EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES FIRST QUARTER
2005 RESULTS
SUWANEE, GA. (APRIL 27, 2005) ARRIS (NASDAQ:ARRS), a global telecommunications
technology leader, today announced preliminary and unaudited financial results
for the first quarter 2005.
FINANCIAL HIGHLIGHTS:
o Revenues were $135.9 million for the first quarter 2005, up 22% over
first quarter 2004 revenues of $111.6 million and up 5% from fourth
quarter 2004 revenues of $129.5 million.
o Net income (loss) per diluted share for the first quarter was $0.04 as
compared to $(0.24) in the first quarter 2004 and $(0.01) in the
fourth quarter 2004. Excluding the items detailed below (a non-GAAP
measure) net income per diluted share for the first quarter was $0.05.
o Cash, cash equivalents, and short-term investments at the end of the
first quarter were $107.9 million, with $6.9 million of cash generated
from operating activities in the first quarter.
o Book-to-bill ratio increased to 1.35 in the first quarter from 1.08 in
the fourth quarter.
o Backlog increased approximately 62% to $122.6 million in the first
quarter from $75.6 million in the fourth quarter.
FINANCIAL DETAILS:
Revenues for the quarter were $135.9 million with GAAP net income per share of
$0.04 inclusive of certain items described below. Revenue growth in the quarter
of over 22%, as compared with the first quarter 2004 revenue of $111.6 million,
was driven by strong acceptance of ARRIS' market leading CPE product offerings
for VoIP rollouts in both domestic and international markets. The first quarter
financial results were at the upper range of the revenue and earnings guidance
that the Company provided on February 10, 2005.
On a GAAP basis, net income (loss) was $3.4 million or $0.04 per diluted share
in the first quarter as compared to the fourth quarter 2004 net income (loss) of
1
$(0.6) million or $(0.01) per share and as compared to the first quarter 2004
net income (loss) of $(18.7) million or $(0.24) per share. Included in the first
quarter 2005 net income (loss) per share was amortization of intangibles of
$(0.01) per share. Excluding amortization and other items, the net income (loss)
was $0.05 per diluted share in the first quarter. A reconciliation of our GAAP
to our non-GAAP earnings per share is attached to this release and can be found
on our website.
Broadband product revenues were $69.7 million in the first quarter, down
approximately 10% from the fourth quarter 2004 level of $77.8 million. Supplies
& CPE product revenues were $66.2 million in the first quarter, up approximately
28% compared to $51.7 million in the fourth quarter 2004. International sales
were $36.0 million in the first quarter, as compared to $42.3 million in the
fourth quarter 2004. Backlog at the end of the first quarter was $122.6 million,
up 62% as compared to $75.6 million at the end of the fourth quarter 2004.
Bookings in the first quarter 2005 were $182.9 million as compared to $140.4
million in the fourth quarter 2004. The book-to-bill ratio in the first quarter
was approximately 1.35, up from 1.08 in the fourth quarter 2004.
Gross margins of 27.1% were up approximately 100 basis points as compared to
fourth quarter 2004 margins of 26.1%, with margin increases in both product
groups and compares to 32.5% in the first quarter 2004. Gross margins of
Broadband products were 37.4% in the first quarter 2005 as compared to 34.6% in
the fourth quarter 2004. Gross margins of the Supplies & CPE products were 16.2%
in the first quarter as compared to 13.4% in the fourth quarter.
Operating expenses were $32.1 million in the first quarter, which included $0.6
million of amortization of intangibles and $0.2 million of restructuring and
impairment costs. This compares to $35.7 million for the fourth quarter 2004,
which included $4.6 million of amortization of intangibles and $0.5 million of
restructuring and other costs. Excluding these items, operating expenses were
$31.3 million in the first quarter and $30.6 million in the fourth quarter.
Research and development costs included in operating expenses were $14.8 million
in the first quarter as compared to $16.0 million in the fourth quarter. The
Company had a foreign exchange loss of $(0.9) million in the first quarter as
compared to gain of $1.2 million in the fourth quarter 2004.
The Company ended the first quarter with $107.9 million of cash on hand and
short-term investments, up from the year end 2004 level of $103.1 million.
Approximately $6.9 million of cash was generated from operating activities in
the first quarter. Inventory at the end of the first quarter and turns for the
first quarter were $76.2 million and 4.7, respectively, as compared to $92.6
million and 4.2, respectively, for the fourth quarter 2004. Accounts receivable
ended the first quarter at $63.9 million with DSOs of 40, and compare to $55.7
million and DSOs of 42 at the end of the fourth quarter 2004.
2
"It is now clear that convergence of voice, data and video is the major driving
force within our industry and with our customers," said Bob Stanzione, ARRIS
Chairman & CEO. "Our R&D investments have positioned ARRIS as a clear industry
thought leader and our work in new wideband CMTS architectures and preliminary
DOCSIS 3.0 standards has already resulted in new products that will be ready for
introduction later this year. ARRIS is a strong proponent of the technique
recently approved by CableLabs known as Packet-Based channel bonding, which will
permit us to provide timely solutions to our customers and which will allow our
customers to use their existing installed base of DOCSIS 2.0 CMTS units in
channel bonding wideband applications. The C4 Flexpath(R) feature, first
demonstrated at the NCTA show in 2004 at 80Mbps and again in 2005 at 100Mbps is
based on this technique and allows download speeds up to 25 times faster than
today's rates."
During the quarter the Company announced a number of significant developments
that position it well for the future. On March 30, 2005, the Company announced
that Insight Communications, already a customer for a range of ARRIS products,
had approved and ordered the Cadant C4(R) CMTS for its VoIP deployments. On
March 25, 2005, the Company announced that the Cadant C4(R) won Euro-DOCSIS 2.0
certification in tComLabs Certification Wave 18, which, along with the already
Euro-DOCSIS 2.0 certified Touchstone CPE, allows deployment of a full
Euro-DOCSIS solution to European customers. Also during the quarter, the Company
announced that Canadian operator, Videotron, had selected the ARRIS Telephony
Modem for its large scale VoIP deployments throughout Canada.
"We now anticipate that our revenues for the second quarter 2005 will be in the
range of $145 to $155 million with net income per share, on a U.S. GAAP basis in
the range of $0.06 to $0.10 inclusive of amortization of intangibles of
approximately $0.3 million," said David Potts, ARRIS EVP & CFO. "Growing demand
for ARRIS products that enable the worldwide rollout of VoIP by our customers
should sustain both top line and bottom line growth throughout 2005. Our
confidence comes from improved visibility based upon announced plans by our
customers."
ARRIS management will conduct a conference call at 8:30am EDT on Thursday, April
28, 2005 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 EDT release on April 27, 2005 and the completion of
the scheduled conference call on April 28, 2005. A replay of the conference call
can be accessed through Tuesday, May 3, 2005 by dialing (877) 519-4471 and using
the PIN #5951877. A replay also will be made available for a period of 12 months
following the conference call on ARRIS' website at www.arrisi.com.
3
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 can be found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
o Introductions of new products;
o second quarter 2005 revenues and earnings;
o revenue and earnings expectations for 2005;
o the general market outlook; and
o acceptance and introduction of ARRIS 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,
o projected results for the second quarter 2005 as well as the general
outlook for 2005 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;
o 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
o 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
4
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.
5
ARRIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<Table>
<Caption>
MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
2005 2004 2004 2004 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ---------- ----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 26,546 $ 25,072 $ 35,865 $ 40,597 $ 87,197
Short-term investments 81,400 78,000 60,000 59,750 10,000
Restricted cash 4,025 4,017 4,008 5,267 9,520
Accounts receivable, net 63,938 55,661 64,540 63,392 57,862
Other receivables 400 420 2,822 1,817 1,324
Inventories, net 76,249 92,636 88,282 74,533 73,399
Other current assets 9,310 9,416 16,168 13,172 10,351
---------- ---------- ---------- ---------- ----------
Total current assets 261,868 265,222 271,685 258,528 249,653
Property, plant and equipment, net 26,217 27,125 23,524 23,067 23,148
Goodwill 150,569 150,569 150,569 150,569 150,569
Intangibles 884 1,672 6,307 12,513 21,440
Investments 4,450 3,620 4,296 4,307 4,656
Other assets 2,210 2,470 2,598 3,368 2,973
---------- ---------- ---------- ---------- ----------
$ 446,198 $ 450,678 $ 458,979 $ 452,352 $ 452,439
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,922 $ 30,640 $ 39,156 $ 33,452 $ 32,492
Accrued compensation, benefits and
related taxes 6,990 14,845 12,137 9,202 5,273
Current portion of long-term debt -- -- 2 2 902
Current portion of capital lease obligations -- -- -- -- 6
Other accrued liabilities 30,881 32,111 37,123 33,318 34,378
---------- ---------- ---------- ---------- ----------
Total current liabilities 68,793 77,596 88,418 75,974 73,051
Long-term debt, net of current portion 75,000 75,000 75,000 75,000 75,000
Other long-term liabilities 16,996 16,781 12,256 14,445 13,404
---------- ---------- ---------- ---------- ----------
160,789 169,377 175,674 165,419 161,455
Stockholders' equity:
Preferred stock -- -- -- -- --
Common stock 873 889 888 887 887
Capital in excess of par value 644,891 644,838 644,714 645,390 645,676
Unearned compensation (3,939) (4,566) (5,396) (6,168) (7,598)
Unrealized gain on marketable securities 742 706 991 1,012 781
Unfunded pension losses (3,345) (3,345) (1,293) (1,293) (1,293)
Accumulated deficit (353,629) (357,038) (356,431) (352,726) (347,298)
Cumulative translation adjustments (184) (183) (168) (169) (171)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity 285,409 281,301 283,305 286,933 290,984
---------- ---------- ---------- ---------- ----------
$ 446,198 $ 450,678 $ 458,979 $ 452,352 $ 452,439
========== ========== ========== ========== ==========
</Table>
6
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
2005 2004
------------- -------------
Net sales $ 135,924 $ 111,628
Cost of sales 99,133 75,334
------------- -------------
Gross profit 36,791 36,294
Gross profit % 27.1% 32.5%
Operating expenses:
Selling, general, and administrative expenses 16,672 17,544
Provision for doubtful accounts (153) 44
Research and development expenses 14,801 16,177
Restructuring and impairment charges 198 6,175
Amortization of intangibles 557 8,922
------------- -------------
32,075 48,862
------------- -------------
Operating income (loss) 4,716 (12,568)
Other expense (income):
Interest expense 1,018 1,564
Loss (gain) on debt retirement -- 4,406
Loss (gain) on investments -- 859
Equity in losses of unconsolidated affiliate 75 --
Loss (gain) on foreign currency 935 3
Other (income) expense, net (558) (414)
------------- -------------
Income (loss) from continuing operations before income taxes 3,246 (18,986)
Income tax expense (benefit) (152) 9
------------- -------------
Net income (loss) from continuing operations 3,398 (18,995)
Income from discontinued operations 10 339
------------- -------------
Net income (loss) $ 3,408 $ (18,656)
============= =============
Net income (loss) per common share - basic
Income (loss) from continuing operations $ 0.04 $ (0.24)
Income (loss) from discontinued operations -- --
------------- -------------
Net income (loss) $ 0.04 $ (0.24)
============= =============
Net income (loss) per common share - diluted:
Income (loss) from continuing operations $ 0.04 $ (0.24)
Income (loss) from discontinued operations -- --
------------- -------------
Net income (loss) $ 0.04 $ (0.24)
============= =============
Weighted average common shares:
Basic 87,851 78,829
============= =============
Diluted 90,497 78,829
============= =============
</Table>
7
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
2005 2004
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ 3,408 $ (18,656)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 2,597 2,860
Amortization of intangibles 557 8,922
Amortization of unearned compensation 542 1,049
Amortization of deferred finance fees 153 232
Provision for doubtful accounts (153) 44
Loss (gain) on disposal of fixed assets (12) (21)
Loss (gain) on investments -- 859
Loss (gain) on debt retirement -- 4,406
Impairment of long-lived assets 291 --
Loss from equity investment 75 --
Gain on discontinued product lines (10) (339)
Changes in operating assets & liabilities, net of effects of
acquisitions and disposals:
Accounts receivable (8,124) (1,562)
Other receivables 20 (44)
Inventory 16,387 5,163
Accounts payable and accrued liabilities (8,403) 10,680
Other, net (402) (5,775)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,926 7,818
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,955) (1,654)
Cash proceeds from sale of property, plant, and equipment 40 --
Cash paid for acquisition, net of cash acquired -- (50)
Purchases of short-term investments (5,000) (20,000)
Disposals of short-term investments 1,600 20,000
Other (259) --
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,574) (1,704)
FINANCING ACTIVITIES:
Payments on capital lease obligations -- (8)
Payments on debt obligations -- (263)
Proceeds from issuance of common stock and other 122 6,472
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 122 6,201
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,474 12,315
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,072 74,882
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,546 $ 87,197
============ ============
</Table>
8
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
Q1 2005
------------------------------
PER DILUTED
AMOUNT SHARE
------------ ------------
Net income $ 3,408 $ 0.04
Highlighted items:
Impacting operating expenses:
Impairment of long-lived assets 291 --
Restructuring charges - adjustments to existing accruals (93) --
Amortization of intangibles 557 0.01
Impacting discontinued operations:
Restructuring charges - adjustments to existing accruals (10) --
------------ ------------
Total highlighted items 745 0.01
------------ ------------
Net income excluding highlighted items $ 4,153 $ 0.05
============ ============
Weighted average common shares - diluted 90,497
============
</Table>
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 amortization, the intangibles being amortized relate
to acquisitions for which the vast majority of the amortization was complete by
the end of the first quarter of 2005. Given the magnitude of the amortization
historically, identifying it separately provides investors the ability to
appropriately factor in their analysis the amount of amortization that will not
recur. 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 U.S. generally accepted accounting principles
9