EXHIBIT 99
FINAL
FOR IMMEDIATE RELEASE CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES STRONG SECOND QUARTER RESULTS
SUWANEE, GA. (JULY 21, 2004) ARRIS (NASDAQ:ARRS), a global broadband access
network provider of next generation high-speed data and telephony systems and
related equipment, today announced financial results for the second quarter
2004.
FINANCIAL HIGHLIGHTS:
- Revenues for the second quarter of 2004 were $120.5 million,
up $18.8 million, or 18.5%, as compared to $101.7 million in
the second quarter 2003, and up $8.9 million, or 8.0% as
compared with $111.6 million in the first quarter of 2004.
- Net income (loss) per share for the second quarter was
$(0.06). Excluding the items detailed below (a non-GAAP
measure), net income (loss) per share for the second quarter
was $0.05.
- Gross margins were 33.5% in the second quarter as compared to
26.7% in the second quarter 2003 and 32.5% in the first
quarter 2004.
- Cash on hand at the end of the quarter was $100.3 million, up
$3.1 million from the end of the first quarter 2004.
- Order backlog was $82.9 million at the end of the second
quarter of 2004, compared to $69.8 million at the end of the
first quarter 2004.
FINANCIAL DETAILS:
Revenues for the second quarter 2004 were $120.5 million with net income (loss)
per share of $(0.06). The results were at the upper range of revenue and
earnings guidance that the Company provided on April 21, 2004. Through the first
six months of 2004, revenues were $232.2 million, as compared to $193.1 million
for the same period in 2003, up 20%.
On a U.S. GAAP basis, net income (loss) was $(5.4) million or $(0.06) per share
in the second quarter 2004 as compared to the first quarter 2004 level of
$(18.7) million, or $(0.24) per share. Included in the second quarter net income
(loss) per share were: 1) amortization of intangibles of $(0.10) per share, and
2) the
write-down to market of an investment in Cabletel, a public company, of $(0.01)
per share. Also included were adjustments to restructuring and discontinued
operations accruals resulting from changes in estimates, predominately related
to building leases and real estate, netting to $0.00 per share. Excluding these
items, the net income (loss) in the second quarter was $0.05 per share. On a
U.S. GAAP basis, net income (loss) through the first six months of 2004 was
$(24.1) million or $(0.29) per share as compared to $(24.3) million, or $(0.31)
per share in 2003.
Broadband revenue was $78.8 million in the second quarter 2004, up $6.7 million
or 9.3% over the first quarter 2004 level of $72.1 million, and up $12.3 million
or 18.5% over second quarter 2003 revenue of $66.5 million. Supplies product
revenue was $41.7 million in the second quarter 2004, up $2.2 million or 5.6% as
compared to $39.5 million in the first quarter of 2004, and up $6.5 million or
18.5% over second quarter 2003 revenue of $35.2 million. International sales
were $27.1 million in the second quarter 2004, up $2.3 million or 9.3% over the
first quarter 2004 level of $24.8 million, and up $9.3 million or 52.2% over
second quarter 2003 revenue of $17.8 million. Backlog at the end of the second
quarter 2004 was $82.9 million as compared to $69.8 million at the end of the
first quarter 2004. Bookings in the second quarter 2004 were $133.6 million as
compared to $128.4 million in the first quarter 2004. The book-to-bill ratio in
the second quarter 2004 was approximately 1.11, compared to 1.15 in the first
quarter 2004.
Gross margins of 33.5% were up approximately 100 basis points as compared to
first quarter 2004 gross margins of 32.5%. Gross margins of Broadband products
were approximately 43.2% in the second quarter 2004 as compared to 41.6% in the
first quarter 2004. Gross margins of Supplies products were 15.1% in the second
quarter 2004 as compared to 15.9% in the first quarter 2004.
Operating expenses for the second quarter 2004 were $44.9 million, which
included intangibles amortization of $8.9 million and restructuring and other
charges of $0.8 million. Excluding these items, operating expenses for the
second quarter were $35.1 million for the quarter. Operating expenses for the
first quarter 2004 were $48.8 million, which included intangibles amortization
of $8.9 million, restructuring charges of $6.2 million, and severance of $0.5
million. Excluding these items, operating expenses for the first quarter were
$33.2 million. Research and development expenses included in operating expenses
were $16.3 million in the second quarter 2004 as compared to $16.2 million in
the first quarter 2004.
The Company ended the second quarter with $100.3 million of cash on hand, up
from $97.2 million at the end of the first quarter 2004. Approximately $6.2
million of cash was generated from operating activities in the second quarter
2004. Inventory levels and turns for the second quarter 2004 were $74.5 million
and 4.3, respectively, as compared to $73.4 million and 4.0, respectively, for
the first
quarter 2004. Accounts receivable ended the second quarter 2004 at $63.4 million
with DSOs of 46, and compares to $57.9 million with DSOs of 47 at the end of the
first quarter 2004.
"Our improving financial performance during the second quarter coupled with the
strong positions that our high speed data and Voice over IP products enjoy in
the marketplace are further indicators that our strategy for growth is solidly
on track," said Bob Stanzione, ARRIS Chairman & CEO. "The recently announced
DOCSIS(R) 2.0 qualification of our Cadant C4(R) CMTS by CableLabs(TM) puts ARRIS
in the unique position of being the only supplier with DOCSIS(R) 2.0 qualified
and certified CMTS and eMTA products. Our customers' aggressive plans for future
VoIP service offerings represent great opportunities for continuing growth in
the sale of these new market leading products."
During the quarter the Company announced that the ARRIS Cadant C4 Cable Modem
Termination System (CMTS) had been awarded DOCSIS(R) 2.0 qualification by
CableLabs in its Certification Wave 29. In earlier Certification Waves this
year, the ARRIS Cadant C3 CMTS received DOCSIS(R) 2.0 qualification and the
Touchstone(TM) Telephony Modem TM402P was awarded DOCSIS(R) 2.0 and
PacketCable(TM) 1.0 certification. The Company also announced a three-year
Global Purchasing Agreement with Liberty Media Corporation (NYSE:LMC.B). The
agreement provides the full scope of ARRIS' advanced broadband service solutions
for the provision of voice, video and data services to the broadband
distribution companies within Liberty Media International Inc., which passes 25
million homes. Included among the products and services covered under the
Agreement are the Cadant(R) C3(TM)and C4(TM) CMTS, the Cornerstone(R) and
Touchstone(R) lines of customer premises voice and data equipment as well as
TeleWire Supply(R) HFC infrastructure products and ARRIS partner solutions.
"We are very pleased with our second quarter financial performance, with the
ARRIS team achieving the upper end of our expectations for sales, margins,
profitability and working capital management. Looking forward to the third
quarter, we anticipate that revenues will be in the range of $118 to $130
million with net income (loss) per share, on a U.S. GAAP basis, in the range of
$(0.02) to $(0.07) inclusive of amortization of intangibles of approximately
$(0.07) per share," said David Potts, ARRIS EVP & CFO. "As we have highlighted
previously, we anticipate a decline in our gross margins as a result of a shift
in our product mix and the costs associated with the introduction of new
products. We have identified and are implementing cost improvements that will be
reflected in future periods."
ARRIS management will conduct a conference call at 8:30 am EDT on Thursday, July
22, 2004 to discuss these results in detail. You may participate in this
conference call by dialing 877-691-0879 prior to the start of the call and
providing the ARRIS Group, Inc. name and Jim Bauer as the moderator. Please note
that ARRIS will not accept any calls related to this earnings release during the
period
between the release after market close on July 21, 2004 and the completion of
the scheduled conference call on July 22, 2004. A replay of the conference call
can be accessed through Monday, July 26, 2004 by dialing 877-519-4471 and using
the PIN #4951690. 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
Suwanee, Georgia, USA, ARRIS has design, engineering, distribution, service and
sales office locations throughout the world. Information about ARRIS' products
and services is found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
- third quarter 2004 revenues and net income (loss);
- gross margins, including product cost and product mix
improvement programs;
- operating expenses;
- the general market outlook and acceptance of ARRIS products;
and
- the timing of implementation of new services by ARRIS
customers
are forward-looking statements. These statements involve risks and uncertainties
that may cause actual results to differ materially from those set forth in these
statements. Among other things,
- projected results for the third quarter of 2004 as well as the
general outlook for 2004 and beyond are based on preliminary
estimates, assumptions and projections that management
believes to be reasonable at this time, but are beyond
management's control;
- because the market in which ARRIS operates is volatile,
actions taken and contemplated may not achieve the desired
impact relative to changing market conditions and the success
of these strategies will be dependent on the effective
implementation of those plans while minimizing organizational
disruption; and
- 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. The Company expressly
disclaims any obligation to update publicly or otherwise any forward-looking
statements, whether as a result of new information, future events or otherwise.
# # # # #
ARRIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30
2004 2004 2003 2003 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 100,347 $ 97,197 $ 84,882 $ 59,981 $ 67,217
Restricted cash 5,267 9,520 6,135 -- --
Accounts receivable, net 63,392 57,862 56,344 61,627 55,157
Other receivables 1,817 1,324 1,280 1,410 1,289
Inventories, net 74,533 73,399 78,562 95,009 105,980
Investment held for resale -- -- -- -- 103
Other current assets 13,172 10,351 7,900 10,584 9,643
--------- --------- --------- --------- ---------
Total current assets 258,528 249,653 235,103 228,611 239,389
Property, plant and equipment, net 23,067 23,148 25,376 27,177 28,093
Goodwill 150,569 150,569 150,569 150,569 150,569
Intangibles 12,513 21,440 30,362 41,144 48,054
Investments 4,307 4,656 5,504 5,296 5,989
Other assets 3,368 2,973 4,945 8,895 9,723
--------- --------- --------- --------- ---------
$ 452,352 $ 452,439 $ 451,859 $ 461,692 $ 481,817
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,452 $ 32,492 $ 24,389 $ 25,694 $ 29,083
Accrued compensation, benefits and related taxes 9,202 5,273 4,267 4,310 4,657
Current portion of long-term debt 2 902 1,073 1,060 184
Current portion of capital lease obligations -- 6 14 22 1,171
Other accrued liabilities 33,318 34,378 34,683 36,533 39,979
--------- --------- --------- --------- ---------
Total current liabilities 75,974 73,051 64,426 67,619 75,074
Capital lease obligations, net of current portion -- -- -- -- 139
Long-term debt, net of current portion 75,000 75,000 125,092 125,365 125,000
Other long-term liabilities 14,445 13,404 12,960 12,637 12,530
--------- --------- --------- --------- ---------
165,419 161,455 202,478 205,621 212,743
Stockholders' equity:
Preferred stock -- -- -- -- --
Common stock 887 887 773 774 757
Capital in excess of par value 645,390 645,676 586,008 586,107 577,592
Unearned compensation (6,168) (7,598) (8,104) (9,362) (2,397)
Unrealized holding gain (loss) on marketable securities 1,012 781 771 132 90
Unfunded pension losses (1,293) (1,293) (1,293) (1,219) (1,219)
Retained earnings (352,726) (347,298) (328,642) (320,245) (305,652)
Cumulative translation adjustments (169) (171) (132) (116) (97)
--------- --------- --------- --------- ---------
Total stockholders' equity 286,933 290,984 249,381 256,071 269,074
--------- --------- --------- --------- ---------
$ 452,352 $ 452,439 $ 451,859 $ 461,692 $ 481,817
========= ========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
------------------------ ------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, JUNE 30,
------------------------ ------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales $ 120,537 $ 101,710 $ 232,165 $ 193,053
Cost of sales 80,185 74,525 155,519 141,124
--------- --------- --------- ---------
Gross profit 40,352 27,185 76,646 51,929
Operating expenses:
Selling, general, and administrative expenses 18,495 20,451 36,039 41,989
Provision for doubtful accounts 252 6,875 296 7,718
Research and development expenses 16,323 16,355 32,500 31,214
Restructuring and impairment charges 876 -- 7,051 336
Amortization of intangibles 8,927 8,764 17,849 17,472
--------- --------- --------- ---------
44,873 52,445 93,735 98,729
--------- --------- --------- ---------
Operating income (loss) (4,521) (25,260) (17,089) (46,800)
Other expense (income):
Interest expense 1,081 2,990 2,645 4,654
Membership interest -- -- -- 2,418
Loss (gain) on debt retirement -- -- 4,406 (28,506)
Loss (gain) on investments 580 1,037 1,439 1,014
(Gain) loss on foreign currency 136 (1,486) 139 (1,968)
Other (income) expense, net (95) (32) (509) (89)
--------- --------- --------- ---------
Income (loss) from continuing operations before income taxes (6,223) (27,769) (25,209) (24,323)
Income tax expense (benefit) 37 -- 46 --
--------- --------- --------- ---------
Net income (loss) from continuing operations (6,260) (27,769) (25,255) (24,323)
Income from discontinued operations 832 -- 1,171 --
--------- --------- --------- ---------
Net income (loss) $ (5,428) $ (27,769) $ (24,084) $ (24,323)
========= ========= ========= =========
Net income (loss) per common share - basic & diluted:
Income (loss) from continuing operations $ (0.07) $ (0.37) $ (0.30) $ (0.31)
Income (loss) from discontinued operations 0.01 -- 0.01 --
--------- --------- --------- ---------
Net income (loss) $ (0.06) $ (0.37) $ (0.29) $ (0.31)
========= ========= ========= =========
Weighted average common shares:
Basic and diluted 87,113 74,992 82,971 78,509
========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------- --------- --------- ---------
2004 2003 2004 2003
--------- --------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ (5,428) $ (27,769) $ (24,084) $ (24,323)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 2,466 3,505 5,326 9,670
Amortization of intangibles 8,927 8,764 17,849 17,472
Amortization of unearned compensation 575 809 1,624 1,253
Amortization of deferred finance fees 152 1,211 384 2,154
Provision for doubtful accounts 252 6,875 296 7,718
Loss on disposal of fixed assets 116 5 95 5
Loss on investments 580 1,037 1,439 1,014
Cash proceeds from sale of trading securities -- 130 -- 130
Loss (gain) on debt retirement -- -- 4,406 (28,506)
Changes in operating assets & liabilities, net of effects
of acquisitions and disposals:
Accounts receivable (5,782) 7,521 (7,344) 18,080
Other receivables (493) 630 (537) 1,865
Inventory (1,134) (1,649) 4,029 (1,446)
Accounts payable & accrued liabilities 5,062 285 15,436 (16,836)
Accrued membership interest -- -- -- 2,418
Other, net 887 1,714 (4,888) 420
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,180 3,068 14,031 (8,912)
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (2,693) (1,519) (4,380) (2,618)
Cash proceeds from sale of Actives product line -- 1,800 -- 1,800
Cash paid for acquisition, net of cash acquired -- (100) (50) (558)
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,693) 181 (4,430) (1,376)
FINANCING ACTIVITIES:
Proceeds from issuance of debt -- -- -- 125,000
Redemption of preferred membership interest -- -- -- (88,430)
Repurchase and retirement of common stock -- -- -- (28,000)
Payments on capital lease obligations (6) (442) (14) (834)
Payments on debt obligations (900) (11,599) (1,163) (23,969)
Deferred finance costs paid -- (534) -- (5,278)
Proceeds from issuance of stock 569 -- 7,041 607
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (337) (12,575) 5,864 (20,904)
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,150 (9,326) 15,465 (31,192)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 97,197 76,543 84,882 98,409
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 100,347 $ 67,217 $ 100,347 $ 67,217
========= ========= ========= =========
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
---------------------- -------------------------
Q2 2004 Q1 2004
---------------------- -------------------------
PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE
-------- ----------- ---------- ----------
Net income (loss) $ (5,428) $ (0.06) $ (18,656) $ (0.24)
Highlighted items:
Impacting gross margin:
Severance related to workforce reduction (including adjustments) (5) -- 58 --
Partial recovery of losses with respect to customer in Argentina -- -- (585) (0.01)
Impacting operating expenses:
Restructuring charges (including adjustments to existing accruals) 876 0.01 6,175 0.08
Gain on sale of product line - adjustment to prior disposal (46) -- -- --
Severance related to workforce reduction (including adjustments) (51) -- 495 0.01
Amortization of intangibles 8,926 0.10 8,922 0.11
Impacting other expense (income):
Loss on debt retirement -- -- 4,406 0.06
Loss on investments 580 0.01 859 0.01
Impacting discontinued operations:
Restructuring charges (including adjustments to existing accruals) (832) (0.01) -- --
Partial recovery of losses with respect to customer in Argentina -- -- (339) --
-------- ---------- ---------- ----------
Total highlighted items 9,448 0.11 19,991 0.25
-------- ---------- ---------- ----------
Net income (loss) excluding highlighted items $ 4,020 $ 0.05 $ 1,335 $ 0.02
======== ========== ========== ==========
Weighted average common shares - diluted 87,113 78,829
======== ==========
ARRIS believes that presenting net income (loss) 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. With respect to the loss on debt retirement, the call for redemption
of the Convertible Notes resulted in a non-cash charge due to an interest
"make-whole" payment indenture provision attendant to the occurrence of the call
prior to the expiration of three years from the issuance of the Convertible
Notes. With respect to amortization, the vast majority of the intangibles being
amortized relate to four acquisitions for which amortization will be
substantially complete by the end of 2004. Given the magnitude of the
amortization and the fact that it will end shortly, identifying it separately
provides investors the ability to appropriately factor in their analysis the
amount of amortization that will not recur next year. While some of the other
events will or may recur, and there may be similar events that occur as well or
instead, these other events tend not to occur on a predictable basis or in
predictable amounts. In assessing operating performance and preparing budgets
and forecasts, ARRIS' management considers performance after making these
adjustments because of their nature and believes that it is helpful to investors
to provide them with the same information in order to provide greater
transparency and insight into management's analysis. Therefore, ARRIS has
provided this information and expects to 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.