EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
FOURTH QUARTER AND FULL YEAR 2005 RESULTS
SUWANEE, GA. (FEBRUARY 8, 2006) ARRIS (NASDAQ:ARRS), a global communications
technology leader in the development of advanced cable telephony solutions and
next generation high speed data across the broadband local access network, today
announced preliminary and unaudited financial results for the fourth quarter and
full year 2005.
FINANCIAL HIGHLIGHTS:
- Revenues were $181.3 million for the fourth quarter of 2005, as
compared to $129.5 million in the fourth quarter 2004 and to
revenues of $201.0 million in the third quarter of 2005.
- Full year 2005 revenues were $680.4 million, up $190.4 million or
39% over 2004 revenues of $490.0 million.
- Net income per diluted share for the fourth quarter 2005 was $0.20.
Excluding the items detailed below, net income per diluted share for
the fourth quarter 2005 was $0.24 (a non-GAAP measure). Net income
(loss) per diluted share for the full year 2005 was $0.52, an $0.85
improvement from ($0.33) in 2004.
- Gross margins were 31.9% in the fourth quarter 2005, up from 27.4%
in the third quarter 2005 and reflect a favorable shift in product
mix and the effects of continuing cost reduction activities.
- Cash on hand and short-term investments at the end of the fourth
quarter 2005 were $129.5 million, up $35.1 million from the end of
the third quarter, with $34.6 million of cash generated from
operating activities.
- Book-to-bill ratio was 0.97 in the fourth quarter as compared to
1.02 in the third quarter.
FINANCIAL DETAILS:
Revenues for the fourth quarter 2005 were $181.3 million with net income (loss)
per diluted share of $0.20, inclusive of certain items described below. For the
full year 2005, revenues were $680.4 million as compared to $490.0 million in
2004, up approximately 39%. On a U.S. GAAP basis, net income (loss) was $22.0
million or $0.20 per diluted share in the fourth quarter 2005 as compared to
the third quarter 2005 net income (loss) of $18.8 million or $0.18 per diluted
share and to the fourth quarter 2004 net income (loss) of $(0.6) million or
$(0.01) per share. Excluding amortization of intangibles, stock compensation
expense and other items, the net income (loss) was $0.24 per diluted share in
the fourth quarter 2005. On a U.S. GAAP basis, net income (loss) for 2005
improved $79.9 million to $51.5 million or $0.52 per diluted share, as compared
to $(28.4) million or $(0.33) per share in 2004. A reconciliation of our GAAP to
our non-GAAP earnings per share is attached to this release and can also be
found on our website.
Broadband product revenues were $92.9 million in the fourth quarter up
approximately 14.3% from the third quarter 2005 level of $81.3 million
reflecting improved sales of both the Cadant(TM) CMTS products as well as the
Cornerstone CBR products. Supplies & CPE product revenues were $88.4 million in
the fourth quarter, down approximately 26.1% compared to $119.7 million in the
third quarter of 2005 reflecting primarily the anticipated decrease of E-MTA
sales in the fourth quarter. International sales were $52.3 million in the
fourth quarter, as compared to $52.4 million in the third quarter 2005. Backlog
at the end of the fourth quarter was $166.5 million compared to $171.2 million
at the end of the third quarter 2005. Bookings in the fourth quarter were $176.6
million as compared to $205.4 million in the third quarter 2005. Bookings for
the full year 2005 were $771.3 million, up approximately 50% from the full year
2004 bookings of $512.6 million. The book-to-bill ratio in the fourth quarter
was approximately 0.97, slightly down from 1.02 in the third quarter 2005. The
book-to-bill ratio for the full year 2005 was 1.13 as compared to 1.05 for the
full year 2004.
Gross margins were 31.9% in the fourth quarter as compared to third quarter 2005
margins of 27.4%. This increase is predominantly the result of a change in
product mix as well as a continued focus on cost reductions. Gross margins of
Broadband products were 43.3% in the fourth quarter as compared to 34.9% in the
third quarter. Gross margins of the Supplies & CPE products were 19.9% in the
fourth quarter as compared to 22.2% in the third quarter.
Operating expenses were $36.7 million in the fourth quarter, which included
stock compensation expense of $2.4 million. This compares to $36.3 million for
the third quarter, which included $2.5 million of stock compensation expense.
Research and development costs included in operating expenses were $15.0 million
in the fourth quarter as compared to $16.0 million in the third quarter. The
Company had a foreign exchange gain of $0.2 million in the fourth quarter as
compared to a loss of $(0.3) million in the third quarter.
The Company ended the year with $129.5 million of cash on hand and short-term
investments, up from the third quarter level of $94.4 million and from the
fourth quarter 2004 level of $103.1 million. Approximately $34.6 million of cash
was generated from operating activities in the fourth quarter. Approximately
$25.5
million of cash was generated from operating activities for the full year which
compares to cash generated from operating activities of $21.5 million in 2004.
Inventory and turns for the fourth quarter were $113.9 million and 4.8,
respectively, as compared to $90.1 million and 6.8, respectively for the third
quarter. Accounts receivable ended the fourth quarter at $83.5 million with DSOs
of 45, and compare to $95.8 million and DSOs of 42 at the end of the third
quarter 2005.
"I am most pleased that ARRIS' results for 2005 reflect outstanding growth in
both Company earnings and revenue," said Bob Stanzione, ARRIS Chairman & CEO.
"As we enter 2006, we are well positioned to provide new market-leading products
for rapidly growing markets such as VoIP, wideband data and new video services.
Also, of note is that we ended 2005 with more than double the amount of backlog
that we had at the end of 2004. These factors, coupled with our demonstrated
operational excellence, rapid product innovation and a very strong balance
sheet, give me confidence in the outlook for our business. In addition, the
increasing customer and market demand for ever higher transmission speeds, the
competitive wars for new customers between the cable, telco and satellite
operators and the rapid movement towards IP video should continue to increase
capital expenditures in the industry and as a result accelerate the demand for
our products."
During the fourth quarter the Company announced a major competitive win with
Cablemas, Mexico's second largest cable operator. Cablemas selected the ARRIS
Cadant C4(TM) CMTS over other equipment manufacturers to provide advanced VoIP
and high speed data services to its customers throughout Mexico. In addition,
late in the quarter, the ARRIS TM 501B E-MTA received Euro-DOCSIS 2.0
certification by tComLabs as the first RoHS (Restriction of Hazardous
Substances) Compliant E-MTA. This certification will be significant as in early
2006 Europe moves to reduce the use of lead and other hazardous materials in
products.
"We are very pleased with our performance in 2005, in particular our strong
position in the accelerating VoIP market, and we are off to a good start in
2006," said David Potts, ARRIS EVP & CFO. He added, "We now anticipate that our
revenues for the first quarter of 2006 will be in the range of $185 to $200
million with net income per diluted share, on a U.S. GAAP basis in the range of
$0.17 to $0.21 including amortization of intangibles and stock compensation
expense of $0.02."
ARRIS management will conduct a conference call at 8:30am EST on Thursday,
February 9, 2006 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 February 8, 2006 and the completion of
the
scheduled conference call on February 9, 2006. A replay of the conference call
can be accessed through Wednesday, February 14, 2006 by dialing 877-519-4471 and
using the PIN#6915747. 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 can be found at www.arrisi.com.
Forward-looking statements:
Statements made in this press release, including those related to:
- first quarter 2006 revenues and earnings;
- the general market outlook and acceptance of ARRIS products; and
- the outlook for 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 first quarter of 2006 as well as the
general outlook for 2006 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;
and,
- 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.
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)
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
2005 2005 2005 2005 DECEMBER 31
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 2004
----------- ------------ ----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 75,286 $ 48,194 $ 97,194 $ 26,546 $ 25,072
Short-term investments 54,250 46,250 - 81,400 78,000
Restricted cash 6,073 4,053 4,037 4,025 4,017
Accounts receivable, net 83,540 95,791 87,900 63,938 55,661
Other receivables 286 887 288 400 420
Inventories, net 113,909 90,122 80,869 76,249 92,636
Other current assets 15,276 20,198 6,700 9,310 9,416
----------- ------------ ----------- ----------- ----------
Total current assets 348,620 305,495 276,988 261,868 265,222
Property, plant and equipment, net
25,557 26,483 26,351 26,217 27,125
Goodwill 150,569 150,569 150,569 150,569 150,569
Intangibles 920 1,138 1,356 884 1,672
Investments 3,321 3,347 3,223 4,450 3,620
Other assets 416 395 399 2,210 2,470
----------- ------------ ----------- ----------- ----------
$ 529,403 $ 487,427 $ 458,886 $ 446,198 $ 450,678
=========== ============ =========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,920 $ 25,602 $ 30,863 $ 30,922 $ 30,640
Accrued compensation, benefits and related taxes 20,424 16,083 9,927 6,990 14,845
Current portion of long-term debt - - - - -
Other accrued liabilities 29,112 29,828 29,879 30,881 32,111
----------- ------------ ----------- ----------- ----------
Total current liabilities 85,456 71,513 70,669 68,793 77,596
Long-term debt, net of current portion - - - 75,000 75,000
Other long-term liabilities 18,230 16,683 17,211 16,996 16,781
----------- ------------ ----------- ----------- ----------
103,686 88,196 87,880 160,789 169,377
Stockholders' equity:
Preferred stock - - - - -
Common stock 1,069 1,065 1,053 873 889
Capital in excess of par value 732,405 727,249 727,096 644,891 644,838
Unearned compensation - - (8,112) (3,939) (4,566)
Unrealized holding gain on marketable securities 1,076 975 838 742 706
Unfunded pension losses (4,618) (3,345) (3,345) (3,345) (3,345)
Accumulated deficit (305,554) (327,520) (346,340) (353,629) (357,038)
Unrealized gain on derivatives 1,523 991 - - -
Cumulative translation adjustments (184) (184) (184) (184) (183)
----------- ------------ ----------- ----------- ----------
Total stockholders' equity 425,717 399,231 371,006 285,409 281,301
----------- ------------ ----------- ----------- ----------
$ 529,403 $ 487,427 $ 458,886 $ 446,198 $ 450,678
=========== ============ =========== =========== ==========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- --------- --------- ----------
Net sales $ 181,335 $ 129,467 $ 680,417 $ 490,041
Cost of sales 123,473 95,682 489,703 343,864
---------- --------- --------- ----------
Gross profit 57,862 33,785 190,714 146,177
Gross profit % 31.9% 26.1% 28.0% 29.8%
Operating expenses:
Selling, general, and administrative expenses 20,588 15,921 74,746 69,082
Provision for doubtful accounts (83) (1,460) (438) (543)
Research and development expenses 15,044 16,034 60,135 63,373
Restructuring and impairment charges 901 541 1,331 7,648
Amortization of intangibles 219 4,635 1,212 28,690
---------- --------- --------- ----------
36,669 35,671 136,986 168,250
---------- --------- --------- ----------
Operating income (loss) 21,193 (1,886) 53,728 (22,073)
Other expense (income):
Interest expense 68 1,339 2,101 5,006
Loss (gain) on debt retirement - - 2,372 4,406
Loss (gain) on investments and notes receivable 131 (269) 146 1,320
Loss (gain) on foreign currency (210) (1,205) (65) (1,301)
Other (income) expense, net (881) (268) (2,614) (1,102)
---------- --------- --------- ----------
Income (loss) from continuing operations before income taxes 22,085 (1,483) 51,788 (30,402)
Income tax expense (benefit) 271 24 513 108
---------- --------- --------- ----------
Net income (loss) from continuing operations 21,814 (1,507) 51,275 (30,510)
Income from discontinued operations 152 901 208 2,114
---------- --------- --------- ----------
Net income (loss) $ 21,966 $ (606) $ 51,483 $ (28,396)
========== ========= ========= ==========
Net income (loss) per common share - basic:
Income (loss) from continuing operations $ 0.21 $ (0.02) $ 0.53 $ (0.36)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.02
---------- --------- --------- ----------
Net income (loss) $ 0.21 $ (0.01) $ 0.53 $ (0.33)
========== ========= ========= ==========
Net income (loss) per common share - diluted:
Income (loss) from continuing operations $ 0.20 $ (0.02) $ 0.52 $ (0.36)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.02
---------- --------- --------- ----------
Net income (loss) $ 0.20 $ (0.01) $ 0.52 $ (0.33)
========== ========= ========= ==========
Weighted average common shares:
Basic 105,583 87,792 96,614 85,283
========== ========= ========= ==========
Diluted 107,296 87,792 98,297 85,283
========== ========= ========= ==========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ 21,966 $ (606) $ 51,483 $ (28,396)
Adjustments to reconcile net income (loss) to net cash
provided by (used in)operating activities:
Depreciation 2,588 2,583 10,529 10,395
Amortization of intangibles 219 4,635 1,212 28,690
Stock compensation expense 2,574 582 6,915 2,826
Amortization of deferred finance fees - 153 305 690
Provision for doubtful accounts (83) (1,460) (438) (543)
Loss on disposal of fixed assets 71 85 202 182
Loss (gain) on investments and notes receivable 131 (269) 206 1,320
Loss (gain) on debt retirement - - 2,372 4,406
Impairment of long-lived assets - - 291 -
Income from discontinued operations (152) (901) (208) (2,114)
Changes in operating assets & liabilities, net of effects
of acquisitions and disposals:
Accounts receivable 12,334 10,339 (27,191) 1,226
Other receivables 601 2,402 134 860
Inventory (23,787) (4,354) (20,963) (14,074)
Accounts payable and accrued liabilities 14,695 (10,720) 7,348 15,510
Other, net 3,405 6,695 (6,739) 554
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 34,562 9,164 25,458 21,532
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (2,062) (2,984) (9,617) (10,167)
Cash proceeds from sale of property, plant, and equipment 2 - 42 -
Cash paid for acquisition, net of cash acquired - - (89) (50)
Purchases of available-for-sale securities (8,000) (18,000) (59,250) (107,750)
Disposals of available-for-sale securities - - 83,032 39,750
Other - 642 (259) 642
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (10,060) (20,342) 13,859 (77,575)
FINANCING ACTIVITIES:
Payments on capital lease obligations - - - (14)
Payments on debt obligations - - - (1,163)
Proceeds from issuance of common stock and other 2,590 385 10,897 7,410
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,590 385 10,897 6,233
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,092 (10,793) 50,214 (49,810)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,194 35,865 25,072 74,882
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 75,286 $ 25,072 $ 75,286 $ 25,072
========= ========= ========= =========
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Q1 2005 Q2 2005 Q3 2005 Q4 2005
--------------------- ---------------------- --------------------- ---------------------
PER DILUTED PER DILUTED PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
-------- ----------- -------- ----------- -------- ----------- -------- -----------
Net income (loss) $ 3,408 $ 0.04 $ 7,289 $ 0.08 $ 18,820 0.18 $ 21,966 $ 0.20
Highlighted items:
Impacting gross margin:
Stock compensation * 31 - 82 - 136 - 125 -
Impacting operating expenses:
Impairment of long-lived assets 291 - - - - - - -
Restructuring charges - adjustments
to existing accruals (93) - 198 - 34 - 901 0.01
Amortization of intangibles 557 0.01 218 - 218 - 219 -
Stock compensation * 522 0.01 1,095 0.01 2,475 0.02 2,448 0.02
Impacting other expenses:
Gain on investment - - - - (60) - 131 -
Loss on debt retirement - - 2,372 0.03 - - - -
Impacting discontinued operations:
Restructuring charges - adjustments
to existing accruals (10) - (76) - 30 - (152) -
-------- ----------- ---------- ----------- -------- ----------- -------- -----------
Total highlighted items 1,298 0.01 3,889 0.04 2,833 0.03 3,672 0.03
-------- ----------- ---------- ----------- -------- ----------- -------- -----------
Net income (loss) excluding
highlighted items $ 4,706 $ 0.05 $ 11,178 $ 0.12 $ 21,653 $ 0.20 $ 25,638 $ 0.24
======== =========== ======== =========== ======== =========== ======== ===========
Weighted average common shares - diluted 90,497 91,356 107,049 107,296
=========== =========== =========== ===========
YTD 2005
---------------------
PER DILUTED
AMOUNT SHARE
-------- -----------
Net income (loss) $ 51,483 $ 0.52
Highlighted items:
Impacting gross margin:
Stock compensation * 374 -
Impacting operating expenses:
Impairment of long-lived assets 291 -
Restructuring charges - adjustments
to existing accruals 1,040 0.01
Amortization of intangibles 1,212 0.01
Stock compensation * 6,540 0.07
Impacting other expenses:
Gain on investment 71 -
Loss on debt retirement 2,372 0.02
Impacting discontinued operations:
Restructuring charges - adjustments
to existing accruals (208) -
-------- -----------
Total highlighted items 11,692 0.12
-------- -----------
Net income (loss) excluding
highlighted items $ 63,175 $ 0.64
======== ===========
Weighted average common shares - diluted 98,297
===========
* ARRIS adopted SFAS 123R effective July 1, 2005. Prior to the adoption
date, the provisions of APB 25 were followed. In the periods prior to July
1, 2005, the Company only recorded compensation expense related to
restricted stock and options subject to variable accounting. To provide
better comparative information, the historic compensation expenses have
been highlighted.
ARRIS believes that presenting net income (loss) and related per share amounts
adjusted for the items detailed above provides meaningful information that will
allow investors to more easily understand ARRIS' financial performance and
compare its period-to-period results. With respect to stock compensation
expense, ARRIS adopted SFAS 123R effective July 1, 2005, as a result of which
ARRIS will record non-cash compensation expense related to grants of options and
restricted stock. Depending upon the size, timing and the terms of the grants
this non-cash compensation expense may vary significantly. With respect to loss
on debt retirement, the call for redemption of ARRIS' outstanding convertible
notes in May 2005 resulted in a non-cash charge due to an interest "make-whole"
payment triggered by the call. With respect to amortization of intangibles, the
intangibles being amortized relate to our most recent acquisitions and will not
recur. Similarly, the impairment of long-lived assets, restructuring charge
adjustments and gain on investment reflect items that, although they or
similar items might recur, are of a nature and magnitude that identifying them
separately provides the investors with a greater ability to project ARRIS'
future performance. As importantly, in assessing operating performance and
preparing budgets and forecasts, ARRIS' management considers performance after
making these adjustments and believes that providing investors with the same
information provides greater transparency and insight into management's
analysis. ARRIS expects to continue providing similar information in the future
with schedules reconciling the differences between GAAP and non-GAAP financial
measures.