Larry Margolis, ARRIS EVP &
CFO. "Our revenues have improved throughout 2003 and this trend, along with the
actions already implemented to reduce our breakeven point, will hasten our
return to profitability in 2004. Anticipating the normal seasonal pattern of
previous fourth quarters, we forecast that revenues for the fourth quarter of
2003 will be in the range of $105 million to $115 million with net income (loss)
per share in the range of $(0.12) to $(0.20) inclusive of amortization of
intangibles, or $0.00 to $(0.08) excluding the amortization of intangibles."
ARRIS management will conduct a conference call at 8:30am EST on Thursday,
October 23, 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 October 22, 2003 and the completion of
the scheduled conference call on October 23, 2003. A replay of the conference
call can be accessed through Tuesday, October 28, 2003 by dialing (877) 519-4471
and using the PIN#4224483. 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:
- fourth quarter 2003 revenues and earnings;
- timing of the return to profitability;
- improvements in revenues for 2004 and beyond;
- the general market outlook;
- the timing of improvements in industry conditions; and
- the upgrading and certification of certain products.
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 2003 and estimates of
timing of the return to profitability and 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;
- 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; and
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)
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
2003 2003 2003 2002 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 59,981 $ 67,217 $ 76,543 $ 98,409 $ 94,037
Accounts receivable, net 61,345 54,942 69,264 78,743 132,418
Accounts receivable from Nortel 282 215 289 2,212 2,930
Other receivables 1,410 1,289 1,919 3,154 3,766
Inventories 95,009 105,980 104,331 104,203 113,874
Income taxes recoverable - - - - -
Investment held for resale - 103 160 137 83
Current assets - discontinued operations - - - - 22,830
Other current assets 13,520 12,453 14,647 14,834 18,905
------------ ------------ ------------ ------------ ------------
Total current assets 231,547 242,199 267,153 301,692 388,843
Property, plant and equipment, net 27,177 28,093 30,210 34,540 40,528
Goodwill 151,340 150,569 151,253 151,265 222,507
Intangibles 40,344 48,054 56,794 64,843 74,318
Investments 2,361 3,179 4,885 4,594 12,387
Deferred income taxes, net - - - - -
Other assets 8,895 9,723 11,701 6,478 10,721
------------ ------------ ------------ ------------ ------------
$ 461,664 $ 481,817 $ 521,996 $ 563,412 $ 749,304
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,752 $ 28,807 $ 29,343 $ 24,253 $ 43,383
Accrued compensation, benefits and
related taxes 16,947 17,187 16,914 23,423 27,238
Accounts payable and accrued expenses -
Nortel 140 427 540 11,303 13,095
Current portion of long-term debt 1,060 184 11,755 23,887 99,598
Current portion of capital lease
obligations 22 1,171 1,415 1,120 1,142
Other accrued liabilities 36,307 39,828 39,513 44,360 41,037
------------ ------------ ------------ ------------ ------------
Total current liabilities 80,228 87,604 99,480 128,346 225,493
Capital lease obligations, net of current
portion - 139 337 158 389
Long-term debt 125,365 125,000 125,028 - -
------------ ------------ ------------ ------------ ------------
Total liabilities 205,593 212,743 224,845 128,504 225,882
Membership interest - Nortel - - - 114,518 111,768
------------ ------------ ------------ ------------ ------------
Total liabilities & membership interest 205,593 212,743 224,845 243,022 337,650
Stockholders' equity:
Preferred stock - - - - -
Common stock 774 757 758 831 830
Capital in excess of par value 586,107 577,592 578,397 603,563 603,639
Unearned compensation (9,362) (2,397) (3,328) (1,649) (2,010)
Unrealized holding gain (loss) on marketable
securities 132 90 445 227 (3,469)
Unfunded pension losses (1,219) (1,219) (1,219) (1,219)
Retained earnings (320,245) (305,652) (277,883) (281,329) (187,283)
Cumulative translation adjustments (116) (97) (19) (34) (53)
------------ ------------ ------------ ------------ ------------
Total stockholders' equity 256,071 269,074 297,151 320,390 411,654
------------ ------------ ------------ ------------ ------------
$ 461,664 $ 481,817 $ 521,996 $ 563,412 $ 749,304
============ ============ ============ ============ ============
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------------- ---------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ---------------------------
2003 2002 2003 2002
----------- ---------- ----------- -----------
Net sales $ 113,111 $ 180,577 $ 306,164 $ 529,476
Cost of sales 81,269 115,360 222,393 345,549
----------- ---------- ----------- -----------
Gross profit 31,842 65,217 83,771 183,927
Operating expenses:
Selling, general, administrative and development 35,058 46,106 115,979 161,551
Restructuring and impairment charges - - 336 -
Amortization of intangibles 8,812 8,708 26,284 25,786
----------- ---------- ----------- -----------
43,870 54,814 142,599 187,337
----------- ---------- ----------- -----------
Operating profit (loss) (12,028) 10,403 (58,828) (3,410)
Interest expense 2,881 2,123 7,535 6,523
Membership interest - 2,659 2,418 7,659
Loss (gain) on debt retirement - - (28,506) 9,276
Loss (gain) on investments (19) 901 995 2,471
Other (income) expense, net (297) (173) (2,354) (3,843)
----------- ---------- ----------- -----------
Income (loss) from continuing operations before
income taxes (14,593) 4,893 (38,916) (25,496)
Income tax expense (benefit) - - - (6,800)
----------- ---------- ----------- -----------
Net income (loss) from continuing operations (14,593) 4,893 (38,916) (18,696)
Discontinued Operations:
Income (loss) from discontinued operations - (1,406) - (20,465)
Income tax expense (benefit) - - - -
----------- ---------- ----------- -----------
Gain (loss) from discontinued operations - (1,406) - (20,465)
----------- ---------- ----------- -----------
Net income (loss) before cumulative effect
of an accounting change (14,593) 3,487 (38,916) (39,161)
Cumulative effect of an accounting change - goodwill - - - 57,960
----------- ---------- ----------- -----------
Net income (loss) $ (14,593) $ 3,487 $ (38,916) $ (97,121)
=========== ========== =========== ===========
Net income (loss) per common share
Basic: Income (loss) from continuing operations $ (0.19) $ 0.06 $ (0.50) $ (0.23)
Income (loss) from discontinued operations - (0.02) - (0.25)
Cumulative effect of an accounting change - - - (0.71)
----------- ---------- ----------- -----------
Basic: Net income (loss) $ (0.19) $ 0.04 $ (0.50) $ (1.19)
=========== ========== =========== ===========
Diluted: Income (loss) from continuing operations $ (0.19) $ 0.06 $ (0.50) $ (0.23)
Income (loss) from discontinued operations - (0.02) - (0.25)
Cumulative effect of an accounting change - - - (0.71)
----------- ---------- ----------- -----------
Diluted: Net income (loss) $ (0.19) $ 0.04 $ (0.50) $ (1.19)
=========== ========== =========== ===========
Weighted average common shares
Basic 75,038 82,506 77,339 81,675
=========== ========== =========== ===========
Diluted 75,038 83,110 77,339 81,675
=========== ========== =========== ===========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
-------------- --------------- --------------- -------------
OPERATING ACTIVITIES:
Net income (loss) $ (14,593) $ 3,487 $ (38,916) $ (97,121)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 3,547 4,808 13,217 15,659
Amortization of intangibles 8,812 8,708 26,284 25,786
Amortization of deferred finance fees 1,217 690 3,371 1,966
Amortization of unearned compensation 1,001 418 2,254 1,304
Provision for doubtful accounts 142 4,041 7,860 27,066
Loss on disposal of fixed assets 6 298 11 317
Loss (gain) on investments (19) 901 995 2,471
Cash proceeds from sale of trading securities 96 60 226 60
Loss (gain) on debt retirement - - (28,506) 9,276
Loss on sale of ESP product line 1,373 - 1,373 -
Loss (gain) on sale of discontinued product lines - - (2,000) 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 (7,802) 6,713 10,278 (25,293)
Other receivables (121) 2,526 1,744 6,283
Inventory 11,209 12,319 9,763 41,100
A/P & accrued liabilities (7,014) (17,224) (21,850) (15,299)
Income taxes recoverable - 12,629 - 5,066
Accrued membership interest - 2,659 2,418 7,659
Other, net (1,009) 1,086 (589) (6,697)
-------------- --------------- --------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,155) 44,119 (12,067) 66,099
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,595) (2,910) (4,213) (6,532)
Cash proceeds from sale of Keptel product line - - - 30,000
Cash proceeds from sale of Actives product line - - 1,800 -
Cash paid for acquisition (2,284) (39) (2,842) (874)
Cash paid for disposal of ESP product line (231) - (231) -
Other 26 - 26 -
-------------- --------------- --------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (4,084) (2,949) (5,460) 22,594
FINANCING ACTIVITIES:
Proceeds from issuance of debt 1,597 - 126,597 -
Redemption of preferred membership interest - - (88,430) -
Repurchase and retirement of common stock - - (28,000) -
Payments on capital lease obligations (1,288) (247) (2,122) (650)
Payments on debt obligations (356) - (24,325) -
Deferred finance costs paid (519) (350) (5,797) (350)
Proceeds from issuance of stock 569 252 1,176 1,007
-------------- --------------- --------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3 (345) (20,901) 7
NET INCREASE IN CASH AND CASH EQUIVALENTS (7,236) 40,825 (38,428) 88,700
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67,217 53,212 98,409 5,337
-------------- --------------- --------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,981 $ 94,037 $ 59,981 $ 94,037
============== =============== =============== =============
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
--------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2003 NINE MONTHS ENDED SEPTEMBER 30, 2003
-------------------------------------- --------------------------------------
PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE
------------------ ------------------ ------------------ ------------------
Net income (loss) $ (14,593) $ (0.19) $ (38,916) $ (0.50)
Highlighted items:
Amortization of intangibles 8,812 0.12 26,284 0.34
Severance related to workforce reduction 1,407 0.02 2,914 0.04
Severance and other costs - ESP divestiture 1,373 0.02 1,373 0.02
Allowance for Cabovisao receivable - - 6,400 0.08
Loss (gain) on investments (19) 0.00 995 0.01
Gain on retirement of membership interest - - (28,506) (0.37)
Write-off of customer relationship software - - 2,243 0.03
----------------------------------- --------------------------------------
Total highlighted items 11,573 0.15 11,703 0.15
----------------------------------- --------------------------------------
Net income (loss) excluding highlighted items $ (3,020) $ (0.04) $ (27,213) $ (0.35)
=================================== ======================================
Weighted average common shares - diluted 75,038 77,339
================== ==================
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.