EXHIBIT 99.1
CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES STRONG SECOND QUARTER
2005 PERFORMANCE
SUWANEE, GA. (JULY 27, 2005) ARRIS (NASDAQ:ARRS), a global telecommunications
technology leader, today announced preliminary and unaudited financial results
for the second quarter 2005.
FINANCIAL HIGHLIGHTS:
- Revenues were $162.2 million for the second quarter 2005, up $41.7
million, or 34.6%, over second quarter 2004 revenues of $120.5
million and up $26.3 million, or 19.4%, from first quarter 2005
revenues of $135.9 million.
- Net income (loss) per diluted share for the second quarter was $0.08
as compared to $(0.06) in the second quarter 2004 and $0.04 in the
first quarter 2005. Net income for the second quarter included a
make-whole payment of $2.4 million, or $(0.03) per diluted share,
associated with the conversion of all remaining 4 1/2% 2008
Convertible Notes. Excluding the make-whole payment and other items
detailed below (a non-GAAP measure) net income per diluted share for
the second quarter was $0.11.
- Gross margins were 25.3% in the second quarter 2005, down from the
first quarter 2005 level of 27.1%, primarily as the result of higher
costs incurred to air freight E-MTAs to meet rapidly increasing
customer demand during the quarter.
- Cash, cash equivalents, and short-term investments at the end of the
second quarter were $97.2 million reflecting the use of
approximately $9.1 million of cash for operating activities during
the quarter predominately to fund higher accounts receivable
associated with the higher sales.
- The remaining $75 million of 4 1/2% 2008 Convertible Notes were
converted into 15 million shares of common stock during the quarter.
- Book-to-bill ratio increased to 1.27 in the second quarter as
compared to 1.11 in the second quarter of 2004 and compares to 1.35
in the first quarter of 2005.
- Backlog increased approximately 36.1% to $166.8 million in the
second quarter from $122.6 million in the first quarter.
FINANCIAL DETAILS:
Revenues for the quarter were $162.2 million with GAAP net income per diluted
share of $0.08 inclusive of certain items described below. Revenues grew by
$41.7 million, or 34.6% and $26.3 million, or 19.4% as compared to the second
quarter 2004 and first quarter 2005, respectively. Through the first six months
revenues were $298.1 million, up $66.0 million, or 28.4% from the first half of
2004. The revenue growth during the quarter is the result of both accelerating
customer VoIP implementations and the strength of ARRIS' CMTS and high speed
data products.
On a GAAP basis, net income (loss) was $7.3 million or $0.08 per diluted share
in the second quarter 2005 as compared to the first quarter 2005 net income
(loss) of $3.4 million or $0.04 per share and as compared to the second quarter
2004 net income (loss) of $(5.4) million or $(0.06) per share. Included in the
second quarter 2005 net income (loss) per share was an interest make-whole
payment related to the redemption of the 4 1/2% 2008 Convertible Notes of $2.4
million or $(0.03) per share and amortization of intangibles and restructuring
costs of $(0.3) million, or $(0.00) per share. Excluding these items, net income
was $0.11 per diluted share in the second quarter. Year-to-date, GAAP net income
(loss) was $10.7 million or $0.12 per diluted share and compares to $(24.1)
million or $(0.29) per diluted share for the first half of 2004. A
reconciliation of our GAAP to our non-GAAP earnings per share is attached to
this release and can also be found on the ARRIS website.
Broadband product revenues were $71.2 million in the second quarter, up
approximately 2.2% from the first quarter 2005 level of $69.7 million. Supplies
& CPE product revenues were $91.0 million in the second quarter, up
approximately 37.5% compared to $66.2 million in the first quarter 2005.
International sales were $44.0 million in the second quarter, as compared to
$36.0 million in the first quarter 2005. Backlog at the end of the second
quarter was $166.8 million, up approximately 36.1% as compared to $122.6 million
at the end of the first quarter 2005. Bookings in the second quarter 2005 were
$206.4 million as compared to $182.9 million in the first quarter 2005. The
book-to-bill ratio in the second quarter was approximately 1.27, compared to
1.35 in the first quarter 2005.
Gross margins of 25.3% were down compared to first quarter 2005 margins of
27.1%, primarily as a result of product mix and higher transportation costs
required to meet increased customer demand. The Company noted that without the
effect of the additional transportation costs, margins within the Supplies &
CPE category actually increased during the quarter. E-MTA demand continued to
accelerate with sales of 567,000 units in the quarter as compared to 334,000
units in the first quarter of 2005 and 173,000 units in the fourth quarter 2004
and 30,000 units in the second quarter of 2004. As a result, gross margins of
the Supplies & CPE category were 15.0% in the second quarter as compared to
16.2% in the first quarter of 2005. Gross margins of Broadband products
increased 110 basis points to 38.5% in the second quarter as compared to 37.4%
in the first quarter 2005.
Operating expenses were $32.0 million in the second quarter 2005 as compared to
$32.1 million for the first quarter 2005. Research and development costs
included in operating expenses were $14.3 million in the second quarter 2005 as
compared to $14.8 million in the first quarter 2005. The Company had a foreign
exchange gain of $1.1 million in the second quarter 2005 as compared to loss of
$(0.9) million in the first quarter 2005.
The Company ended the second quarter 2005 with $97.2 million of cash, cash
equivalents and short-term investments, down from $107.9 million at the end of
the first quarter 2005. Approximately $9.1 million of cash was used for
operating activities in the second quarter, predominately to fund the increase
in accounts receivable resulting from higher quarter over quarter sales.
Inventory and turns at the end of the second quarter 2005 were $80.9 million and
6.2, respectively, as compared to $76.2 million and 4.7, respectively, for the
first quarter 2005. Accounts receivable ended the second quarter 2005 at $87.9
million with DSOs of 43, and compare to $63.9 million and DSOs of 40 at the end
of the first quarter 2005.
"Competitive actions by the satellite and the telecom companies are accelerating
spending within our industry," said Bob Stanzione, ARRIS Chairman & CEO. "New
technology approaches such as packet bonding for higher speed data transmission
rates and the wide acceptance of VoIP service offerings are both creating and
sustaining demand for innovative ARRIS products. Also during the quarter our
marketing efforts resulted in product sales to a number of new customers which
further expands our customer base both domestically and internationally. We see
building demand for greater than 100 Mbps to the customer premises that, coupled
with future opportunities that will result from the transition to IP Video,
continue to position ARRIS well for future industry spending."
During the quarter the Company called for redemption the remaining $75 million
of its 4 1/2% 2008 Convertible Notes. All of the holders elected to convert
their notes into common stock, and the Company is now essentially debt-free.
In addition, the Company announced that its Korean Value-Added Reseller (VAR),
Commverge Solutions, had entered into an agreement to supply Hanaro Telecom with
the ARRIS Cadant C4 Cable Termination System (CMTS) as part
of Hanaro's next-generation large capacity upgrade and that the Company had
shipped the one-millionth Touchstone E-MTA during the quarter. The Company
continued to add new customers after the close of the quarter, most notably
Cable One, the tenth largest cable operator in the U.S., and more recently a new
wireless cable customer in Iraq.
"We now anticipate that our revenues for the third quarter 2005 will again show
a strong increase to the range of $180 to $190 million with net income per
share, on a U.S. GAAP basis, in the range of $0.12 to $0.15," said David Potts,
ARRIS EVP & CFO. "We expect to see improvement in our operating leverage as
demand for our product portfolio continues to grow."
ARRIS management will conduct a conference call at 8:30am EDT on Thursday, July
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 July 27, 2005 and the completion of the
scheduled conference call on July 28, 2005. A replay of the conference call can
be accessed through Tuesday, August 2, 2005 by dialing (877) 519-4471 and using
the PIN #6252875. 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, U.S.A., 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:
- third quarter 2005 revenues and net income;
- revenue and earnings expectations for 2005;
- the general market outlook;
- acceptance and introduction of ARRIS products; and
- the timing of introductions of new technologies
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 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;
- 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 DECEMBER 31 SEPTEMBER 30 JUNE 30
2005 2005 2004 2004 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 97,194 $ 26,546 $ 25,072 $ 35,865 $ 40,597
Short-term investments - 81,400 78,000 60,000 59,750
Restricted cash 4,037 4,025 4,017 4,008 5,267
Accounts receivable, net 87,900 63,938 55,661 64,540 63,392
Other receivables 288 400 420 2,822 1,817
Inventories, net 80,869 76,249 92,636 88,282 74,533
Other current assets 6,700 9,310 9,416 16,168 13,172
--------- --------- --------- --------- ---------
Total current assets 276,988 261,868 265,222 271,685 258,528
Property, plant and equipment, net 26,351 26,217 27,125 23,524 23,067
Goodwill 150,569 150,569 150,569 150,569 150,569
Intangibles 1,356 884 1,672 6,307 12,513
Investments 3,223 4,450 3,620 4,296 4,307
Other assets 399 2,210 2,470 2,598 3,368
--------- --------- --------- --------- ---------
$ 458,886 $ 446,198 $ 450,678 $ 458,979 $ 452,352
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,863 $ 30,922 $ 30,640 $ 39,156 $ 33,452
Accrued compensation, benefits and related taxes 9,927 6,990 14,845 12,137 9,202
Current portion of long-term debt - - - 2 2
Other accrued liabilities 29,879 30,881 32,111 37,123 33,318
--------- --------- --------- --------- ---------
Total current liabilities 70,669 68,793 77,596 88,418 75,974
Long-term debt, net of current portion - 75,000 75,000 75,000 75,000
Other long-term liabilities 17,211 16,996 16,781 12,256 14,445
--------- --------- --------- --------- ---------
87,880 160,789 169,377 175,674 165,419
Stockholders' equity:
Preferred stock - - - - -
Common stock 1,053 873 889 888 887
Capital in excess of par value 727,096 644,891 644,838 644,714 645,390
Unearned compensation (8,112) (3,939) (4,566) (5,396) (6,168)
Unrealized holding gain on marketable securities 838 742 706 991 1,012
Unfunded pension losses (3,345) (3,345) (3,345) (1,293) (1,293)
Accumulated deficit (346,340) (353,629) (357,038) (356,431) (352,726)
Cumulative translation adjustments (184) (184) (183) (168) (169)
--------- --------- --------- --------- ---------
Total stockholders' equity 371,006 285,409 281,301 283,305 286,933
--------- --------- --------- --------- ---------
$ 458,886 $ 446,198 $ 450,678 $ 458,979 $ 452,352
========= ========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net sales $ 162,201 $ 120,537 $ 298,125 $ 232,165
Cost of sales 121,118 80,185 220,251 155,519
--------- --------- --------- ---------
Gross profit 41,083 40,352 77,874 76,646
Gross profit % 25.3% 33.5% 26.1% 33.0%
Operating expenses:
Selling, general, and administrative expenses 17,572 18,495 34,244 36,039
Provision for doubtful accounts (358) 252 (511) 296
Research and development expenses 14,336 16,323 29,137 32,500
Restructuring and impairment charges 198 876 396 7,051
Amortization of intangibles 218 8,927 775 17,849
--------- --------- --------- ---------
31,966 44,873 64,041 93,735
--------- --------- --------- ---------
Operating income (loss) 9,117 (4,521) 13,833 (17,089)
Other expense (income):
Interest expense 1,004 1,081 2,022 2,645
Loss (gain) on debt retirement 2,372 - 2,372 4,406
Loss (gain) on investments and notes receivable - 580 - 1,439
Equity in losses of unconsolidated affiliate - - 75 -
Loss (gain) on foreign currency (1,078) 136 (143) 139
Other (income) expense, net (481) (95) (1,039) (509)
--------- --------- --------- ---------
Income (loss) from continuing operations before income taxes 7,300 (6,223) 10,546 (25,209)
Income tax expense (benefit) 87 37 (65) 46
--------- --------- --------- ---------
Net income (loss) from continuing operations 7,213 (6,260) 10,611 (25,255)
Income from discontinued operations 76 832 86 1,171
--------- --------- --------- ---------
Net income (loss) $ 7,289 $ (5,428) $ 10,697 $ (24,084)
========= ========= ========= =========
Net income (loss) per common share - basic:
Income (loss) from continuing operations $ 0.08 $ (0.07) $ 0.12 $ (0.30)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.01
--------- --------- --------- ---------
Net income (loss) $ 0.08 $ (0.06) $ 0.12 $ (0.29)
========= ========= ========= =========
Net income (loss) per common share - diluted:
Income (loss) from continuing operations $ 0.08 $ (0.07) $ 0.12 $ (0.30)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.01
--------- --------- --------- ---------
Net income (loss) $ 0.08 $ (0.06) $ 0.12 $ (0.29)
========= ========= ========= =========
Weighted average common shares:
Basic 88,837 87,113 88,348 82,971
========= ========= ========= =========
Diluted 91,356 87,113 90,507 82,971
========= ========= ========= =========
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,
-------------------- --------------------
2005 2004 2005 2004
-------- -------- -------- --------
Operating Activities:
Net income (loss) $ 7,289 $ (5,428) $ 10,697 $(24,084)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 2,501 2,466 5,098 5,326
Amortization of intangibles 218 8,927 775 17,849
Amortization of unearned compensation 1,177 575 1,730 1,624
Amortization of deferred finance fees 152 152 305 384
Provision for doubtful accounts (358) 252 (511) 296
Loss on disposal of fixed assets 143 116 131 95
Loss (gain) on investments and notes receivable - 580 - 1,439
Loss (gain) on debt retirement 2,372 - 2,372 4,406
Impairment of long-lived assets - - 291 -
Loss from equity investment - - 75 -
Gain on discontinued product lines (76) (832) (86) (1,171)
Gain on derivative instruments (1,233) - (1,230) -
Changes in operating assets & liabilities, net of effects of
acquisitions and disposals:
Accounts receivable (23,354) (5,782) (31,478) (7,344)
Other receivables 112 (493) 132 (537)
Inventory (4,310) (1,134) 12,077 4,029
Accounts payable and accrued liabilities 2,265 5,786 (6,192) 16,466
Other, net 4,045 887 3,694 (4,888)
-------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (9,057) 6,072 (2,120) 13,890
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (2,928) (2,585) (4,883) (4,239)
Cash proceeds from sale of property, plant, and equipment - - 40 -
Cash paid for acquisition, net of cash acquired (89) - (89) (50)
Purchases of available-for-sale securities - (59,750) (5,000) (79,750)
Disposals of available-for-sale securities 81,400 10,000 83,000 30,000
Other - - (259) -
-------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 78,383 (52,335) 72,809 (54,039)
FINANCING ACTIVITIES:
Payments on capital lease obligations - (6) - (14)
Payments on debt obligations - (900) - (1,163)
Proceeds from issuance of common stock and other 1,322 569 1,433 7,041
-------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,322 (337) 1,433 5,864
NET INCREASE IN CASH AND CASH EQUIVALENTS 70,648 (46,600) 72,122 (34,285)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,546 87,197 25,072 74,882
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 97,194 $ 40,597 $ 97,194 $ 40,597
======== ======== ======== ========
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(in thousands, except per share data)
(unaudited)
Q1 2005 Q2 2005 YTD 2005
---------------------- --------------------- ---------------------
PER DILUTED PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
-------- ----------- -------- ----------- -------- -----------
Net income (loss) $ 3,408 $ 0.04 $ 7,289 $ 0.08 $ 10,697 $ 0.12
Highlighted items:
Impacting operating expenses:
Impairment of long-lived assets 291 - - - 291 -
Restructuring charges - adjustments to existing accruals (93) - 198 - 105 -
Amortization of intangibles 557 0.01 218 - 775 0.01
Impacting other expenses:
Loss on debt retirement - - 2,372 0.03 2,372 0.03
Impacting discontinued operations:
Restructuring charges - adjustments to existing accruals (10) - (76) - (86) -
-------- -------- -------- -------- -------- --------
Total highlighted items 745 0.01 2,712 0.03 3,457 0.04
-------- -------- -------- -------- -------- --------
Net income (loss) excluding highlighted items $ 4,153 $ 0.05 $ 10,001 $ 0.11 $ 14,154 $ 0.16
======== ======== ======== ======== ======== ========
Weighted average common shares - diluted 90,497 91,356 90,507
======== ======== ========
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 intangibles being amortized relate to
our most recent acquisitions. 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.